Moving Towards Estimating Sons' Lifetime Intergenerational Economic Mobility in the UK

Estimates of intergenerational economic mobility that use point in time measures of income and earnings suffer from lifecycle and attenuation bias. They also suffer from sample selection issues and further bias driven by spells out of work. We consider these issues together for UK data, the National Child Development Study and British Cohort Study, for the first time. When all three biases are considered, our best estimate of lifetime intergenerational economic persistence in the UK is 0.43 for children born in 1970. Whilst we argue that this is the best available estimate to date, we discuss why there is good reason to believe that this is still a lower bound, owing to residual attenuation bias.     

The distribution of lifetime earnings: a problem of intertemporal aggregation

Summary The main reason to study lifetime earnings as opposed to annual earnings is that the former are purged of life cycle influences. If annual earnings are described by a random variable, it logically follows that lifetime earnings are also random. This paper examines the implications of this statement, starting from the basic assumption that annual earnings of a new entrant to the labor force are a drawing from a two parameter lognormal distribution. It is found that the probability distribution function of lifetime earnings can be derived explicitly if one is willing to define lifetime earnings as a geometric mean.     

The cyclicality of effective wages within employer-employee matches in a rigid labor market

This study analyzes real wage cyclicality for male full-time workers within employer-employee matches in Germany over the period 1984-2004. Five different wage measures are compared: the standard hourly wage rate; hourly wage earnings including overtime and bonus pay; the effective wage, which takes into account unpaid overtime; and monthly earnings, with and without additional pay. None of the hourly wage measures exhibits cyclicality except for the group of salaried workers with unpaid overtime. Their effective wages show a strongly procyclical reaction to changes in unemployment. Despite acyclical wage rates, salaried workers without unpaid overtime experienced procyclical earnings movements if they had income from extra pay. Monthly earnings were also procyclical for hourly paid workers with overtime pay. These findings suggest that cyclical earnings movements are generated by variable pay components, such as bonuses and overtime pay, and by flexible working hours. The degree of earnings procyclicality revealed for the German labor market is comparable to the United States.     

Why Does Growing up in an Intact Family during Childhood Lead to Higher Earnings during Adulthood in the United States?*

With a view to finding an explanation of the observed differences in adult annual earnings between workers raised in intact (INTACT) and non‐intact families in the US labor market, this study tests two hypotheses. First, workers growing up in intact families during childhood earn more during their adulthood because they acquire more years of schooling, which in turn affect their wages positively. Second, intact family background acts as an instrument for numerous factors that contribute to workers' happiness during adulthood. Since happier workers, with other characteristics held constant, are known to have higher earnings, workers raised in intact families during childhood by leading a relatively happier life during their adulthood earn more than their otherwise identical non‐intact counterparts. Both these hypotheses find strong support from the US data. The evidence of simultaneous relationships between wage and happiness and between happiness and schooling confirms that the true effect of INTACT on wage may be much larger than what is envisaged by a simple one‐step process. Regardless of whether this relationship is due to causation or correlation, the study simply demonstrates that the US evidence of higher earnings associated with workers raised in intact families may be attributed partly to their higher levels of schooling and happier lives. By demonstrating a significant positive relationship between the stability of parental family structure during childhood and earnings during adulthood, the current study highlights the importance of responsible parenthood as a means of improving the child's future economic performance.     

Does immigration affect wages? A look at occupation-level evidence

Previous research has reached mixed conclusions about the effect of higher levels of immigration on the wages of natives. This paper reexamines this question using data from the Current Population Survey and the Immigration and Naturalization Service and focuses on differential effects by skill level. Using occupation as a proxy for skill, we find that an increase in the fraction of foreign-born workers tends to lower the wages of natives in blue collar occupations—particularly after controlling for endogeneity—but does not have a statistically significant negative effect among natives in skilled occupations. The results also indicate that immigrants adjusting their immigration status within the U.S., but not newly arriving immigrants, have a significant negative impact on the wages of low-skilled natives. This suggests that immigrants become closer substitutes for natives as they spend more time in the U.S.     

