The conclusions and views expressed inthis paper are those of the author anddo not necessarily reflect those of theWorld Bank Group. The paper is a draftfor discussion; please do not citewithout the author's permission.

DPH81 01

Population and Human Resources Division

Discussion Paper No. 1

DEMOGRAPHIC CHARACTERISTICS OF INDIVIDUALS ANDTHE MEASUREMENT OF LIFETIME INCOME

January 1981

Prepared by:

Oey Astra Meesook

Prepared for:

The seminar on Interrelationships between Demographic Factors and IncomeDistribution: Problems of Measurement, Description and Interpretation heldby the International Union for the Scientific Study of Population on January5-8, 1981 in Ahmedabad, India

The World BankWashington, D.C. 20433

U.S.A.

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ACKNOWLEDGMIENT

The author would like to acknowledge the cooperation of the NationalStatistical Office of Thailand in making available the data tapes of theSocioeconomic Surveys for Thailand for 1968/69 and 1975/76 and the very ableresearch assistance by Vilma Mataac.

I

DEMOGRAPHIC CHARACTERISTICS OF INDIVIDUALS ANDTHE MEASUREMENT OF LIFETIME INCOME

Oey Astra Meesook

ABSTRACT

This paper argues that, in order to account for variations over thelife-cycle in the level of material well-being of individuals, the incomeconcept which ought to be used is that of household income per person with theindividuals being classified by their own age and not by the age of thehousehold head. Using data from the Socioeconomic Surveys for Thailand, thepaper shows the differences in the age-income profiles corresponding to thefollowing concepts: household income by age of head, household income perperson by age of head, and household income per person by age of theindividual. Life-cycle effects on the distribution of income will be quitedifferent depending on which of these concepts is used in the analysis.

The paper attempts to define lifetime income which is independent oflife-cycle variations as the annual average of gross current income over thelife of the individual, where household income per person is used. Where datapermit we would adjust the income-by-age data to reflect the survivalprobabilities of individuals to different ages. The paper illustrates howdifferent survival probabilities for different socioeconomic groups imply thatthe adjustment affects their lifetime incomes to different extents.

When total income inequality in the distribution of personsclassified by household income per person is considered -as consisting of theinequality in the levels of lifetime incomes across different socioeconomicgroups, the inequality over the lifetime in the incomes within socioeconomicgroups, and the inequality within age groups within the socioeconomic groups,the paper shows that, at least for the breakdown of the Thai population intoagricultural and nonagricultural households, the inequality betweensocioeconomic groups contributes much more to total income inequality than theinequality over the lifetime within socioeconomic groups.

The profile of household income per person by age of the individualis related to various household demographic characteristics, such as householdsize, average age of head, number of workers and number of children. Apositive relationship is found between household income per person and thenumber of workers per person, with income per worker showing relatively littlevariation over the life-cycle of individuals. The paper attempts to accountfor deviations in 1975/76 incomes per person of different age cohorts from theexpected values based on 1968/69 data by using economic and demographicfactors. Both are found to have a significant effect in changing income perperson over time.

II

Ia

TABLE OF CONTENTS

Page No.

I. Introduction I

II. Lifetime Variations in Income 4

III. Comparisons of Lifetime Incomes 11

IV. Demographic Factors and Lifetime Incomes 19

V. Conclusion 28

I

I. INTRODUCTION

This paper is concerned with the importance of taking into account

demographic factors in the analysis of the size distribution of income.

Data from the Socioeconomic Surveys for Thailand for 1968/69 and 1975/76

will be used to illustrate the ideas explored here.

Paglin has drawn attention to the necessity of removing the

inequality which is due to variations in income over the life cycle from

the total inequality in the size distribution of income.l/ To this end,

he concerns himself with the adjustment of total inequality in the size

distribution of household income to take into account the age-income

profile, where the age of the household head is taken to represent the

stage in the life cycle of the household under consideration.

Kuznets has stressed the inappropriateness of using the conventional

distributions of households by household income and the necessity to

convert such distributions into distributions of persons by household

income per person.2/ He points out in addition that these distributions

still reflect differences in the age of the household head which obscure

our view on the differences in the lifetime level of income. Thus

Kuznets and Paglin are both concerned with differences across income

1/ M. Paglin, "The Measurement and Trend of Inequality: A BasicRevision," American Economic Review,Vol. LXV, No.4, September 1975,pp.598-6098

2/ S. Kuznets, "Demographic Aspects of the Size Distribution ofIncome: An Exploratory Essay," Economic Development and CulturalChange, Vol.25, No.1, October 1976, pp.l-9 4..

