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Using the P90/P10 Index to Measure US Inequality Trends with Current Population Survey Data : A View from Inside the Census Bureau Vaults

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Author Info
Richard V. Burkhauser
Shuaizhang Feng
Stephen P. Jenkins

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Abstract

The March Current Population Survey (CPS) is the primary data source for estimation of levels and trends in labor earnings and income inequality in the USA. Time-inconsistency problems related to top coding in theses data have led many researchers to use the ratio of the 90th and 10th percentiles of these distributions (P90/P10) rather than a more traditional summary measure of inequality. With access to public use and restricted-access internal CPS data, and bounding methods, we show that using P90/P10 does not completely obviate timeinconsistency problems, especially for household income inequality trends. Using internal data, we create consistent cell mean values for all top-coded public use values that, when used with public use data, closely track inequality trends in labor earnings and household income using internal data. But estimates of longer-term inequality trends with these corrected data based on P90/P10 differ from those based on the Gini coefficient. The choice of inequality measure matters.

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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 699.

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Length: 27 p.
Date of creation: 2007
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Handle: RePEc:diw:diwwpp:dp699

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Keywords: Inequality income earnings Current Population Survey decile ratio Gini coefficient

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Find related papers by JEL classification:
D3 - Microeconomics - - Distribution
J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs

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  1. Levy, Frank & Murnane, Richard J, 1992. "U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1333-81, September. [Downloadable!] (restricted)
  2. Thomas Lemieux, 2006. "Increasing Residual Wage Inequality: Composition Effects, Noisy Data, or Rising Demand for Skill?," American Economic Review, American Economic Association, vol. 96(3), pages 461-498, June.
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  4. John Pencavel, 2006. "A Life Cycle Perspective on Changes in Earnings Inequality among Married Men and Women," The Review of Economics and Statistics, MIT Press, vol. 88(2), pages 232-242, 08. [Downloadable!] (restricted)
  5. Robert L. Brown & Steven G. Prus, 2006. "Income Inequality over the Later-Life Course: A Comparative Analysis of Seven OECD Countries," Social and Economic Dimensions of an Aging Population Research Papers 154, McMaster University. [Downloadable!]
  6. Francine D. Blau & Lawrence M. Kahn, 2005. "Do Cognitive Test Scores Explain Higher U.S. Wage Inequality?," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 184-193, December. [Downloadable!] (restricted)
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  7. Feng, Shuaizhang & Burkhauser, Richard V. & Butler, J.S., 2006. "Levels and Long-Term Trends in Earnings Inequality: Overcoming Current Population Survey Censoring Problems Using the GB2 Distribution," Journal of Business & Economic Statistics, American Statistical Association, vol. 24, pages 57-62, January. [Downloadable!] (restricted)
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  10. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2005. "Trends in U.S. Wage Inequality: Re-Assessing the Revisionists," NBER Working Papers 11627, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Trejo, Stephen J, 1997. "Why Do Mexican Americans Earn Low Wages?," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1235-68, December.
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  12. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June. [Downloadable!] (restricted)
  13. Peter Gottschalk & Timothy M. Smeeding, 1997. "Cross-National Comparisons of Earnings and Income Inequality," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 633-687, June. [Downloadable!] (restricted)
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