The Returns to Education and the Determinants of Race and Gender Earnings Gaps Using Self-Reported versus Employer-Reported Earnings Data

Authors

  • Michael Gideon Amazon
  • Misty L. Heggeness University of Kansas https://orcid.org/0000-0003-4113-7698
  • Marta Murray-Close U.S. Census Bureau
  • Samuel L. Myers University of Minnesota

DOI:

https://doi.org/10.25071/1874-6322.40385

Keywords:

race, earnings, income, inequality, gender

Abstract

There are wide and persistent gender and race differences in wage and salary incomes. Much of the literature attempting to explain these differences relies on self-reported earnings. Many self-reported wages and salary incomes differ, however, from those reported by employers. These errors can bias the measurement of the returns to education and the decomposition of racial and gender earnings gaps. This article examines the implications of using selfreported data for measuring gender and race disparities in earnings. We find that relative to employer-reported data, self-reports understate the wage and salary incomes of black women with low educational levels and overstate the returns to higher education for black women. These previously unexplored and unrecognised findings of bias in the estimation of the returns to black women’s education and the large understatement of earnings among less-well educated black women have implications for interpreting the sources of race and gender earnings inequality.

Author Biographies

Michael Gideon, Amazon

Economist

Misty L. Heggeness, University of Kansas

Associate Professor, School of Public Affairs and Administration

Marta Murray-Close, U.S. Census Bureau

Research Economist Social, Economic, and Housing Statistics Division

Samuel L. Myers, University of Minnesota

Roy Wilkins Professor of Human Relations and Social Justice Humphrey School of Public Affairs

References

Abowd, J.M., and M.H. Stinson 2013 “Estimating measurement error in annual job earnings: A comparison of survey and administrative data”, The Review of Economics and Statistics 95(5): 1451–1467. DOI: https://doi.org/10.1162/REST_a_00352

Allen, W.D. 2007 “The reporting and underreporting of rape”, Southern Economic Journal 73(3): 623–641. DOI: https://doi.org/10.1002/j.2325-8012.2007.tb00793.x

Allingham, M.G., and A. Sandmo 1972 “Income tax evasion: A theoretical analysis”, Journal of Public Economics 1: 323–338. DOI: https://doi.org/10.1016/0047-2727(72)90010-2

Alm, J. 1988 “Compliance costs and the tax avoidance - tax evasion decision”, Public Finance Quarterly 16(1): 31–66. DOI: https://doi.org/10.1177/109114218801600102

Anderson, K.L. 1997 “Gender, status, and domestic violence: An integration of feminist and family violence approaches”, Journal of Marriage and the Family 59: 655–669. DOI: https://doi.org/10.2307/353952

Andridge, Rebecca R., and Roderick J. A. Little 2010 “A Review of Hot Deck Imputation for Survey Non-response”, International Statistical Review 78(1): 40–64. DOI: https://doi.org/10.1111/j.1751-5823.2010.00103.x

Ards, S., C. Chung, and S.L. Myers Jr 1998 “The effects of sample selection bias on racial differences in child abuse reporting”, Child Abuse & Neglect 22(2): 103–115. DOI: https://doi.org/10.1016/S0145-2134(97)00131-2

—–, and A. Harrell 1993 “Reporting of child maltreatment: A secondary analysis of the national incidence surveys”, Child Abuse & Neglect 17(3): 337–344. DOI: https://doi.org/10.1016/0145-2134(93)90056-B

Arias, O., G. Yamada, and L. Tejerina 2004 “Education, family background, and racial earnings inequality in Brazil”, International Journal of Manpower 25(3/4): 355. DOI: https://doi.org/10.1108/01437720410541443

Bayer, P., and K.K. Charles 2016 “Divergent paths: Structural change, economic rank, and the evolution of black-white earnings differences 1940–2014” NBER Working Paper No. 22797. DOI: https://doi.org/10.3386/w22797

Blau, F.D., and A.H. Beller 1992 “Black-white earnings over the 1970s and 1980s: Gender differences in trends”, The Review of Economics and Statistics 74(2): 276–286. DOI: https://doi.org/10.2307/2109659

Bollinger, C.R. 1998 “Measurement error in the Current Population Survey: A nonparametric look”, Journal of Labor Economics 16(3): 576–594. DOI: https://doi.org/10.1086/209899

—–, B.T. Hirsch, C.M. Hokayem, and J.P. Ziliak 2019 “Trouble in the tails? What we know about earnings nonresponse thirty years after Lillard, Smith, and Welch”, Journal of Political Economy 127(5): 2143–2185. DOI: https://doi.org/10.1086/701807

Bound, J., C. Brown, and N. Mathiowetz 2001 “Measurement error in survey data” in K.J. Arrow and M.D. Intriligator (Eds), Handbook of econometrics vol. 5 North-Holland: North Holland Publishing Company. DOI: https://doi.org/10.1016/S1573-4412(01)05012-7

Card, D., and A.B. Krueger 1992 “School quality and black-white relative earnings: A direct assessment”, The Quarterly Journal of Economics 107(1): 151–200. DOI: https://doi.org/10.2307/2118326

—– 1993 “Trends in relative black-white earnings revisited”, The American Economic Review 83(2): 85–91.