-2-

distributions in the contributions to inequality of variations in income

over the life cycle, although Paglin fails to take into account the

effect of varying household sizes on the income distribution.

This paper explores some issues in the measurement of lifetime

income. It concurs that we should consider the distribution of persons

classified by household income per person but that this should be broken

down by the age of the person rather than by the age of the household

head. Just as it is important to take into account differences in life-

cycle effects in comparing income distributions, so it is important not

to allow differences in the patterns of household formation to affect the

comparison. These ideas are taken up in the next section.

In section III, we demonstrate that, even after taking into account

household size and life-cycle effects, differences in lifetime incomes

across different socioeconomic groups persist. We show these for

agricultural and nonagricultural households in Thailand. One other

demographic factor is included in the calculation of lifetime income,

namely mortality, and it is suggested that differences in life

expectation across socioeconomic groups be taken into account when the

data are available.

We show that Kuznets concerns that life-cycle effects should not be

neglected in comparisons of size distributions of income are fully

justified. The profiles of income over a person's lifetime vary for

different socioeconomic groups and improvements over time in lifetime

incomes vary in their pattern and extent.

-3-

Finally, in section IV variations in income over a person's lifetime

are related to household demographic characteristics and the process of

household formation. In addition, deviations in actual incomes per

person in 1975/76 by age cohort. from the expected values based on the

1968/69 experience are related to deviations from the expected values in

household economic and demographic factors.

The data used in this paper are taken from the Socioeconomic Surveys

for Thailand conducted by the National Statistical Office in 1968/69 and

1975/76.3/

3/ For details on these surveys concerning the sampling procedures anddefinitions, the reader is referred to the documentation by theNational Statistical Office in the following publications:

Report, Socioeconomic Survey, B.E. 2511-2512, NationalStatistical Office, Office of the Prime Minister, Bangkok.

Report, Socioeconomic Survey, 1975-76, Whole Kingdom Volume,National Statistical Office, Office of the Prime Minister,Bangkok.

For a discussion of the comparability between the surveys and theirreliability, the reader is referred to World Bank, Income,Consumption and Poverty in Thailand, 1962/63 to 1975/76, StaffWorking Paper No.364, November 1979.

-4-

II. LIFETIME VARIATIONS IN INCOME

Throughout this paper we take it as understood that the appropriate

recipient unit from the point of view of the size distribution of income

is the household and, moreover, that the appropriate distribution is that

of persons by household income per person and not of households by total

household income. The household is explicitly considered to be a

mechanism for redistributing total household income among its members,

since some of them earn incomes while others are dependent on them for

survival. Thus we are concerned here not so much with the determinants

of income for those members of society who earn income as with the

incomes at the disposal of all the different members of society, whether

or not they earn income. That is, we are interested in the distribution

among the population in that component of material welfare which can be

obtained with household income. Since we do not have information on the

exact manner in which income is distributed among household members, we

take household income per household member to indicate the level of

material welfare for each and every member.

Kuznets and Paglin have drawn attention to the fact that the

observed level of inequality in the size distribution of income at a

point in time reflects, among other things, life-cycle effects, to the

extent that the level of household income varies with the age of the

household head. Since all households experience such life-cycle

variations in income, the case is made by Paglin that the level of

inequality calculated from an income distribution for one point in time

-5-

is exaggerated. More importantly, both writers warn that comparisons of

income inequality over time or across population groups may be

inappropriate if there are differences in the life-cycle component of

inequality. They advocate that life-cycle effects be neutralized, either

by adjusting measures of inequality to standardize for these or by

considering distinct socioeconomic groups for whom it may be assumed that

life-cycle effects are similar. Although Paglin considers the

distribution of household income without taking into account variations

in household size, both Paglin and Kuznets use the age of the household

head to represent different stages in the life cycle of the household.

The rationale behind the attempt to adjust for life-cycle effects in

the income distribution is that it is quite normal to have variations in

income over the lifetime of individuals and that different income

profiles over the life cycle can still be consistent with the same level

of lifetime income, a concept which ought to be defined in such a way as

to be free of life-cycle effects.

