Showing papers in "Review of Income and Wealth in 1979"

On measuring poverty

Abstract: This paper investigates the properties of various measures of poverty and of the “difficulty of alleviation of poverty”. It is found that the ranking properties of both kinds of indices can be quite counter-intuitive and that they could be misleading if used for policy evaluation. An alternative index is proposed; it is compared to the other indices and seems to fare rather well. To illustrate, a special reference is made to S. Anand's recent article on poverty in Malaysia.

The income unit and the anatomy of income distribution

Abstract: This paper focuses on a neglected aspect of the treatment of the income unit in the construction of size distributions of income. If the size distribution is to be an indicator of the distribution of economic welfare, and if the economic welfare of each individual in society is to count equally, then conventional distributions are inconsistent with individualistic welfare functions. We estimate size distributions with each person's welfare weighted equally, and contrast these results with those weighting each household unit's welfare equally. The choice of weights is shown to affect both the level and the trend in income inequality.

Stocks and depreciation of human capital: new evidence from a present‐value perspective

Abstract: Responding to a perceived growing interest in human wealth estimates, this paper offers a framework for measuring the aggregate stock of human capital and then implements the procedure for the United States male population age 14 to 75. Unlike previous estimates of human wealth that are based upon historical or resource costs, these estimates measure the capital stock as the discounted resent-value of expected lifetime returns. In the estimation, returns are equated with earnings data from the 1970 U.S. Census 15 percent Public Use Sample for out-of-school males, adjusted for employment and survival probabilities, adjusted for an assumed exogenous growth in future earnings, and discounted at 7.5 percent. We provide cross-sectional estimates of individual stocks of human capital by age and educational attainment, as well as expected lifetime wealth profiles for individuals by level of education. These individual profiles can be used to obtain direct estimates of age-specific depreciation which suggest human capital is subject to significant and prolonged appreciation before nearly straight-line depreciation begins around middle age. This finding is all the more significant since resource-cost estimates of human capital which must assume a depreciation pattern to obtain stocks have always imposed a much faster rate much sooner. Finally, an aggregate estimate of the stock of human capital for all males is supplied and its sensitivity to the choice of the discount rate, tax laws, and expected exogenous growth is analyzed. This seemingly-conservative stock estimate is then compared to a much lower resource-cost estimate offered recently by John Kendrick. A discount rate over 20 percent would be needed to equate the two measures. In trying to reconcile the two figures, we raise some new questions about the validity of both approaches for human capital accounting.

New measures of prices and productivity for tradable and nontradable goods

Abstract: Empirical work on the division of real output and prices into tradable and nontradable components has not kept pace with theoretical developments. The conventional proxies of prices and productivity by tradable and nontradable sector are examined and found deficient in several important respects. It is demonstrated that an approach that relies on the long–standing data on gross domestic product by industry of origin can overcome some of these deficiencies. These data are used to construct new annual measures of prices and productivity for tradable and nontradable output for 12 industrial countries over the period 1950–73. While far from precise, the new measures are consistent with the following criteria for distinguishing between tradables and nontradables: the degree of foreign trade participation should be higher for tradables than for nontradables; the degree of international commodity arbitrage, as measured by cross-country correlations of price changes, should be higher for tradables than nontradables; and tradables should be closer substitutes than nontradables for traded goods from other countries (imports). Despite the considerable conceptual advantages of the new measures of prices and productivity over the conventional proxies, correlation analysis indicates that the new and old measures usually move together rather closely in our 12 subject countries. The correlations are higher across the alternative relative productivity measures than for the alternative relative price measures.

