Earnings mobility and measurement error: a pseudo-panel approach
Francisca Antman, David J. McKenzie, World Bank. Development Research Group. Growth and Investment Team
World Bank, Development Research Group, Growth and Investment Team, 2005 - Business & Economics - 30 pages
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.
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absolute mobility Arellano asset index Attritors Bonfield change in income classical measurement error cohort effects cohort fixed effects cohort-period observations cohort-quarter observations Columns confidence interval consistently estimate convergence cross-sectional surveys degree of autocorrelation degree of mobility developing countries earnings mobility earnings shocks ei,t ENIGH equation 16 estimates of mobility five quarters Flewitt genuine panel household head household income households which move income mobility individual fixed effects individuals per cohort instrumental variables estimator labor earnings labor force survey labor income lagged large number Log Full Expenditure Log Full Income log income Log Primary Wage Log Total Monetary Mexico mobility in income non-attritors non-random attrition number of individuals October 2005 October panel data percent difference period point estimates Primary Wage Income Pseudo pseudo-panel estimate pseudo-panel methods quarterly rapid conditional mobility Real Household rural September 2005 September T-statistic timator Total Monetary Income true earnings ui,t World Bank Yi,t zero