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Modeling Earnings Measurement Error: A Multiple Imputation Approach

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  • Brownstone, David
  • Valletta, Robert G
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    Abstract

    Recent survey validation studies suggest that measurement error in earnings data is pervasive and violates classical measurement error assumptions, and therefore may bias estimation of cross-section and longitudinal earnings models. We model the structure of earnings measurement error using data from the Panel Study of Income Dynamics Validation Study (PSDIVS). We then use Rubin's (1987) multiple imputation techniques to estimate consistent earnings equations under non-classical earnings measurement error in the PSID. Our technique is readily generalized, and the empirical results demonstrate the potential importance of correcting for measurement error in earnings and related data, particularly during recessions.

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    File URL: http://www.escholarship.org/uc/item/3gb0k9b5.pdf;origin=repeccitec
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    Bibliographic Info

    Paper provided by University of California Transportation Center in its series University of California Transportation Center, Working Papers with number qt3gb0k9b5.

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    Date of creation: 01 Jul 1996
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    Handle: RePEc:cdl:uctcwp:qt3gb0k9b5

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    Keywords: Social and Behavioral Sciences;

    References

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    1. Jakubson, George, 1991. "Estimation and Testing of the Union Wage Effect Using Panel Data," Review of Economic Studies, Wiley Blackwell, vol. 58(5), pages 971-91, October.
    2. 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.
    3. Akerlof, George A & Yellen, Janet L, 1985. "Unemployment through the Filter of Memory," The Quarterly Journal of Economics, MIT Press, vol. 100(3), pages 747-73, August.
    4. J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers 185, Massachusetts Institute of Technology (MIT), Department of Economics.
    5. Brownstone, David, 1991. "Multiple Imputations for Linear Regression Models," University of California Transportation Center, Working Papers qt5rv0265r, University of California Transportation Center.
    6. Mathiowetz, Nancy A & Duncan, Greg J, 1988. "Out of Work, Out of Mind: Response Errors in Retrospective Reports of Unemployment," Journal of Business & Economic Statistics, American Statistical Association, vol. 6(2), pages 221-29, April.
    7. Brownstone, David, 1991. "Multiple Imputations for LInear Regression Models," University of California Transportation Center, Working Papers qt6rv6n3sd, University of California Transportation Center.
    8. John Bound & Charles Brown & Greg J. Duncan & Willard L Rodgers, 1989. "Measurement Error In Cross-Sectional and Longitudinal Labor Market Surveys: Results From Two Validation Studies," NBER Working Papers 2884, National Bureau of Economic Research, Inc.
    9. Jonathan S. Feinstein, 1991. "An Econometric Analysis of Income Tax Evasion and its Detection," RAND Journal of Economics, The RAND Corporation, vol. 22(1), pages 14-35, Spring.
    10. Greenberg, David & Halsey, Harlan, 1983. "Systematic Misreporting and Effects of Income Maintenance Experiments on Work Effort: Evidence from the Seattle-Denver Experiment," Journal of Labor Economics, University of Chicago Press, vol. 1(4), pages 380-407, October.
    11. Imbens, G.W. & Hellerstein, J.K., 1993. "Raking and Regression," Harvard Institute of Economic Research Working Papers 1657, Harvard - Institute of Economic Research.
    12. Brown, James N & Light, Audrey, 1992. "Interpreting Panel Data on Job Tenure," Journal of Labor Economics, University of Chicago Press, vol. 10(3), pages 219-57, July.
    13. 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.
    14. Angrist, Joshua D & Newey, Whitney K, 1991. "Over-Identification Tests in Earnings Functions with Fixed Effects," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(3), pages 317-23, July.
    15. Bound, John & Krueger, Alan B, 1991. "The Extent of Measurement Error in Longitudinal Earnings Data: Do Two Wrongs Make a Right?," Journal of Labor Economics, University of Chicago Press, vol. 9(1), pages 1-24, January.
    16. Clotfelter, Charles T, 1983. "Tax Evasion and Tax Rates: An Analysis of Individual Returns," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 363-73, August.
    17. Greenberg, David & Moffitt, Robert & Friedmann, John, 1981. "Underreporting and Experimental Effects on Work Effort: Evidence from the Gary Income Maintenance Experiment," The Review of Economics and Statistics, MIT Press, vol. 63(4), pages 581-89, November.
    18. Heckman, James J, 1993. "What Has Been Learned about Labor Supply in the Past Twenty Years?," American Economic Review, American Economic Association, vol. 83(2), pages 116-21, May.
    19. 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.
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    Cited by:
    1. repec:dgr:uvatin:2098033 is not listed on IDEAS
    2. Keisuke Hirano & Guido W. Imbens & Geert Ridder & Donald B. Rubin, 2001. "Combining Panel Data Sets with Attrition and Refreshment Samples," Econometrica, Econometric Society, vol. 69(6), pages 1645-1659, November.
    3. Javier Escobal & Sonia Laszlo, 2005. "Measurement Error in Access to Markets," Development and Comp Systems 0503008, EconWPA.
    4. David Brownstone & Robert Valletta, 2001. "The Bootstrap and Multiple Imputations: Harnessing Increased Computing Power for Improved Statistical Tests," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 129-141, Fall.
    5. Shore-Sheppard, Lara & Buchmueller, Thomas C. & Jensen, Gail A., 2000. "Medicaid and crowding out of private insurance: a re-examination using firm level data," Journal of Health Economics, Elsevier, vol. 19(1), pages 61-91, January.
    6. Jörg-Peter Schräpler, 2002. "Respondent Behavior in Panel Studies: A Case Study for Income-Nonresponse by Means of the German Socio-Economic Panel (GSOEP)," Discussion Papers of DIW Berlin 299, DIW Berlin, German Institute for Economic Research.
    7. Keisuke Hirano & Guido W. Imbens & Geert Ridder & Donald B. Rubin, 1998. "Combining Panel Data Sets with Attrition and Refreshment Samples," Tinbergen Institute Discussion Papers 98-033/4, Tinbergen Institute.
    8. repec:ese:iserwp:2003-08 is not listed on IDEAS
    9. Brownstone, David, 1997. "Multiple Imputation Methodology for Missing Data, Non-Random Response, and Panel Attrition," University of California Transportation Center, Working Papers qt2zd6w6hh, University of California Transportation Center.

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