Empirical Strategies to Eliminate Life-Cycle Bias in the Intergenerational Elasticity of Earnings Literature

I argue that the empirical strategies for estimation of the intergenerational elasticity of lifetime earnings that are currently employed in the literature might not eliminate bias arising from life-cycle effects. Specifically, I demonstrate that procedures based on the generalized errors-in-variables model suggested by Haider and Solon (2006) or the consideration of differential earnings growth rates across subpopulations may not yield unbiased or consistent estimates. I further argue that instrumental variable estimators will not identify an upper bound for the true population parameter.intergenerational mobility, intergenerational elasticity of earnings, life-cycle bias, generalized errors-in-variables model

Empirical Strategies to Eliminate Life-Cycle Bias in the Intergenerational Elasticity of Earnings Literature

I argue that the empirical strategies for estimation of the intergenerational elasticity of lifetime earnings that are currently employed in the literature might not eliminate bias arising from life-cycle effects. Specifically, I demonstrate that procedures based on the generalized errors-in-variables model suggested by Haider and Solon (2006) or the consideration of differential earnings growth rates across subpopulations may not yield unbiased or consistent estimates. I further argue that instrumental variable estimators will not identify an upper bound for the true population parameter.intergenerational mobility, intergenerational elasticity of earnings, life-cycle bias, generalized errors-in-variables model

Heterogeneous Income Profiles and Life-Cycle Bias in Intergenerational Mobility Estimation

Research on intergenerational income mobility is based on current income since data on lifetime income are typically not available for two generations. However, using snapshots of income over shorter periods causes a so-called life-cycle bias if the snapshots cannot mimic lifetime outcomes. Using uniquely long series of Swedish income data, we show that current empirical strategies do not eliminate such bias. We focus on the widely adopted generalized errors-in-variables model and find that the remaining bias is substantial (20% of the true elasticity from left-side measurement error at the most relevant age range). IV estimates suffer from even stronger life-cycle effects and do not provide an upper bound. Inconsistencies stem from the interaction of two factors: heterogeneity in income profiles cannot be fully accounted for, and idiosyncratic deviations from average profiles correlate with individual characteristics and family background. We discuss implications of our findings for other literatures that depend on measurement of long-run income and income dynamics.intergenerational mobility, intergenerational income elasticity, life-cycle bias, non-classical measurement error, generalized errors-in-variables model, heterogeneous income profiles

Report No. 15: Die fiskalischen Kosten der SGB-Regelungen zum erleichterten Bezug von Arbeitslosengeld für Ältere (58er-Regelung)

Bericht im Auftrag der Initiative Neue Soziale Marktwirtschaft, Bonn 2007 (16 Seiten)

The transmission of inequality across multiple generations: testing recent theories with evidence from Germany

This article shows that across multiple generations, the persistence of occupational and educational attainment in Germany is larger than estimates from two generations suggest. We consider two recent interpretations. First, we assess Gregory Clark's hypotheses that the true rate of intergenerational persistence is higher than the observed rate, as high as 0.75, and time-invariant. Our evidence supports the first but not the other two hypotheses. Second, we test for independent effects of grandparents. We show that the coefficient on grandparent status is positive in a wide class of Markovian models and present evidence against its causal interpretation.Jan Stuhler gratefully acknowledges support from the Ministerio Economía y Competitividad (Spain, MDM 2014-0431 and ECO2014-55858-P) and Comunidad de Madrid (MadEco-CM S2015/HUM-3444)