SFAS 133 and income smoothing via discretionary accruals: The role of hedge effectiveness and market volatility

This study investigates whether the Statement of Financial Accounting Standard No. 133 (SFAS 133) influences firms’ income smoothing via discretionary accruals decisions. Moreover, we investigate whether the level of hedge effectiveness and market volatility affects the impact of SFAS 133 on firms’ income smoothing via discretionary accruals decisions. Consistent with our predictions, we find a significant increase in income smoothing via discretionary accruals activity after the adoption of SFAS 133. We also find that income smoothing via discretionary accruals after the adoption of SFAS 133 increases with the level of hedge ineffectiveness. By contrast, we find that perfect hedgers do not engage in more income smoothing via discretionary accruals after the adoption of SFAS 133. Finally, we find that the higher the market volatility is the larger the income smoothing is via discretionary accruals after the adoption of SFAS 133. This implies that higher market volatility makes it more difficult for firms to meet hedge accounting requirements, thereby increasing unmanaged earnings volatility and income smoothing. Prior studies suggest that regulators are expressing concern about the effect of earnings management on the quality of reported earnings and the functioning of capital markets (e.g., Barton, 2001 ). In this regard, our findings imply that accounting standard setters should take into account the trade‐off between transparency and income smoothing.     

Informal employment and the earnings of home-based home care workers in the United States

Informal employment continues to exist in parallel with formal employment among the US home-based home care workers and undermines the workers' economic security. This study examines the extent to which the earnings of the US home-based home care workers are affected by informal employment arrangements and state labour policies designed to benefit low-wage home care workers. Using a sample of 1,318 home-based home care workers from the 2017 and 2018 Annual Social and Economic Supplement of the Current Population Survey, this study found that (i) informally employed home-based home care workers had a 9% reduction in annual earnings and that (ii) their earnings were not improved by generous state minimum wages and Domestic Workers' Bill of Rights while the earnings of agency employees were. The findings highlight the importance of strong enforcement of labour standards for informally employed home care workers in the United States.     

Immigrant wage profiles within and between establishments

Life cycle wages of immigrants from developing countries fall short of catching up with wages of natives. Using linked employer–employee data, we show that 40% of the native–immigrant wage gap is explained by differential sorting across establishments. We find that returns to experience and seniority are similar for immigrant and native workers, but that differences in job mobility and intermittent spells of unemployment are major sources of disparity in lifetime wage growth. The inferior wage growth of immigrants primarily results from failure to advance to higher paying establishments over time. These empirical patterns are consistent with signaling disadvantages of immigrant job seekers, but not with the explanation that low wage growth follows from inferior information about employers and job opportunities.     

Simulation Estimation of the Convergence of the Black–White Earnings Gap and Income Dynamics*

In this article, the effect of Title VII of the 1964 Civil Rights Act on the convergence of the black–white earnings gap and income dynamics is studied through the dynamic panel Tobit models implemented using the simulation estimators. It is found that the black–white earnings gap declined moderately after the implementation of Title VII of the 1964 Civil Rights Act in 1965. Based on the simulation studies of wage trajectories, it is also found that the positive impact of the Civil Rights Act on the convergence of the black–white earnings gap is especially significant for the group of middle‐aged and highly educated workers. Moreover, the rich dynamic structure of the earnings process is identified from the Current Population Survey‐Social Security Administration data set. It is shown that the various sources of dynamics in the earnings process are dominated by spurious state dependence for both blacks and whites.     

盈余管理、审计费用与所得税会计政策选择——基于沪深A股上市公司年报数据的实证分析

本文以2003～2005年沪深A股上市公司年报数据为依据,分析了所得税会计核算方法选择与盈余管理程度、审计费用水平之间的关系。研究发现:在我国现行的应税收益-会计收益的差异水平下,应付税款法与纳税影响会计法核算的总体绩效评价指标、盈利预测误差程度均没有显著差异;而采用纳税影响会计法的公司,其盈余管理程度、审计费用水平(“簿记成本“的替代变量)均显著高于采用应付税款法的公司,说明盈余管理与薄记成本是影响所得税会计政策选择的重要因素。     

Is Improving Access to University Enough? Socio‐Economic Gaps in the Earnings of English Graduates

Much research and policy attention has been on socio‐economic gaps in participation at university, but less attention has been paid to socio‐economic gaps in graduates’ earnings. This paper addresses this shortfall using tax and student loan administrative data to investigate the variation in earnings of English graduates by socio‐economic background. We find that graduates from higher income families (with median income of around 77,000) have average earnings which are 20% higher than those from lower income families (with median income of around £26,000). Once we condition on institution and subject choices, this premium roughly halves, to around 10%. The premium grows with age and is larger for men, in particular for men at the most selective universities. We estimate the extent to which different institutions and subjects appear to deliver good earnings for relatively less well off students, highlighting the strong performance of medicine, economics, law, business, engineering, technology and computer science, as well as the prominent London‐based universities.     

