Nonlinear Approaches to Intergenerational Income Mobility allowing for Measurement Error

Brantly Callaway, Tong Li and Irina Murtazashvili

Papers from arXiv.org

Abstract: This paper considers nonlinear measures of intergenerational income mobility such as (i) the effect of parents' permanent income on the entire distribution of child's permanent income, (ii) transition matrices, and (iii) rank-rank correlations when observed annual incomes are treated as measured-with-error versions of permanent incomes. We develop a new approach to identifying joint distributions in the presence of "two-sided" measurement error, and, hence, identify essentially all parameters of interest in the intergenerational income mobility literature. Using recent data from the 1997 National Longitudinal Study of Youth, we find that accounting for measurement error notably reduces various estimates of intergenerational mobility.

Date: 2021-07, Revised 2021-12
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