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How Does Household Production Affect Measured Income Inequality?

Author

Listed:
  • 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.

Suggested Citation

  • Frazis, Harley & Stewart, Jay, 2009. "How Does Household Production Affect Measured Income Inequality?," IZA Discussion Papers 4048, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp4048
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    References listed on IDEAS

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    1. Dirk Kreuger & Fabrizio Perri, 2002. "Does Income Inequality Lead to Consumption Inequality? Evidence and Theory," Working Papers 02-15, New York University, Leonard N. Stern School of Business, Department of Economics.
    2. Gallant, A. Ronald, 1981. "On the bias in flexible functional forms and an essentially unbiased form : The fourier flexible form," Journal of Econometrics, Elsevier, vol. 15(2), pages 211-245, February.
    3. Johnson, David & Shipp, Stephanie, 1997. "Trends in Inequality Using Consumption-Expenditures: The U.S. from 1960 to 1993," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 43(2), pages 133-152, June.
    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. 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.
    6. 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.
    7. Krueger, Dirk & Perri, Fabrizio, 2002. "Does Income Inequality Lead to Consumption Inequality?," CEPR Discussion Papers 3583, C.E.P.R. Discussion Papers.
    8. Bonke, Jens, 1992. "Distribution of Economic Resources: Implications of Including Household Production," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 38(3), pages 281-293, September.
    9. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
    10. Brooks Pierce, 2001. "Compensation Inequality," The Quarterly Journal of Economics, Oxford University Press, vol. 116(4), pages 1493-1525.
    11. 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 401-419, December.
    12. Jens Bonke & Mette Deding & Mette Lausten, 2009. "Time and Money," Journal of Happiness Studies, Springer, vol. 10(2), pages 113-131, April.
    13. Gronau, Reuben, 1980. "Home Production-A Forgotten Industry," The Review of Economics and Statistics, MIT Press, vol. 62(3), pages 408-416, August.
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    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 20:16:00

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    Cited by:

    1. Hippolyte d’ALBIS & Dalal MOOSA, 2015. "Generational Economics and the National Transfer Accounts," JODE - Journal of Demographic Economics, Cambridge University Press, vol. 81(4), pages 409-441, December.
    2. Stockhausen, Maximilian, 2016. "The Impact of Private and Public Childcare Provision on the Distribution of Children's Incomes in Germany," Annual Conference 2016 (Augsburg): Demographic Change 145638, Verein für Socialpolitik / German Economic Association.
    3. Maximilian Stockhausen, 2017. "The Distribution of Economic Resources to Children in Germany," SOEPpapers on Multidisciplinary Panel Data Research 901, DIW Berlin, The German Socio-Economic Panel (SOEP).
    4. Brewer, Mike & O'Dea, Cormac, 2012. "Measuring living standards with income and consumption: evidence from the UK," ISER Working Paper Series 2012-05, Institute for Social and Economic Research.
    5. Frick, Joachim R. & Grabka, Markus M. & Groh-Samberg, Olaf, 2012. "The Impact of Home Production on Economic Inequality in Germany," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 1143-1169.
    6. 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;European Society for Population Economics, vol. 27(3), pages 841-856, July.
    7. Bonsang, Eric & van Soest, Arthur, 2015. "Home Production and Retirement in Couples: A Panel Data Analysis," IZA Discussion Papers 9156, Institute for the Study of Labor (IZA).
    8. Harley Frazis & Jay Stewart, 2012. "How to Think about Time-Use Data: What Inferences Can We Make about Long- and Short-Run Time Use from Time Diaries?," Annals of Economics and Statistics, GENES, issue 105-106, pages 231-245.
    9. Frémeaux, Nicolas & Lefranc, Arnaud, 2017. "Assortative Mating and Earnings Inequality in France," IZA Discussion Papers 11084, Institute for the Study of Labor (IZA).
    10. repec:aea:jecper:v:31:y:2017:i:2:p:145-64 is not listed on IDEAS
    11. Stewart, Jay, 2013. "Tobit or not Tobit?," Journal of Economic and Social Measurement, IOS Press, issue 3, pages 263-290.
    12. 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.
    13. repec:kap:reveho:v:16:y:2018:i:2:d:10.1007_s11150-017-9387-8 is not listed on IDEAS

    More about this item

    Keywords

    household production; inequality;

    JEL classification:

    • 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

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