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Implications of Mean-Reverting Measurement Error for Longitudinal Studies of Wages and Employment

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  • Bonggeun Kim

    (University at Canterbury)

  • Gary Solon

    (University of Michigan)

Abstract

This note examines the implications of mean-reverting mea-surement error for two influential literatures based on longitudinal survey data: (1) the literature on real wage variation over the business cycle and (2) the literature on intertemporal substitution in labor supply. Accounting for mean-reverting measurement error suggests that real wages may be even more procyclical than indicated by recent longitudinal studies. We also find that the instrumental variables estimator commonly used in intertemporal substitution studies is inconsistent if changes in earnings and hours of work are measured with different degrees of mean reversion, but the magnitude of the resulting inconsistency appears to be small. © 2005 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 87 (2005)
Issue (Month): 1 (February)
Pages: 193-196

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Handle: RePEc:tpr:restat:v:87:y:2005:i:1:p:193-196

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Cited by:
  1. Lee, Nayoung & Moon, Hyungsik Roger & Weidner, Martin, 2012. "Analysis of interactive fixed effects dynamic linear panel regression with measurement error," Economics Letters, Elsevier, vol. 117(1), pages 239-242.
  2. John Gibson & Bonggeun Kim, 2010. "Non-Classical Measurement Error in Long-Term Retrospective Recall Surveys," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 72(5), pages 687-695, October.
  3. Pedro S. Martins & Gary Solon & Jonathan P. Thomas, 2012. "Measuring What Employers Do about Entry Wages over the Business Cycle: A New Approach," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(4), pages 36-55, October.
  4. Yuriy Gorodnichenko & Klara Sabirianova Peter, 2004. "Returns to Schooling in Russia and Ukraine: A Semiparametric Approach to Cross-Country Comparative Analysis," William Davidson Institute Working Papers Series 719, William Davidson Institute at the University of Michigan.
  5. Donggyun Shin & Gary Solon, 2006. "New Evidence on Real Wage Cyclicality within Employer-Employee Matches," NBER Working Papers 12262, National Bureau of Economic Research, Inc.
  6. O'Neill, Donal & Sweetman, Olive, 2012. "The Consequences of Measurement Error when Estimating the Impact of BMI on Labour Market Outcomes," IZA Discussion Papers 7008, Institute for the Study of Labor (IZA).
  7. Steven Haider & Gary Solon, 2006. "Life-Cycle Variation in the Association between Current and Lifetime Earnings," NBER Working Papers 11943, National Bureau of Economic Research, Inc.
  8. O’NEILL, Donal & SWEETMAN, Olive & VAN DE GAER, Dirk, . "The effects of measurement error and omitted variables when using transition matrices to measure intergenerational mobility," CORE Discussion Papers RP -1962, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. Whalley, Alexander, 2011. "Education and labor market risk: Understanding the role of data cleaning," Economics of Education Review, Elsevier, vol. 30(3), pages 528-545, June.
  10. John Gibson & Bonggeun Kim, 2007. "Measurement Error in Long-term Retrospective Recall Surveys Of Earnings," Working Papers in Economics 07/03, University of Waikato, Department of Economics.
  11. Molly Dahl & Thomas DeLeire & Shannon Mok, 2012. "Food Insufficiency and Income Volatility in U.S. Households: The Effects of Imputed Earnings in the Survey of Income and Program Participation: Working Paper 2012-07," Working Papers 43137, Congressional Budget Office.
  12. Lisa M. Dragoset & Gary S. Fields, 2006. "U.S. Earnings Mobility: Comparing Survey-Based and Administrative-Based Estimates," Working Papers 55, ECINEQ, Society for the Study of Economic Inequality.

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