Abstract
The economic mobility of individuals and households is of fundamental interest. While many measures of economic mobility exist, reliance on transition matrices remains pervasive due to simplicity and ease of interpretation. However, estimation of transition matrices is complicated by the well-acknowledged problem of measurement error in self-reported and even administrative data. Existing methods of addressing measurement error are complex, rely on numerous strong assumptions, and often require data from more than two periods. In this article, we investigate what can be learned about economic mobility as measured via transition matrices while formally accounting for measurement error in a reasonably transparent manner. To do so, we develop a nonparametric partial identification approach to bound transition probabilities under various assumptions on the measurement error and mobility processes. This approach is applied to panel data from the United States to explore short-run mobility before and after the Great Recession.
Highlights
There has been substantial interest of late in intra- and inter-generational mobility
Many existing approaches to deal with measurement error in mobility studies end up producing bounds even though the solutions are not couched as a partial identi...cation approach (e.g., Dang et al 2014; Lee et al 2017)
We show that relatively small amounts of measurement error leads to bounds that can be quite wide in the absence of other information or restrictions
Summary
There has been substantial interest of late in intra- and inter-generational mobility. Our approach to the analysis of mobility given measurement error in income data concentrates on the partial identi...cation of transition matrices. Many existing approaches to deal with measurement error in mobility studies end up producing bounds even though the solutions are not couched as a partial identi...cation approach (e.g., Dang et al 2014; Lee et al 2017). This arises due to an inability to identify all parameters in some structural model of observed and actual incomes. Bounds on (scalar) measures of mobility derived from the elements of transition matrices are obtained from our approach.
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