Parameter Estimates Comparison of Earnings Functions in the PSID and CPS Data

This article explores representativeness of the Panel Study of Income Dynamics (PSID) during the period from 1976 to 2007 by comparing earnings equations in the PSID and the Current Population Survey (CPS). We find that CPS-PSID differences in parameter estimates have increased and become statistically significant in the second half of the period, with the PSID considerably underestimating the returns to education. Nonrandom selection in the PSID sample, especially among those with lower levels of education, appears to be the reason