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Are Earnings Inequality and Mobility Overstated? The Impact of Non-Classical Measurement Error

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  • Peter Gottschalk

    ()
    (Boston College)

  • Minh Huynh

    (U.S. Social Security Administration)

Abstract

Measures 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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Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 649.

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Date of creation: 02 Aug 2006
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Publication status: forthcoming, Review of Economics and Statistics
Handle: RePEc:boc:bocoec:649

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  1. 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.
  2. 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.
  3. MaCurdy, Thomas E., 1982. "The use of time series processes to model the error structure of earnings in a longitudinal data analysis," Journal of Econometrics, Elsevier, vol. 18(1), pages 83-114, January.
  4. 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.
  5. 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.
  6. 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.
  7. Bollinger, Christopher R, 1998. "Measurement Error in the Current Population Survey: A Nonparametric Look," Journal of Labor Economics, University of Chicago Press, vol. 16(3), pages 576-94, July.
  8. Shorrocks, Anthony, 1978. "Income inequality and income mobility," Journal of Economic Theory, Elsevier, vol. 19(2), pages 376-393, December.
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Cited by:
  1. Jo Blanden & Paul Gregg & Lindsey Macmillan, 2013. "Intergenerational Persistence in Income and Social Class: The Impact of Within-Group Inequality," CEP Discussion Papers dp1242, Centre for Economic Performance, LSE.
  2. Van Kerm, Philippe & Pi Alperin, Maria Noel, 2013. "Inequality, growth and mobility: The intertemporal distribution of income in European countries 2003–2007," Economic Modelling, Elsevier, vol. 35(C), pages 931-939.
  3. Markus Jantti & Stephen P. Jenkins, 2014. "Income Mobility," Working Papers 319, ECINEQ, Society for the Study of Economic Inequality.
  4. repec:ese:iserwp:2013-23 is not listed on IDEAS
  5. Kässi, Otto, 2011. "Earnings Dynamics of Men and Women in Finland: Permanent Inequality versus Earnings Instability," MPRA Paper 34301, University Library of Munich, Germany.
  6. Akee, Randall, 2011. "Errors in self-reported earnings: The role of previous earnings volatility and individual characteristics," Journal of Development Economics, Elsevier, vol. 96(2), pages 409-421, November.
  7. Audra J. Bowlus & Jean-Marc Robin, 2011. "An International Comparison of Lifetime Inequality: How Continental Europe Resembles North America," University of Western Ontario, CIBC Centre for Human Capital and Productivity Working Papers 20116, University of Western Ontario, CIBC Centre for Human Capital and Productivity.
  8. Akee, Randall K. Q., 2007. "Errors in Self-Reported Earnings: The Role of Previous Earnings Volatility," IZA Discussion Papers 3263, Institute for the Study of Labor (IZA).
  9. Daniel D. Schnitzlein, 2009. "Struktur und Ausmaß der intergenerationalen Einkommensmobilität in Deutschland," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 229(4), pages 450-466, August.
  10. Kruppe, Thomas & Matthes, Britta & Unger, Stefanie, 2014. "Effectiveness of data correction rules in process-produced data : the case of educational attainment," IAB Discussion Paper 201415, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].

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