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Using semi-parametric methods in an analysis of earnings mobility

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  • Shawn W. Ulrick

Abstract

This paper describes a dynamic random effects econometric model from which inferences on earnings mobility may be made. It answers questions such as, given some initial level of observed earnings, what is the probability that an agent with certain characteristics will remain below a specified level of earnings (for example the poverty level) for a specified number of time periods? Existing research assumes that the distributions of the unobserved permanent and transitory shocks in the model are known up to finitely many parameters. However, predictions of earnings mobility are highly sensitive to assumptions about these distributions. The present paper estimates the distributions of the random effects non-parametrically. The results are used to predict the probabilities of remaining in a low state of earnings. The results from the non-parametric distributions are contrasted to those obtained under a normality assumption. Using the non-parametrically estimated distributions gives estimated probabilities that are smaller than those obtained under the normality assumption. Through a Monte Carlo experiment and by examining unconditional predicted earnings distributions, it is demonstrated that the non-parametric method is likely to be considerably more accurate, and that assuming normality may give quite misleading results. Copyright Journal compilation Royal Economic Society 2008. No claim to original US government works

Suggested Citation

  • Shawn W. Ulrick, 2008. "Using semi-parametric methods in an analysis of earnings mobility," Econometrics Journal, Royal Economic Society, vol. 11(3), pages 478-498, November.
    • Handle: RePEc:ect:emjrnl:v:11:y:2008:i:3:p:478-498
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    Cited by:

    1. Dr Richard Dorsett & Dr Silvia Lui & Dr Martin Weale, 2010. "Economic Benefits of Lifelong Learning," National Institute of Economic and Social Research (NIESR) Discussion Papers 352, National Institute of Economic and Social Research.
    2. Richard Dorsett & Silvia Lui & Martin Weale, 2016. "The effect of lifelong learning on men’s wages," Empirical Economics, Springer, vol. 51(2), pages 737-762, September.
    3. Augustine Denteh & Daniel L. Millimet & Rusty Tchernis, 2019. "The origins of early childhood anthropometric persistence," Empirical Economics, Springer, vol. 56(6), pages 2185-2224, June.

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