This is Chapter 6, written jointly with Suzie Carson, from The Health and Economic Status of Households. The appendices are not published, and the acknowledgement to Claudio Michelini has been published separately. Even so website presentational requirements have led to some changes – and perhaps infelicities. The full chapter is available from the authors.
Keywords: Distributional Economics; Statistics;
Introduction
The (disposable) income of a household has to be adjusted for the composition of the household, the numbers and ages of those who belong to it, if we want to make useful comparisons of the standard of living of different households, or to predict commonalities of their behaviour such as expenditure patterns. A simple adjustment might be to convert the income to a per capita basis, but that ignores the impact of household economies of scale and for the different characteristics of the inhabitants. It is not true that ‘two can live as cheaply as one’, but two living together are likely to spend less than if they live separately in order to attain the same standard of living. It also seems reasonable to postulate (and the research evidence supports) that different ages have different needs. Other relevant factors might be gender, employment status(for employed people may have outlays that the not-employed do not have, such as on transport to work), and marital status (since a couple may have expenditure savings relative to two singles living in the same house).