Clotfelter, C.T. 1983 “Tax evasion and tax rates: An analysis of individual returns”, Review of Economics and Statistics 65: 363–373. DOI: https://doi.org/10.2307/1924181

Cunningham, W., and J.P. Jacobsen 2008 “Earnings inequality within and across gender, racial, and ethnic groups in four Latin American countries”, World Bank Policy Research Working Paper 4591. DOI: https://doi.org/10.1596/1813-9450-4591

Darity, W.A., Jr. 1982 “The human capital approach to black-white earnings inequality: Some unsettled questions”, The Journal of Human Resources 17(1): 72–93. DOI: https://doi.org/10.2307/145525

—–, D. Guilkey, and W. Winfrey 1996 “Explaining differences in economic performance among racial and ethnic groups in the USA: The data examined”, American Journal of Economics and Sociology 55(4): 411–426. DOI: https://doi.org/10.1111/j.1536-7150.1996.tb02639.x

—–, S.L. Myers Jr., and C. Chung 1998 “Racial earnings disparities and family structure” Southern Economic Journal 65(1): 20–41. DOI: https://doi.org/10.1002/j.2325-8012.1998.tb00126.x

—–, D. Hamilton, S.L. Myers, G.N. Price, and M. Xu 2022 “Racial Differences in Time at Work Not Working”, ILR Review 75(3): 552–572. DOI: https://doi.org/10.1177/00197939211063863

Fesler, R.D., L. Maples, and N. Gacho 2002 “Tax ‘Tips’: Finally, no employer FICA liability on unreported gratuities”, Journal of Accountancy 193(2): 68.

Fortin, N., T. Lemieux, and S. Firpo 2011 “Decomposition methods in economics” in D. Card & O. Ashenfelter (Eds.) Handbook of Labor Economics vol. 4 North-Holland: North Holland Publishing Company. DOI: https://doi.org/10.1016/S0169-7218(11)00407-2

Gabriel, P.E. 2004 “Differences in earnings, skills and labour market experience among young black and white men”, Applied Economic Letters 11(6): 337–341. DOI: https://doi.org/10.1080/1350485042000228150

Gideon, M., M.L. Heggeness, M. Murray-Close, and S.L. Myers, S. Jr. 2017 “Examining the black-white earnings differential with administrative records” SEHSD Working Paper No. 2017–32.

Heckman, J.J., T.M. Lyons, and P.E. Todd 2000 “Understanding black-white wage differentials, 1960–1990”, The American Economic Review 90(2): 344–349. DOI: https://doi.org/10.1257/aer.90.2.344

Hokayem, C., C. Bollinger, and J.P. Ziliak 2015 “The role of CPS nonresponse in the measurement of poverty”, Journal of the American Statistical Association 110(511): 935–945. DOI: https://doi.org/10.1080/01621459.2015.1029576

—–, T. Raghunathan, and J. Rothbaum 2016 “Sequential regression multivariate imputation in the Current Population Survey Annual Social and Economic Supplement” Unpublished Working Paper.

Jann, B. 2008 “The Blinder– Oaxaca decomposition for linear regression models”, The Stata Journal 8(4): 453–479. DOI: https://doi.org/10.1177/1536867X0800800401

Johns, A., and J. Slemrod 2010 “The distribution of income tax noncompliance”, National Tax Journal 63(3): 397. DOI: https://doi.org/10.17310/ntj.2010.3.01

Kapteyn, A., and J.Y. Ypma 2007 “Measurement error and misclassification: A comparison of survey and administrative data”, Journal of Labor Economics 25(3): 513–551. DOI: https://doi.org/10.1086/513298

King, A. G. 1978 “Labor market racial discrimination against black women”, The Review of Black Political Economy 8(4): 325–335. DOI: https://doi.org/10.1007/BF02689501

Kim, C., and C.R. Tamborinin 2012 “Do survey data estimate earnings inequality correctly? Measurement errors among black and white male workers”, Social Forces 90(4): 1157–1181. DOI: https://doi.org/10.1093/sf/sor042

—– 2014 “Response error in earnings: An analysis of the Survey of Income and Program Participation with matched administrative data”, Sociological Methods and Research 43(1): 39–72. DOI: https://doi.org/10.1177/0049124112460371

Kim, M. 2002 “Has the race penalty for black women disappeared in the United States?”, Feminist Economics 8(2): 115–124. DOI: 10.1080/13545700210160997. DOI: https://doi.org/10.1080/13545700210160997

Koumbiadis, N., J.O. Okpara, G.M. Pandit, and T. Ritsatos 2014 “Tax evasion and compliance; from the neo classical paradigm to behavioural economics, a review”, Journal of Accounting & Organizational Change 10(2): 244–262. DOI: 10.1108/JAOC-07-2012-0059. DOI: https://doi.org/10.1108/JAOC-07-2012-0059

Laffie, L.S. 2000 “Got tips? Better report them”, Journal of Accountancy 190(1): 75.

