The Journal of Economic Inequality

, Volume 5, Issue 2, pp 159–178 | Cite as

The effects of measurement error and omitted variables when using transition matrices to measure intergenerational mobility

  • Donal O’Neill
  • Olive Sweetman
  • Dirk Van de gaer


This paper examines the consequences of specification error when transition matrices are used to analyse patterns of intergenerational mobility. We show that classical measurement error in both the child’s and parent’s earnings can lead to biased results, with summary mobility measures biased by as much as 20% in some cases. Furthermore our results suggest that the extent of the bias is most severe in the tails of the distribution. Omitted conditioning variables appear to have a modest effect on transition matrices in our model.

Key words

transition matrices specification error intergenerational mobility 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. 1.
    Abul Naga, R.: Estimating the intergenerational correlation of incomes: an errors-in-variables framework. Economica 69, 69–91 (2002)CrossRefGoogle Scholar
  2. 2.
    Atkinson, A.B., Maynard, A.K., Trinder, C.G.: Parents and Children. Heinemann, London, UK (1983)Google Scholar
  3. 3.
    Becker, G., Tomes, N.: Human capital and the rise and fall of families. J. Labor Econ. 4, S1–S39 (1986)CrossRefGoogle Scholar
  4. 4.
    Blanden, J.: International evidence on intergenerational mobility. Working Paper, Centre for Economic Performance, London School of Economics (2005)Google Scholar
  5. 5.
    Bound, J., Brown, C., Duncan, G., Rodgers, W.: Evidence on the validity of cross-sectional and longitudinal labor market data. J. Labor Econ. 12(3), 345–368 (1994)CrossRefGoogle Scholar
  6. 6.
    Bound, J., Brown, C., Mathiowetz, N.: Measurement error in survey data. In: Heckman, J.J., Leamer, E. (eds.) Handbook of Econometrics, vol. 5, pp. 3707–3843 (2001)Google Scholar
  7. 7.
    Bowles. S.: Gintis: The inheritance of inequality. J. Econ. Perspect. 16(3), 3–30 (2002)CrossRefGoogle Scholar
  8. 8.
    Breen, R., Moisio, P.: Poverty dynamics corrected for measurement error. Journal of Economic Inequality 2(3), 171–191 (2004)CrossRefGoogle Scholar
  9. 9.
    Checchi, D., Dardanoni, V.: Mobility comparisons: does using different measures matter. Res. Econ. Inequal. 9, 113–145 (2002)CrossRefGoogle Scholar
  10. 10.
    Corak, M., Heisz, A.: The intergenerational income mobility of Canadian men. Analytical Studies Branch Research Paper no. 89, Statistics Canada (1996)Google Scholar
  11. 11.
    Corak, M., Heisz, A.: The intergenerational earnings and income mobility of Canadian Men. J. Hum. Resour. 34, 504–533 (1999)CrossRefGoogle Scholar
  12. 12.
    Dearden, L., Machin, S., Reed, H.: Intergenerational mobility in Britain. Econ. J. 107, 47–66 (1997)CrossRefGoogle Scholar
  13. 13.
    Fields, G., Ok, E.: The measurement of income mobility: an introduction to the literature. In: Silber, J. (ed.) Handbook on Income Inequality Measurement, pp. 557–596. Boston, Kluwer (2001)Google Scholar
  14. 14.
    Goldberger, A.: Heritability. Economica 46, 327–347 (1979)CrossRefGoogle Scholar
  15. 15.
    Grawe, N.: Reconsidering the use of non-linearities in intergenerational earnings mobility as a test for credit constraints. J. Hum. Resour. 39(3), 813–827 (2004)CrossRefGoogle Scholar
  16. 16.
