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Can Subjective Data Improve the Measurement of Inequality? A Multidimensional Index of Economic Inequality

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  • Philipp Poppitz

    (Carl von Ossietzky University Oldenburg)

Abstract

Measuring multidimensional inequality by means of a univariate index requires weighting the dimensions of inequality. This paper explores the normative and empirical problems involved in measuring inequality by estimating hedonic weights on the basis of German microdata. In contrast to previous works, the perception of inequality, derived from subjective social status, has been used to estimate a weighting scheme that includes five dimensions. By aggregating outcomes using a generalized Gini and the hedonic weights, annual multidimensional economic inequality (MDEI) was calculated for the period from 2000 to 2016. The results show that during this period MDEI is significantly higher than when equal weights are used, but lower than income inequality. Until 2006, multidimensional inequality in Germany increased at the same pace as income inequality, but since 2008, the trend of MDEI points downwards if one assumes imperfect substitution between dimensions. The counterfactual decomposition reveals that income contributes to inequality more than any other dimension, but the exceptional reduction in unemployment is the major cause of the decline by the MDEI.

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  • Philipp Poppitz, 2019. "Can Subjective Data Improve the Measurement of Inequality? A Multidimensional Index of Economic Inequality," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 146(3), pages 511-531, December.
    • Handle: RePEc:spr:soinre:v:146:y:2019:i:3:d:10.1007_s11205-019-02141-9
    DOI: 10.1007/s11205-019-02141-9
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    More about this item

    Keywords

    Inequality; Composite index; Hedonic weights; Perception; Social status;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General

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