Measurement and Cross-Country Differences

Hen son was 14 when son was 14 when son was 14 when

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Unformatted text preview: og I 1960 LORI N one NOTE.-& = elasticity of son's income or earnings with respect to father's income o r earnings; E = earnings; H = h ourly earnings; I = income; I 3 = i ncome in three-digit occupation; I C D = income-class dummy; I H H = h ousehold income; I P = parents' income; W = weekly earnings. * First 5 years in the labor force. t Also ~ o b e r M. Hauser (personal communication, October 2, 1984). t $Adjusted for response variability. Adjusted for work experience. Sons with work experience of 4 years o r less were excluded. The regression was weighted so that each father had equal weight. f\Vork experience, three dummies for re..ion of residence at age 14, five dummies for type of place of residence at age 14, and a dummy for living in one parent/female home at age 14. "The elasticities are values between pairs of income classes ' Fortin – Econ 560 Lecture 5B This sort of errors-in-variables problem in a regression equation’s explanatory variable tends to dilute the estimated coefficient of that variable and produce a downward bias in the coefficient, 2 y ˆ plim 2 y 20 When the father’s income is not available, it has been typical to used predicted earnings. This two-stage procedure that uses education, occupation or social class to predict father’s earnings is likely to lead to an upward bias. o In the second-stage regression, when father’s education, occupation or social class is used only to predict father’s earnings, but not as a separate explanatory variable in its own right, the resulting omitted-variables bias may lead to overestimation of the intergenerational earnings elasticity. Fortin – Econ 560 Lecture 5B A different problem has surfaced in measuring son’s earnings. There may be some measurement error in the sons’ earnings: y1t y1 1t (3) Or, as argued by Haider and Solon (2003), the slope of the linear projection of y1t on y1 may not equal to 1, but varies over the life-cycle: y1t t y1 1t (3’) by contrast with the textbook case where t 1 . This latter type of measurement error generates the following type of bias Cov( y1...
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