Expanding imputed values in the national income and product accounts

Abstract: After defining economic activity the author lists the chief types of non–market economic activities for which he has prepared estimates for the United States 1929–1973, and briefly describes his methodology and data sources. Some major findings are: (1) As of 1973 GNP adjusted to include the additional imputations was 63.5 percent larger than the official estimate. (2) At least since 1929 imputed values have grown faster than official GNP, especially when both are measured in terms of real factor costs. (3) The personal sector comprises a far larger portion of the national economy-almost one-third—when account is taken of imputed labor and property compensation, and its relative importance has grown. (4) Gross government product is more than 60 percent higher when the imputed rental value of public property is added to the compensation of general government employees. (5) Reflecting the relative growth of non-business wealth, imputed property income has risen much faster than monetized property income. This has mitigated the decline in the property share of expanded gross national income compared with its share in the official estimates.

Income inequality in urban colombia: a decomposition analysis

Abstract: The persistence of poverty and income inequality in less developed countries (LDCs) is a source of serious concern to development economists. To understand the structure of inequality, several researchers using a variety of methodologies have measured the importance of various contributory factors to overall income variability. The available literature—which now includes studies of Brazil, Mexico, Iran, the Philippines, Taiwan, Thailand, Pakistan, and Colombia-has been reviewed elsewhere (Fields, forthcoming). This paper presents additional evidence for urban Colombia, in the process raising some important methodological issues which bear on the design of future research studies. The data set used in this paper is described in Section I. The decomposition of Colombian inequality by functional income source is presented in Section 11 for micro data. Section I11 examines the robustness of source decomposition procedures to data aggregation. Section IV presents inequality decompositions by city, and Section V by other income-determining characteristics. Conclusions appear in Section VI.

Do-it-yourself and gdp*

Abstract: Do-it-yourself activities are, by definition, those for which a choice must exist between doing it oneself or hiring someone else. This means they typically involve the own account production of services, but whereas it is customary to include most goods produced on own account in GDP services are conventionally excluded. In principle, however, it is possible to envisage a comprehensive and unique measure of the total final output of all the goods and services produced within an economy whether for sale or own use. Such a measure would be better than GDP as an indicator of long term changes in economic welfare, being independent of any shifts in the ratio of market to non-market production. Moreover, it would be a homogeneous measure with clearly defined limits in contrast to improvised indices of welfare which mix economic and non-economic variables in arbitrary and subjective ways. However, the need for a measure of market output, or something very close to it such as GDP, is still as strong as ever as soon as attention is switched from measurement of long term growth to problems associated with market disequilibria, such as unemployment and inflation.

On the size distribution of wealth in canada

Abstract: This paper is concerned with measurement of the size distribution of personal wealth in Canada. The only available estimates of this distribution are those provided on the occasions when Statistics Canada's Survey of Consumer Finance has surveyed assets and debts. Results of the latest “SCF” to do this, that of 1977, are not yet available. The paper shows that the previous study, conducted in 1970, indicated wealth-inequality as viewed by top quantile shares roughly of the same order as estimated by others for the U.S. and U.K. A comparison of asset and debt aggregates implied by the survey, however, with independent totals indicates that for almost all items the SCF likely under-estimated true holdings. The possible relative importance of sampling and non-sampling errors in explaining this distortion is considered, drawing on Monte Carlo evidence and American validation studies of survey response. It is concluded that sampling error is unlikely to provide the explanation for SCF discrepancies in aggregates, but that non-sampling error is capable of doing so. Finally the 1970 SCF distribution of wealth is re-estimated. First a correction is made for hypothetical differential response according to true net worth. Second an attempt is made to remove the effects of under-reporting by respondents. The “best-guess” re-estimated distribution exhibits mean net worth considerably greater than shown by the SCF but only a slightly greater degree of concentration. Under certain fundamental assumptions this result is surprisingly robust. The appropriate conclusion is not that survey estimates of the distribution of wealth are reliable, but that the strong non-sampling errors affecting the 1970 Canadian SCF wealth estimates may have been composed of almost completely offsetting sources of bias.

