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Earnings mobility and measurement error: a pseudo-panel approach

Francisca Antman and David McKenzie ()

No 3745, Policy Research Working Paper Series from The World Bank

Abstract: 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.

Keywords: Inequality; Housing&Human Habitats; Roads&Highways; Economic Theory&Research; Rural Poverty Reduction (search for similar items in EconPapers)
Date: 2005-10-01
New Economics Papers: this item is included in nep-dev and nep-ecm
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Journal Article: Earnings Mobility and Measurement Error: A Pseudo-Panel Approach (2007) Downloads
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