Unit Nonresponse Bias in Inequality Measurement: Worldwide Analysis Using Luxembourg Income Study Database

Abstract

This study evaluates the magnitude of biases in the measurement of income inequality due to the tendency of households at the top ends of national income distributions not to complete surveys. This unit nonresponse bias is evaluated and corrected for through a recently proposed probabilistic model utilizing information on regional nonresponse rates and income distributions. To this end, regional nonresponse rates were collected from individual national statistical agencies and are reported in this study. The study also uses 72 microdatasets from 34 high and middle-income countries across the world harmonized and made available by Luxembourg Income Study. The large number of surveys is used to infer consequences of unit nonresponse for the measurement of inequality in the industrialized and middle-income world and in major world regions. Analysis performed on survey data disaggregated geographically into regions for which nonresponse rates are available yields sizeable, systematic corrections for nonresponse. Nonresponse bias is estimated to affect national Gini coefficients typically by 1–8 percentage points, but sometimes by 15 percentage points or more, in line with previous estimates. Winsorizing performed by Luxembourg Income Study in producing key figures affects negatively not only Gini estimates but also the estimated corrections for nonresponse. This suggests that specific measurement issues such as the nonresponse bias evaluated here are unlikely to be identified and corrected fully in winsorized income distributions. The degree of geographic disaggregation appears to affects the nonresponse correction negatively, corroborating existing evidence. This phenomenon has not been explained satisfactorily so far and calls for further inquiry.34 surveys, encompassing 576,700 household records in 418 regions, are used to derive back-of-the-envelope estimates of the Ginis for world regions and worldwide. Gini coefficient for North America – of 44.72 after correction of unit nonresponse – appears quite robust to nonresponse, being merely 0.34 percentage points above the uncorrected statistic. Ginis for Europe and Latin America (excluding low income countries), however, are quite sensitive to the correction, rising from 32.32 to 37.72 (5.40 pc.pt.) in the European Single Market, from 35.38 to 42.92 (7.55 pc.pt.) in Europe including former Soviet-Union and Balkan nations, and from 49.71 to 61.12 (11.41 pc.pt.) in Latin America. Correction for unit nonresponse also matters for estimating the worldwide Gini. The corrected estimates, 57.6–59.3, are 3–4.7 percentage points above the uncorrected value, 54.6. Overall, these numbers from across countries, world regions and worldwide appear quite consistent with each other and suggest that unit nonresponse biases Gini coefficients downward by 1–8 percentage points.