The size distribution of income during inflation

Abstract: This paper analyzes the effects of inflation on the size distribution of income, making use of a microsimulation model. It goes beyond earlier analyses not only in the use of microdata but also in the types of inflation modeled. Two different income concepts are used, one the money income concept of the U.S. Census Bureau and the second, called Accrued Comprehensive Income, based on the concept of income as consumption plus the change in net worth. The results of the simulation inflations are presented graphically, as the ratio of real income with inflation to real income without, by income class. The analysis concludes that the income concept chosen is crucially important. While low income households suffer modest losses and middle income households are largely unaffected, whatever income concept is used, the effects on upper income households are extremely sensitive. With a simple money income concept, the well-to-do appear to benefit from inflation but a broader concept reverses this effect. A policy to negate the distributional effect of inflation would benefit primarily the upper income households. Similarly, macroeconomic policies designed to reduce inflation at the price of slower growth and greater unemployment would not aid lower income groups to a significant degree.

Wealth and the distribution of income, canada 1969–70

Abstract: This paper explores the sensitivity of the size distribution of family income in Canada to alternative definitions of income. These alternative definitions examine both wealth generally in the form of an annuity equivalent, and home ownership in the form of imputed rent. An adjustment for family size differences is also made. The impact of these adjustments is assessed for average incomes, inequality, and the incidence of low income for different age groups. The adjustments do have significant effects that vary by age; in particular, the economic position of the elderly seems understated by the usual data. Also, methodological considerations, such as the direct use of micro data and the choice of inequality indicator are shown to be significant.

The distributional effects of the 1969–75 inflation on holdings of household wealth in the united states

Abstract: Using a simple simulation model, this paper assesses the impact of relative movements in asset prices on the distribution of wealth during the 1969–75 period. Because of the strong negative correlation between wealth level and the ratio of debt to wealth, this particular inflation induced a substantial drop in the overall level of wealth inequality. Moreover, comparing the portfolios of different demographic groups, we found that middle-aged households gained relatively to younger and older ones, married couples gained relatively to singles, whites gained relatively to non-whites, and home-owners gained relatively to renters. The biggest gainers from this inflation were home-owners with large mortgages and the biggest losers the large stock holders.

The worldwide income distribution: some speculative calculations*

Abstract: This paper uses a variety of assumptions to produce calculations of worldwide income distributions from recent international data compilations. The variable quality of the source materials in these compilations along with the arbitrariness in the assumptions required are emphasized. A number of working hypotheses for the worldwide income distribution are offered until data and methods improve. It is suggested the top 1 percent of world population may receive 10–15 percent of world income, the top 10 percent from 45–65 percent, and the bottom 20 percent from 1–4 percent. These figures seem more unequal than those for domestic distributions even for more inegalitarian countries.

Potential gnp in the united states, 1948–80

Abstract: Potential gross national product (GNP) is a measure of the aggregate supply capability of an economy, or the amount of output that could be expected at full employment. Such a measure of output at constant rates of labor and capital utilization is useful as a benchmark for economic performance, calculation of the full employment surplus as an indicator of fiscal policy, and in the projection of unemployment rates. Potential GNP for the United States is estimated for the years 1948–77, and projected for 1978–80. The calculations use a variable benchmark for the full-employment unemployment rate, based on the changing age-sex composition of the labor force, and a constant benchmark for the utilization of fixed capital. A framework for separation of productivity into trend, cycle, and irregular components is developed, and then estimated for the 1948–77 period, using quarterly data. The relationships between various age- and sex-specific unemployment rates are also estimated in construction of the variable unemployment benchmark.

The estimation of price effects in a social accounting matrix

Abstract: The estimation of true basic prices in a Social Accounting Matrix (SAM) has long been recognized as necessary in order to achieve uniform valuation of inputs for meaningful manipulation of the input-output table contained in a SAM, in order to assess the real effects of changes in demand, etc. In practice, approximate basic prices only have normally been calculated in order to avoid matrix inversion among other things. It is equally the case that true basic prices are required if one wishes to assess the price-raising effects of commodity taxes. It is shown through an example that approximate basic prices, as conventionally calculated, are inadequate and potentially misleading for this as indeed they are for achieving uniformity of valuation. There are also problems with the present procedure for calculating true basic prices. An alternative method of calculating true basic prices is given, which has various advantages over the existing method, and a new approximate method is also derived which appears to represent a definite improvement on the present method. For the main purpose of the paper, however, the prices of concern are those charged by producers to which the methodology equally applies.

