Does How You Measure Income Make a Difference to Measuring Poverty? Evidence from the UK

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 paper examines differences in how income is collected in a nationally representative UK birth cohort, 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 between measurement tools. 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 and in part-time employment. Not surprisingly then in our analysis of poverty, using a single question produces an inflated proportion of families who could be classified as living in poverty and is less associated with other measures of financial deprivation than the more conservative poverty measure based on multiple questions.