measuringwageswiththecps.docVIP

Measuring Wages with the CPS Note: This document assumes familiarity with CPS.doc. Many, if not most, econometric studies using the Current Population Survey require some measure of income received by individuals and families. Income, as defined by economists, includes all money receipts from wages, salaries, dividends, government programs, and so on. Two narrower concepts are often used instead: earnings or wages. In this document we explain the differences between the three measures. We go on to show you how to measure wages using the CPS. Defining Wages, Earnings, and Income The wage rate, often shortened to simply “the wage,” is defined as pay per unit of time. Because not all workers are paid for work in the same units of time, an adjective is used to indicate the time period, e.g., an hourly wage. Workers paid a set amount every month know their monthly wage rate. Conversion from one time period to another is needed to standardize the time period. A salary is defined as the annual wage rate in dollars per year. Earnings, in dollars, is defined for most people as wages earned over a specified time period. It can be computed as the hourly wage rate multiplied by the number of hours worked during the time period. Total compensation is earnings plus employee benefits. Total income is total compensation plus unearned income such as dividends, interest, and government transfer payments. More information on definitions of these terms as used in the CPS is available at /population/www/cps/cpsdef.html. In principle, hourly wages can be obtained for about a quarter of the data set in every month and for the entire data set in March, when extra questions are asked about income. Measures of earnings and income can only be obtained from the March supplement. Its wider availability is one of the reasons many studies use hourly wages as opposed to earnings or total income. Wages in the CPS—The Basic Survey We turn our focus to hourly w