On the Estimation of Lifetime Income

Abstract

Lifetime income, say V_s, may be defined as V_s = Σ^T _t=sc_ty_t where y_t is income (earnings) at age t, c_t is some discount rate and s is the age an individual enters the labor force. Obviously, y_t i.e., the income path over the individual's span of active life, plays a crucial part in the calculation of V_s. Mostly graphical methods have been employed for estimating the income age profile. This article presents a statistical framework for estimating lifetime income. Moreover, the first and second moments of the distribution of lifetime income are derived, and these results are applied to Dutch income data.