Using the P90/P10 Ratio to Measure Inequality Trends with the Current Population Survey:

A View from Inside the Census Bureau Vaults

Richard V. BurkhauserCornell University

Shuaizhang FengShanghai University of Finance and Economics

Stephen P. JenkinsUniversity of Essex

December 17, 2006 Presented at the 2006 International Symposium on Cont

emporary Labor Economics

Xiamen, China

Past Work

“Levels and Long-Term Trends in Earnings Inequality: Overcoming Current Population Survey Censoring Problems Using the GB2 Distribution” JBES

Shuaizhang Feng

Richard V. Burkhauser

J.S. Butler

Outline of the Talk

• Introduction

• The Problem

• Methods

• Results

• Comparing Trends of P90/P10 with Gini Coefficients

• Conclusion

Introduction

• The practice of top coding affects earnings/income inequality trends based on public March Current Population Surveys (CPS).

• Previous researches have been focused primarily on Gini coefficients. (Burkhauser et al., 2004; Feng et al. 2006)

• No similar scrutiny has been given to the impact of censoring on percentile ratios, such as P90/P10.

• Introduction

• The Problem

• Methods

• Results

• Comparing Trends of P90/P10 with Gini Coefficients

• Conclusion

The Problem: Censoring in Public and Internal CPS

• Current Population Survey (CPS) is a large household survey administered by US Census Bureau each month.

• March Supplements of CPS provide income information of US population about the previous year

• Most income inequality measures of US are based on CPS, including official releases.

The Problem: Censoring in Public and Internal CPS

• Public & Internal data files of the Current Population Survey

• Censoring occurs in both version (in the public files: top coding)

• Censoring occurs at each individual levels of income, not the total.

• Censoring (top coding) practices vary with time.

The Problem: Censoring in Public and Internal CPS

• Our aim is the long term trend of earnings/income inequality.

• However, trend based on public data is misleading (topcoding).

(Levy & Murnane, 1992; Burkhauser et al. 2004) • Even numbers based on Internal files are also contamina

ted by censoring.• For Gini, Burkhauser (2004) proposed consistent topcodi

ng, and Feng et al. (2006) proposed parametric modelling of earnings based on GB2.

The Problem: Censoring in Public and Internal CPS

• What about P90/P10?• People have not been worrying about P90/

P10 as total percentage of income values affected by topcoding is typically small (less than 10%).

• But, remember censoring occurs at each individual sources while we are interested in the trend of the total value.

• Introduction

• The Problem

• Methods

• Results

• Comparing Trends of P90/P10 with Gini Coefficients

• Conclusion

Methods

• We are able to access to internal CPS data of U.S. Census Bureau through the New York Census Research Data Center at Cornell University.

• We use the P90/P10 ratios calculated from internal data to assess the impacts of public top coding on inequality trends, and as a baseline to evaluate alternative approaches to correct for this problem

• 7 different P90/P10 series are calculated.

Methods

Public: Public-use March CPS with cell-means since 1995. [based on public data]

Rule of Thumb: Public with topcodes equal to (1.5)*(top code). [based on public data]

Cell-Mean: Public with topcodes with internally measured cell means. [based on internal data, but could be available to public in principal]

Methods

Public Lower: Lower limit of P90/P10 based on public files. {assigning the censoring cutoff point for censored values} [based on public data]

Public Upper: Upper Limit based on public files. {assigning positive infinity for censored values} [based on public data]

Methods

Internal Lower: Lower limit of P90/P10 based on internal files. [based on internal data]

Internal Upper: Upper Limit based on internal files. [based on internal data]

• Introduction

• The Problem

• Methods

• Results

• Comparing Trends of P90/P10 with Gini Coefficients

• Conclusion

Results

We consider three income concepts:

• Wages and Salaries of Full time Full year workers

• Total Labor Earnings of Full time Full year workers

• Size-adjusted Household Income

P90/P10 ratio of labor earnings Full-time, full-year (wage earnings only)

public upper

public lower public

rule of thumb

cell-mean

internal upper

internal lower

1995 5.98 5.80 5.94 5.85 5.86 5.86 5.86

1997 6.30 6.20 6.24 6.20 6.20 6.20 6.20

1999 7.00 6.90 7.00 7.00 7.00 7.00 7.00

2000 6.71 6.44 6.55 6.55 6.55 6.55 6.55

P90/P10 ratio of labor earnings Full time, full year (total labor earnings)

public upper

public lower public

rule of thumb

cell-mean

internal upper

internal lower

1996 5.19 5.17 5.17 5.17 5.17 5.17 5.17

1998 5.38 5.20 5.31 5.23 5.23 5.23 5.23

1999 5.54 5.38 5.54 5.46 5.46 5.46 5.46

P90/P10 ratio of Household Income:

(1975-2000)

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Public Upper

Public Low er

Internal Upper

Internal Low er

Percentage of Individuals with Household Size-

adjusted Income Censored in the Public File

0.0

1.0

2.0

3.0

4.0

5.0

6.0

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

All

Below 95th

Below 90th

Below 85th

% of Individuals Below the 90th Percentile with

Censored Household Income by Income Source

0

0.5

1

1.5

2

2.5

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

All Other Income

Other Labor Earnings

Primary Labor Earnings

• Introduction

• The Problem

• Methods

• Results

• Comparing Trends of P90/P10 with Gini Coefficients

• Conclusion

P90/P10 vs. Gini

• Our preferred P90/P10 series: Cell-mean

• Our preferred Gini series: GB2 with public data

• This is the first time the two are compared with both corrected for the problem of censoring.

Long-Term Inequality Trends P90/P10 vs. Gini (wage earnings only)

0.8

0.85

0.9

0.95

1

1.05

1.1

1.15

1.2

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

Gini

P90/P10

Long-Term Inequality Trends P90/P10 vs. Gini (total labor earnings)

0.8

0.9

1

1.1

1.2

1.3

1.4

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

Gini

P90/P10

Long-Term Inequality Trends P90/P10 vs. Gini (household income)

0.8

0.9

1

1.1

1.2

1.3

1.4

1.5

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

Gini

P90/P10

• Introduction

• The Problem

• Methods

• Results

• Comparing Trends of P90/P10 with Gini Coefficients

• Conclusion

Conclusions

• Top coding affects calculation of P90/P10 ratios, especially for household income.

• With consistent cell means, public-use P90/P10 ratios mirror those using internal data.

• P90/P10 ratios and Gini coefficients have very different long term trends.

Thank you!