Measuring the Well-Being of the Poor Using Income and Consumption

Abstract

We evaluate consumption and income measures of the material well-being of the poor. We begin with conceptual and pragmatic reasons that favor income or consumption. Then, we empirically examine the quality of standard data by studying measurement error and under-reporting, and by comparing micro-data from standard surveys to administrative micro-data and aggregates. We also compare low reports of income and consumption to other measures of hardship and well-being. The closer link between consumption and well-being and its better measurement favors the use of consumption when setting benefits and evaluating transfer programs. However, income retains its convenience for determining program eligibility.

The Relation Between Life Satisfaction and the Material Situation: A Re-Evaluation Using Alternative Measures

“…From a theoretical point of view, expenditure or consumption measures 7 have many advantages in comparison to their income-based counterparts and are often considered to be superior to the latter (Brewer et al 2006(Brewer et al , 2008Headey 2008;Meyer and Sullivan 2003;Noll and Weick 2007). One reason for this is that income might fluctuate over time, in particular for self-employed persons or people in irregular employment.…”

“…Moreover, certain kinds of expenditures like e.g. cash payments to family members are not considered (for a more detailed description compare for example Meyer andSullivan 2003, pp. 1188 et seq.).…”

Detecting a change in wealth concentration without the knowledge of the wealth distribution

“…youngest, G70) we observe only people belonging to the fourth age group, 51-60, (resp. first age group, [21][22][23][24][25][26][27][28][29][30] which is compared with the two following cohorts (resp. the two previous cohorts).…”

“…It requires the knowledge of the income stream along all the life cycle that may be affected by uncertainty and which is only available in long panels. Previous articles such as Bavier [5] and Meyer and Sullivan [24,25] rely on the permanent income hypothesis to indicate consumption as the best proxy available for lifetime resources. We go a step further in linking the distribution of consumption with that of permanent income and in establishing their joint properties in terms of stochastic orders.…”

Inequality in social standard of living in the international context

“…In recent years, B. Mayer and J. Sullivan (Meyer and Sullivan, 2003) [8], G. Becker and N. Tomes (Becker and Tomes, 1986) [9] have been studying the practical aspects of measuring inequalities in the standard of living.…”