Trouble in the Tails? What We Know about Earnings Nonresponse Thirty Years after Lillard, Smith, and Welch

Earnings nonresponse in household surveys is widespread, yet there is limited evidence on whether and how nonresponse bias affects measured earnings. This paper examines the patterns and consequences of nonresponse using internal Current Population Survey individual records linked to administrative Social Security Administrative data on earnings for calendar years 2005-2010. Our findings confirm the conjecture by Lillard, Smith, and Welch (1986) that nonresponse across the earnings distribution is U-shaped. Left-tail “strugglers” and right-tail “stars” are least likely to report earnings. Household surveys understate earnings dispersion, reporting too few low and too few extremely high earners. Throughout much of the earnings distribution nonresponse is ignorable, but there exists trouble in the tails.