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

Levy Economics Institute Working Paper No. 447

53 Pages Posted: 23 May 2006

See all articles by Edward N. Wolff

Edward N. Wolff

New York University (NYU) - Department of Economics; National Bureau of Economic Research (NBER); Bard College - Levy Economics Institute

Ajit Zacharias

Bard College - Levy Economics Institute

Date Written: May 2006

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 1989-2000 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 "working rich" have replaced the rentiers at the top of the economic ladder.

Keywords: living standards, household wealth, inequality

JEL Classification: D31, D6, H4, P16

Suggested Citation

Wolff, Edward N. and Zacharias, Ajit, Household Wealth and the Measurement of Economic Well-Being in the United States (May 2006). Levy Economics Institute Working Paper No. 447, Available at SSRN: https://ssrn.com/abstract=903928 or http://dx.doi.org/10.2139/ssrn.903928

Edward N. Wolff

New York University (NYU) - Department of Economics ( email )

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Bard College - Levy Economics Institute

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Ajit Zacharias (Contact Author)

Bard College - Levy Economics Institute ( email )

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