Challenges of Creating and Working with Cross-Year-Family-Individual Files: An Example from the PSID data set

Often researchers need to build longitudinal data sets in order to study individuals and families or firms and plants across time. No matter if individuals or firms are points of interest, the resulting matrix is no longer rectangular due to the changes in family or firm composition. Many times the data come into a different format and simply merging, on for example, family and person ID-s lead to wrong records. Here we are using the Panel Study of Income Dynamics to illustrate some of the pitfalls in creating a Cross-Year-Family-Individual File. In order to create a Cross-Year-Family-Individual file, one has to merge the family files with the individual files. As of 1990 the file format of PSID consists of single-year files with family-level data collected in each wave (i.e. 26 family files for data collected from 1968 through 1993) and one cross-year individual file with the individual-level data collected from 1968 to the most recent interviewing wave. Attaching family records to the individual ones, without taking into consideration splitoffs and movers in and out of the family, however, lead to some cases in which members of the same family appear to have different information for family income. The core of the problem is that some of the information reported in the interview year refers to the previous year. If a person is a splitoff, he reports, for example, the family income of the family he is currently in. This income then is incorrectly attached to his record of the previous year, when he was in a different family. We suggest a way to fix problems like this one. The idea is to extract separately all variables referring to the year previous to the year of the interview, and then using the splitoff indicator to attach them to the individuals¹ records.