Measuring the Well-Being of the Poor Using Income and Consumption

Abstract

We evaluate consumption and income measures of the material well-being of the poor. We begin with conceptual and pragmatic reasons that favor income or consumption. Then, we empirically examine the quality of standard data by studying measurement error and under-reporting, and by comparing micro-data from standard surveys to administrative micro-data and aggregates. We also compare low reports of income and consumption to other measures of hardship and well-being. The closer link between consumption and well-being and its better measurement favors the use of consumption when setting benefits and evaluating transfer programs. However, income retains its convenience for determining program eligibility.