INTRODUCING UNOBSERVED HETEROGENEITY IN EARNINGS MOBILITY

This paper introduces and describes unobserved heterogeneity in earnings quintiles transition matrices in the us. Unobserved heterogeneity is found to play a crucial role in earnings mobility. Each individual is attracted, given her characteristics, towards a specific zone of the distribution. At the stationary equilibrium, the earnings quintiles distribution is thus segmented. Interestingly, while the level of earnings mobility has remained quite stable since 1970, the width of these zones has decreased, such that this segmentation was more pronounced in the 80's and the 90's than in the 70's, especially in the middle of the quintiles distribution.