Earnings Mobility and Measurement Error: A Pseudo-Panel Approach

36 Pages Posted: 14 Oct 2005

See all articles by David J. McKenzie

David J. McKenzie

World Bank - Development Research Group (DECRG); IZA Institute of Labor Economics

Francisca Antman

University of Colorado at Boulder - Department of Economics

Date Written: October 2005

Abstract

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.

Keywords: income mobility, dynamic pseudo panel, measurement error

JEL Classification: O12, D31, C81

Suggested Citation

McKenzie, David John and Antman, Francisca, Earnings Mobility and Measurement Error: A Pseudo-Panel Approach (October 2005). World Bank Policy Research Working Paper No. 3745, Available at SSRN: https://ssrn.com/abstract=825887

David John McKenzie (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Francisca Antman

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309
United States

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