The Difference between Wages and Income
Wages and income are related but distinct measures of economic well-being. Wages refer to the hourly rate or amount a worker earns per unit of time, reflecting the value of their labor on an hourly basis. Income is the total amount of money a person earns over a defined period, such as a year, and can include earnings from non-wage sources, like investments or retirement funds. This blog post focuses on wage income, the total amount of money a person earns from wages for work over a defined period. Wage income is determined by the wage rate and the number of hours a person works over the period—which depends on work status (full time or part time), seasonality, stability, and other factors. Wage income can also include other sources of earnings like overtime pay, bonuses, or additional jobs.
Overview of Available Data Sources
The Current Population Survey and the American Community Survey provide a number of ways to measure wages and income:
- CPS Outgoing Rotation Groups/Earner Study: Includes weekly earnings and hourly wage information (for hourly workers only). Households in the CPS are interviewed for four months, not interviewed for 8 months, and then interviewed again for 4 more months. Households that are interviewed for the fourth month or eighth month (that is, the households that are about to rotate out of interviews for eight months or indefinitely) are asked additional questions about work and earnings.
Strengths of the CPS Outgoing Rotation Groups/Earner Study: Because the CPS includes a longitudinal panel, the Earner Study can be used to study wage change over time. The Earner Study can also be linked to the ASEC (see below) and other monthly data.
- CPS Annual Social and Economic Supplement (ASEC): Includes total pre-tax wage and salary income--that is, money received as an employee--for the previous calendar year and hourly wage information (for hourly workers only). There are also measures of total personal income and total family income.
Strengths of the ASEC: Extensive variables on labor market behavior and public or private income sources. ASEC data can also be linked to monthly CPS data.
- ACS (American Community Survey): Includes annual income data and hourly wage information (for hourly workers). There are also measures of total personal income and total family income.
Strengths of the ACS: The ACS includes large sample sizes, which are ideal for subgroup analyses. However, it contains fewer work- and income-related covariates than CPS and does not have a longitudinal component.
Analytic Considerations
Calculating hourly wages. Both the CPS and ACS include hourly wages for workers who are paid an hourly rate. If you are interested in approximating hourly wages for salaried workers, you must manually calculate an hourly rate. Hourly wage estimation requires identifying hours and weeks worked annually. Researchers should note assumptions about paid leave, potential reporting errors, and the challenges inherent in self-reported income.
Skewed distribution. Because income distributions are highly right-skewed, log transformations or medians are often preferable to mean-based analyses.
Topcoding. Topcoding presents another challenge—particularly in CPS Earner Study, where upper-income values are truncated at relatively low thresholds. The Bureau of Labor Statistics provides detailed guidance on adjusting topcoded wages.
Adjusting for inflation. All dollar amounts in the IPUMS are nominal dollars--that is, they are given as measured in the original data. However, inflation renders these dollar amounts not comparable: $1 in 2008, for example, is worth much less than $1 in 1939. The IPUMS variable CPI99 provides an easy way to adjust dollar amounts to constant dollars. This variable, constant within years, inflates or deflates dollar amounts to the amount they would have represented in 1999 (which corresponds to the 2000 census PUMS). An IPUMS data access system feature–Adjust Monetary Vaules–will also do this for you; this IPUMS blog post describes the feature in depth. Alternatively, you can manually adjust wages and income using the Consumer Price Index Calculator.
Other considerations. Be thoughtful about any additional universe restrictions you apply to the data. For example, when using the CPS “worked last week” variable, note that every five to seven years the September reference week overlaps with Labor Day, leading many respondents to report not working that week even though they are employed. Similarly, if you restrict by occupation, remember that the sample will include individuals who were recently employed but are not currently working. Click the “universe” tab of each IPUMS variable to find its universe.
Measuring Income Among Nonworkers
In studies of aging, many respondents are partially or fully retired. The ACS includes broad categories for non-wage income, while the CPS ASEC provides detailed sources such as Social Security, pensions, annuities, and retirement account withdrawals—critical for assessing financial security in later life.
Example Studies using IPUMS Data
From Lawn Care to Home Care: Undocumented Immigration and Aging in Place
Differential sensitivity of adversity by income: Evidence from a Study of Bereavement
The Effect of the Minimum Wage on Employer-Sponsored Insurance for Low-Income Workers and Dependents
Nurse Employment During The First Fifteen Months Of The COVID-19 Pandemic
Families’ Job Characteristics and Economic Self-Sufficiency: Differences by Income, Race-Ethnicity, and Nativity