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Implications of Mean-Reverting Measurement Error for Longitudinal Studies of Wages and Employment

Author

Listed:
  • Bonggeun Kim

    (University at Canterbury)

  • Gary Solon

    (University of Michigan)

Abstract

This note examines the implications of mean-reverting mea-surement error for two influential literatures based on longitudinal survey data: (1) the literature on real wage variation over the business cycle and (2) the literature on intertemporal substitution in labor supply. Accounting for mean-reverting measurement error suggests that real wages may be even more procyclical than indicated by recent longitudinal studies. We also find that the instrumental variables estimator commonly used in intertemporal substitution studies is inconsistent if changes in earnings and hours of work are measured with different degrees of mean reversion, but the magnitude of the resulting inconsistency appears to be small. © 2005 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Bonggeun Kim & Gary Solon, 2005. "Implications of Mean-Reverting Measurement Error for Longitudinal Studies of Wages and Employment," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 193-196, February.
  • Handle: RePEc:tpr:restat:v:87:y:2005:i:1:p:193-196
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    Citations

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    Cited by:

    1. John Gibson & Bonggeun Kim, 2010. "Non-Classical Measurement Error in Long-Term Retrospective Recall Surveys," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 72(5), pages 687-695, October.
    2. Steven Haider & Gary Solon, 2006. "Life-Cycle Variation in the Association between Current and Lifetime Earnings," American Economic Review, American Economic Association, vol. 96(4), pages 1308-1320, September.
    3. Stacy, Brian, 2014. "Left with Bias? Quantile Regression with Measurement Error in Left Hand Side Variables," EconStor Preprints 104744, ZBW - German National Library of Economics.
    4. Qing Li, 2014. "Identifiability of mean-reverting measurement error with instrumental variable," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 68(2), pages 118-129, May.
    5. Arie Kapteyn & Jelmer Y. Ypma, 2007. "Measurement Error and Misclassification: A Comparison of Survey and Administrative Data," Journal of Labor Economics, University of Chicago Press, vol. 25, pages 513-551.
    6. Donal O'Neill, 2015. "Correcting for Self-Reporting Bias in BMI: A Multiple Imputation Approach," Economics, Finance and Accounting Department Working Paper Series n263-15.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
    7. Fuwa Nobuhiko & Ito Seiro & Kubo Kensuke & Kurosaki Takashi & Sawada Yasuyuki, 2012. "How Does Credit Access Affect Children's Time Allocation?: Evidence from Rural India," Journal of Globalization and Development, De Gruyter, vol. 3(1), pages 1-28, June.
    8. Gorodnichenko, Yuriy & Sabirianova Peter, Klara, 2005. "Returns to schooling in Russia and Ukraine: A semiparametric approach to cross-country comparative analysis," Journal of Comparative Economics, Elsevier, vol. 33(2), pages 324-350, June.
    9. John Gibson & Bonggeun Kim, 2007. "Measurement Error in Long-term Retrospective Recall Surveys Of Earnings," Working Papers in Economics 07/03, University of Waikato.
    10. Verdugo, Gregory, 2016. "Real wage cyclicality in the Eurozone before and during the Great Recession: Evidence from micro data," European Economic Review, Elsevier, vol. 82(C), pages 46-69.
    11. Molly Dahl & Thomas DeLeire & Shannon Mok, 2012. "Food Insufficiency and Income Volatility in U.S. Households: The Effects of Imputed Earnings in the Survey of Income and Program Participation: Working Paper 2012-07," Working Papers 43137, Congressional Budget Office.
    12. O'Neill, Donal & Sweetman, Olive, 2012. "The Consequences of Measurement Error when Estimating the Impact of BMI on Labour Market Outcomes," IZA Discussion Papers 7008, Institute for the Study of Labor (IZA).
    13. Donal O’Neill & Olive Sweetman & Dirk Van de gaer, 2007. "The effects of measurement error and omitted variables when using transition matrices to measure intergenerational mobility," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 5(2), pages 159-178, August.
    14. repec:eee:econom:v:200:y:2017:i:2:p:251-259 is not listed on IDEAS
    15. Donggyun Shin, 2011. "Causes of Earnings Volatility and Risk Sharing," Korean Economic Review, Korean Economic Association, vol. 27, pages 253-272.
    16. Lee, Nayoung & Moon, Hyungsik Roger & Weidner, Martin, 2012. "Analysis of interactive fixed effects dynamic linear panel regression with measurement error," Economics Letters, Elsevier, vol. 117(1), pages 239-242.
    17. Aaron Chalfin & Justin McCrary, 2013. "The Effect of Police on Crime: New Evidence from U.S. Cities, 1960-2010," NBER Working Papers 18815, National Bureau of Economic Research, Inc.
    18. Pedro S. Martins & Gary Solon & Jonathan P. Thomas, 2012. "Measuring What Employers Do about Entry Wages over the Business Cycle: A New Approach," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(4), pages 36-55, October.
    19. Donggyun Shin & Gary Solon, 2007. "New Evidence On Real Wage Cyclicality Within Employer-Employee Matches," Scottish Journal of Political Economy, Scottish Economic Society, vol. 54(5), pages 648-660, November.
    20. repec:eee:econom:v:200:y:2017:i:2:p:169-180 is not listed on IDEAS
    21. Keshav Dogra & Olga Gorbachev, 2016. "Consumption Volatility, Liquidity Constraints and Household Welfare," Economic Journal, Royal Economic Society, vol. 126(597), pages 2012-2037, November.
    22. Lisa M. Dragoset & Gary S. Fields, 2006. "U.S. Earnings Mobility: Comparing Survey-Based and Administrative-Based Estimates," Working Papers 55, ECINEQ, Society for the Study of Economic Inequality.
    23. Meijer, Erik & Spierdijk, Laura & Wansbeek, Tom, 2017. "Consistent estimation of linear panel data models with measurement error," Journal of Econometrics, Elsevier, vol. 200(2), pages 169-180.
    24. Whalley, Alexander, 2011. "Education and labor market risk: Understanding the role of data cleaning," Economics of Education Review, Elsevier, vol. 30(3), pages 528-545, June.

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