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Life Cycle Bias in the Estimation of Intergenerational Earnings Persistence

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Author Info
Grawe, Nathan D.

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Abstract

The estimation of intergenerational earnings mobility is rife with measurement problems since the research does not observe permanent, lifetime earnings. Nearly all studies make corrections for mean variation in earnings because of the age differences among respondents. Recent works employ average earnings or instrumental variable methods to address the effects of measurement error as a result of transitory earnings shocks and mis-reporting. However, empirical studies of intergenerational mobility have paid no attention to the changes in earnings variance across the life cycle suggested by economic models of human capital investment. Using information from the Intergenerational Income Data from Canada and the National Longitudinal Survey and Panel Study of Income Dynamics from the United States, this study finds a strong association between age at observation and estimated earnings persistence. Part of this age-dependence is related to a general increase in transitory earnings variance during the collection of data. An independent effect of life cycle investment is also identified. These findings are then applied to the variation among intergenerational earnings persistence studies. Among studies with similar methodologies, one-third of the variance in published estimates of earnings persistence is attributable to cross-study differences in the age of responding fathers. Finally, these results call into question tests for the importance of credit constraints based on measures of earnings at different points in the life cycle.

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Paper provided by Statistics Canada, Analytical Studies Branch in its series Analytical Studies Branch Research Paper Series with number 2003207e.

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Date of creation: 05 Aug 2003
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Handle: RePEc:stc:stcp3e:2003207e

