Response Error in Earnings Functions for Nonblack Males

Abstract

Biases due to measurement errors in an earnings function for nonblack males are assessed by estimating unobserved variable models with data from the Income Supplement Reinterview program of the March 1973 Current Population Survey and from the remeasurement program of the 1973 Occupational Changes in a Generation-II survey. We find that reports of social origins, educational and occupational attainments, labor supply, and earnings of nonblack males are subject to primarily random response errors. Logarithmic earnings is one of the most accurately measured indicators of socioeconomic success. Further, retrospective reports of status variables are as reliable as contemporaneous reports. When measurement errors are ignored for nonblacks, the total economic return to schooling is underestimated by about 16% and the effects of some background variables are underestimated by as much as 15%. The total effects offirst and current job status are underestimated by about 20% when measurement errors are ignored, as are the unmediated effects of current job status. Conflicting evidence is presented on whether respondents tend to understate the consistency between their earnings and educational attainments in the Current Population Survey. If there is such a tendency, unmediated effects of education are modestly understated when response errors are ignored, and they are overstated if no such tendency exists.