Life-Cycle Variation in the Association between Current and Lifetime Earnings

40 Pages Posted: 13 Apr 2006 Last revised: 21 Aug 2010

See all articles by Steven J. Haider

Steven J. Haider

Michigan State University - Department of Economics; IZA Institute of Labor Economics

Gary Solon

University of Arizona; National Bureau of Economic Research (NBER)

Date Written: January 2006

Abstract

Researchers in a variety of important economic literatures have assumed that current income variables as proxies for lifetime income variables follow the textbook errors-in-variables model. In an analysis of Social Security records containing nearly career-long earnings histories for the Health and Retirement Study sample, we find that the relationship between current and lifetime earnings departs substantially from the textbook model in ways that vary systematically over the life cycle. Our results can enable more appropriate analysis of and correction for errors-in-variables bias in a wide range of research that uses current earnings to proxy for lifetime earnings.

Suggested Citation

Haider, Steven J. and Solon, Gary, Life-Cycle Variation in the Association between Current and Lifetime Earnings (January 2006). NBER Working Paper No. w11943. Available at SSRN: https://ssrn.com/abstract=877448

Steven J. Haider

Michigan State University - Department of Economics ( email )

East Lansing, MI 48824
United States

IZA Institute of Labor Economics

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

Gary Solon (Contact Author)

University of Arizona ( email )

Department of Economics
Eller College of Management
Tucson, AZ 85719
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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