A model of attrition and income for dynamic longitudinal surveys

This paper develops a random effects model of attrition and income applicable to a dynamic longitudinal survey such as the Survey of Income and Program Participation. Based on the partial dynamic adjustment hypothsis, this study finds that the speed of adjustment of income is not instantaneous as suggeted in many past studies using annual panel data. Also, the short-run coefficients are much smaller than their long-run counterparts, and the coefficient estimates differ substantially among individuals with divergent socioeconomic characteristics. Caution should therefore be exercised when applying dynamic panel data to models with the assumption of an instantaneous speed of adjustment.