TY - DATA T1 - Modeling Endogenous Mobility in Earnings Determination PY - 2017/07/24 AU - John M. Abowd AU - Kevin L. McKinney AU - Ian M. Schmutte UR - https://tandf.figshare.com/articles/journal_contribution/Modeling_Endogenous_Mobility_in_Earnings_Determination/5239756 DO - 10.6084/m9.figshare.5239756.v1 L4 - https://ndownloader.figshare.com/files/8953408 KW - Earnings heterogeneity KW - Latent-type model KW - Markov chain Monte Carlo KW - Mobility bias. N2 - We evaluate the bias from endogenous job mobility in fixed-effects estimates of worker- and firm-specific earnings heterogeneity using longitudinally linked employer–employee data from the LEHD infrastructure file system of the U.S. Census Bureau. First, we propose two new residual diagnostic tests of the assumption that mobility is exogenous to unmodeled determinants of earnings. Both tests reject exogenous mobility. We relax exogenous mobility by modeling the matched data as an evolving bipartite graph using a Bayesian latent-type framework. Our results suggest that allowing endogenous mobility increases the variation in earnings explained by individual heterogeneity and reduces the proportion due to employer and match effects. To assess external validity, we match our estimates of the wage components to out-of-sample estimates of revenue per worker. The mobility-bias-corrected estimates attribute much more of the variation in revenue per worker to variation in match quality and worker quality than the uncorrected estimates. Supplementary materials for this article are available online. ER -