Layne, M., D. Wagner, and C. Rothhaas 2014 “Estimating record linkage false match rate for the Person Identification Validation System” CARRA Working Paper No. 2014–02.

Lazear, E. 1979 “The narrowing of black-white wage differentials is illusory”, The American Economic Review 69(4): 553–564.

Masters, S.H. 1974 “The effect of educational differences and labor-market discrimination on the relative earnings of black males”, The Journal of Human Resources 9(3): 342–360. DOI: https://doi.org/10.2307/144691

Meyer, B.D., W.K.C. Mok, and J.X. Sullivan 2015 “Household surveys in crisis”, Journal of Economic Perspectives 29(4): 199–226. DOI: https://doi.org/10.1257/jep.29.4.199

Murray-Close, M., and M.L. Heggeness 2020 “Manning up and womaning down: How husbands and wives report their earnings when she earns more” SESHD Working Paper. DOI: https://doi.org/10.21034/iwp.28

Myers, S. L. , Jr. 1980 “Why are crimes underreported? What is the crime rate? Does it “really” matter?”, Social Science Quarterly 61(1): 23–43. DOI: https://doi.org/10.2307/3033960

Neal, D. 2004 “The measured black-white wage gap among women is too small”, Journal of Political Economy, 112(1): S1–S28. DOI: https://doi.org/10.1086/379940

Neal, D.A., and W.R. Johnson 1996 “The role of premarket factors in black-white wage differences”, Journal of Political Economy 104(5): 869–895. DOI: https://doi.org/10.1086/262045

NORC 2011 “Final report: Assessment of the U.S. Census Bureau’s Person Identification Validation System” The nonpartisan and objective research organization, NORC, at the University of Chicago.

O’Neill, J. 1990 “The role of human capital in earnings differences between black and white men”, Journal of Economic Perspectives 4(4): 25–45. DOI: https://doi.org/10.1257/jep.4.4.25

Posey, K.G. 2016 “Household income: 2015” U.S. Census Bureau Technical Report ACSBR/15-02, September.

Roth, A., and M. Slotwinski 2019 “Gender norms and income misreporting within households (November)”, CESifo Working Paper No. 7298. DOI: https://doi.org/10.2139/ssrn.3338624

Sandmo, A. 2005 “The theory of tax evasion: A retrospective view”, National Tax Journal 58(4): 643–663. DOI: https://doi.org/10.17310/ntj.2005.4.02

Seidman, D., and M. Couzens 1974 “Getting the crime rate down: Political pressure and crime reporting”, Law & Society Review 8(3): 457–493. DOI: https://doi.org/10.2307/3053084

Shrider, E., M. Kolar, F. Chen, and J. Semega 2021 “Income and Poverty in the United States: 2020” Current Population Survey Report No. P60-273 Washington, DC: U.S. Census Bureau.

Simms, M.C. 2012 “Special issue on the invisible woman”, The Review of Black Political Economy 40(1): 11–12. DOI: 10.1007/s12114-012-9135-5. DOI: https://doi.org/10.1007/s12114-012-9135-5

—–, and J. Malveaux 1986 Slipping through the cracks: The status of black women Piscataway, New Jersey: Transaction Books.

Skogan, W.G. 1975 “Measurement problems in official and survey crime rates”, Journal of Criminal Justice 3(1): 17–31. DOI: https://doi.org/10.1016/0047-2352(75)90096-3

Smith, J.P., and F.R. Welch 1977 “Black-white male wage ratios: 1960–70”, The American Economic Review 67(3): 323–338.

Swann, M.M., and M.A. Hofmann 2013 “Tip reporting In independent food and beverage establishments”, Journal of Hospitality Financial Management 20(2): 2.

US Census Bureau 2019 “Current Population Survey Design and Methodology” Technical Paper 77, October.

Wagner, D., and M. Layne 2014 “The person identification validation system (PVS): Applying the Center for Administrative Records Research and Applications’(CARRA) record linkage software” CARRA Working Paper 2014–01.

Williams, C.C., and I.A. Horodnic 2017 “Evaluating the illegal employer practice of underreporting employees’ salaries”, British Journal of Industrial Relations 55(1): 83–111. DOI: https://doi.org/10.1111/bjir.12179

Published

2022-11-17

How to Cite

Gideon, M., Heggeness, M. L., Murray-Close, M., & Myers, S. L. (2022). The Returns to Education and the Determinants of Race and Gender Earnings Gaps Using Self-Reported versus Employer-Reported Earnings Data. Journal of Income Distribution®, 28(3-4). https://doi.org/10.25071/1874-6322.40385