Description
Analysis of trends in inequality or poverty, or of the composition of the poor, requires an assessment of the living standards of households. Despite theoretical reasons to prefer the use of consumption over income as a general measure of a household’s living standards, and practical reasons to prefer the use of consumption to identify the poorest, in developed countries it is common to assess inequality with respect to the distribution of household income, and to use poverty lines defined with respect to household income.
Our research has two strands.
- First, this project uses a long span of survey-based micro-data on income and consumption for the same households to compare the different impressions one gets when using household income or household consumption to assess the trends in low living standards, and the composition of those in poverty. We will also examine how our impression of the distribution of income changes when we add the implicit income or consumption from housing to a measure of household resources.
- Second, we explore why expenditure-based and income-based poverty measures give very different assessments of the extent of poverty (in the UK). This question is important because the two main competing hypotheses have very different implications for economic analysis. If under-reporting of income is more important, then this implies that poverty measurement is subject to the vagaries of the survey instrument, and that more effort should be put into survey design and implementation, and that the analyst should employ statistical techniques to limit the effect of contamination. On the other hand, if consumption-smoothing is more important, then the bottom tail of income recorded in surveys contains vital information on economic behaviour, and shows how important are stocks of assets, credit markets and other insurance mechanisms to household welfare.
Listen to Mike Brewer discussing early results from this work here
Team members
Professor Mike Brewer, Director of MiSoC, ISER, University of Essex
Dr Ben Etheridge, Lecturer in Economics, University of Essex
Dr Cormac O’Dea, Associate Director, Institute for Fiscal Studies