The Extent of Measurement Error in Longitudinal Earnings Data: Do Two Wrongs Make a Right?

John Bound · Alan B. Krueger

514 citations0/0 files storedJournal of Labor Economics

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Labor market dynamics and wage inequality Survey Methodology and Nonresponse Statistical Methods and Bayesian Inference

Abstract

This article examines the properties and prevalence of measurement error in longitudinal earnings data. The analysis compares matched Current Population Survey data to administrative Social Security payroll tax records. In contrast to typically assumed properties of measurement error, the results indicate that errors are serially correlated over 2 years and negatively correlated with true earnings (i.e., mean reverting). In a cross section, 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. Longitudinal earnings data may be more reliable than previously believed.

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