    Grawe, N.: Lifecycle Bias in Estimates of Intergenerational Earnings Persistence. Labour Economics 13(5), 551–570 (2006)CrossRefGoogle Scholar
  17. 17.
    Grawe, N., Mulligan, C.: Economic interpretations of intergenerational correlations. J. Econ. Perspect. 6(3), 45–58 (2002)Google Scholar
  18. 18.
    Haider, S., Solon, G.: Life-cycle variation in the association between current and lifetime earnings. Am. Econ. Rev. 96(4), 1308–1319 (2006)CrossRefGoogle Scholar
  19. 19.
    Han, S., Mulligan, C.B.: Human capital, heterogeneity, and estimated degrees of intergenerational mobility. Econ. J. 111, 207–243 (2001)CrossRefGoogle Scholar
  20. 20.
    Jenkins, S.: Snapshots versus movies: lifecycle biases and the estimation of intergenerational earnings inheritances. Eur. Econ. Rev. 31, 1149–1158 (1987)CrossRefGoogle Scholar
  21. 21.
    Kim, B., Solon, G.: Implications of mean-reverting measurement error for longitudinal studies of wages and employment. Rev. Econ. Stat. 87, 193–196 (2005)CrossRefGoogle Scholar
  22. 22.
    Magnac, T., Visser, M.: Transition models with measurement errors. Rev. Econ. Stat. 81(3), 466–474 (1999)CrossRefGoogle Scholar
  23. 23.
    Minicozzi, A.: Estimation of sons’ intergenerational earnings mobility in the presence of censoring. J. Appl. Econ. 18(3), 291–314 (2003)CrossRefGoogle Scholar
  24. 24.
    Mazumder, B.: Fortunate sons: new estimates of intergenerational mobility in the United States using social security earnings data. Rev. Econ. Stat. 87(2), 235–255 (2005)CrossRefGoogle Scholar
  25. 25.
    O’Neill, D., Sweetman, O., Van de gaer, D.: The consequences of non-classical measurement error for distributional analysis. Working Paper, Department of Economics, National University of Ireland, Maynooth, Ireland (2004)Google Scholar
  26. 26.
    Pischke, J.-S.: Measurement error and earnings dynamics: some estimates from the PSID validation study. J. Bus. Econ. Stat. 13(3), 305–314 (1995)CrossRefGoogle Scholar
  27. 27.
    Poterba, J., Summers, L.: Reporting errors and labour market dynamics. Econometrica 54, 1319–1338 (1986)CrossRefGoogle Scholar
  28. 28.
    Poterba, J., Summers, L.: Unemployment benefits and labour market transitions: a multinomial logit model with errors in classification. Rev. Econ. Stat. 77, 207–216 (1995)CrossRefGoogle Scholar
  29. 29.
    Shorrocks, A.: The measurement of mobility. Econometrica 46(5), 1013–1024 (1978)CrossRefGoogle Scholar
  30. 30.
    Solon, G.: Intergenerational income mobility in the United States. Am. Econ. Rev. 82, 393–408 (1992)Google Scholar
  31. 31.
    Solon, G.: Intergenerational mobility in the labor market. In: Ashenfelter, O., Card, D. (eds.) Handbook of Labor Economics vol, pp. 1761–1800. The Netherlands, Amsterdam (1999)Google Scholar
  32. 32.
    Solon, G.: Cross-country differences in intergenerational earnings mobility. J. Econ. Perspect. 16(3), 59–66 (2002)CrossRefGoogle Scholar
  33. 33.
    Zimmerman, D.J.: Regression towards mediocrity in economic stature. Am. Econ. Rev. 82, 409–429 (1992)Google Scholar

Copyright information

© Springer Science+Business Media, Inc. 2006

Authors and Affiliations

  • Donal O’Neill
    • 1
  • Olive Sweetman
    • 1
  • Dirk Van de gaer
    • 2
    • 3
  1. 1.Economics Dept. and NIRSAN.U.I. MaynoothMaynoothIreland
  2. 2.SHERPPAGhent University, F.E.B., Vakgroep Sociale EconomieGentBelgium
  3. 3.CORELouvain la NeuveBelgium

Personalised recommendations