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Earnings mobility and measurement error : a pseudo-panel approach

Author

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  • Antman, Francisca
  • McKenzie, David J.

Abstract

The degree of mobility in incomes is often seen as an important measure of the equality of opportunity in a society and of the flexibility and freedom of its labor market. But estimation of mobility using panel data is biased by the presence of measurement error and non-random attrition from the panel. This paper shows that dynamic pseudo-panel methods can be used to consistently estimate measures of absolute and conditional mobility in the presence of non-classical measurement errors. These methods are applied to data on earnings from a Mexican quarterly rotating panel. Absolute mobility in earnings is found to be very low in Mexico, suggesting that the high level of inequality found in the cross-section will persist over time. However, the paper finds conditional mobility to be high, so that households are able to recover quickly from earnings shocks. These findings suggest a role for policies which address underlying inequalities in earnings opportunities.

Suggested Citation

  • Antman, Francisca & McKenzie, David J., 2005. "Earnings mobility and measurement error : a pseudo-panel approach," Policy Research Working Paper Series 3745, The World Bank.
    • Handle: RePEc:wbk:wbrwps:3745
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    References listed on IDEAS

    as
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    Keywords

    Inequality; Housing&Human Habitats; Roads&Highways; Economic Theory&Research; Rural Poverty Reduction;
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