Using UI wage records to measure income and employment has several potential advantages. The first is that wages reported to state UI programs are thought to include most of the wage earnings of individuals. By law, any employer paying $1,500 in wages during a calendar quarter to one or more employees is subject to a state UI tax and, hence, must report quarterly what is paid to each employee, including regular earnings, overtime, and tips and bonuses. Agricultural employers must report earnings if they have either a quarterly payroll of at least $20,000 or have hired 10 or more employees in each of 20 or more weeks during the preceding calendar year. Employers of paid household help must report wages if they pay at least $1,000 in cash wages during any quarter. In a study of the use of UI wage records to measure the post enrollment earnings of JTPA recipients, Baj et al. (1991) claim that, "Virtually all jobs that most observers would consider appropriate targets for JTPA terminee placement are covered by the UI reporting system." (More on this study follows.)
A second potential advantage of UI wage data is their presumed accuracy. Hill et al. (1999), for example, made the following, perhaps incorrect argument. "Employers are liable for taxes up to an earnings threshold. Because this threshold is quite low, there appears to be little incentive for employers to underreport earnings for most employees. Moreover, employers' reports are used to determine unemployment benefits. Discrepancies between employer and employee reports upon application of unemployment benefits can result in employer sanctions." Baj, Trott and Stevens (1991:10) write, "The accuracy of the reporting of money wages is unknown. However, relatively few corrections occur in the routine processing of individual unemployment insurance claims. In addition electronic payroll processing is increasing, electronic cross-matching capabilities are expanding, and new revenue quality control practices have been introduced. Thus, there is reason to think that the accuracy of UI data is higher than that of most self-reported sources of earnings information. Intentional underreporting of wages constitutes fraud, which is subject to sanctions. Unintentional misreporting is subject to penalty payments."
A third presumed advantage of using UI data to measure employment and wage income of individuals is its ready availability, at least for certain authorized studies, and the ability to link this data with information from other administrative or survey data sources. (Note that state UI authorities control access to UI wage records and the Social Security numbers necessary to link these data to other data sources for individuals, in order to safeguard the confidentiality of this information.) UI wage records are commonly used in state-level evaluations of welfare reform and other social programs. As Baj et al. (1991) conclude in their study of the feasibility of using UI wage data from different states to monitor the post training earnings outcomes of individuals who received training services in JTPA:
The findings from the first phase of this project indicate that JTPA and any other program [emphasis added] whose goal is to increase the employment and earnings of participants can use UI wage-record data with confidence. Obtaining post-program information from state UI systems is not only a viable option, it is far more cost-effective than the current practice of gathering this information through contact with participants. Furthermore, UI data are of higher quality than corresponding survey-based information. (p. 30)
They found, for example, that the response rate to the survey was 70.2 percent for those who were employed at termination compared to 49.6 percent for those who were not. Based on these results, they concluded that using UI wage data was preferred to obtaining data via surveys, especially given the cost of conducting surveys on this population.
To summarize, using UI wage records to measure income and employment has several potential strengths. These include the following:
- UI data are available at the state level and can be matched to individuals in existing samples at relatively low cost (as long as Social Security numbers are available).
- It is straightforward to do follow-up analyses on income and employment for workers that remain in the state.
- Data are timely in that they become available with roughly a two-quarter lag.
- For most workers the reporting of wage and salary income appears to be accurate; however, concerns are noted in the following section.
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