The treatment of “home ownership” in the cpi*

Abstract: This paper explores the imputed service price approach to the pricing of the services of consumer-owned-and-used durables in the construction of the consumer price index, using the services of owner-occupied housing as an illustration. A theoretical framework for analyzing this question is first developed. Certain practical problems are then discussed. The conceptual difficulty of constructing an appropriate rate of return on the basis of available data on interest rates and house prices, in the context of inflation, is explored. Two arguments are advanced that statistical agencies ought not to follow the imputed service price approach in pricing the services of owner-occupied dwellings and other consumer durables. On the one hand, nominal interest rates will, in any short period, reflect monetary policy and not any change in the money “rental” of owner-occupied houses. Second, movements in nominal interest rates will also reflect changes in the money price of pure consumption goods, as well as changes in the money price of houses. The argument is extended to other consumer durables and, in the limiting case, to monetary balances, and it is concluded that in all but trivial cases the application of the service price approach leads to price movements of little or no meaning.

Price analysis and a system of price statistics

Abstract: For some considerable time the interest in price statistics has mainly been focused on their use as “intermediate goods”. The requirements of a system of price index numbers which have to be established in this connection are largely in the field of statistical coordination (integration of statistics on quantities, values and prices). Recently the inflation problem has given rise to an increased interest in price statistics as “final goods”. A meaningful analysis of inflation will devote attention to the relation between input prices and output prices. In this article several versions of an analysis of prices of final demand categories based on an ordinary Leontief input-output scheme are presented and the needs for price statistics are discussed. In fact a self-contained system of price statistics emerges from the price analysis. There is a difference in the nature of the price index numbers required in compiling input-output tables in constant prices (Paasche) and that in the case of price analysis (Laspeyres). However the need for price observation runs largely parallel because in both cases the same detailed information on price developments will probably be used. Price analysis gives the possibility of a step-by-step approach in building up a system of price index numbers.

Changes in income inequality: australia, 1968–69 to 1973–74

Abstract: The period 1968–69 to 1973–74 saw a redistribution of incomes in Australia. This is evidenced first by declining differentials between dissimilar persons and secondly by changes in two measures of income inequality, the Gini and Theil coefficients. The inequality coefficients are decomposed into components which distinguish between that part of total inequality due to income differences between dissimilar persons and that part due to inequality between similar persons. It is found that the reduction in inequality was due to the reduction in differentials between dissimilar persons and that inequality between similar persons probably did not change over the period.

A review of selected aspects of the united nations system of national accounts in the light of countries’ experiences*

Abstract: A review of the United Nations System of National Accounts and its implementation by countries is presently being conducted at the United Nations Statistical Office. This article presents a personal and selective account by the author of the results of that review and its consequences for the present structure of the SNA. Information is included on the level of response by countries for the tables of the SNA national accounts questionnaire. It shows that this response is at present sparce, except for the tables on GDP by end use, cost structure and kind of economic activity. On the more detailed level the feasibility of introducing integrated sector accounts into the system has been examined and different approaches compared. Country practices suggest that one way of facilitating the introduction of such accounts would be to eliminate one essential feature of the dual classification of the SNA, i.e., the distinction between quasi‐corporate and other unincorporated enterprises. Other modifications of the SNA structure implied below are the introduction on a limited scale of articulation of transactions, the inclusion of additional aggregate income and balancing items, a reallocation of data between the main accounts and the supporting tables, and a better integration of the SNA matrix with the accounts and tables of the system. A reduction of the present number of independent classifications in the SNA is suggested, based on links between categories of different classifications that are assumed in country responses to the questionnaire. A suggestion is made for a uniform valuation of goods and services and income flows, to replace the present complex valuation guidelines on approximate basic and factor values and producers’ prices.

