Measuring Living Standards: Household Consumption and Wealth Indices Introduction

A common theme throughout the notes in this series is the examination of disparities in a particular health variable (be it health status, or usage of health services, or payments for health care, or whatever) across people with different standards of living. For example, the concern might to be to see whether gaps in health outcomes between the poor and better off have grown, or whether they are larger in one country than another. This raises the question of how best to measure living standards. One approach is to use “direct” measures, such as income, expenditure or consumption. Another is to use a “proxy” measure, making the best use of available data. One popular approach in this vein is to use Principal Components Analysis to construct an index of “wealth” from information on household ownership of durable goods and its housing characteristics.