The Levy Institute Measure of Economic Well-Being
The Levy Institute Measure of Economic Well-Being (LIMEW) is informed by the view that three key institutions—the market, state, and household—mediate the access of the members of the household to the goods and services produced in a modern market economy. The magnitude of the access that can be exercised by the household is approximated by a well-being measure that reflects the resources that the household can command for facilitating current consumption or acquiring physical or financial assets. The three institutions form interdependent parts of an organic entity, and household economic well-being is fundamentally shaped by the complex functioning of this entity.
The LIMEW has two crucial characteristics. First, its focus is limited to components that can be converted into money equivalents. Second, it is a household-level measure that can be evaluated for households in different economic and demographic groups, such as those in different percentiles of the income distribution or those in different racial groups.
The LIMEW is constructed as the sum of the following components: base money income (gross money income less government cash transfers and property income), the value of certain employer-provided in-kind benefits, income from wealth, net government expenditures (transfers and public consumption net of taxes), and the value of household production. In the absence of an ideal, unified database to measure household economic well-being, the LIMEW is built using mainly information from income and employment surveys (e.g., the Annual Demographic Supplement of the Current Population Survey conducted by the US Census Bureau), other surveys on wealth and time use, National Income and Product Accounts, and government agencies.
In the Media | February 2012
By Rachel Mendleson
Huffington Post Canada, February 3, 2012. Copyright © 2012 TheHuffingtonPost.com, Inc. All rights reserved.
As debate about income inequality mounts, a new study [see Working Paper No. 703] underscores how important public investment in social programs like education and health care is in narrowing the rich-poor divide.
At a time when Ottawa prepares to beat back the deficit with public spending cuts, the findings also show that the effect of Canada’s social safety net on narrowing the income gap waned in the early 2000s.
“There seems to be a decline in the role of transfers on inequality in Canada,” says Andrew Sharpe, director of the Centre for the Study of Living Standards in Ottawa, and co-author of the study by the New York–based Levy Institute of Bard College.
Efforts to quantify the rich-poor divide often focus on basic income—namely, how much households earn in a given year. But in their comparison of income inequality in the U.S. and Canada, the authors of the working paper, released in January, endeavour to take a more comprehensive approach.
According to Sharpe, the aim is to “go beyond standard measures of income” to include other factors that play a role in household wealth: taxes and transfers; government expenditures on goods and services, such as housing, education and health care; time spent on household tasks; and the value of major assets.
Including these other elements when calculating income inequality tends to have a narrowing effect, he explains, “because everybody gets government services and everybody does household work.”
The vast amount of data required to make such comparisons limited the scope of the study somewhat—to 1999 and 2005 in Canada, and 2000 and 2004 in the U.S.—but the snapshots give some indication of how much these other factors have been affecting inequality in recent years.
The authors calculated inequality using two different measures. The first, dubbed Money Income (MI), only takes into account gross income and government transfers. However, the second, called the Levy Institute Measure of Economic Well-Being (LIMEW), also includes the effect of the other factors outlined by Sharpe, many of which are related to the strength of public services and programs.
On both sides of the border, the gap, measured with the Gini coefficient, the standard unit used to gauge inequality, was significantly narrowed when these other sources of wealth were taken into account.
In Canada in 1999, for instance, when inequality was calculated using the LIMEW, the Gini coefficient was 17 per cent lower; in 2005, meanwhile, it was 13 per cent lower.
The findings show that factors besides income (such as government spending on education and health care) do a better job at smoothing out inequality in Canada than in the U.S. But they also demonstrate that, from 1999 to 2005, this package of benefits became less effective at levelling the playing field.
This likely came as little surprise to Sharpe, who recently advocated for greater government investment as a means of curbing income inequality.
In a a report on reducing disparities published in November by Canada 2010—a think-tank established to “create an environment of social and economic prosperity”—Sharpe was among a group of public policy experts and economists who called on Ottawa to “analyze and consider the longer term effects of income polarization, and consider the strategic policy reforms to head off a looming problem.”
Among other fixes, the report suggests addressing the growing gap by imposing an inheritance tax, enhancing child benefits and increasing investment in post-secondary education.
“Public services are . . . an essential element of the redistributive effort of government,” Sharpe wrote. “Erosion of public services will thus tend to increase inequality, something that is not often at the forefront of discussion when cuts are proposed."
Working Paper No. 703 | January 2012
We use the Levy Institute Measure of Economic Well-being (LIMEW), the most comprehensive income measure available to date, to compare economic well-being in Canada and the United States in the first decade of the 21st century. This study represents the first international comparison based on LIMEW, which differs from the standard measure of gross money income (MI) in that it includes noncash government transfers, public consumption, income from wealth, and household production, and nets out all personal taxes.
