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Household Wealth and the Measurement of Economic Well-Being in the United States

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  • Edward N. Wolff
  • Ajit Zacharias

Abstract

The standard official measure of household economic well-being in the United States is gross money income. The general consensus is that such measures are limited because they ignore other crucial determinants of well-being. We modify the standard measure to account for one such determinant: household wealth. We then analyze the level and distribution of economic well-being in the United States during the 1980s and 1990s, using the standard measure and a measure that differs from the standard in that income from wealth is calculated as the sum of lifetime annuity from nonhome wealth and imputed rental-equivalent for owner-occupied homes. Our findings indicate that the level and distribution of economic well-being is substantially altered when money income is adjusted for wealth. Over the 1989Ð2000 period, median well-being appears to increase faster when these adjustments are made than when standard money income is used. This adjustment also widens the income gap between African Americans and whites, but increases the relative well-being of the elderly. Adding imputed rent and annuities from household wealth to household income considerably increases measured inequality and the share of income from wealth in inequality. However, both measures show about the same rise in inequality over the period. Our results contradict the assertion that the Òworking richÓ have replaced the rentiers at the top of the economic ladder.

Suggested Citation

  • Edward N. Wolff & Ajit Zacharias, 2006. "Household Wealth and the Measurement of Economic Well-Being in the United States," Economics Working Paper Archive wp_447, Levy Economics Institute.
    • Handle: RePEc:lev:wrkpap:wp_447
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    References listed on IDEAS

    as
    1. Lerman, Robert I. & Yitzhaki, Shlomo, 1995. "Changing Ranks and the Inequality Impacts of Taxes and Transfers," National Tax Journal, National Tax Association;National Tax Journal, vol. 48(1), pages 45-59, March.
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    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D6 - Microeconomics - - Welfare Economics
    • H4 - Public Economics - - Publicly Provided Goods
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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