Annualizing Labor Market, Inequality, and Poverty Indicators

Widely, 12-month or 4-quarter average labor market, inequality and poverty indicators computed from repeated cross sections of household surveys are interpreted as annual. This is a valid interpretation only when several very specific criteria are met. Annual measures of indicators such as labor participation rates differ from their 12-month- or quarterly averages except when those who participate in a month or quarter also participate the other 11 months or three quarters. The same apply to unemployment rates and poverty rates. We propose several methods to accurately annualize sub-annual data. Some rely on ancillary questions often included in household surveys, others require econometric techniques such as predictive mean matching. Using data for Colombia we present annual measures of labor participation, occupation, unemployment, per capita labor income, average per capita household income, the Gini coefficients of labor income and per-capita household income, and moderate and extreme poverty rates.

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