We examine the relative merits of consumption and
income as measures of the material well-being of the poor. Consumption
offers several advantages over income because consumption is a
more direct measure of well-being than income and is less subject
to under-reporting bias. Measurement problems with income are
problematic for analyses of changes in well-being of the poor
because the biases appear to have changed over time and are correlated
with government policies. On the other hand, income is often easier
to report and is available for much larger samples, providing
greater power to test hypotheses. We begin by considering the
conceptual and pragmatic reasons why consumption might be better
or worse than income. We then employ several empirical strategies
to examine the quality of income and consumption data. First,
we compare income and consumption reports for those with few resources,
as well as their assets and liabilities, to examine measurement
errors and under-reporting. Second, we examine other evidence
on the internal consistency of reports of low income or consumption.
Third, we compare how well micro-data in standard datasets weight
up to match aggregates for classes of income and consumption that
are especially important for low-resource families. Fourth, we
validate income and consumption measures by comparing them to
other measures of hardship or material well-being. Although the
evidence tends to favor consumption measures, our analyses suggest
that both measures should be used to assess the material well-being
of the poor.
Bruce D. Meyer, Department
of Economics, Northwestern University
Click on
the working paper title at the top of this
page to download a free pdf of the paper.*
If You Need to Order a Hard Copy: Hard copies
of IPR working papers cost $5.00 each (international orders are $10 each). We only accept checks drawn on U.S. bank and payable in U.S. funds. Checks or money orders should be made
payable to Northwestern University and sent to the following address:
Publications Department - WP Orders
Institute for Policy Research
2040 Sheridan Rd., Evanston, IL 60208-4100.
For information, call 847-491-8712 or email ipr@northwestern.edu.
Please note that we do not accept credit cards.
*Adobe Acrobat Reader 5.0 (or higher) is needed to read the Acrobat pdf.
If you need to install Acrobat Reader, click the button below. Once the file
has downloaded onto your desktop, run it to install the reader on your hard
drive.
