Formats and related files
This paper seeks to quantify how the welfare of different types of household changed between 2006/07 and 2009/10; a period which included the 2008/09 recession. We use three measures of household welfare: income, expenditure and the equivalent variation metric. The equivalent variation is a measure of the welfare lost owing to price changes. Using household level data from the Household Economic Survey (HES), we allocate households into "types" on one dimension (for example age group) as is traditional in the literature but also cluster the data into 12 different representative households based on 9 demographic and economic dimensions. Households in low income groups, with children and/or who rent were particularly impacted by the recession in terms of welfare losses owing to price changes. However we find that those in low income groups had strong increases in expenditure; furthermore the welfare gains from this increased expenditure more than offset the welfare losses from the price changes.
Special thanks to John Creedy for helpful assistance throughout both the research and editorial process. Thanks to Hemant Passi, Nicolas Herault, Simon McLoughlin, Peter Mawson, Bryan Perry and participants at an internal Treasury seminar for helpful comments and to Emily Chai for helping with initial setup work on this project.
Access to data used in this study was provided by Statistics New Zealand under conditions designed to give effect to the security and confidentially provisions of the Statistics Act 1975. Results presented in this study are work of the New Zealand Treasury and not Statistics New Zealand.
The views, opinions, findings, and conclusions or recommendations expressed in this Working Paper are strictly those of the author(s). They do not necessarily reflect the views of the New Zealand Treasury or the New Zealand Government. The New Zealand Treasury and the New Zealand Government take no responsibility for any errors or omissions in, or for the correctness of, the information contained in these working papers. The paper is presented not as policy, but with a view to inform and stimulate wider debate.
Table of Contents
- Executive Summary
- 1 Introduction
- 2 Measurement issues
- 2.2 Measuring welfare
- 3 Household types split by hard dimension
- 4 Clusters
- 4.2 The clusters
- 5 Household income and expenditure
- 5.2.1 Hard dimension results: income and expenditure
- 5.2.2 Hard dimension results: durables expenditure
- 5.2.3 Cluster results
- 6 The welfare effects of price changes
- 6 Welfare effects of price changes (continued)
- 6.4 Aggregate welfare effects
- 7 Conclusion
- Appendix A Additional tables
- Appendix B Sensitivity to weight selection
- Appendix C Categorical variables and clustering algorithms
- Appendix D Assessing the 'goodness of fit' of clusters
- Appendix E The linear expenditure system and equivalent variation