Measuring wage inequality under right censoring

Paulo Rodrigues and João Nicolau
Authors registered in the RePEc Author Service: Pedro Raposo

Working Papers from Banco de Portugal, Economics and Research Department

Abstract: In this paper we investigate potential changes which may have occurred over the last two decades in the probability mass of the right tail of the wage distribution, through the analysis of the corresponding tail index. In specific, a conditional tail index estimator is introduced which explicitly allows for right tail censoring (top-coding), which is a feature of the widely used current population survey (CPS), as well as of other surveys. Ignoring the top-coding may lead to inconsistent estimates of the tail index and to under or over statements of inequality and of its evolution over time. Thus, having a tail index estimator that explicitly accounts for this sample characteristic is of importance to better understand and compute the tail index dynamics in the censored right tail of the wage distribution. The contribution of this paper is threefold: i) we introduce a conditional tail index estimator that explicitly handles the top-coding problem, and evaluate its finite sample performance and compare it with competing methods; ii) we highlight that the factor values used to adjust the top-coded wage have changed over time and depend on the characteristics of individuals, occupations and industries, and propose suitable values; and iii) we provide an in-depth empirical analysis of the dynamics of the US wage distribution’s right tail using the public-use CPS database from 1992 to 2017.

JEL-codes: C18 C24 E24 J11 J31 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-ecm, nep-lma and nep-mac
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https://www.bportugal.pt/sites/default/files/anexos/papers/wp202008.pdf

Related works:
Journal Article: Measuring wage inequality under right censoring (2023)
Working Paper: Measuring wage inequality under right censoring (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ptu:wpaper:w202008

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