Using the Pareto Distribution to Improve Estimates of Topcoded Earnings

24 Pages Posted: 25 Jan 2014

See all articles by Philip Armour

Philip Armour

Cornell University

Richard V. Burkhauser

Cornell University - Department of Policy Analysis & Management (PAM); University of Melbourne, Melbourne Institute

Jeff Larrimore

Board of Governors of the Federal Reserve System

Multiple version iconThere are 3 versions of this paper

Date Written: January 2014

Abstract

Inconsistent censoring in the public-use March CPS limits its usefulness in measuring labor earnings trends, as previous approaches for imputing topcoded earnings systematically understate top earnings. Using Pareto estimation methods with less-censored internal data, we create an enhanced cell-mean series to capture top earnings in the public-use data. Annual earnings inequality trends since 1963 using our series largely mirror those found by Kopczuk, Saez, and Song (2010) using Social Security Administration data for Commerce and Industry workers. When we extend our analysis to 2013 and consider all workers, earnings inequality levels are higher but its growth is more modest.

Suggested Citation

Armour, Philip and Burkhauser, Richard V. and Larrimore, Jeff, Using the Pareto Distribution to Improve Estimates of Topcoded Earnings (January 2014). NBER Working Paper No. w19846, Available at SSRN: https://ssrn.com/abstract=2384303

Philip Armour (Contact Author)

Cornell University ( email )

No Address Available

Richard V. Burkhauser

Cornell University - Department of Policy Analysis & Management (PAM) ( email )

120 Martha Van Rensselaer Hall
Ithaca, NY 14853
United States

University of Melbourne, Melbourne Institute ( email )

Level 5, FBE Building, 111 Barry Street
161 Barry Street
Carlton, VIC 3053
Australia

Jeff Larrimore

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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