This article investigates error properties of survey reports of labor
market variables. We use the Panel Study of Income Dynamics (PSID) Val
idation Study, a two-wave panel survey of workers employed by a large
firm that shared its detailed payroll records. Individuals' reports of
annual earnings are fairly accurate. Errors are negatively related to
true earnings, reducing bias due to measurement error when earnings a
re used as an independent variable. Biases are moderately larger for c
hanges in earnings. Earnings per hour are less reliably reported than
annual earnings. Biases in estimating earnings functions are relativel
y small, but those in labor supply functions may be important.