Effects of Nonresponse and Measurement Error on Earnings Volatility and Inequality: Evidence from Survey and Administrative Data

This project presents new estimates of earnings volatility and inequality using unique restricted- access survey and administrative tax data. We use survey data from the Current Population Survey Annual Social and Economic Supplement (CPS ASEC) linked to the Social Security Detailed Earnings Records (DER) to document trends in volatility and inequality separately by gender and in combination with other characteristics such as race, educational attainment, nativity, full time, full year employment, and household head status. We also investigate the relationship between item nonresponse and measurement error for the CPS earnings questions. Prior research has found that (1) nonresponse is linked to earnings: individuals in the tails of the earnings distribution are less likely to respond to the earnings question. Other research has suggested that (2) individuals with income above the average are more likely to underreport their earnings, while individuals with earnings below average are more likely to over- report their earnings. We examine whether these two phenomena are related. The overlapping samples in the CPS data allow us to observe individuals who switch from response to nonresponse. This allows us to investigate whether those who fail to respond in both years have different response patterns than those who provide earnings data in both years.