Earnings mobility and measurement error: a Pseudo-panel approach

By: Contributor(s): Material type: TextTextSeries: Policy Research Working Paper, no. 3745Publication details: Washington, D.C. World Bank 2005Description: 36 p. Includes bibliographical referencesSubject(s): DDC classification:
  • 331.21 A6E2
Summary: 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. http://documents.worldbank.org/curated/en/756741468046174309/Earnings-mobility-and-measurement-error-a-pseudo-panel-approach
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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.

http://documents.worldbank.org/curated/en/756741468046174309/Earnings-mobility-and-measurement-error-a-pseudo-panel-approach

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