Biases of the ordinary least squares and instrumental variables estimators of the intergenerational earnings elasticity: Revisited in the light of panel data

Ramses H. Abul Naga

Research output: Contribution to journalArticle

Abstract

The OLS estimator of the intergenerational earnings correlation is biased towards zero, while the instrumental variables estimator is biased upwards. The first of these results arises because of measurement error, while the latter rests on the presumption that the education of the parent family is an invalid instrument. We propose a panel data framework for quantifying the asymptotic biases of these estimators, as well as a mis-specification test for the IV estimator.

Original languageEnglish
Pages (from-to)323-350
Number of pages28
JournalJournal of Economic Inequality
Volume6
Issue number4
Early online date19 Oct 2007
DOIs
Publication statusPublished - Dec 2008

Keywords

  • Intergenerational mobility
  • Measurement error
  • Panel data
  • Biased estimation
  • United-States
  • income mobility
  • inheritance
  • inequality
  • errors

Cite this

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abstract = "The OLS estimator of the intergenerational earnings correlation is biased towards zero, while the instrumental variables estimator is biased upwards. The first of these results arises because of measurement error, while the latter rests on the presumption that the education of the parent family is an invalid instrument. We propose a panel data framework for quantifying the asymptotic biases of these estimators, as well as a mis-specification test for the IV estimator.",
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KW - Intergenerational mobility

KW - Measurement error

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KW - Biased estimation

KW - United-States

KW - income mobility

KW - inheritance

KW - inequality

KW - errors

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