Arguments that consumption is a better measure of well-being than income, particularly for households with low levels of resources, are frequently made on both theoretical and practical grounds. The practical arguments rely on income being under-reported, particularly so for households with a low level of (correctly-measured) income. As most of this evidence is from the US, and the extent to which household surveys mis-measure income depends upon the survey and target population, this paper assesses the merits of using consumption and income as measures of living standards with data from the UK. In common with studies of US data, we find that expenditure greatly exceeds income for households with low measured income, but it is not yet clear how much of this discrepancy is due to mis-measurement and how much due to consumption-smoothing. Whatever the reason for the mismatch, having a low consumption (as calculated from a household budget survey) is better correlated with other bad outcomes than having a low recorded income, and using consumption rather than income as a correlate of low resources does alter the factors associated with having low resources. However, there is a high and growing degree of under-recording of expenditures in the main expenditure survey in the UK, and this seems particularly acute for pensioner households.
Mike Brewer (ISER, IFS) and Cormac O’Dea (IFS)
Presented by:
Mike Brewer (ISER)
Date & time:
November 23, 2011 1:00 pm
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