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The Extent of Measurement Error In Longitudinal Earnings Data: Do Two Wrongs Make A Right?

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John Bound
Alan B. Krueger

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Abstract

This paper examines the properties and prevalence of measurement error in longitudinal earnings data. The analysis compares Current Population Survey data to administrative Social Security payroll tax records for a sample of heads of households over two years. In contrast. to the typically assumed properties of measurement error, the results indicate that errors are serially correlated over two years and negatively correlated with true earnings (i.e., mean reverting). Moreover, reported earnings are more reliable for females than males. Overall, the ratio of the variance of the signal to the total variance is .82 for men and .92 for women. These ratios fall to .65 and .81 when the data are specified in first-differences. The estimates suggest that longitudinal earnings data may be more reliable than previously believed.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2885.

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Date of creation: Mar 1989
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Publication status: published as Journal of Labor Economics, Volume 9, Number 1, January 1991, pp. 1-24.
Handle: RePEc:nbr:nberwo:2885

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Altonji, Joseph G, 1986. "Intertemporal Substitution in Labor Supply: Evidence from Micro Data," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages S176-S215, June. [Downloadable!] (restricted)
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  2. Mellow, Wesley & Sider, Hal, 1983. "Accuracy of Response in Labor Market Surveys: Evidence and Implications," Journal of Labor Economics, University of Chicago Press, vol. 1(4), pages 331-44, October. [Downloadable!] (restricted)
  3. Lillard, Lee & Smith, James P & Welch, Finis, 1986. "What Do We Really Know about Wages? The Importance of Nonreporting and Census Imputation," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 489-506, June. [Downloadable!] (restricted)
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  4. Orley Ashenfelter & Gary Solon, 1982. "Longitudinal Labor Market Data: Sources, Uses, and Limitations," Working Papers 535, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
  5. Ashenfelter, Orley, 1984. "Macroeconomic analyses and microeconomic analyses of labor supply," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 21, pages 117-156. [Downloadable!] (restricted)
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  6. Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, vol. 31(1), pages 93-118, February. [Downloadable!] (restricted)
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  7. 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. [Downloadable!] (restricted)
  8. Griliches, Zvi, 1974. "Errors in Variables and Other Unobservables," Econometrica, Econometric Society, vol. 42(6), pages 971-98, November. [Downloadable!] (restricted)
  9. repec:fth:prinin:155 is not listed on IDEAS
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