IDEAS home Printed from
   My bibliography  Save this paper

What Do We Really Know About Wages? New Evidence From A Natural Experiment


  • John A. Bishop
  • John Formby
  • Paul D. Thistle


Lilliard, Smith and Welch (1986) note the rising proportion of workers whose earnings go unreported in the Current Population Survey and argue that the Census Bureau's imputation procedure fails to account for the positive correlation between nonresponse and income. As a consequence, an imputation or reporting bias is substituted for the nonresponse bias with unclear implications for what we really know about wages. In 1989 the processing system for compiling CPS data was substantially revised. To permit users of the public use tapes to judge the comparability of the data under the two processing systems, the Census Bureau issued two March 1989 CPS tapes containing earnings imputed under the old and the new system. The distinguishing characteristic of the old procedure was that if one piece of information was missing from an interview, then all items were imputed. The new imputation procedure imputes only the true missing values. Combining individual level data from both processing systems provides a natural experiment that sheds new light on Lilliard, Smith, and Welch's question--What Do we Really Know About Wages? We exploit the earnings data for the same individuals in several ways. First, we investigate erasure bias by estimating earnings equations based on both the old and the new CPS processing system data. Second, we analyze reporting bias by estimating a nonresponse probit and using the inverse Mills ratio to correct the earnings equation for reporting bias. Third, we explore the important question of model bias in the imputation of earnings. We find that for white males the effect of correcting for reporting bias dramatically increases the returns to education. In addition to stressing the importance of reporting bias in the pre-1989 data, our results indicate that failure to correct for nonparticipation is a serious and continuing problem in the post-1989 CPS processing system.

Suggested Citation

  • John A. Bishop & John Formby & Paul D. Thistle, "undated". "What Do We Really Know About Wages? New Evidence From A Natural Experiment," Working Papers 9723, East Carolina University, Department of Economics.
  • Handle: RePEc:wop:eacaec:9723
    Note: For a copy of the paper, e-mail:

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wop:eacaec:9723. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.