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A Multi‐dimensional Measure of Economic Well‐Being for the U.S.: The Material Condition Index

Thesia I. Garner and Kathleen S. Short


When measuring economic well-being, a decision first needs to be made regarding what is to be measured and then second, how. Focusing on one dimension of economic well-being may provide an incomplete picture of the economic well-being of individuals and households. A recent call for the integration and multi-dimensional measurement of income, consumption and wealth has been published by the OECD (2013a), building on the recommendations of Stiglitz, Sen, and Fitoussi (2009). The OECD report notes that multi-dimensional measurement is a new field of statistics; the report describes several measures within this new field. One of these is a central tendency measure penalized for dispersion in the distributions of the dimensions under consideration. This particular measure draws on the work by Ruiz (2011) with a mapping of income, consumption, and wealth into a single index, the Material Condition Index (MCI). The purpose of the current study is to determine whether it is feasible to operationalize the Ruiz method to test whether the joint distribution of income, consumption, and wealth produces a different picture of economic well-being than any of the three dimensions alone for the U.S. Our results suggest that the method can be applied to U.S. data but only under a certain assumption, that income, consumption, and wealth must be positive. However, aside from this restriction, we find that: the MCI provides a more complete picture of economic well-being than any of the three dimensions of economic well-being alone; consumption is more equally distributed across individuals in the population, and represents higher levels of economic well-being than do income or wealth; and using consumption alone overestimates the material well-being of consumers relative to a measure that considers the joint distribution of the three components of economic well-being.