Viewpoint: Further results on measuring the well-being of the poor using income and consumption

We evaluate the relative merits of income- and consumption-based measures of well-being. Our results provide evidence that consumption better captures well-being for those with few resources. The bottom deciles of expenditures exceed those of income, suggesting under-reporting of income. The under-reporting rate for government transfers is high and rising. Overall non-response is more severe in U.S. income data than in expenditure data. Furthermore, a consumption data set requires fewer observations than an income data set to obtain the same level of precision for typical estimates. Finally, very low consumption is more strongly related to other bad outcomes than very low income.