Is the ladder sticky? Measuring semi-parametrically state dependence in earnings mobility

Thibault Brodaty

Applied Economics, 2018, vol. 50, issue 2, 143-156

Abstract: Employing the U.S. data for the 1990’s, we disentangle state dependence from unobserved heterogeneity in earnings mobility. The fixed effects dynamic multinomial logit utilized to model earnings quintiles dynamics fits the data very well, much more so than the autocorrelated dynamic ordered probit. Unordered models should thus be preferred to study earnings mobility. State dependence is found to be significant. It has a protective (anti-fall) effect at the top of the distribution and a detrimental (anti-rise) effect at the bottom. Consequently, the difficulty of climbing the ladder is not exclusively a question of individual characteristics. Public policies could thus be implemented to improve information about individuals’ ability and job offers, and to design more efficient wage-setting institutions.

Date: 2018
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DOI: 10.1080/00036846.2017.1316478

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