Validating Longitudinal Earnings in Dynamic Microsimulation Models: The Role of Outliers

Abstract

Rapid growth in the earnings of the highest earners over the past two and a half decades has contributed to strains on Social Security’s finances and made projecting lifetime earnings on a year-by-year basis – already a complicated technical problem – even more challenging.  This project uses various descriptive techniques and high-quality administrative earnings data matched to household surveys to explore related questions about the changing wage distribution. We first describe the characteristics of high earners, both at a point in time and over longer periods (from 1983 through 2010).  We then evaluate how well SSA’s MINT7 dynamic microsimulation model projects inequality in the earnings distribution and the long-term characteristics of earnings paths.