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Errors in self-reported earnings: The role of previous earnings volatility and individual characteristics

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  • Akee, Randall

Abstract

I report the measurement error in self-reported earnings for a developing country using a novel data set. The data set consists of two cross-sections of the Federated States of Micronesia (FSM) wage and salary sectors; additionally, a subset of the two cross-sections may be linked to create a panel. Administrative data from FSM Social Security office are matched to the FSM Census data for the wage and salary sectors. I find that the error in annual self-reported earnings is centered on zero. Additionally, I find strong evidence for mean reversion in the data suggesting non-classical measurement error. I identify the impact of prior years' earnings variability on the current reporting of earnings using administrative data on earnings histories. Prior earnings volatility strongly affects measurement error in current period. However, the effect of prior shocks diminish significantly over time--suggesting that first-differencing and fixed-effects techniques will not improve accuracy.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 96 (2011)
Issue (Month): 2 (November)
Pages: 409-421

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Handle: RePEc:eee:deveco:v:96:y:2011:i:2:p:409-421

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Web page: http://www.elsevier.com/locate/devec

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Keywords: Non-classical measurement error Developing countries Instrumental variables Bounding coefficient estimates;

References

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  1. Duncan, Greg J & Hill, Daniel H, 1985. "An Investigation of the Extent and Consequences of Measurement Error in Labor-Economic Survey Data," Journal of Labor Economics, University of Chicago Press, vol. 3(4), pages 508-32, October.
  2. Peter Gottschalk & Minh Huynh, 2006. "Are Earnings Inequality and Mobility Overstated? The Impact of Non-Classical Measurement Error," Boston College Working Papers in Economics 649, Boston College Department of Economics.
  3. John Bound & Alan B. Krueger, 1989. "The Extent of Measurement Error In Longitudinal Earnings Data: Do Two Wrongs Make A Right?," NBER Working Papers 2885, National Bureau of Economic Research, Inc.
  4. Pischke, Jorn-Steffen, 1995. "Measurement Error and Earnings Dynamics: Some Estimates from the PSID Validation Study," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 305-14, July.
  5. Martha Stinson, 2004. "Estimating Measurement Error in SIPP Annual Job Earnings: A Comparison of Census Survey and SSA Administrative Data," Econometric Society 2004 North American Winter Meetings 123, Econometric Society.
  6. Joshua Angrist & Alan Krueger, 1998. "Empirical Strategies in Labor Economics," Working papers 98-7, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Antman, Francisca & McKenzie, David J., 2005. "Earnings mobility and measurement error : a pseudo-panel approach," Policy Research Working Paper Series 3745, The World Bank.
  8. Bound, John & Brown, Charles & Mathiowetz, Nancy, 2001. "Measurement error in survey data," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 59, pages 3705-3843 Elsevier.
  9. Bound, John, et al, 1994. "Evidence on the Validity of Cross-Sectional and Longitudinal Labor Market Data," Journal of Labor Economics, University of Chicago Press, vol. 12(3), pages 345-68, July.
  10. de Mel, Suresh & McKenzie, David J. & Woodruff, Christopher, 2009. "Measuring microenterprise profits: Must we ask how the sausage is made?," Journal of Development Economics, Elsevier, vol. 88(1), pages 19-31, January.
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Cited by:
  1. de Nicola, Francesca & Gine, Xavier, 2012. "How accurate are recall data ? evidence from coastal India," Policy Research Working Paper Series 6009, The World Bank.
  2. Suziedelyte, Agne & Johar, Meliyanni, 2013. "Can you trust survey responses? Evidence using objective health measures," Economics Letters, Elsevier, vol. 121(2), pages 163-166.
  3. Van-Ha Le & Jakob de Haan & Erik Dietzenbacher, 2013. "Do Higher Government Wages Reduce Corruption? Evidence Based on a Novel Dataset," CESifo Working Paper Series 4254, CESifo Group Munich.
  4. Randall Akee, Devesh Kapur, 2012. "Remittances and Rashomon- Working Paper 285," Working Papers 285, Center for Global Development.

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