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Keywords: Labour; Statistical methods; Families; households and housing; Wages; salaries and other earnings; Statistical techniques; Family history;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Moshe Buchinsky & Jennifer Hunt, 1999. "Wage Mobility In The United States," The Review of Economics and Statistics, MIT Press, vol. 81(3), pages 351-368, August. [Downloadable!] (restricted)
    Other versions:
  2. Couch, Kenneth A. & Lillard, Dean R., 1998. "Sample selection rules and the intergenerational correlation of earnings," Labour Economics, Elsevier, vol. 5(3), pages 313-329, September. [Downloadable!] (restricted)
  3. Peter Gottschalk & Robert Moffitt, 1994. "The Growth of Earnings Instability in the U.S. Labor Market," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(1994-2), pages 217-272. [Downloadable!]
  4. Behrman, Jere & Tarbman, Paul, 1985. "Intergenerational Earnings Mobility in the United States: Some Estimates and a Test of Becker's Intergenerational Endowments Model," The Review of Economics and Statistics, MIT Press, vol. 67(1), pages 144-51, February. [Downloadable!] (restricted)
  5. Jere Behrman R. & Alejandro Gavieria Uribe & Miguel Szekely Sánchez, 2001. "Intergenerational Mobility in Latin America," WORKING PAPERS SERIES. DOCUMENTOS DE TRABAJO 002914, FEDESARROLLO. [Downloadable!]
    Other versions:
  6. Zimmerman, David J, 1992. "Regression toward Mediocrity in Economic Stature," American Economic Review, American Economic Association, vol. 82(3), pages 409-29, June.
  7. Solon, Gary, 1989. "Biases in the Estimation of Intergenerational Earnings Correlations," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 172-74, February. [Downloadable!] (restricted)
  8. Becker, Gary S & Tomes, Nigel, 1986. "Human Capital and the Rise and Fall of Families," Journal of Labor Economics, University of Chicago Press, vol. 4(3), pages S1-39, July. [Downloadable!] (restricted)
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  9. Shea, John, 2000. "Does parents' money matter?," Journal of Public Economics, Elsevier, vol. 77(2), pages 155-184, August. [Downloadable!] (restricted)
  10. Solon, Gary, 1992. "Intergenerational Income Mobility in the United States," American Economic Review, American Economic Association, vol. 82(3), pages 393-408, June. [Downloadable!] (restricted)
  11. Bjorklund, Anders & Jantti, Markus, 1997. "Intergenerational Income Mobility in Sweden Compared to the United States," American Economic Review, American Economic Association, vol. 87(5), pages 1009-18, December. [Downloadable!] (restricted)
  12. Osterbacka, Eva, 2001. " Family Background and Economic Status in Finland," Scandinavian Journal of Economics, Blackwell Publishing, vol. 103(3), pages 467-84, September. [Downloadable!] (restricted)
  13. 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. [Downloadable!] (restricted)
  14. Neal, Derek & Rosen, Sherwin, 2000. "Theories of the distribution of earnings," Handbook of Income Distribution, in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 7, pages 379-427 Elsevier. [Downloadable!] (restricted)
  15. Peters, H Elizabeth, 1992. "Patterns of Intergenerational Mobility in Income and Earnings," The Review of Economics and Statistics, MIT Press, vol. 74(3), pages 456-66, August. [Downloadable!] (restricted)
  16. Behrman, Jere R & Taubman, Paul, 1990. "The Intergenerational Correlation between Children's Adult Earnings and Their Parents' Income: Result from the Michigan Panel Survey of Income Dynamics," Review of Income and Wealth, Blackwell Publishing, vol. 36(2), pages 115-27, June.
  17. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, vol. 75, pages 352. [Downloadable!] (restricted)
  18. Corak, Miles & Heisz, Andrew, 1996. "The Intergenerational Income Mobility of Canadian Men," Analytical Studies Branch Research Paper Series 1996089e, Statistics Canada, Analytical Studies Branch. [Downloadable!]
  19. Dearden, Lorraine & Machin, Stephen & Reed, Howard, 1997. "Intergenerational Mobility in Britain," Economic Journal, Royal Economic Society, vol. 107(440), pages 47-66, January. [Downloadable!] (restricted)
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  20. Lillard, L.A. & Kilburn, M.R., 1995. "Intergenerational Earnings Links: Sons and Daughters," Papers 95-17, RAND - Labor and Population Program.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Viviane Azevedo & Cesar Bouillon, 2009. "Social Mobility in Latin America: A Review of Existing Evidence," RES Working Papers 4634, Inter-American Development Bank, Research Department. [Downloadable!]
  2. Jo Blanden & Alissa Goodman & Paul Gregg & Stephen Machin, 2002. "Changes in Intergenerational Mobility in Britain," CEE Discussion Papers 0026, Centre for the Economics of Education, LSE. [Downloadable!]
    Other versions:
  3. repec:ese:iserwp: is not listed on IDEAS
  4. Bhashkar Mazumder, 2001. "The mis-measurement of permanent earnings: new evidence from social security earnings data," Working Paper Series WP-01-24, Federal Reserve Bank of Chicago. [Downloadable!]
  5. repec:bep:eapcon:v:7:y:2007:i:2:p:1794-1794 is not listed on IDEAS
  6. Ramses Abul Naga, 2008. "Biases of the ordinary least squares and instrumental variables estimators of the intergenerational earnings elasticity: Revisited in the light of panel data," Journal of Economic Inequality, Springer, vol. 6(4), pages 323-350, December. [Downloadable!] (restricted)
  7. Espen Bratberg & Øivind Anti Nilsen & Kjell Vaage, 2007. "Job Losses and Child Outcomes," IZA Discussion Papers 2895, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  8. Bhashkar Mazumder, 2002. "The Mis-Measurement of Permanent Earnings: New Evidence from Social Security Earnings Data," Working Papers 02-12, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
  9. Miles Corak, 2006. "Do Poor Children Become Poor Adults? Lessons from a Cross Country Comparison of Generational Earnings Mobility," IZA Discussion Papers 1993, Institute for the Study of Labor (IZA). [Downloadable!]
  10. repec:bep:eapcon:v:7:y:2007:i:2:p:1782-1782 is not listed on IDEAS
  11. Anders Björklund & Markus Jäntti & Matthew J. Lindquist, 2007. "Family Background and Income during the Rise of the Welfare State: Brother Correlations in Income for Swedish Men Born 1932-1968," IZA Discussion Papers 3000, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  12. Grawe, Nathan D., 2001. "In Search of Intergenerational Credit Constraints Among Canadian Men: Quantile Versus Mean Regression Tests for Binding Credit Constraints," Analytical Studies Branch Research Paper Series 2001158e, Statistics Canada, Analytical Studies Branch. [Downloadable!]
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