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Intergenerational earnings elasticity of actual father-son pairs in Italy accounting for lifecycle and attenuation bias

Working Paper 2019-504

Abstract

Using a rich longitudinal dataset built by merging administrative and survey data, this article contributes to the literature on intergenerational inequality by providing the first reliable estimate of the intergenerational earnings elasticity (IGE) in Italy based on actual father-son pairs and by comparing the size of the lifecycle bias when sons are selected by age or by potential experience (i.e., the distance from the year they ended their studies). Our findings confirm that Italy is a low-mobility country because in our baseline estimates, the IGE at sons’ potential experience level 6 is approximately 0.40 and is robust to various measures of fathers’ lifetime earnings. However, our results might be downward biased by the young age of sons. To measure the lifecycle bias and correct the IGE estimates, we run the “forward regression” of yearly earnings on lifetime earnings on a sample of workers followed for 30 years. We find that selecting sons by potential experience rather than by age reduces the lifecycle bias at young ages and that the “corrected” IGE is 0.47.

Authors: Francesco Bloise, Michele Raitano.

Keywords: intergenerational earnings elasticity; lifecycle bias; attenuation bias; intergenerational inequality; Italy.
JEL: J62, D31, D63.