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Intergenerational Mobility in Britain: Revisiting the Prediction Approach of Dearden, Machin and Reed

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  • Ramses Abul Naga
  • Frank Cowell

Abstract

The prediction approach proposed by Dearden, Machin and Reed (DMR) consists in (1) regressing the observed incomes of the child and parent families on separate sets of predetermined variables, and (2) regressing the child's predicted income on that of the parents. Conceptually, this estimator must relate to the 2SLS/IV estimator. We re-derive the prediction estimator in matrix form, and reconsider its consistency requirements. The measurement model of DMR is then embedded within a simultaneous equations framework, for which an alternative 2SLS/IV estimator is proposed. The latter produces larger estimates for the intergenerational correlation. The policy relevance of the two sets of findings are then discussed.

Suggested Citation

  • Ramses Abul Naga & Frank Cowell, 2002. "Intergenerational Mobility in Britain: Revisiting the Prediction Approach of Dearden, Machin and Reed," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 02.15, Université de Lausanne, Faculté des HEC, DEEP.
  • Handle: RePEc:lau:crdeep:02.15
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    References listed on IDEAS

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    1. Dearden, Lorraine & Machin, Stephen & Reed, Howard, 1997. "Intergenerational Mobility in Britain," Economic Journal, Royal Economic Society, vol. 107(440), pages 47-66, January.
    2. Mark B. Stewart, 1983. "On Least Squares Estimation when the Dependent Variable is Grouped," Review of Economic Studies, Oxford University Press, vol. 50(4), pages 737-753.
    3. Solon, Gary, 1999. "Intergenerational mobility in the labor market," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 29, pages 1761-1800 Elsevier.
    4. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
    5. Solon, Gary, 1992. "Intergenerational Income Mobility in the United States," American Economic Review, American Economic Association, vol. 82(3), pages 393-408, June.
    6. Zimmerman, David J, 1992. "Regression toward Mediocrity in Economic Stature," American Economic Review, American Economic Association, vol. 82(3), pages 409-429, June.
    7. Ramses H. ABUL NAGA, 2001. "Biases of the Ordinary Least Squares and Instrumental Variables Estimators of the Intergenerational Earnings Correlation : Revisited in the Light of Panel Data," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 01.05, Université de Lausanne, Faculté des HEC, DEEP.
    8. Bound, John, et al, 1994. "Evidence on the Validity of Cross-Sectional and Longitudinal Labor Market Data," Journal of Labor Economics, University of Chicago Press, vol. 12(3), pages 345-368, July.
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    Cited by:

    1. Javier Núñez & Cristina Risco, 2004. "Movilidad intergeneracional del ingreso en un país en desarrollo: El caso de Chile," Working Papers wp210, University of Chile, Department of Economics.

    More about this item

    Keywords

    intergenerational mobility; measurement error; prediction approach; simultaneous equations;

    JEL classification:

    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion

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