Working Paper: NBER ID: w2885
Authors: John Bound; Alan B. Krueger
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.
Keywords: measurement error; longitudinal data; earnings; labor economics
JEL Codes: J31; C81
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Measurement error in reported earnings (E01) | Measurement error in reported earnings in the following year (C20) |
| Measurement errors in reported earnings (E01) | True earnings (J31) |
| True earnings (J31) | Measurement errors in reported earnings (E01) |
| Reported earnings reliability by gender (J16) | Measurement error in reported earnings (E01) |
| Longitudinal earnings data (J31) | Measurement error problems (C83) |
| First-differenced data (C29) | Measurement error problems (C83) |
| Measured cross-sectional variation in yearly earnings for men (J31) | True variation (C29) |
| Measured cross-sectional variation in yearly earnings for women (J31) | True variation (C29) |