Are Earnings Inequality and Mobility Overstated? The Impact of Non-Classical Measurement Error
AbstractMeasures of inequality and mobility based on self-reported earnings reflect attributes of both the joint distribution of earnings across time and the joint distribution of measurement error and earnings. While classical measurement error would increase measures of inequality and mobility there is substantial evidence that measurement error in earnings is not classical. In this paper we present the analytical links between non-classical measurement error and measures of inequality and mobility. The empirical importance of non-classical measurement error is explored using the Survey of Income and Program Participation matched to tax records. We find that the effects of non-classical measurement error are large. However, these non-classical effects are largely offsetting when estimating mobility. As a result SIPP estimates of mobility are similar to estimates based on tax records, though SIPP estimates of inequality are smaller than estimates based on tax records.
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Bibliographic InfoPaper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 649.
Date of creation: 02 Aug 2006
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Publication status: forthcoming, Review of Economics and Statistics
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- Peter Gottschalk & Minh Huynh, 2010. "Are Earnings Inequality and Mobility Overstated? The Impact of Nonclassical Measurement Error," The Review of Economics and Statistics, MIT Press, vol. 92(2), pages 302-315, May.
- J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
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