The mis-measurement of permanent earnings: new evidence from Social Security earnings data

This study investigates the reliability of using short-term averages of earnings as a proxy for permanent earnings in empirical research. An earnings dynamics model is estimated on a large sample of men covering the period from 1983 to 1997 following the cohort-based methodology of Baker and Solon (1999). The analysis uses a unique dataset that matches men in the 1984, 1990 and 1996 Surveys of Income and Program Participation (SIPP) to the Social Security Administration's Summary Earnings Records (SER). The results confirm that using a short-term average of earnings can lead to spurious estimates of the effect of lifetime earnings on a particular outcome. In addition, the transitory variance appears to vary considerably over the lifecycle. The share of earnings variance due to transitory factors is higher among blacks and the persistence of transitory shocks appears to be greater for this group as well. Finally, the transitory variance appears to be a more important factor in explaining the overall earnings variance of college educated men than those without college.Income ; Social security ; Wages

New evidence on labor market dynamics over the business cycle

Using data from the U.S. Census Bureau’s Survey of Income and Program Participation, the author investigates how much of the cyclicality in unemployment is due to variation in the job finding rate versus the job separation rate. In addition, the article explores how employment dynamics have differed by demographic subgroups.Labor market ; Demography ; Business cycles

Revised estimates of intergenerational income mobility in the United States

Solon’s (1992) landmark study estimated the intergenerational elasticity (IGE) in income between fathers and sons to be 0.4 or higher. This dramatically changed the consensus view of the U.S. as a highly mobile society. In this comment, I show both analytically and empirically how Solon and others have actually underestimated this parameter by about 30 percent, suggesting that the IGE is actually close to 0.6 and that the U.S. appears to be among the least mobile countries. There are two key measurement issues that lead researchers to underestimate the IGE. First, the use of short-term averages of fathers’ earnings is a poor proxy for lifetime economic status due to highly persistent transitory shocks. Second, the variance of transitory fluctuations to earnings varies considerably by age causing a “lifecycle” bias when samples include measures of fathers’ earnings when they are especially young or old. In this comment Solon’s results are replicated and then re- estimated using a new technique that is able to address these issues using the same PSID sample. The results confirm that the intergenerational elasticity is likely to be around 0.6.Income

Does education improve health? A reexamination of the evidence from compulsory schooling laws

This article analyzes the impact of compulsory schooling laws early in the twentieth century on long-term health. The author finds no compelling evidence for a causal link between education and health using this research design. Further, the results suggest that only a small fraction of health conditions are affected by education, and several of those are conditions, such as sight and hearing, where economic theories don’t appear to be relevant.Education - Economic aspects ; Health

What similarities between siblings tell us about inequality in the U.S.

The author finds that about half of earnings inequality in the U.S. can be explained by family and community influences during childhood. He also finds that these influences have become more important in recent decades.Brothers and sisters ; Income ; Wages

The impact of Rosenwald Schools on Black achievement

The Black-White gap in completed schooling among Southern born men narrowed sharply between the World Wars after being stagnant from 1880 to 1910. We examine a large scale school construction project, the Rosenwald Rural Schools Initiative, which was designed to dramatically improve the educational opportunities for Southern rural Blacks. From 1914 to 1931, nearly 5,000 school buildings were constructed, serving approximately 36 percent of the Black rural school-aged Southern population. We use historical Census data and World War II enlistment records to analyze the effects of the program on school attendance, literacy, high school completion, years of schooling, earnings, hourly wages, and migration. We find that the Rosenwald program accounts for at least 30 percent of the sizable educational gains of Blacks during the 1910s and 1920s. We also use data from the Army General Classification Test (AGCT), a precursor to the AFQT, and find that access to Rosenwald schools increased average Black scores by about 0.25 standard deviations adding to the existing literature showing that interventions can reduce the racial gap in cognitive skill. In the longer run, exposure to the schools raised the wages of blacks that remained in the South relative to Southern whites by about 35 percent. For blacks the private rate of return to a year of additional schooling induced by Rosenwald was about 18 percent. Moreover, Rosenwald significantly increased Northern migration of young adult Blacks, with no corresponding impact on schoolage Blacks or young adult Whites, likely fueling further income gains. Across all outcomes, the improvements were highest in counties with the lowest levels of Black school attendance suggesting that schooling treatments can have a very large impact among those at the bottom of the skill distribution.

More accurate estimates of social mobility suggest that the American dream is not so easily attainable

Inequality and the lack of social mobility are of growing concern to the American public and politicians, with many worried that the ‘American dream’ is becoming increasingly unobtainable for themselves or their children. In new research, Bhashkar Mazumder argues that by using a relatively short window of time to estimate people’s socioeconomic status, researchers have overstated the degree of social mobility in society. He writes that more accurate estimates of intergenerational mobility place the U.S. among the least socially mobile countries in the developed world

The effects of maternal fasting during Ramadan on birth and adult outcomes

We use the Islamic holy month of Ramadan as a natural experiment for evaluating the short and long-term effects of fasting during pregnancy. Using Michigan natality data we show that in utero exposure to Ramadan among Arab births results in lower birthweight and reduced gestation length. Preconception exposure to Ramadan is also associated with fewer male births. Using Census data in Uganda we also find that Muslims who were born nine months after Ramadan are 22 percent (p =0.02) more likely to be disabled as adults. Effects are found for vision, hearing, and especially for mental (or learning) disabilities. This may reflect the persistent effect of disruptions to early fetal development. We find no evidence that negative selection in conceptions during Ramadan accounts for our results. Nevertheless, caution in interpreting these results is warranted until our findings are corroborated in other settings. ; Not for Citation.Prenatal care ; Ramadan ; Fasting (Islam)

Sibling similarities, differences and economic inequality

I use improved statistical approaches and much larger samples than previous studies to provide more robust estimates of the correlation in economic outcomes among siblings. A key finding is that more than half the variance in log wages among men is due to differences in family and community background. Slightly smaller estimates in the 0.45 to 0.5 range are found for earnings and family income. For women, the sibling correlation in family income is the same as that found for men. I estimate that the sibling correlation in years of schooling and AFQT test scores is higher than 0.6. In contrast, estimates for a variety of other non-economic outcomes (including physical attributes) are in the 0.2 to 0.4 range. Family and community influences are particularly important for those who start at the bottom of the income distribution. An analysis of the variance in outcomes within families, by quartiles of parent income provides a new set of facts that should inform theoretical models of family resource allocation. I also find that a large portion of the sibling correlation in some economic outcomes can be explained by observable characteristics.Brothers and sisters ; Economics

The growing importance of family and community: an analysis of changes in the sibling correlation in earnings

This study presents evidence that the correlation in brothers’ earnings has risen in recent decades. We use two distinct cohorts of young men from the National Longitudinal Surveys and estimate that the correlation in earnings between brothers rose from 0.26 to 0.45. This suggests that family and community influences shared by siblings have become increasingly important in determining economic outcomes. We find that neither the correlation in years of schooling nor the rising return to schooling accounts for this increase. We also argue that the PSID is not an appropriate dataset for analyzing changes over time because of its sampling design, small sample of siblings, and high attrition rate.Income ; Education