Income Distribution Implications of Rural Household Production

Abstract

Economic well-being is a difficult concept to measure. It is defined theoretically by a household's or individual's total access to goods and services. However, economic well-being is almost always measured empirically by money income (Moon and Smolensky). While money income provides a fairly accurate indicator of access to goods and services that can be purchased in the marketplace, it fails to measure access to goods and services that are a result of household production. Such an omission means that empirical estimates of economic well-being based solely on money income are biased if money income and household production are correlated. Concern about potential bias increases when attention is focused on comparing the economic well-being of groups-such as rural and urban households-which may differ in their reliance on household production. Historically, rural households have had less equal money income distributions than urban households (Foley). However, family members in rural households also spend more time in household production than do their urban counterparts (Goebel and Hennon, Olson et al.). Could it be that the relatively greater unevenness in the distribution of rural households' money income is in part compensated for by differences in home productivity? Or would the addition of home production to measures of economic well-being make the distribution of income across rural households even more unequal than their urban counterparts?' In this paper we explore how rural and urban income distributions change if the value of household production is added to money income.