IZA DP No. 5245: Empirical Strategies to Eliminate Life-Cycle Bias in the Intergenerational Elasticity of Earnings Literature
substantially revised version appeared as IZA DP No. 5697
I argue that the empirical strategies for estimation of the intergenerational elasticity of lifetime earnings that are currently employed in the literature might not eliminate bias arising from life-cycle effects. Specifically, I demonstrate that procedures based on the generalized errors-in-variables model suggested by Haider and Solon (2006) or the consideration of differential earnings growth rates across subpopulations may not yield unbiased or consistent estimates. I further argue that instrumental variable estimators will not identify an upper bound for the true population parameter.