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Earnings Dynamics and Measurement Error in Matched Survey and Administrative Data

Author

Listed:
  • Dean Hyslop

    () (Motu Economic and Public Policy Research)

  • Wilbur Townsend

    () (Motu Economic and Public Policy Research)

Abstract

This paper analyses the measurement error and earnings dynamics of two sources of individuals' annual earnings from Statistics New Zealand's Survey of Family, Income and Employment (SoFIE) and administrative linked employer-employee data (LEED) earnings reported in the Integrated Database Infrastructure (IDI). First, SoFIE reported earnings are 2-4% lower than LEED earnings on average, and slightly more variable; while the difference between the two reported earnings accounts for 25-30% of the variance in either report. Second, we reject the joint hypothesis that SoFIE earnings are reported with classical measurement error and LEED earnings are recorded without error. We estimate that the statistical reliability of LEED measured earnings (0.87{0.91) is higher than that of SoFIE earnings (0.83{0.85). Third, the differences between SoFIE and LEED earnings are negatively correlated with both individuals' average (LEED) earnings over the sample period and their annual transitory deviations. These differences can be characterised longitudinally by both persistent and serially correlated transitory factors. Fourth, we formulate and estimate a model for SoFIE and LEED earnings, which includes dynamics for true earnings and for measurement errors in both SoFIE and LEED. Female earnings are more variable than males', due both to permanent and transitory effects, and transitory shocks are relatively stronger for women. Allowing for measurement error in LEED, we find no evidence of mean-reverting error in SoFIE. Fifth, the models imply measurement errors dominate the observed changes in male earnings, and account for large fractions of the changes in female earnings.

Suggested Citation

  • Dean Hyslop & Wilbur Townsend, 2016. "Earnings Dynamics and Measurement Error in Matched Survey and Administrative Data," Working Papers 16_18, Motu Economic and Public Policy Research.
  • Handle: RePEc:mtu:wpaper:16_18
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    References listed on IDEAS

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    1. Costas Meghir & Luigi Pistaferri, 2004. "Income Variance Dynamics and Heterogeneity," Econometrica, Econometric Society, vol. 72(1), pages 1-32, January.
    2. Altonji, Joseph G & Segal, Lewis M, 1996. "Small-Sample Bias in GMM Estimation of Covariance Structures," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(3), pages 353-366, July.
    3. John M. Abowd & Martha H. Stinson, 2013. "Estimating Measurement Error in Annual Job Earnings: A Comparison of Survey and Administrative Data," The Review of Economics and Statistics, MIT Press, vol. 95(5), pages 1451-1467, December.
    4. 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.
    5. Peter Gottschalk & Minh Huynh, 2010. "Are Earnings Inequality and Mobility Overstated? The Impact of Nonclassical Measurement Error," The Review of Economics and Statistics, MIT Press, vol. 92(2), pages 302-315, May.
    6. Dean R. Hyslop, 2001. "Rising U.S. Earnings Inequality and Family Labor Supply: The Covariance Structure of Intrafamily Earnings," American Economic Review, American Economic Association, vol. 91(4), pages 755-777, September.
    7. Lillard, Lee A & Weiss, Yoram, 1979. "Components of Variation in Panel Earnings Data: American Scientists, 1960-70," Econometrica, Econometric Society, vol. 47(2), pages 437-454, March.
    8. 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.
    9. 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.
    10. Meghir, Costas & Pistaferri, Luigi, 2011. "Earnings, Consumption and Life Cycle Choices," Handbook of Labor Economics, Elsevier.
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    Cited by:

    1. repec:eee:ecolet:v:155:y:2017:i:c:p:19-23 is not listed on IDEAS
    2. Dean Hyslop & Wilbur Townsend, 2017. "The longer term impacts of job displacement on labour market outcomes," Working Papers 17_12, Motu Economic and Public Policy Research.
    3. Hyslop, Dean R. & Townsend, Wilbur, 2017. "Employment misclassification in survey and administrative reports," Economics Letters, Elsevier, vol. 155(C), pages 19-23.

    More about this item

    Keywords

    Panel data; earnings dynamics; measurement error; validation study;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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