Faculty Publications

Decomposing Economic Mobility Transition Matrices

Document Type

Article

Journal/Book/Conference Title

Journal of Applied Econometrics

Volume

33

Issue

1

First Page

91

Last Page

108

Abstract

We present a decomposition method for transition matrices to identify forces driving the persistence of economic status across generations. The method decomposes differences between an estimated transition matrix and a benchmark transition matrix into portions attributable to differences in characteristics between individuals from different households (a composition effect) and portions attributable to differing returns to these characteristics (a structure effect). A detailed decomposition based on copula theory further decomposes the composition effect into portions attributable to specific characteristics and their interactions. To examine potential drivers of economic persistence in the USA, we apply the method to white males from the 1979 US National Longitudinal Survey of Youth. Depending on the transition matrix entry of interest, differing characteristics between sons from different households explain between 40% and 70% of observed income persistence, with differing returns for these characteristics explaining the remaining gap. Further, detailed decompositions reveal significant heterogeneity in the role played by specific characteristics (e.g., education) across the income distribution.

Department

Department of Economics

Original Publication Date

1-1-2018

DOI of published version

10.1002/jae.2578

Repository

UNI ScholarWorks, Rod Library, University of Northern Iowa

Language

en

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