The Intergenerational Persistence of Lifetime Earnings

ASU Economics Working Paper No. 4/2002

19 Pages Posted: 24 Mar 2002

See all articles by Lutz Hendricks

Lutz Hendricks

UNC Chapel Hill; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: February 2002

Abstract

This paper proposes a new method for estimating the intergenerational persistence of lifetime earnings from data that contain only short sections of individual earnings histories. The approach infers lifetime earnings persistence from the persistence of short earnings averages together with information about the stochastic process governing individual earnings. I find that lifetime earnings are substantially more persistent than estimates of average earnings persistence suggest. The coefficient in a regression of children's lifetime earnings on fathers' lifetime earnings is approximately 0.54. Proxying for lifetime earnings using five year averages leads to a downward bias in estimated intergenerational persistence of one-third. The bias is much stronger, if observations with zero earnings are not excluded from the sample. These findings are robust against alternative assumptions about the data generating process for earnings.

Keywords: Intergenerational mobility

JEL Classification: J62

Suggested Citation

Hendricks, Lutz, The Intergenerational Persistence of Lifetime Earnings (February 2002). ASU Economics Working Paper No. 4/2002, Available at SSRN: https://ssrn.com/abstract=304720 or http://dx.doi.org/10.2139/ssrn.304720

Lutz Hendricks (Contact Author)

UNC Chapel Hill ( email )

Chapel Hill, NC 27599
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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