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Decomposing economic mobility transition matrices

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  • Richey, Jeremiah
  • Rosburg, Alicia

Abstract

The intergenerational mobility literature has consistently found that the distribution of adult economic outcomes differ markedly depending on parental economic status, yet much remains to be understood about the drivers or determinants of this relationship. Existing literature on potential drivers focuses primarily on mean effects. To help provide a more complete picture of the potential forces driving economic persistence, we propose a method to decompose transition matrices and related indices. Specifically, we decompose differences between an estimated transition matrix and a benchmark transition matrix into portions attributable to differences in characteristics between individuals from different households (a composition effect) and portions attributable to differing returns to these characteristics between individuals from different households (a structure effect). We also incorporate a detailed decomposition, based on copula theory, that decomposes the composition effect into portions attributable to specific covariates and their interactions. We illustrate our method using data on white men from the 1979 National Longitudinal Survey of Youth. Estimation is based on an extended Mincer equation that includes cognitive and non-cognitive measures. To address the potential endogeneity of education, we implement an IV strategy that allows us to estimate causal effects and investigate the role of unobserved ability.

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  • Richey, Jeremiah & Rosburg, Alicia, 2015. "Decomposing economic mobility transition matrices," MPRA Paper 66485, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:66485
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    Cited by:

    1. Richey, Jeremiah & Rosburg, Alicia, 2016. "Understanding intergenerational economic mobility by decomposing joint distributions," MPRA Paper 72665, University Library of Munich, Germany.
    2. Giulio Bottazzi & Taewon Kang & Federico Tamagni, 2023. "Persistence in firm growth: inference from conditional quantile transition matrices," Small Business Economics, Springer, vol. 61(2), pages 745-770, August.
    3. Jeremiah Richey & Alicia Rosburg, 2020. "Decomposing joint distributions via reweighting functions: an application to intergenerational economic mobility," Econometric Reviews, Taylor & Francis Journals, vol. 39(6), pages 541-558, July.
    4. Chattopadhyay, Nachiketa & Sengupta, Debasis, 2020. "Individual, Structural and Exchange Mobility: Decomposition and Axiom based measures," SocArXiv 8m46u, Center for Open Science.
    5. Brantly Callaway & Weige Huang, 2020. "Distributional Effects of a Continuous Treatment with an Application on Intergenerational Mobility," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 82(4), pages 808-842, August.
    6. Brantly Callaway & Tong Li & Irina Murtazashvili, 2021. "Nonlinear Approaches to Intergenerational Income Mobility allowing for Measurement Error," Papers 2107.09235, arXiv.org, revised Dec 2021.
    7. Brantly Callaway & Weige Huang, 2018. "Intergenerational Income Mobility: Counterfactual Distributions with a Continuous Treatment," DETU Working Papers 1801, Department of Economics, Temple University.
    8. Javier Cortes Orihuela & Juan D. Díaz & Pablo Gutiérrez Cubillos & Pablo A. Troncoso, 2024. "Everything’s not lost: revisiting TSTSLS estimates of intergenerational mobility in developing countries," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(1), pages 66-94, February.

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    More about this item

    Keywords

    Intergenerational mobility; Transition matrices; Decomposition methods;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion

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