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How Does Household Production Affect Measured Income Inequality?

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  • Frazis, Harley

    ()
    (U.S. Bureau of Labor Statistics)

  • Stewart, Jay

    ()
    (U.S. Bureau of Labor Statistics)

Abstract

Although income inequality has been studied extensively, relatively little attention has been paid to the role of household production. Economic theory predicts that households with less money income will produce more goods at home. Thus extended income, which includes the value of household production, should be more equally distributed than money income. Previous studies have found this to be the case and have speculated that the more-equal distribution of extended income is due to the weak correlation between money income and household production income. We also find that extended income is more equally distributed than money income. The main contribution of our paper is that we identify the reason for this result. Our sensitivity analysis indicates that virtually all of the decline in measured inequality when moving from money income to extended income is due to the addition of a large constant – the average value of household production – to money income and that measured inequality is insensitive to the correlation between money and household production income. The practical importance of this result is that estimates of extended income inequality are robust to imputation procedures and that researchers can obtain accurate estimates of trends by simply using mean values of household production income.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4048.

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Length: 32 pages
Date of creation: Feb 2009
Date of revision:
Publication status: published in: Journal of Population Economics, 2011, 24 (1), 3-22
Handle: RePEc:iza:izadps:dp4048

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Keywords: household production; inequality;

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References

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  1. Brooks Pierce, 2001. "Compensation Inequality," The Quarterly Journal of Economics, MIT Press, vol. 116(4), pages 1493-1525, November.
  2. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
  3. Andrews, Donald W. K., 1991. "Asymptotic optimality of generalized CL, cross-validation, and generalized cross-validation in regression with heteroskedastic errors," Journal of Econometrics, Elsevier, vol. 47(2-3), pages 359-377, February.
  4. Gronau, Reuben, 1987. "Home production -- A survey," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 4, pages 273-304 Elsevier.
  5. Gronau, Reuben, 1980. "Home Production-A Forgotten Industry," The Review of Economics and Statistics, MIT Press, vol. 62(3), pages 408-16, August.
  6. Peter Gottschalk & Susan E. Mayer, 1997. "Changes in Home Production and Trends in Economic Inequality," Boston College Working Papers in Economics 382, Boston College Department of Economics.
  7. Krüger, Dirk & Perri, Fabrizio, 2002. "Does Income Inequality Lead to Consumption Inequality?," CEPR Discussion Papers 3583, C.E.P.R. Discussion Papers.
  8. Jenkins, Stephen P & O'Leary, Nigel C, 1996. "Household Income Plus Household Production: The Distribution of Extended Income in the U.K," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 42(4), pages 401-19, December.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Does home production matter for income inequality?
    by Economic Logician in Economic Logic on 2009-03-30 15:16:00
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Cited by:
  1. Harley Frazis & Jay Stewart, 2010. "How to Think About Time-Use Data: What Inferences Can We Make About Long- and Short-Run Time Use from Time Diaries?," Working Papers 442, U.S. Bureau of Labor Statistics.
  2. Mike Brewer & Cormac O'Dea, 2012. "Measuring living standards with income and consumption: evidence from the UK," IFS Working Papers W12/12, Institute for Fiscal Studies.
  3. Joachim Frick & Markus Grabka & Olaf Groh-Samberg, 2012. "The impact of home production on economic inequality in Germany," Empirical Economics, Springer, vol. 43(3), pages 1143-1169, December.
  4. Thomas Mayrhofer & Hendrik Schmitz, 2014. "Testing the relationship between income inequality and life expectancy: a simple correction for the aggregation effect when using aggregated data," Journal of Population Economics, Springer, vol. 27(3), pages 841-856, July.
  5. repec:ese:iserwp:2012-05 is not listed on IDEAS

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  1. Economic Logic blog

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