The Measurement of Income Distribution Dynamics when Demographics are Correlated with Income

29 Pages Posted: 24 May 2007

See all articles by Denis Cogneau

Denis Cogneau

Institut de Recherche pour le Developpement (IRD)

Michael Grimm

Erasmus University Rotterdam; University of Passau; IZA; DIW Berlin

Abstract

We show how to account for differentials in demographic variables, in particular mortality, when performing welfare comparisons over time. The idea is to apply various ways of "correcting" estimated income distribution measures for "sample selection" due to differential mortality. We distinguish the direct effect of mortality, i.e. individuals who die leave the population and no longer contribute to monetary welfare, from the indirect effect, i.e. the impact on survivors in the deceased's household who may experience a decrease or increase in monetary welfare. In the case of Indonesia, we show that the direct and indirect effects of mortality on income distribution have opposite signs, but are roughly the same in magnitude. Moreover, the effects of other demographic changes dominate the effects of mortality, whether direct or indirect. However, in the post-crisis period these demographic changes also explain a substantial part of the overall change in the distribution of income.

Suggested Citation

Cogneau, Denis and Grimm, Michael, The Measurement of Income Distribution Dynamics when Demographics are Correlated with Income. Review of Income and Wealth, Vol. 53, No. 2, pp. 246-274, June 2007. Available at SSRN: https://ssrn.com/abstract=988584 or http://dx.doi.org/10.1111/j.1475-4991.2007.00229.x

Denis Cogneau

Institut de Recherche pour le Developpement (IRD) ( email )

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Michael Grimm (Contact Author)

Erasmus University Rotterdam ( email )

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The Hague, 2502LT
Netherlands

HOME PAGE: http://www.iss.nl

University of Passau ( email )

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Germany

HOME PAGE: http://www.wiwi.uni-passau.de/grimm.html

IZA ( email )

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Germany

DIW Berlin ( email )

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Berlin, 10117
Germany

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