We would argue that it is more appropriate to define lifetime income

by basing it on household income per person by age of the individual

rather than by age of the household head. First, it is more

straightforward to classify individuals by their own characteristics

rather than those of someone else in the household. An individual's own

age progresses uniformly over his life cycle, whereas the age of the

household head for an individual changes from being somebody else's age

when he is young, for example his father-s, to being his own age when he

-6-

sets up his own household, to being somebody else's again in his old age,

for example his son-s. The life span of a household also does not

coincide with that of the individual belonging to it, whereas we ought to

be interested in the incomes of an individual over his entire life

span. Second, if the age of the household head is used in the

calculation of an individual's lifetime income, then comparisons over

time or across countries or socioeconomic groups suffer from problems of

incomparability arising either from differences in the definition or

identification of the household head or, in comparisons over time, from

changes in the pattern of household formation which may have taken place

between the periods considered.

The problem of inconsistent definitions of the household head can be

illustrated as follows. Consider two populations which are identical in

terms of their age distributions, the way they are grouped into

households and the incomes they receive. In other words, there would be

no differences in life-cycle effects between the incomes of these two

groups. But suppose that there is a difference in the practice of

identifying the head of household. In the one case, the head is the

person who provides for the material well-being of the household, whereas

in the other case the head is the oldest male. Classifying the two

populations by the age of the household head would indicate that there

are life-cycle differences between them, since the oldest male is not

-7-

necessarily the main breadwinner for the household. However, a

classification based on the age of each individual would not show these

spurious life-cycle differences.

Over time we can expect that the pattern of household formation in a

society would change, even for a given socioeconomic class. Most

notably, the existence of extended families can be expected to become

less common. Young married children may move out of the parental

household earlier than used to be the case in order to set up their own

households. Old people may live on their own instead of in the

households of their children. To think of life-cycle effects in relation

to the age of the household head would lead to some confusion in this

case in comparisons of income distributions over time.

To classify individuals by their own age instead of that of their

household head is to recognize explicitly that the variations in

household income per person over the lifetime are linked with the process

of household formation. However, what is of interest is the net effect

on income after household formation has been taken into account in which

household income per person for the individual at different ages reflects

his level of material well-being at different stages over his lifetime.

Figure 1 illustrates the differences in the "age-income" profiles

obtained in different ways. Using the same data sets throughout, namely

the Socioeconomic Surveys for Thailand for 1968/69 and 1975/76, we have

plotted the following graphs: household income by age of head, household

income per person by age of head, and household income per person by the

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-9-

person-s own age.4/ Two sets of graphs are shown for each period, with

the total sample being divided( into agricultural and nonagricultural

households, where the classification is based on the sector of occupation

of the household head.

To compare the different profiles, consider agricultural households

in 1968/69. The age-income profile obtained as the average household

income by age of the household head uses the household as the unit of

observation. It has an inverted-U shape, although the profile is not

very smooth. Total household income is positively related to the age of

the head up to the 45-49 age group. Thereafter it generally declines

with the age of the head.

The profile which is based on household income per person by age of

head uses each person as the unit of observation. It takes into account

different household sizes and weights a household according to the number

of persons in it. It does not have the same shape as household income by

age of head and reflects the positive association between age of head and

household size by being much flatter altogether.

Finally, the profile based on household income per person by the

person's own age is reasonably similar to, but generally lies above,

household income per person by age of head. The latter profile, however,

is truncated at the lower end since very few households are headed by

individuals under the age of 15.

4/ The income concept in the Socioeconomic Surveys for Thailand includesboth money and nonmoney incomes.

-10-

The profile of household income per person by age of the person has

a double peak. For the agricultural sector, income per person increases

with the age of the person up to the 20-24 age group; declines with age

up to the 35-39 age group; increases steadily with age to reach a second

peak in the 60-64 age group, after which it shows a decline.

It is thus evident that there would be some real differences in the

treatment of life-cycle effects in relation to the size distribution of

income depending on whether we use household income by age of head,

household income per person by age of head, or household income per

person by the person's own age.

-11 -III. COMPARISONS OF LIFETIME INCOMES

In this section we use the distribution of persons classified

according to household income per person by each person's own age to

compare the lifetime incomes of different socioeconomic groups and those

of the same groups over time. The concept of lifetime income allows for

variations over the lifetime to be differentiated from differences in the

absolute levels of lifetime incomes. Thus one population group can be

thought of as better-off than another group if it has the higher lifetime

income of the two, even if the former group has a greater variation in

income over its lifetime or experiences a lower level of income at one or

more stages in its lifetime when compared with the latter group.

Table 1 gives average household income per person by the age of the

person for those belonging to agricultural and nonagricultural households

in Thailand in 1968/69. The comparison between these two distributions

is very straightforward since those belonging to nonagricultural

households have a higher income per person than those in agricultural

-households for all age groups and so must be unequivocally better-off.

