Discussion Question: How do you accurately account for economic inequality in order to better assess living standards across and within countries? Discuss the factors affecting economic inequality and the implications on a local and global scale.
Before even getting into the debate of assessing living standards, inequality and its measurement, let us first define income and consumption and how these measures are used to assess living standards in mainstream economics. According to Folbre, income encompasses all resource inflows to the household while resource outflows make up for the consumption variable (Folbre, 2009). In today’s world, living standards are assessed by looking at either ...view middle of the document...
With the income method, it is easier to capture the monetary value of resources that go into a household. The downside of it is that wealth appreciation and capital gains are not accounted for in that process. These exclusions make it easier to come up with inequality quantifications; but that also tells us that there are a few things that are missing from those estimations. With the consumption method, we capture household expenditures in order to measure overall annual consumption. The limitation of this technique is that long-lived consumer durables generating consumption services flow are left out (Foldre, 2009). With both income and consumption methods, we rely on market transactions to determine standard of living and subsequent well-being. Nowadays, more and more household surveys are designed to capture more subtle metrics in order to better assess inequality. That way, not only economists will get a better grasp of the relationship between income and consumption, but also, it will allow them to study those two metrics together, as complimentary tools rather than substitutes. The downside of using surveys is the potential lack of data accuracy because this type of data collection is error prone and misreports can easily occur.
In order to improve inequality reporting on local and global levels, the new focus is on household production and leisure valuation. Shedding light in those two parameters will allow a better grasp of the big picture since we include non-market transactions that way. The hardest part remains the measurement of those transactions. That type o data is more accessible for developed countries; the further away we move from development, the harder it is to capture that type of data and then, the quality of the data collected becomes questionable.
Household production encompasses activities that you can hire someone to do (cooking, child and elderly care, etc…). According to the United Nation Human Development Report of 2007-2008, women spend two thirds of their time engaging in non-market work while men spend a third of their time on non-market work. These ratios are quite sizeable to not account for them in the overall measurement of economic inequality. Leisure, on the other hand, currently accounts for activities that display recreational attributes (socializing, surfing the net, etc…). The challenge lies within categorizing an activity as non-market work or not. This may skew results when attempting to come up with an objective assessment of activities to account for in order to generate a comprehensive measure of living standards.
In her paper entitled “Inequality and Time Use in Households,” Nancy Folbre notes that measuring inequality should involve capturing full income and full consumption estimates. By full income and consumption, it is implied that there is an imminent need to assess both variables by incorporating market and non-market work into the equation (Jenkins and Kerm, 2009). Using the...