Occupational choice: Teacher quality versus teacher quantity

This article examines the relationship between skill-biased technological changes and the decline in both teacher quality and pupil–teacher ratio—called the “quality–quantity trade-off”—in the United States and other advanced economies during the past several decades. The study presents a theory of educational production that emphasizes teachers’ occupational choices. A key assumption is that talented agents have a comparative advantage in learning. The model endogenously generates a teachers sector with intermediate abilities between two types of skilled workers with tertiary education: highly skilled workers and vocational workers. This unique feature helps specify which technological changes may lead to quality–quantity trade-offs. In particular, a crucial element is that the ratio of incomes and thus the income inequality rises within the skilled sector. In this case, the most talented teachers depart from the teachers sector to join the highly skilled sector, and as such, teacher quality declines. In other cases, both teacher quality and teacher quantity may increase. The results are consistent with the observed patterns of technology, educational attainment, educational expenditure, and wage inequality in advanced economies. Finally, another potential cause for the quality–quantity trade-off is a reduction in teacher certification requirement unless the reduction is implemented exclusively on high-ability workers.     

Estimating the intergenerational persistence of lifetime earnings with life course matching: Evidence from the PSID

Why do estimates of the intergenerational persistence in earnings vary so much for the United States? Recent research suggests that lifecycle bias may be a major factor [Grawe, N., Lifecycle bias in estimates of intergenerational earnings persistence. Labour Economics 2006, 13:551–570; Haider, S., and Solon, G., Life-cycle variation in the association between current and lifetime earnings. American Economic Review 2006, 96(4):1308–1320.]. In this paper we estimate the intergenerational correlation in lifetime earnings by using sons' and fathers' earnings at similar ages in order to account for lifecycle bias. Our estimate based on earnings measured at 35–44 for both fathers and sons is similar to that for the age range 45–54.     

A Distributional Analysis of Earnings Losses of Displaced Workers in an Economic Depression and Recovery

We study the earnings losses of Finnish private sector workers who lost their jobs at two very different points in the business cycle. The first group wdisplad in 1992 (depression period) and the second one in 1997 (recovery period). The focal point of the analysis is the quantile displacement effect, the change in the earnings distribution due to involuntary job separation. We use mass layoffs and plant closures to identify groups of workers who were displaced from exogenous causes. The effect of displacement is strongest at the lower end of the earnings distribution and small or negligible at the upper end. Workers displaced during the depression period are subject to much larger earnings losses.     

Who Gains from the Demographic Dividend? Forecasting Income by Age

Changes in the population age structure are known to influence the total income per person, but little is known about whether the changes are equally shared across the population or are concentrated on particular age groups and/or birth cohorts. The answer to this question has potentially important implications for income inequality, human capital investment, and fertility decision-making. We propose a new model of intergenerational transfers which distinguishes between the effects of changes in population structure and the effects of changes in family age structure. Using age-specific data from annual income and expenditure surveys of Taiwan between 1978 and 1998, we show that changes in age structure have had a very favorable effect on Taiwan's income growth. The gains are not equally shared by all age groups, however. Children and young adults have benefited the most, while the elderly have benefited the least. The population and family age structures have independent effects on per capita income; the effect of the population age structure is most important. Generational differences in per capita income are closely related to intergenerational differences in earnings, suggesting only a weak form of altruism. Finally, we predict that, on average, population aging will adversely influence the per capita income growth in Taiwan in the coming decades.     

