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Estimating Measurement Error in SIPP Annual Job Earnings: A

By John M. Abowd and Martha H. Stinson


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 a new 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 is 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 is a “true ” measure of the quantity collected by the survey. 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. 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 as well as a common error component shared by SIPP and SSA earnings. We do not impose ancillary orthogonal design assumptions

Year: 2010
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