What adjustment do I need to make to take care of top coding of income in INCWAGE to obtain comparable statistics say mean incwage by state, across years?
Are the statistics comparable across years without making adjustments for top coding ?
1 Like
If you want to compare the real value of INCWAGE across years, you should adjust for inflation. This note explains the process.
We are not aware of any documentation from the Census Bureau that recommends how to work with pooled topcode data across years or states. It is up to the individual researcher how to treat top coded income values and other censored variables. You may get useful information by calculating what percent of observations are affected by the top coding in your analytical sample to determine if any adjustment or special treatment is necessary. Whether this percentage is significant and requires any special treatment not will depend on the sample, the type of analysis, and what is suggested by the literature.
The top code of INCWAGE varies by state and over time. Different states have different top codes, and the top codes change in each sample year. On this page you can find tables from 1990 and later IPUMS USA samples that show the top code of the INCWAGE variable in that sample. Each file corresponds to a different sample and contains the top codes by state.
In the ACS (from 2003 onward), respondents in the top 0.5% of INCWAGE in their state in the previous calendar year have a top code that corresponds to the mean (average) annual wage earnings within this group. For example, the cut-off INCWAGE value to be top-coded in Minnesota in the 2021 ACS is $330,000. Respondents who report earning above this amount are instead however assigned the average value within this group (i.e. $540,000). Using this top coded value allows researchers to generate unbiased estimates of average wages. Although the threshold for wages to be top-coded differs by state and year, the ability to recover the average for the group allows researchers to obtain comparable statistics for mean wages across states and years. You can find the list of top codes by state and year in this section of the user guide.
1 Like
Thanks for the comprehensive answer. This is very helpful. Will take these into consideration.