The Intergenerational Persistence of Lifetime Earnings
ASU Economics Working Paper No. 4/2002
19 Pages Posted: 24 Mar 2002
Date Written: February 2002
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: Suggested Citation