How Does Household Production Affect Measured Income Inequality?
AbstractAlthough 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 InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4048.
Length: 32 pages
Date of creation: Feb 2009
Date of revision:
Publication status: published in: Journal of Population Economics, 2011, 24 (1), 3-22
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Other versions of this item:
- Harley Frazis & Jay Stewart, 2011. "How does household production affect measured income inequality?," Journal of Population Economics, Springer, vol. 24(1), pages 3-22, January.
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
- D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-03-22 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Does home production matter for income inequality?
by Economic Logician in Economic Logic on 2009-03-30 15:16:00
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IZA Discussion Papers
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