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Measurement error in longitudinal earnings data: evidence from Germany

Author

Listed:
  • Achim Schmillen

    (The World Bank)

  • Matthias Umkehrer

    (Institute for Employment Research)

  • Till Wachter

    (University of California
    National Bureau of Economic Research
    Centre for Economic Policy Research
    IZA - Institute of Labor Economics)

Abstract

We present evidence on the extent of measurement error in German longitudinal earnings data. Qualitatively, we confirm the main result of the international literature: longitudinal earnings data are relatively reliable in a cross section but much less so in first differences. Quantitatively, in the cross section our findings are very similar to those of Bound and Krueger (J Labor Econ 9:1–24, 1991) and Pischke (J Bus Econ Stat 13:305–314, 1995) for the United States while we find even stronger evidence that first-differencing exacerbates measurement error problems. We also show that measurement error in our survey data is not “classical” as it is negatively correlated with administrative earnings and positively autocorrelated over an extended period of time. Additionally, we estimate a model of measurement error stemming from underreporting of transitory earnings shocks in combination with a white-noise component and make a number of methodological contributions. Our results are robust to the use of two different linked survey-administrative data sets and various other sensitivity checks.

Suggested Citation

  • Achim Schmillen & Matthias Umkehrer & Till Wachter, 2024. "Measurement error in longitudinal earnings data: evidence from Germany," Journal for Labour Market Research, Springer;Institute for Employment Research/ Institut für Arbeitsmarkt- und Berufsforschung (IAB), vol. 58(1), pages 1-31, December.
    • Handle: RePEc:spr:jlabrs:v:58:y:2024:i:1:d:10.1186_s12651-024-00366-x
    DOI: 10.1186/s12651-024-00366-x
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    Cited by:

    1. Nico Thurow, 2025. "Characterizing Measurement Error in the German Socio-Economic Panel Using Linked Survey and Administrative Data," Papers 2501.03015, arXiv.org.
    2. Marco Caliendo & Katrin Huber & Ingo E. Isphording & Jakob Wegmann, 2024. "On the Extent, Correlates, and Consequences of Reporting Bias in Survey Wages," Papers 2411.04751, arXiv.org.

    More about this item

    Keywords

    Measurement error; Transitory and permanent earnings; Earnings dynamics; Linked survey-administrative data;
    All these keywords.

    JEL classification:

    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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