We find that, relative to the United States, median equivalent LIMEW was 11 percent lower in Canada in 2000. By 2005, this gap had narrowed to 7 percent, while the difference in median equivalent MI was only 3 percent. Inequality was notably lower in Canada, with a Gini coefficient of 0.285 for equivalent LIMEW in 2005, compared to a US coefficient of 0.376—a gap that primarily reflects the greater importance of income from wealth in the States. However, the difference in Gini coefficients declined between 2000 and 2005. We also find that the elderly were better off relative to the nonelderly in the United States, but that high school graduates did better relative to college graduates in Canada.Download:Associated Program(s):Author(s):Related Topic(s):
Working Paper No. 680 | July 2011
This report presents estimates of the Levy Institute Measure of Economic Well-Being (LIMEW) for a representative sample of Canadian households in 1999 and 2005. The results indicate that there was only modest growth in the average Canadian household’s total command over economic resources in the six years between 1999 and 2005. Although inequality in economic well-being increased slightly over the 1999–2005 period, the LIMEW was more equally distributed across Canadian households than more common income measures (such as after-tax income) in both 1999 and 2005. The median household’s economic well-being was lower in Canada than in the United States in both years.Download:Associated Program(s):Author(s):Andrew Sharpe Alexander Murray Benjamin Evans Elspeth HazellRelated Topic(s):
Working Paper No. 679 | July 2011
We construct estimates of the Levy Institute Measure of Economic Well-Being for France for the years 1989 and 2000. We also estimate the standard measure of disposable cash income (DI) from the same data sources. We analyze overall trends in the level and distribution of household well-being using both measures for France as a whole and for subgroups of the French population. The average French household experienced a slower rate of growth in LIMEW than DI over the period. A substantial portion of the growth in well-being for the middle quintile was a result of increases in net government expenditures and income from wealth. We also found that the well-being of families headed by single females relative to married couples deteriorated much more, while the well-being of households headed by the elderly relative to households headed by the nonelderly improved much more than indicated by the standard measure of disposable income. The conventional measure indicates that a steep decline in economic inequality took place between 1989 and 2000, while our measure indicates no such change. We argue that these outcomes can be traced to the difference in the treatment of the role of wealth in shaping economic inequality. Our measure also indicates that, on balance, government expenditures and taxes did not have an inequality-reducing effect in France for both years. This is, again, contrary to conventional wisdom.Download:Associated Program(s):Author(s):Related Topic(s):
Working Paper No. 676 | July 2011
The quality of match for each of four statistical matches used in the LIMEW estimates for France for 1989 and 2000 is described. The first match combines the 1992 Enquête sur les Actifs Financiers with the 1989–90 Enquête Budget de Famille (BDF). The second match combines the 1998 General Social Survey (EDT) with the 1989–90 BDF. The third match combines the 2003–04 Enquête Patrimoine with the 2000–01 BDF. The fourth match combines the 1999 EDT with the 2000 BDF. In each case, the alignment of the two datasets is examined, after which various aspects of the match quality are described. In each case, the matches are of high quality, given the nature of the source datasets.Download:Associated Program(s):Author(s):Related Topic(s):
Working Paper No. 667 | April 2011
We construct estimates of the Levy Institute Measure of Economic Well-Being for Great Britain for the years 1995 and 2005. We also produce estimates of the official British measures HBAI (from the Department for Work and Pensions annual report titled “Households below Average Income”) and ROI (from the Office of National Statistics Redistribution of Income analysis). We analyze overall trends in the level and distribution of household well-being using all three measures for Great Britain as a whole and for subgroups of the British population. Gains in household economic well-being between 1995 and 2005 vary by the measure used, from 23 percent (HBAI) to 32 percent (LIMEW) and 35 percent (ROI). LIMEW shows that much of the middle class’s gain in well-being was as a result of increases in government expenditures. LIMEW also marks a greater increase in economic well-being among elderly households due to the increase in their net worth. The redistributive effect of net government expenditures decreased notably between 1995 and 2005 according to the official measures, primarily due to the change in the distributive impact of government expenditures.Download:Associated Program:Author(s):Related Topic(s):
Working Paper No. 663 | March 2011
The quality of match of four statistical matches used in the LIMEW estimates for Great Britain for 1995 and 2005 is described. The first match combines the fifth (1995) wave of the British Household Panel Survey (BHPS) with the 1995–96 Family Resources Survey (FRS). The second match combines the 1995 time-use module of the Office of Population Censuses and Surveys Omnibus Survey with the 1995–96 FRS. The third match combines the 15th wave (2005) of the BHPS with the 2005 FRS. The fourth match combines the 2000 United Kingdom Time Use Survey with the 2005 FRS. In each case, the alignment of the two datasets is examined, after which various aspects of the match quality are described. In each case, the matches are of high quality, given the nature of the source datasets.Download:Associated Program(s):Author(s):Related Topic(s):
Working Paper No. 618 | September 2010
The quality of match of four statistical matches used in the LIMEW estimates for the United States for 1992 and 2007 is described. The first match combines the 1992 Survey of Consumer Finances (SCF) with the 1993 March Supplement to the Current Population Survey, or Annual Demographic Supplement (ADS). The second match combines the 1985 American Use of Time Project survey (AUTP) with the 1993 ADS. The third match combines the 2007 SCF with the 2008 March Supplement to the CPS, now called the Annual Social and Economics Supplement (ASEC). The fourth match combines the 2007 American Time Use Survey with the 2008 ASEC. In each case, the alignment of the two datasets is examined, after which various aspects of the match quality are described. Also in each case, the matches are of high quality, given the nature of the source datasets.Download:Associated Program(s):Author(s):Related Topic(s):
Working Paper No. 615 | September 2010The quality of match of four statistical matches used in the LIMEW estimates for Canada for 1999 and 2005 is described. The first match combines the 1999 Survey of Financial Security (SFS) with the 1999 Survey of Labour and Income Dynamics (SLID). The second match combines the 1998 General Social Survey (GSS) with the 1999 SLID. The third match combines the 2005 SFS with the 2005 SLID. The fourth match combines the 2005 GSS with the 2005 SLID. In each case, the alignment of the two datasets is examined, after which various aspects of the match quality are described. Also in each case, the matches are of high quality, given the nature of the source datasets.Download:Associated Program(s):Author(s):Related Topic(s):
LIMEW Reports | November 2009Reports of a postracial society may be premature. Studies continue to show wide racial gaps in income and, especially, wealth; although there is some evidence that income gaps have shrunk over the past half century, wealth inequality is large and persistent.
In this report, the authors examine trends in economic well-being between 1959 and 2007 based on the race/ethnicity of households. Using the Levy Institute Measure of Economic Well-Being, they find that changes in household wealth and net government expenditure are the key elements in the story that unfolds about racial differences.