A Review of Intergenerational Mobility and its Drivers

This report reviews evidence on intergenerational mobility and the transmission of socio-economic advantages from parents to children. The review examines conceptual questions on how to measure intergenerational mobility, empirical evidence on both descriptive and causal questions, and the data requirements that mobility research faces. The extent of income mobility varies substantially between countries, and appears negatively correlated with income inequality both across and within countries. For this reason, there is particular interest on mobility trends over time in those countries where income inequality has recently been increasing. However, the evidence for mobility trends in more recent cohorts is as yet less conclusive. Descriptive associations can only be suggestive of causal links, and the report also reviews evidence from more targeted research designs on the importance of (i) neighbourhoods and schools, (ii) early childhood and childcare, (iii) educational systems and track choice, (iv) private and public education, and (v) informational frictions and beliefs. The evidence demonstrates that educational policies can affect intergenerational mobility. An important trend in these and other literatures is the increasing use of administrative data sources, such as social security or tax data. The review discusses important hurdles in their adoption for mobility research, and points to data initiatives that could improve our understanding of intergenerational processes in the future.JRC.B.4-Human Capital and Employmen

The Impact of Immigration: Why Do Studies Reach Such Different Results?

We classify the empirical literature on the wage impact of immigration into three groups, where studies in the first two groups estimate different relative effects, and studies in the third group estimate the total effect of immigration on wages. We interpret the estimates obtained from the different approaches through the lens of the canonical model to demonstrate that they are not comparable. We then relax two key assumptions in this literature, allowing for inelastic and heterogeneous labor supply elasticities of natives and the "downgrading" of immigrants. "Downgrading" occurs when the position of immigrants in the labor market is systematically lower than the position of natives with the same observed education and experience levels. Downgrading means that immigrants receive lower returns to the same measured skills than natives when these skills are acquired in their country of origin. We show that heterogeneous labor supply elasticities, if ignored, may complicate the interpretation of wage estimates, and particularly the interpretation of relative wage effects. Moreover, downgrading may lead to biased estimates in those approaches that estimate relative effects of immigration, but not in approaches that estimate total effects. We conclude that empirical models that estimate total effects not only answer important policy questions, but are also more robust to alternative assumptions than models that estimate relative effects.Jan Stuhler declares that he has received financial support by the Spanish Ministerio Economy Competitividad (Spain, MDM 2014-0431 and ECO2014-55858-P) and Comunidad de Madrid (MadEco-CM S2015/HUM-3444). Christian Dustmann declares that he has received financial support by the Norface Programme on Migration (funded by European national research councils) and the European Research Council, ERC Advanced grant DMEA

What do we know so far about the effect of school closures on educational inequality?

Nearly all schools closed at some point during the pandemic. Reviewing the evidence so far, Jo Blanden (University of Surrey/CEP, LSE), Matthias Doepke (Northwestern) and Jan Stuhler (Universidad Carlos III de Madrid) warn that these closures will have a major negative impact on educational inequality

Education inequality

This paper provides new evidence on educational inequality and reviews the literature on the causes and consequences of unequal education. We document large achievement gaps between children from different socio-economic backgrounds, show how patterns of educational inequality vary across countries, time, and generations, and establish a link between educational inequality and social mobility. We interpret this evidence from the perspective of economic models of skill acquisition and investment in human capital. The models account for different channels underlying unequal education and highlight how endogenous responses in parents' and children's educational investments generate a close link between economic inequality and educational inequality. Given concerns over the extended school closures during the Covid-19 pandemic, we also summarize early evidence on the impact of the pandemic on children's education and on possible long-run repercussions for educational inequality

Geographic Mobility in the European Union: Optimising its Economic and Social Benefits

One of the founding principles of the European Union is the freedom of movement of workers (Article 39 of the Treaty establishing the European Community). The free movement of workers is essential for the creation of an area without internal frontiers, and for the strength-ening of economic and social cohesion and active citizenship.Taking an economic perspective, geographic mobility can have major positive effects by bringing about economic growth in countries with labour deficits and prosperity in countries with labour surplus. Hence, the diffusion of skills through occupational and geographic mo-bility is a central factor to enhance the productive capacity of firms and put regions or na-tional economies on a higher growth path. Taking a social perspective, geographical mobility has the potential of fostering social-cultural integration in the European Union, and strength-ening European identity and inter-cultural networks