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Dynamic Aspects of Earnings Mobility

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  • Lee A. Lillard
  • Robert J. Willis

Abstract

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.

Suggested Citation

  • Lee A. Lillard & Robert J. Willis, 1976. "Dynamic Aspects of Earnings Mobility," NBER Working Papers 0150, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:0150
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    References listed on IDEAS

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    1. Peter Diamond, 2004. "Social Security," American Economic Review, American Economic Association, vol. 94(1), pages 1-24, March.
    2. 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, March.
    3. 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.
    4. Lillard, Lee A, 1977. "Inequality: Earnings vs. Human Wealth," American Economic Review, American Economic Association, vol. 67(2), pages 42-53, March.
    5. Milton Friedman & Simon Kuznets, 1945. "Income from Independent Professional Practice," NBER Books, National Bureau of Economic Research, Inc, number frie54-1, March.
    6. Haley, William J, 1976. "Estimation of the Earnings Profile from Optimal Human Capital Accumulation," Econometrica, Econometric Society, vol. 44(6), pages 1223-1238, November.
    7. Singh, S K & Maddala, G S, 1976. "A Function for Size Distribution of Incomes," Econometrica, Econometric Society, vol. 44(5), pages 963-970, September.
    8. Heckman, James J & Willis, Robert J, 1977. "A Beta-logistic Model for the Analysis of Sequential Labor Force Participation by Married Women," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 27-58, February.
    9. Shorrocks, A F, 1976. "Income Mobility and the Markov Assumption," Economic Journal, Royal Economic Society, vol. 86(343), pages 566-578, September.
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