Earnings mobility and measurement error: A pseudo-panel approach

A dynamic pseudo-panel method has been used to evaluate the degree of income mobility in Mexico when earnings contain non-classical measurement error. The method uses data from 58 quarters of household earnings in Mexico from 1987-2001 to compare mobility in labor earnings with mobility in total household income and expenditure. It is important to estimate the income mobility in Mexico in order to reduce the inequality in future distribution of income. When earnings are dynamic, full mobility can be estimated using the pseudo-panel method. The attrition bias is relatively insignificant when this method is used for mobility estimation. The method reveals that there is very low mobility in earnings, income and expenditure in Mexico. The method also reveals that there is a slow absolute mobility but rapid conditional mobility indicating that household fixed effects will lead to the persistence of income differences among households in Mexico.