Estimating Measurement Error in SIPP Annual Job Earnings: A Comparison of Census Bureau Survey and SSA Administrative Data

61 Pages Posted: 25 Jul 2011

See all articles by John M. Abowd

John M. Abowd

U.S. Census Bureau; Cornell University Department of Economics; Labor Dynamics Institute; School of Industrial and Labor Relations; NBER (on leave); CREST; IZA Institute of Labor Economics

Martha Harrison Stinson

Government of the United States of America - Bureau of the Census

Date Written: July 1, 2011

Abstract

We quantify sources of variation in annual job earnings data collected by the Survey of Income and Program Participation (SIPP) to determine how much of the variation is the result of measurement error. Jobs reported in the SIPP are linked to jobs reported in an administrative database, the Detailed Earnings Records (DER) drawn from the Social Security Administration’s Master Earnings File, a universe file of all earnings reported on W-2 tax forms. As a result of the match, each job potentially has two earnings observations per year: survey and administrative. Unlike previous validation studies, both of these earnings measures are viewed as noisy measures of some underlying true amount of annual earnings. While the existence of survey error resulting from respondent mistakes or misinterpretation is widely accepted, the idea that administrative data are also error-prone is new. Possible sources of employer reporting error, employee under-reporting of compensation such as tips, and general differences between how earnings may be reported on tax forms and in surveys, necessitates the discarding of the assumption that administrative data are a true measure of the quantity that the survey was designed to collect. In addition, errors in matching SIPP and DER jobs, a necessary task in any use of administrative data, also contribute to measurement error in both earnings variables. We begin by comparing SIPP and DER earnings for different demographic and education groups of SIPP respondents. We also calculate different measures of changes in earnings for individuals switching jobs. We estimate a standard earnings equation model using SIPP and DER earnings and compare the resulting coefficients. Finally exploiting the presence of individuals with multiple jobs and shared employers over time, we estimate an econometric model that includes random person and firm effects, a common error component shared by SIPP and DER earnings, and two independent error components that represent the variation unique to each earnings measure. We compare the variance components from this model and consider how the DER and SIPP differ across unobservable components.

Suggested Citation

Abowd, John Maron and Harrison Stinson, Martha, Estimating Measurement Error in SIPP Annual Job Earnings: A Comparison of Census Bureau Survey and SSA Administrative Data (July 1, 2011). US Census Bureau Center for Economic Studies Paper No. CES-WP- 11-20, Available at SSRN: https://ssrn.com/abstract=1894690 or http://dx.doi.org/10.2139/ssrn.1894690

John Maron Abowd

U.S. Census Bureau ( email )

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Cornell University Department of Economics ( email )

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Labor Dynamics Institute ( email )

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School of Industrial and Labor Relations ( email )

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NBER (on leave) ( email )

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CREST ( email )

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IZA Institute of Labor Economics

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Germany

Martha Harrison Stinson (Contact Author)

Government of the United States of America - Bureau of the Census ( email )

4600 Silver Hill Road
Washington, DC 20233
United States

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