Mobility measurement, transition matrices and statistical inference

This paper develops statistical inference procedures for testing income mobility with transition matrices. Both summary mobility measures and partial mobility orderings are considered. We first examine the different ways that transition matrices are constructed in the literature on mobility measurement. Different approaches lead not only to distinct interpretations of mobility but also to different sampling distributions. The large sample properties of the estimates of transition matrices allow us to derive testing procedures for both summary mobility measures and partial orders of mobility across income regimes. The tests are illustrated by applying them to income mobility in the U.S. and Germany using the Panel Study of Income Dynamics and German Socio-Economic Panel data.