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Earnings bracket obstacles in household surveys – How sharp are the tools in the shed?

Author

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  • Dieter von Fintel

    () (Department of Economics, Stellenbosch University)

Abstract

Earnings functions form the basis of numerous labour market analyses. Non-response (particularly among higher earners) may, however, lead to the exclusion of a significant proportion of South Africa’s earnings base. Earnings brackets have been built into surveys to maintain sufficient response rates, but also to capture information from those who are unsure about the earnings of fellow household members. This data type gives a rough indication of where the respondent lies in the income distribution, however exact figures are not available for estimation purposes. To overcome the mixed categorical and point nature of the dependent variable, researchers have traditionally applied midpoints to bracket earnings. Is this method too rudimentary? It is important to establish whether the brackets are too broad in South African Household surveys to be able to make reliable inferences. Here, midpoints are imputed to interval-coded responses alongside theoretical conditional means from the Pareto and lognormal distributions. The interval regression is implemented as a basis case, as it soundly incorporates point and bracket data in its likelihood function. Monte-Carlo simulation evidence suggests that interval regressions are least sensitive to bracket size, however midpoint imputation suffers distortions once brackets are too broad. Coefficient differences are investigated to distinguish similar from different results given the chosen remedy, and to establish whether midpoint imputations are credibly similar to applying interval regressions. To this end, testing procedures require adjustment, with due consideration of the heteroskedasticity introduced by Heckman 2-step estimates. Bootstrapping enhances conclusions, which shows that coefficients are virtually invariant to the proposed methods. Given that the bracket structure of South African Household Surveys has remained largely unchanged, midpoints can be applied without introducing coefficient bias.

Suggested Citation

  • Dieter von Fintel, 2006. "Earnings bracket obstacles in household surveys – How sharp are the tools in the shed?," Working Papers 08/2006, Stellenbosch University, Department of Economics.
  • Handle: RePEc:sza:wpaper:wpapers22
    as

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    File URL: https://www.ekon.sun.ac.za/wpapers/2006/wp082006/wp-08-2006.pdf
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Derek Yu, 2007. "The comparability of the Statistics South Africa October Household Surveys and Labour Force Surveys," Working Papers 17/2007, Stellenbosch University, Department of Economics.
    2. Derek Yu, 2013. "Some factors influencing the comparability and reliability of poverty estimates across household surveys," Working Papers 03/2013, Stellenbosch University, Department of Economics.
    3. Paula Armstrong & Janca Steenkamp, 2008. "South African Trade Unions: an Overview for 1995 to 2005," Working Papers 10/2008, Stellenbosch University, Department of Economics.
    4. Dieter Von fintel, 2007. "Dealing With Earnings Bracket Responses In Household Surveys - How Sharp Are Midpoint Imputations?," South African Journal of Economics, Economic Society of South Africa, vol. 75(2), pages 293-312, June.

    More about this item

    Keywords

    Labour; household surveys; earnings;

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • C42 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Survey Methods
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access

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