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Dynamic Aspects of Earnings Mobility

  • Lee A. Lillard
  • Robert J. Willis

This paper proposes an econometric methodology to deal with life cycle earnings and mobility among discrete earnings classes. First, we use panel data on male log earnings to estimate an earnings function with permanent and serially correlated transitory components due to both measured and unmeasured variables. Assuming that the error components are normally distributed, we develop statements for the probability that an individual's earnings will fall into a particular but arbitrary time sequence of poverty states. Using these statements, we illustrate the implications of our earnings model for poverty dynamics and compare our approach to Markov chain models of income mobility.

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File URL: http://www.nber.org/papers/w0150.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0150.

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Date of creation: Sep 1976
Date of revision:
Publication status: published as Econometrica, Vol. 46, no. 5 (1978): 985-1012.
Handle: RePEc:nbr:nberwo:0150
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Web page: http://www.nber.org
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  1. Singh, S K & Maddala, G S, 1976. "A Function for Size Distribution of Incomes," Econometrica, Econometric Society, vol. 44(5), pages 963-70, September.
  2. Lillard, Lee A, 1977. "Inequality: Earnings vs. Human Wealth," American Economic Review, American Economic Association, vol. 67(2), pages 42-53, March.
  3. Milton Friedman & Simon Kuznets, 1954. "Income from Independent Professional Practice," NBER Books, National Bureau of Economic Research, Inc, number frie54-1, 07.
  4. James J. Heckman & Robert J. Willis, 1975. "A Beta-Logistic Model for the Analysis of Sequential Labor Force Participation by Married Women," NBER Working Papers 0112, National Bureau of Economic Research, Inc.
  5. Burton Singer & Seymour Spilerman, 1976. "Some Methodological Issues in the Analysis of Longitudinal Surveys," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 5, number 4, pages 447-474 National Bureau of Economic Research, Inc.
  6. Peter Diamond, 2004. "Social Security," American Economic Review, American Economic Association, vol. 94(1), pages 1-24, March.
  7. Gilbert Ghez & Gary S. Becker, 1975. "The Allocation of Time and Goods over the Life Cycle," NBER Books, National Bureau of Economic Research, Inc, number ghez75-1, 07.
  8. Haley, William J, 1976. "Estimation of the Earnings Profile from Optimal Human Capital Accumulation," Econometrica, Econometric Society, vol. 44(6), pages 1223-38, November.
  9. Shorrocks, A F, 1976. "Income Mobility and the Markov Assumption," Economic Journal, Royal Economic Society, vol. 86(343), pages 566-78, September.
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