Does how you measure income make a difference to measuring poverty?

A new CLS Working Paper examines the implications different methods of collecting and reporting income may have for measuring poverty, by reference to the Millennium Cohort Study income data.

Income is regarded as one of the clearest indicators of socioeconomic status and wellbeing in the developed world and is highly correlated with a wide range of outcomes. Despite its importance, there remains an issue as to the best way to collect income as part of surveys.

This working paper examines differences in how income is collected in the Millennium Cohort Study, looking at variations by questions asked and by respondent characteristics before then examining the implications different methods of collecting and reporting income may have for measuring poverty.

Results show that less than a third of respondents give consistent information on income irrespective of the measurement tool used. Using multiple questions is associated with a substantially lower response rate but this method generally results in a higher estimate of family income than using a single question. This is particularly true for certain groups of the population – those on means-tested benefits, in self-employment or working part-time.

The conclusion is that the use of a single income question produces an inflated proportion of families who could be classified as living in poverty.  Using multiple questions shows more concurrence with other measures of financial wellbeing, as indicated by higher positive predictive power.

HANSEN, K. and KNEALE, D. (2011) Does how you measure income make a difference to measuring poverty?  CLS Working Paper 2011/1. London: Centre for Longitudinal Studies