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March, 2000, Vol. 123, No. 3
Comparing earnings inequality using two major surveys
Mark S. Handcock, Martina Morris, and Annette Bernhardt
Much of the research on the growing dispersion of earnings has relied on the March supplement to the Current Population Survey (CPS). As the research questions have turned to such issues as job instability and long-term wage growth, however, the focus often has shifted to longitudinal surveys, such as the Panel Study of Income Dynamics (PSID)1 and the National Longitudinal Surveys (NLS).2 In a recent unpublished but widely cited paper,3 Peter Gottschalk and Robert A. Moffitt compare annual earnings trends from the PSID and two cohorts of the NLS with those of the CPS.4 The authors find that reported earnings in the PSID and the original NLS cohort show roughly the same trends as the CPS, although the magnitudes are quite different.
For the later NLS cohort, however, known as the National Longitudinal Survey of Youth 1979 (NLSY79), Gottschalk and Moffitt find both significantly lower variance in reported annual earnings and a negative trend in variance over time (1979–88)—at least for high school graduates. In addition, a more recently published paper using different methodology finds a similar discrepancy.5 Because the findings of these studies stand in sharp contrast to the well-known "stylized fact" that the variance in earnings was increasing substantially during the 1980s, serious questions may be raised about the validity of the NLSY79 for research on the topic of recent trends in earnings inequality.
This article focuses on the comparison between the NLSY79 and the CPS, updating the Gottschalk-Moffitt analysis to 1994, the final year of data collection for the NLSY79 cohort. Because Gottschalk and Moffitt report few discrepancies in the trends for high school dropouts, the analysis is restricted to high school graduates. The article begins by replicating the Gottschalk-Moffitt analysis in order to verify the discrepancies in reported earnings between the two sets of data. Next, exploratory data analysis and respecified regression models are used to compare the trends and patterns, and to look for potential sources of the discrepancies. The final section discusses the implications of the findings for the validity of the two samples.
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1 The Panel Study of Income Dynamics (PSID), begun in 1968, is conducted by the Survey Research Center, Institute for Social Research, University of Michigan. The PSID is a longitudinal study of a representative sample of U.S. individuals (men, women, and children) and the family units in which they reside. It emphasizes the dynamic aspects of economic and demographic behavior, but its content is broad, including sociological and psychological measures. As a consequence of low attrition rates and the success of recontact efforts, the sample size has grown dramatically in recent years, from about 7,000 core households in 1990 to almost 8,700 in 1995. As of 1995, the PSID had collected information about more than 50,000 individuals spanning as much as 28 years of their lives. For more information on the PSID, visit their website at http://www.isr.umich.edu/src/psid/.
2 The National Longitudinal Surveys (NLS), sponsored and directed by the Bureau of Labor Statistics, gather detailed information about the labor market experiences and other aspects of the lives of six groups of men and women. Over the years, a variety of other government agencies, such as the National Institute of Child Health and Human Development, the Department of Defense, and the Department of Education, the Department of Justice, the National Institute on Drug Abuse, and the National School to Work Office, have funded components of the surveys that provided data relevant to their missions. As a result, the surveys include data about a wide range of events such as schooling and career transitions, marriage and fertility, training investments, child-care usage, and drug and alcohol use. The depth and breadth of each survey allow for analysis of an expansive variety of topics such as the transition from school to work, job mobility, youth unemployment, educational attainment and the returns to education, we fare recipiency, the impact of training, and retirement decisions.
The first set of surveys, initiated in 1966, consisted of four cohorts. These four groups are referred to as the “older men,” “mature women,” “young men,” and “young women” cohorts of the NLS, and are known collectively as the “original cohorts.” In 1979, a longitudinal study of a cohort of young men and women aged 14 to 22 was begun. This sample of youth was called the National Longitudinal Survey of Youth 1979 (NLSY79). In 1986, the NLSY79 was expanded to include surveys of the children born to women in that cohort, with the new cohort called the NLSY79 Children. In 1997, the NLS program was again expanded with a new cohort of young people aged 12 to 16 as of December 31, 1996. This new cohort is the National Longitudinal Survey of Youth 1997 (NLSY97).
The National Longitudinal Surveys, especially the NLSY79, have exceptional retention rates. As a result, many NLS survey members have been followed for many years, some for decades, allowing researchers to study large panels of men, women, and children over significant segments of their lives. For more information on the National Longitudinal Surveys, see the NLS Handbook, 1999 (Bureau of Labor Statistics, 1999).
3 See Peter Gottschalk and Robert A. Moffitt, “Earnings and wage distributions in the NLS, CPS, and PSID," final report to the U.S. Department of Labor (Brown University, 1992).
4 The Current Population Survey (CPS), which uses a scientifically selected sample of about 50,000 households, is conducted monthly for the Bureau of Labor Statistics by the Bureau of the Census. The CPS provides statistics on the labor force status of the civilian noninstitutional population of the United States, aged 16 years or older. In the CPS, respondents are asked about their activity during the week that includes the 12th day of the month, the so-called reference week. As such, the CPS is a cross-sectional survey of the population, as opposed to a longitudinal survey like the NLS. For more information on the CPS, see BLS Handbook of Methods, Bulletin 2490 (Bureau of Labor Statistics, April 1997), pp. 4-14.
5 See Thomas MaCurdy, Thomas Mroz, and R. Mark Gritz, "An Evaluation of the National Longitudinal Survey of Youth," Journal of Human Resources, spring 1998, pp. 345–436.
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