Determinants of Wealth Fluctuation: Changes in Hard-To-Measure Economic Variables in a Panel Study.
Measuring fluctuation in families' economic conditions is theraison d'êtreof household panel studies. Accordingly, a particularly challenging critique is thatextremefluctuation in measured economic characteristics might indicate compounding measurement error rather than actual changes in families' economic wellbeing. In this article, we address this claim by moving beyond the assumption that particularly large fluctuation in economic conditions might be too large to be realistic. Instead, we examine predictors of large fluctuation, capturing sources related to actual socio-economic changes as well as potential sources of measurement error. Using the Panel Study of Income Dynamics, we study between-wave changes in a dimension of economic wellbeing that is especially hard to measure, namely, net worth as an indicator of total family wealth. Our results demonstrate that even very large between-wave changes in net worth can be attributed to actual socio-economic and demographic processes. We do, however, also identify a potential source of measurement error that contributes to large wealth fluctuation, namely, the treatment of incomplete information, presenting a pervasive challenge for any longitudinal survey that includes questions on economic assets. Our results point to ways for improving wealth variables both in the data collection process (e.g., by measuring active savings) and in data processing (e.g., by improving imputation algorithms).
University of Michigan.
Fabian T
FT
Pfeffer
University of Michigan.
Jamie
J
Griffin
active savings; imputation; measurement error; panel study; wealth