published in: Journal of Human Resources, 2016, 51 (1), 239-268
Research on intergenerational income mobility is based on current income since data on lifetime income are typically not available for two generations. However, using snapshots of income over shorter periods causes a so-called life-cycle bias if the snapshots cannot mimic lifetime outcomes. Using uniquely long series of Swedish income data, we show that current empirical strategies do not eliminate such bias. We focus on the widely adopted generalized errors-in-variables model and find that the remaining bias is substantial (20% of the true elasticity from left-side measurement error at the most relevant age range). IV estimates suffer from even stronger life-cycle effects and do not provide an upper bound. Inconsistencies stem from the interaction of two factors: heterogeneity in income profiles cannot be fully accounted for, and idiosyncratic deviations from average profiles correlate with individual characteristics and family background. We discuss implications of our findings for other literatures that depend on measurement of long-run income and income dynamics.
We use cookies to provide you with an optimal website experience. This includes cookies that are necessary for the operation of the site as well as cookies that are only used for anonymous statistical purposes, for comfort settings or to display personalized content. You can decide for yourself which categories you want to allow. Please note that based on your settings, you may not be able to use all of the site's functions.
Cookie settings
These necessary cookies are required to activate the core functionality of the website. An opt-out from these technologies is not available.
In order to further improve our offer and our website, we collect anonymous data for statistics and analyses. With the help of these cookies we can, for example, determine the number of visitors and the effect of certain pages on our website and optimize our content.