Analysts' utilization of historical earnings information

This study examines whether security analysts (in)efficiently utilize the information contained in past series of annual and quarterly earnings in producing earnings forecasts. To do so, it investigates whether equal-weighted combinations of security analysts' forecasts with forecasts from statistical models based on historical earnings are superior, both in terms of being a better surrogate for the market's expectations of earnings and of accuracy, to forecasts from either one of these two sources. The empirical findings indicate that, although analysts' forecasts are superior to forecasts from statistical models, performance can be improved—both in terms of accuracy and also of being a better surrogate for market earnings expectations—by combining analysts' forecasts with forecasts from statistical models based on past quarterly earnings. Improvements in proxying for market earnings expectations were obtained even when analysts' forecasts made in June of the forecast year were used in the combinations. An implication of these findings is that investors can improve their investment decisions by using an average of the mean analysts' forecasts and the forecast produced by a time-series model of quarterly earnings in their investment decisions.     

Communication externalities in cities

To identify communication externalities in French cities, we exploit a unique survey recording workplace communication of individual workers. Our hypothesis is that in larger and/or more educated cities, workers should communicate more. In turn, more communication should have a positive effect on wages. By estimating both an earnings and a communication equation, we find evidence of communication externalities. In larger and more educated cities, workers communicate more and in turn this has a positive effect on their wages. Depending on the estimates, we find that 13 to 22% of the effects of a more educated and larger city on wages percolate through this channel.     

Considering interrelationships in strategic decisions

Accounting-based valuation studies of US firms tend to support Ohlson's proposition that residual income and book value numbers have information content in explaining observed market values. But European evidence also suggests that the conservative/liberal orientation of accounting tradition can produce significant national differences in associations between accounting performance measures and stock prices - in earnings behaviour, coefficient values and parameter sensitivity. We address these issues from an equity valuation perspective using Swedish data to assess the additional information content of Ohlson's information dynamics and analysts' forecasts in relation to market valuations in a more conservative accounting environment than the US. The study compares the explanatory and predictive power of Ohlson's (1995) residual income model (RIV) with a linear information dynamics version (LIM) that specifies both residual income and non-accounting information as autoregressive processes. Both versions are applied with, and without, future performance expectations from non-accounting sources (analysts' forecasts). As with US evidence, we find that the inclusion of analysts' forecasts improves both (i) cross-sectional correlations with current prices for both RIV and LIM models and (ii) the predictive power of RIV models in relation to future annual cross-sectional stock returns. The contribution of linear information dynamics is significant but varies across approaches. We also find significant differences between Swedish and US firms in earnings behaviour and associations between accounting numbers and market equity prices.     

TRADE UNIONS AND THE DISPERSION OF EARNINGS IN BRITISH ESTABLISHMENTS, 1980–90†

ABSTRACT The relationship between unions and earnings dispersion is examined using establishment-level data from the 1980, 1984 and 1990 Workplace Industrial Relations Surveys. Initially the cross-sectional relationship is examined using the 1990 data. The earnings dispersion of skilled and semiskilled workers is seen to be lower across unionized establishments than across non-union establishments; secondly, within-establishment earnings dispersion is lower in plants which recognize trade unions for collective bargaining purposes than in those that do not. All three surveys are then utilized to ascertain to what extent the decline in unionization in Britain has contributed to the rise in earnings inequality of semi-skilled workers. There was a sizeable and important widening of the gap in the dispersion of earnings across union and non-union plants between 1980 and 1990. For semi-skilled earnings, the decline in the share of plants with recognized unions can account for 11-17 percent of the rise in earnings inequality over this time period. The importance of falling union activity (as measured by union recognition) seemed to accelerate through the 1980s. Between 1980 and 1984 the relatively small falls in aggregate recognition explain less than 10 percent of the inequality increase, whereas between 1984 and 1990 about one-quarter of the increase can be accounted for by the fall in unionization. The majority of the rise in earnings inequality is, however, due to a large increase in earnings dispersion across non-union establishments.     

Assimilation of immigrants in Spain: A longitudinal analysis

In this paper we use a new panel dataset to analyse the earnings assimilation of immigrants in Spain. We show that immigrants reduce the wage gap relative to natives by 15 pp during the first 5–6 years after arrival, but the earnings differential does not disappear completely. Earnings assimilation is not homogeneous across different nationalities, being faster for South-American and European (new accession countries to EU) immigrants compared to Africans. Finally, we show that human capital gains within the firm as opposed to higher mobility contribute the most to their assimilation process.