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- Because our binning strategy requires a large amount of data per age group, we drop individuals still working after age 60 and we assume that people retire at 60. For comparability with the W2 synthetic dataset that we derive from the econometric processes in Guvenen et al. (2015), that start age age 25, we also drop individuals below age 25.
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- From 1968 to 1997, the survey was yearly. After 1997, it started having a biennial structure. Since the model period is one year, we restrict ourselves to the yearly part of the survey (1968-1997). We only consider the SRC or core subsample, since the SEO oversamples the poor. Obtaining a more accurate picture of the wealth or income-poor is not particularly helpful for our purposes, since the poor account for a small proportion of the overall wealth.
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- Furthermore, after dropping the SEO and Latino samples we are left with a random sample, which makes computations simpler since weights are not needed Haider (2001) 12 .
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- In line with previous literature, we restrict our study to male heads of household. A valid observation is formed of two values for individual labor income: this year’s and next In our case, we are creating a dataset of pairs of income observations from the PSID panel. It must be taken into account that the weighting of our final dataset can be affected by attrition and by the fact that we are neglecting observations of yearly income under 900 $ year’s. Neither of the two income values can be missing. We deflate labor income by CPIU (taken from FRED economic data, where index 100=1982-1984). We do not consider earnings observations with values under 900$. This avoids the problem of taking logs of very small numbers and is in line with usual practice in previous literature (De Nardi (2004) or Guvenen et al. (2015), for instance).
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- The major shortcomings the PSID data are that the sample size is not very large (and the earnings-rich are not oversampled), that they are less likely to respond to surveys, and that earnings are top-coded. As a result, our approximation of the right tail of the income distribution is not well estimated (Budria, Diaz-Gimenez, Quadrini and Rios-Rull (2002)).
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- This is an important limitation because the earnings risk faced by the high earners is potentially an important determinant of their saving behavior and wealth concentration in the upper tail (Castañeda et al. (2003)).
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- Wolff, Edward N. (1987), ‘Estimates of household wealth inequality in the US, 1962-1983’, Review of Income and Wealth 33(3), 231–256. A Appendix for online publication only: The PSID and synthetic W2 data A.0.1 PSID data The Panel Study of Income Dynamics (PSID) follows a large number of US households over time and reports information about their demographic characteristics and sources of income. The PSID was initially composed of two major subsamples. The first of them, the SRC (Survey Research Center) or core subsample, was designed to be representative of the US population and is a random sample itself. The second, the SEO (Survey of Economic Opportunity) subsample, was created to study the characteristics of the most deprived households. Later, Immigrant and Latino subsamples were also added to the PSID.
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