Some issues in the estimation of income dynamics

Two design-based estimators of gross flows and transition rates are considered. One makes use of the cross-sectional samples for the estimation of the income class boundaries at each time period and the longitudinal sample for the estimation of counts of units in the longitudinal population (longitudinal counts); this is the mixed estimator. The other one is entirely based on the longitudinal sample, both for the estimation of the class boundaries and the longitudinal counts; this is the longitudinal estimator. We compare the two estimators in the presence of large attrition rates, by means of a simulation. We find that under a less than perfect model of compensation for attrition, the mixed estimator is usually more sensitive to model bias than the longitudinal estimator. Furthermore, we find that for the mixed estimator, the magnitude of this bias overshadows the small gain in precision when compared to the longitudinal estimator. The results are illustrated with data from the Survey of Labour and Income Dynamics and the Longitudinal Administrative Database of Statistics Canada.