Scandinavian Working Papers in Economics

Working Paper Series,
IFAU - Institute for Evaluation of Labour Market and Education Policy

No 2015:13: Biases in standard measures of intergenerational income dependence

Martin Nybom () and Jan Stuhler ()
Additional contact information
Martin Nybom: IFAU - Institute for Evaluation of Labour Market and Education Policy, Postal: P O Box 513, SE-751 20 Uppsala, Sweden
Jan Stuhler: Universidad Carlos III de Madrid, Postal: Madrid, Spain

Abstract: Estimates of the most common mobility measure, the intergenerational elasticity, can be severely biased if snapshots are used to approximate lifetime income. However, little is known about biases in other popular dependence measures. We use long Swedish income series to provide such evidence for linear and rank correlations, and rank-based transition probabilities. Attenuation bias is considerably weaker in rank-based measures. Life-cycle bias is strongest in the elasticity; moderate in the linear correlation; and small in rank-based measures. However, with important exceptions: persistence in the tails of the distribution is considerably higher, and long-distance downward mobility considerably lower, than estimates from short-run income suggest.

Keywords: Intergenerational mobility; correlation; measurement error

JEL-codes: J62

25 pages, June 15, 2015

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