Life-Cycle Variation in the Association between Current and Lifetime Earnings

Author: Haider Steven   Solon Gary  

Publisher: American Economic Association

ISSN: 0002-8282

Source: The American Economic Review, Vol.96, Iss.4, 2006-09, pp. : 1308-1320

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Abstract

Researchers in a variety of important economic literatures have assumed that current income variables as proxies for lifetime income variables follow the textbook errors-invariables model. In our analysis of Social Security records containing nearly career-long earnings histories for the Health and Retirement Study sample, we find that the relationship between current and lifetime earnings departs substantially from the textbook model in ways that vary systematically over the life cycle. Our results can enable more appropriate analysis of, and correction for, errors-in-variables bias in any research that uses current earnings to proxy for lifetime earnings.