Are Earnings Inequality and Mobility Overstated? The Impact of Nonclassical Measurement Error

Measures of inequality and mobility based on self-reported earnings reflect attributes of both the joint distribution of earnings across time and the joint distribution of measurement error and earnings. While classical measurement error would increase measures of inequality and mobility, there is substantial evidence that measurement error in earnings is not classical. In this paper, we present the analytical links between nonclassical measurement error and some summary measures of inequality and mobility. The empirical importance of nonclassical measurement error is explored using the Survey of Income and Program Participation (SIPP) matched to tax records. We find that the effects of nonclassical measurement error are large. However, these nonclassical effects are largely offsetting when estimating mobility, as measured by the intertemporal correlation in earnings. As a result, SIPP estimates of the correlation are similar to estimates based on tax records, though SIPP estimates of inequality are smaller than estimates based on tax records.

• Publication year

  2010

• Venue

  Review of Economics and Statistics

• Publication date

  2010-04-15

• Fields of study

  Economics

• Identifiers
  DOI 10.1162/rest.2010.11232
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• No claims are published for this paper.

• No concepts are published for this paper.

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