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Household wealth and the measurement of economic well-being in the United States

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  • Edward Wolff

    ()

  • Ajit Zacharias

    ()

Abstract

The standard official measure of household economic well-being in the United States is gross money income. The general consensus is that such measures are limited because they ignore other crucial determinants of well-being. We modify the standard measure to account for one such determinant: household wealth. We then analyze the level and distribution of economic well-being in the United States during the 1980s and 1990s, using the standard measure and a measure that differs from the standard in that income from wealth is calculated as the sum of lifetime annuity from nonhome wealth and imputed rental-equivalent for owner-occupied homes. Our findings indicate that the level and distribution of economic well-being is substantially altered when money income is adjusted for wealth. Over the 1989Ð2000 period, median well-being appears to increase faster when these adjustments are made than when standard money income is used. This adjustment also widens the income gap between African Americans and whites, but increases the relative well-being of the elderly. Adding imputed rent and annuities from household wealth to household income considerably increases measured inequality and the share of income from wealth in inequality. However, both measures show about the same rise in inequality over the period. Our results contradict the assertion that the Òworking richÓ have replaced the rentiers at the top of the economic ladder.

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File URL: http://hdl.handle.net/10.1007/s10888-007-9068-6
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Bibliographic Info

Article provided by Springer in its journal The Journal of Economic Inequality.

Volume (Year): 7 (2009)
Issue (Month): 2 (June)
Pages: 83-115

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Handle: RePEc:kap:jecinq:v:7:y:2009:i:2:p:83-115

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Web page: http://springerlink.metapress.com/link.asp?id=111137

Related research

Keywords: Living standards; Household wealth; Inequality; D31; D6; H4; P16;

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References

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  1. Edward N. Wolff & Ajit Zacharias, 2003. "The Levy Institute Measure of Economic Well-Being," Economics Working Paper Archive wp_372, Levy Economics Institute, The.
  2. Blau, Francine D & Graham, John W, 1990. "Black-White Differences in Wealth and Asset Composition," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 321-39, May.
  3. Wolff, Edward N, 1990. "Wealth Holdings and Poverty Status in the U.S," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 36(2), pages 143-65, June.
  4. Maury Gittleman & Edward N. Wolff, 2004. "Racial Differences in Patterns of Wealth Accumulation," Journal of Human Resources, University of Wisconsin Press, vol. 39(1).
  5. Donald L. Lerman & James J. Mikesell, 1988. "Impacts of Adding Net Worth to the Poverty Definition," Eastern Economic Journal, Eastern Economic Association, vol. 14(4), pages 357-370, Oct-Dec.
  6. Osberg, Lars & Sharpe, Andrew, 2002. "An Index of Economic Well-Being for Selected OECD Countries," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 48(3), pages 291-316, September.
  7. Lerman, Robert I & Yitzhaki, Shlomo, 1985. "Income Inequality Effects by Income," The Review of Economics and Statistics, MIT Press, vol. 67(1), pages 151-56, February.
  8. Menchik, Paul L & Jianakoplos, Nancy Ammon, 1997. "Black-White Wealth Inequality: Is Inheritance the Reason?," Economic Inquiry, Western Economic Association International, vol. 35(2), pages 428-42, April.
  9. Edward N. Wolff, 2003. "The Devolution of the American Pension System: Who Gained and Who Lost?," Eastern Economic Journal, Eastern Economic Association, vol. 29(4), pages 477-495, Fall.
  10. Wolff, Edward N., 2007. "The retirement wealth of the baby boom generation," Journal of Monetary Economics, Elsevier, vol. 54(1), pages 1-40, January.
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Citations

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Cited by:
  1. Thomas Piketty, 2010. "On the long-run evolution of inheritance: France 1820-2050," PSE Working Papers halshs-00564853, HAL.
  2. Anna Fräßdorf & Markus Grabka & Johannes Schwarze, 2011. "The impact of household capital income on income inequality—a factor decomposition analysis for the UK, Germany and the USA," Journal of Economic Inequality, Springer, vol. 9(1), pages 35-56, March.
  3. Nicolas R. Ziebarth & Joachim R. Frick, 2010. "Revisiting the Income-Health Nexus: The Importance of Choosing the "Right" Indicator," SOEPpapers on Multidisciplinary Panel Data Research 274, DIW Berlin, The German Socio-Economic Panel (SOEP).
  4. Joachim R. Frick & Markus M. Grabka, 2009. "Accounting for Imputed and Capital Income Flows in Income Inequality Analyses," SOEPpapers on Multidisciplinary Panel Data Research 254, DIW Berlin, The German Socio-Economic Panel (SOEP).
  5. Andreas Peichl & Nico Pestel, 2010. "Multidimensional Measurement of Richness: Theory and an Application to Germany," SOEPpapers on Multidisciplinary Panel Data Research 295, DIW Berlin, The German Socio-Economic Panel (SOEP).
  6. Yun Kim & Mark Setterfield & Yuan Mei, 2012. "Aggregate Consumption and Debt Accumulation: An Empirical Examination of US Household Behavior," Working Papers 1204, Trinity College, Department of Economics.
  7. Jeffrey Thompson & Timothy M. Smeeding, 2010. "Recent Trends in the Distribution of Income: Labor, Wealth and More Complete Measures of Well Being," Working Papers wp225, Political Economy Research Institute, University of Massachusetts at Amherst.
  8. Edward N. Wolff & Ajit Zacharias, 2007. "Class Structure and Economic Inequality," Economics Working Paper Archive wp_487, Levy Economics Institute, The.
  9. Andreas Peichl & Nico Pestel, 2011. "Multidimensional affluence: Theory and applications to Germany and the US," Working Papers 218, ECINEQ, Society for the Study of Economic Inequality.
  10. Ajit Zacharias, 2011. "The Levy Institute Measure of Economic Well-Being, Great Britain, 1995 and 2005," Economics Working Paper Archive wp_668, Levy Economics Institute, The.
  11. Yun Kim & Mark Setterfield & Yuan Mei, 2013. "A Theory of Aggregate Consumption," Working Papers 1301, Trinity College, Department of Economics.
  12. Mark Setterfield, 2012. "Real Sector Imbalances and the Great Recession," Working Papers 1201, Trinity College, Department of Economics.
  13. Alessandra Michelangeli & Eugenio Peluso & Alain Trannoy, 2011. "Detecting a change in wealth concentration without the knowledge of the wealth distribution," Journal of Economic Inequality, Springer, vol. 9(3), pages 373-391, September.
  14. Thomas Masterson & Ajit Zacharias & Selcuk Eren & Edward Wolff, 2011. "The Levy Institute Measure of Economic Well-Being, France, 1989 and 2000," Economics Working Paper Archive wp_679, Levy Economics Institute, The.

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