Tracing price changes through stages of production: australia, 1968 to 19771

Abstract: This study is concerned with an effort to analyze changes in costs and prices in the Australian economy by tracing the effects of changes in wages and import prices through the stages of production, using a disaggregated input-output model with lags. The object of constructing the model was to improve, by introducing lags, the accuracy of predictions of the effect of cost changes on prices, and to show the lag structures. Data problems encountered are discussed, and the need for integration of price statistics to enhance their usefulness for analyses such as this is emphasized. Concepts and sources of data are discussed in some detail in an appendix.

Inter‐occupation differences in the pattern of monetized and non‐monetized consumer expenditure in rural india*

Abstract: This study attempts to examine the inter-occupational differences in the patterns of cash and in-kind expenditure in rural India on the basis of a special tabulation of The National Sample Survey (NSS), 18th round (February 1963-January 1964) consumer expenditure data. The occupational groups considered here are (i) cultivators, (ii) agricultural labourers, (iii) other agriculture, and (iv) non-agricultural occupations. The analysis is carried out primarily in terms of curves relating item-specific cash/kind expenditure to total cash/total kind expenditure for fifteen selected item-groups of expenditure. For each item-occupation combination, four two-parameter forms of Engel curve together with the log-log-inverse form are estimated and the comparisons across occupation groups are made separately on the basis of each of the two-parameter curve forms which were found to give the best fit for at least one occupation group as well as the log-log-inverse form, using analysis of covariance technique. The results indicate that so far as the cash components of item expenditures are concerned, the pattern of expenditure is considerably influenced by occupational factors. It is observed that cultivators have a cash expenditure pattern different from those of agrictural labourers and of households with non-agricultural activities. The comparison of the kind expenditure patterns does not, however, reflect any clear picture primarily because in most cases the itemwise kind expenditure functions could not be estimated satisfactorily. This analysis also suggests that the specification of itemwise cash and kind expenditure functions employed here may not be the most satisfactory ones in an economy with a high degree of non-monetization and therefore alternative specifications need be examined.

The redistribution of public funds in france in 1965 and 1970

Abstract: The analysis of the redistribution processes via taxation, transfers and collective services raises several methodological problems among which tax incidence is not the least important. Through two hypotheses of incidence of employers’ social contribution the results of the redistribution of public funds lead to four types of conclusions. Despite the fact that about one third of the French national income is involved in the processes there is no clearcut evidence of any redistribution, except for the nonactive population in so far pensions are considered as redistributed. The positive effects which certain mechanisms may have (e.g. income tax…) are to a certain extent offset, or neutralized, by the anti-redistributive effects of indirect taxation and social contributions. It appears that the results of the redistribution not only depend on the institution network, on the evolution of demographic structures and the rate of growth for the various types of income but also on lack of adaptation between the evolution of the three groups of factors. In last analysis, the reason why redistribution does not appear to have more far-reaching consequences is that social policy amalgamates mechanisms often set up in isolation, whereas any reduction in inequalities must be based on a conscious awareness of the inter-dependence of the situations which create and foster these same inequalities.

Empirical results concerning vertical and horizontal redistribution in finland

Abstract: Redistributional effects of income transfers, taxation and social goods in Finland have been studied making use of household surveys for 1966 and 1971 and the input-output study for 1970. According to the study the selection of income to be used as the criterion in carrying out the decile grouping substantially influences the picture that is obtained of the magnitude of redistribution. If factor income is used as the criterion in carrying out the decile grouping, the redistribution appears substantially greater than when disposable income is used as the criterion. On the other hand, whether income is calculated per capita or per household does not substantially influence the overall picture of redistribution obtained. The breakdown of factor income seems to have remained practically the same in Finland in the interval between the study years, while redistribution seems to have levelled income differences more in 1971 than in 1966.