Social Choice and Welfare

, Volume 44, Issue 2, pp 217–230 | Cite as

Inequality in current and lifetime income

  • Rolf Aaberge
  • Magne Mogstad


To gauge inequality in living standards, the distribution of lifetime income is likely to be more relevant than the distribution of current income. Yet, empirical studies of income inequality are typically based on observations of income for one or a few years. In this paper, we exploit a unique data set with nearly career-long income histories to assess the role of so-called life-cycle bias in empirical analysis of income inequality that uses current income variables as proxies for lifetime income. We find evidence of substantial life-cycle bias in estimates of inequality based on current income. One implication is that cross-sectional estimates of income inequality are likely to be sensitive to the age composition of the sample. A decomposition of the life-cycle bias into income mobility and heterogeneous profiles reveal the importance of two explanations that have been put forth to explain the disagreement between current and lifetime inequality.


Income Inequality Gini Coefficient Lorenz Curve Inequality Measure Current Income 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.



We thank two anonymous referees, the editor and Anders Björklund for helpful comments.


  1. Aaberge R (2000) Characterizations of Lorenz curves and income distributions. Soc Choice Welf 17:639–653CrossRefGoogle Scholar
  2. Aaberge R (2007) Gini’s nuclear family. J Econ Inequal 5:305–322CrossRefGoogle Scholar
  3. Aaberge R, Björklund A, Palme M, Pedersen P, Smith N, Wennemo T (2002) Income inequality and income mobility in the Scandinavian countries compared to the United States. Rev Income Wealth 48:443–469CrossRefGoogle Scholar
  4. Aaberge R, Mogstad M (2011) Robust inequality comparisons. J Econ Inequal 9:353–371CrossRefGoogle Scholar
  5. Atkinson A, Rainwater L, Smeeding T (1995) Income distribution in OECD countries: evidence from the Luxembourg Income Study. OECD, ReportGoogle Scholar
  6. Baker M, Solon G (2003) Earnings dynamics and inequality among Canadian men, 1976–1992: evidence from longitudinal income tax records. J Labor Econ 21:267–288CrossRefGoogle Scholar
  7. Blundell R, Pistaferri L, Preston I (2008) Consumption inequality and partial insurance. Am Econ Rev 98:1887–1921CrossRefGoogle Scholar
  8. Blundell R, Graber M, Mogstad M (2014) Labor income dynamics and the insurance from taxes, transfers, and the family. J Public Econ [Epub ahead of print]Google Scholar
  9. Bhuller M, Mogstad M, Salvanes K (2014) Life cycle earnings, education premiums and internal rate of returns, NBER Working Paper, 20250Google Scholar
  10. Björklund A (1993) A comparison between actual distributions of annual and lifetime income: Sweden 1951–1989. Rev Income Wealth 39:377–386CrossRefGoogle Scholar
  11. Black S, Devereux P (2011) Recent developments in intergenerational mobility. In: Ashenfelter O, Card D (eds) Handbook of labor economics. Elsevier, AmsterdamGoogle Scholar
  12. Brenner J (2010) Life-cycle variations in the association between current and lifetime earnings: evidence for German natives and guest workers. Labour Econ 17:392–406CrossRefGoogle Scholar
  13. Burkhauser RV, Poupore JG (1997) A cross-national comparison of permanent inequality in the United States and Germany. Rev Econ Stat 79:10–17CrossRefGoogle Scholar
  14. Böhlmark A, Lindquist MJ (2006) Life-cycle variations in the association between current and lifetime income: replication and extension for Sweden. J Labor Econ 24:879–900CrossRefGoogle Scholar
  15. Friedman M (1957) A theory of the consumption function. Princeton University Press, PrincetonGoogle Scholar
  16. Gittleman M, Joyce M (1999) Have family income mobility patterns changed? Demography 36:299–314CrossRefGoogle Scholar
  17. Haider S (2001) Earnings instability and earnings inequality of males in the United States: 1967–1991. J Labor Econ 19:799–836CrossRefGoogle Scholar
  18. Haider S, Solon G (2006) Life-cycle variation in the association between current and lifetime earnings. Am Econ Rev 96:1308–1320CrossRefGoogle Scholar
  19. Jenkins SP, Van Kerm P (2006) Trends in income inequality. Pro-poor income growth and income mobility. Oxf Econ Pap 58:531–548CrossRefGoogle Scholar
  20. Nybom, M, and J. Stuhler (2014) Heterogeneous income profiles and life-cycle bias in intergenerational mobility estimation, Working PaperGoogle Scholar
  21. Meghir C, Pistaferri L (2011) Earnings, consumption and lifecycle choices. In: Ashenfelter O, Card D (eds) Handbook of labor economics. Elsevier, AmsterdamGoogle Scholar
  22. Mincer J (1958) Investment in human capital and personal income distribution. J Polit Econ 66:281–302CrossRefGoogle Scholar
  23. Moffitt R, Gottschalk P (2012) Trends in the transitory variance of male earnings: methods and evidence. J Human Resour 47:204–236CrossRefGoogle Scholar
  24. Nilsen Ø, Vaage K, Aakvik A, Jacobsen K (2012) Intergenerational earnings mobility revisited: estimates based on lifetime earnings. Scand J Econ 114:1–23CrossRefGoogle Scholar
  25. Shorrocks A (1978) Income inequality and income mobility. J Econ Theory 19:376–393CrossRefGoogle Scholar
  26. Wiles P (1974) Distribution of income, East and West. North Holland Publishing Company, AmsterdamGoogle Scholar
  27. Willis RJ, Rosen S (1979) Education and self-selection. J Polit Econ 87:7–36CrossRefGoogle Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2014

Authors and Affiliations

  1. 1.Research Department, Statistics Norway & ESOPUniversity of OsloOsloNorway
  2. 2.University of Chicago & Statistics NorwayChicagoUSA

Personalised recommendations