St Catharine's Political Economy Seminar Series - Martin Weale

Wed 16 October 2019

St Catharine's College

Talk Overview:
National income per capita is widely used as the basis for comparing living standards in different countries. But conventional measures of national income growth are plutocratic. The growth in the incomes of people with initially high income had more influence on the aggregate than does the growth of the incomes of people with initially low income. This paper argues the case for constructing a democratic measure of national income growth, the growth rate of the geometric mean of income per household - one which gives equal weight to the growth experience of each household, whether its initial income is high or low.
To do this means allocating the whole of national income to households, and a method of doing this is suggested. While the Living Conditions and Food Survey is the primary source, issues of under-reporting have to be addressed. This is done by means of stochastic imputation on the basis of covariates. In order to produce a democratic measure of real income growth, it is necessary to compute a democratic deflator - based on the average of each household's expenditure shares rather than shares in total consumption. Deflation of the geometric mean of each household's income by this deflator makes it possible to calculate a democratic measure of real income growth. As a result of declining household income inequality since the economic crisis this measure of real income has grown slightly faster than the plutocratic measure since 2006.

Cost: FOC