Heterogeneous Income Profiles and Life-Cycle Bias in Intergenerational Mobility Estimation
2011 (English)Report (Other academic)
Research on intergenerational income mobility is based on current income since data onlifetime income are typically not available for two generations. However, using snapshots ofincome over shorter periods causes a so-called life-cycle bias if the snapshots cannot mimiclifetime outcomes. Using uniquely long series of Swedish income data, we show that currentempirical strategies do not eliminate such bias. We focus on the widely adopted generalizederrors-in-variables model and find that the remaining bias is substantial (20% of the trueelasticity from left-side measurement error at the most relevant age range). IV estimatessuffer from even stronger life-cycle effects and do not provide an upper bound.Inconsistencies stem from the interaction of two factors: heterogeneity in income profilescannot be fully accounted for, and idiosyncratic deviations from average profiles correlatewith individual characteristics and family background. We discuss implications of our findingsfor other literatures that depend on measurement of long-run income and income dynamics.
Place, publisher, year, edition, pages
2011. , 38 p.
, IZA Discussion Paper Series, 5697
IdentifiersURN: urn:nbn:se:su:diva-70793OAI: oai:DiVA.org:su-70793DiVA: diva2:482585