Technical Note
Pay relative controls and calculations
Pay relatives control for differences among areas in occupational composition as well as establishment and
occupational characteristics. Metropolitan areas often differ greatly in the composition of establishments and
occupations that are available to the local workforce. For example, in Brownsville-Harlingen, Texas, the ratio of
workers in the high-paying management, business, and financial occupational group to the number of workers in all
occupations is under 6 percent, whereas nationally this ratio is nearly 10 percent.1 In addition to these factors,
the NCS collects compensation data for metropolitan areas at different times during the year. Payroll reference
dates differ between areas which makes direct comparisons between areas difficult.
The pay relative approach controls for these differences to isolate the geographic effect on wages. To illustrate
the importance of controlling for these effects, consider the following example. The average pay for construction and
extraction workers in the New York-Newark-Bridgeport, NY-NJ-CT-PA metropolitan area is $33.14 and the average pay for
construction and extraction workers in the United States is $20.91.2 A simple pay comparison can be calculated from
the ratio of the two average pay levels, multiplied by 100 to express the comparison as a percentage. The pay comparison
in the example is calculated as:
($33.14 ÷ $20.91) × 100 ≅ 158
This comparison does not control for differences between New York and the nation in the mix of occupations, industries,
and other factors. A more accurate estimate of the geographic effect of wages in New York can be obtained by taking these
differences into account. Controlling for differences in occupational composition, establishment and occupational
characteristics, and the payroll reference date in New York relative to the nation as a whole, the pay relative for
construction and extraction occupations in New York is 132.
Sampling errors and statistical significance
Because the NCS is a sample survey, data are subject to sampling error. For the data presented here, sampling
error are differences that occur between the pay relatives estimated from the sample and the true pay relatives derived
from the population. It is important to assess whether differences between each pay relative and the national average
is likely to be the result of sampling error or of true differences in pay levels. To perform this assessment, a test
of statistical significance is conducted.
The test constructs a 90-percent confidence interval that assumes the given area’s true pay relative is equal to
the national average. The confidence interval is constructed so that there is a 90-percent probability that the pay
relative calculated from any one sample is contained within the confidence interval. If from a single sample a calculated
pay relative falls within the confidence interval, then the pay relative is not statistically significant and the
hypothesis that the true pay relative is equal to the national average is accepted. However, if the pay relative falls
outside of the constructed confidence interval then the pay relative is statistically significant at the 10-percent level.
The hypothesis that the given area’s pay relative is equal to the pay relative for the nation is rejected and one can
conclude with reasonable confidence that the true pay relative is different from the national average.
In addition to sampling error, pay relatives are subject to a variety of sources that can adversely influence the
estimates. The NCS may be unable to obtain information for some establishments; there may be difficulties with survey
definitions; respondents may be unable to provide correct information, or mistakes in recording or coding the data may
occur. Such non-sampling error was not specifically measured. However, non-sampling error are expected to be minimal
due to the extensive training of the field economists who gathered the survey data, computer edits of the data, and
detailed data review.
Survey methodology
The National Compensation Survey (NCS) collects earnings and other data on employee compensation covering over
800 detailed occupations. Average occupational earnings from the NCS are published annually for 77 metropolitan areas
and for the United States as a whole. This release provides data for the civilian economy, which includes the total
private nonfarm economy excluding private households, and the public sector excluding the federal government. Beginning
in 2006, the NCS implemented a number of significant survey changes including imputing for temporary non-response
situations and benchmarking estimated employment. For more details on these changes, see James E. Smith and
Robert W. Van Giezen, "Change Comes to the National Compensation Survey Locality Wage Bulletins," Compensation and Working
Conditions Online, January 24, 2007 at http://www.bls.gov/opub/cwc/cm20070122ar01p1.htm.
The NCS program collects data in U.S. Office of Management and Budget (OMB) defined geographic areas. With the
collection of the 2008 data, the NCS is in its second year of a six-year transition from the June 1993 OMB area definitions
to the December 2003 OMB area definitions. The area titles have been updated to reflect the new area definitions.
For more information on the area definitions, see Jason Techonica, "New Area Sample Selected for the National Compensation
Survey," Compensation and Working Conditions Online, April 25, 2005 at http://www.bls.gov/opub/cwc/cm20050318ar01p1.htm.
Historical pay relatives data are available for the survey years 1992-1996, 1998, 2002, 2004-2007. There are several
differences between the recent pay relatives and the pay relatives for earlier years, including different industry and
occupation classification systems, varying methodology, and different survey designs. These differences limit comparability.
The pay relatives since 2004 were calculated using the same industry and occupation classification systems, methodology,
and survey design. Nonetheless, comparisons between the estimates for these years should be made only with caution.
Pay relatives were estimated using a multivariate regression technique designed to control for interarea differences.
This technique controls for the following ten characteristics:
- Occupational type
- Industry type
- Work level
- Full-time / part-time status
- Time / incentive status
- Union / nonunion status
- Ownership type
- Profit / non-profit status
- Establishment employment
- Payroll reference date
Even accounting for the characteristics used in the current regression analysis, there is still significant wage
variation across the areas. The variation is due to differences in wage determinants that were not included in the model.
Examples of these determinants include price levels, environmental amenities such as a pleasant climate, and cultural amenities.
The pay relative regression methodology introduces another type of error. Regression models are subject to specification
error. The significance test does not specifically measure specification error. However, care was taken to minimize this
form of error by an extensive search across specifications for the model that performs best in terms of predictive accuracy.
For more details, see Maury B. Gittleman, "Pay Relatives for Metropolitan Areas in the U.S." Monthly Labor Review,
March 2005, pp. 46-53, and Parastou Karen Shahpoori, "Pay Relatives for Major Metropolitan Areas," Compensation and Working
Conditions, Spring 2003.
Obtaining information
Articles, bulletins, and other information from the National Compensation Survey may be obtained by calling
(202) 691-6199, sending email to NCSinfo@bls.gov, or visiting the Internet site http://www.bls.gov/ncs. Information in
this release will be made available to sensory impaired individuals upon request. Voice phone: (202) 691-5200; Federal
Relay Service Number: 1-800-877-8339.
1 Data for this example are based on the May 2008 Occupational Employment and Wage Estimates,
http://www.bls.gov/oes/current/oessrcma.htm.
2 Average pay for construction and extraction workers in New York and for the United States are based on wage estimates
published in the New York-Newark-Bridgeport, NY-NJ-CT-PA National Compensation Survey, May 2008 and the forthcoming National
Compensation Survey: Occupational Wages in the United States, 2008, http://www.bls.gov/ncs/ocs/compub.htm.
