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Identification of the Covariance Structure of Earnings Using the GMM Estimator

  • Doris, Aedin

    ()

    (National University of Ireland, Maynooth)

  • O'Neill, Donal

    ()

    (National University of Ireland, Maynooth)

  • Sweetman, Olive

    ()

    (National University of Ireland, Maynooth)

In this paper we study the performance of the GMM estimator in the context of the covariance structure of earnings. Using analytical and Monte Carlo techniques we examine the sensitivity of parameter identification to key features such as panel length, sample size, the degree of persistence of earnings shocks and the evolution of inequality over time. We show that the interaction of transitory persistence with the time pattern of inequality determines identification in these models and offer some practical recommendations that follow from our findings.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4952.

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Length: 32 pages
Date of creation: May 2010
Date of revision:
Publication status: published in: Journal of Economic Inequality, 2013, 11 (3), 343-372
Handle: RePEc:iza:izadps:dp4952
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  17. Todd E. Clark, 1995. "Small sample properties of estimators of non-linear models of covariance structure," Research Working Paper 95-01, Federal Reserve Bank of Kansas City.
  18. Hansen, Lars Peter & Heaton, John & Yaron, Amir, 1996. "Finite-Sample Properties of Some Alternative GMM Estimators," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(3), pages 262-80, July.
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  22. Aedin Doris & Donal O'Neill & Olive Sweetman, 2010. "Aggregate Earnings Inequality in Europe: Permanent Differences or Transitory Fluctuations?," Economics, Finance and Accounting Department Working Paper Series n211-10.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  23. Baker, Michael, 1997. "Growth-Rate Heterogeneity and the Covariance Structure of Life-Cycle Earnings," Journal of Labor Economics, University of Chicago Press, vol. 15(2), pages 338-75, April.
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