In computing an overall measure of lifetime income we can follow

what Kuznets has done, which is to sum up the current incomes per person

over the lifetime.5/ The annual average of this is what we have called

average gross current income. Using this measure, the lifetime income of

the agricultural group is only 45% of that of the nonagricultural

5/ Kuznets, Op.cit., p.75.

-12 -Table 1: CURRENT HOUSEHOLD INCOME PER PERSON BY AGE GROUP

OF PERSON, BY SECTOR, THAILAND, 1968/69

Current Income Per Person Current Income Per Person

of Person (Baht/year) Relative to Average (%)oAgriculture Nonagriculture Agriculture Nonagriculture

0-4 1308.77 2900.95 77 76

5-9 1403.28 2761.95 82 72

10-24 1525.90 3197.37 90 84

15-19 1673.55 3974.19 98 104

20-24 1841.48 4490.20 108 118

25-29 1577.42 4651.88 93 122

30-34 1587.55 3501.25 93 92

35-39 1415.67 3592.16 83 94

40-44 1631.32 3644.75 96 95

45-49 1852.40 4089.66 109 107

50-54 1861.69 4591.01 109 120

55-59 2069.45 4457.26 121 117

60-64 2298.33 4089.76 135 107

65-69 1780.61 3408.80 104 89

70+ 1741.71 3947.99 102 103

Average gross 1704.61 3819.95 100 100

current income

Source: Data tapes of the Socioeconomic Survey, 1968/69, for Thailand,

National Statistical Office, Bangkok.

1 3~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-13 -group. This computation leaves out two things which work in opposite

directions. First, future incomes are not discounted to the present at

some discount rate to reflect the individual's relative preference for

current and future incomes. Any discounting would make the incomes in

the earlier years of life a larger proportion of lifetime income.

Second, however, to the extent that the calculation is based on cross-

sectional data, incomes for the older age groups should be adjusted to

reflect expected increases over time in productivity and hence in

household income per person. This second adjustment would attach a

relatively greater weight to incomes in the later years of life. On

balance, Kuznets judges that the discount factor would be larger than the

productivity increase, so that some net discounting will still be

necessary.

One factor which ought to be incorporated in the calculation of

lifetime income and which would make a difference in comparisons over

time and across socioeconomic groups or countries is the survival

probability of individuals to different ages. It matters not only what

level of household income per person an individual can expect to have

at a certain age, but also what the probability is that he will survive

to that age.

In Table 2 we illustrate the results of adjusting income per person

to take into account survival probabilities at different ages. The

adjustment necessarily reduces the importance of incomes at older ages in

lifetime income. We have applied survival probabilities for urban and

l~~~~~~~~~

- 14 -Table 2: CURRENT HOUSEHOLD INCOME PER PERSON BY AGE GROUP

OF PERSON, ADJUSTED FOR SURVIVAL PROBABILITIES

BY -SECTOR, THAILAND, 1968/69(Baht/year)

Age Group of Person Agriculture Nonagriculture

0-4 1241.87 2877.05

5-9 1285.98 2708.45

10-14 1361.68 3099.53

15-19 1479.32 3839.11

20-24 1612.34 4322.45

25-29 1363.29 4442.07

30-34 1354.29 3316.87

35-39 1176.00 3360.68

40-44 1319.61 3367.49

45-49 1436.55 3675.79

50-54 1384.13 4014.15

55-59 1434.60 3648.53

60-64 1485.57 3134.11

65-69 894.79 1903.95

70+ 680.47 1602.92

Average gross 1300.70 3287.54

current income

Source: Data tapes of the Socioeconomic Survey, 1968/69, for Thailand,

National Statistical Office, Bangkok.

Survival probabilities are taken from Report, The Survey of

Population Change, 1974-1975, National Statistical Office,

Bangkok, Table 9.

15~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-15 -rural areas to the nonagricultural and agricultural sectors

respectively.6/ What is important here is that the differential in life

expectation at birth means that lifetime income after the adjustment is

reduced differentially for the two sectors. For the nonagricultural

sector, where we use survival probabilities consistent with a life

expectation at birth of 71 years, the lifetime income is reduced to 86%

of what it would be without taking life expectation into account. For

the agricultural sector the corresponding reduction is to 76%, where the

survival probabilities are consistent with a life expectation at birth of

60 years. After the adjustment, the lifetime income of those in

agricultural hosueholds is reduced from a level of 45% to 40% of that for

nonagricultural households. For cross-country comparisons we can expect

the results of this adjustment to be more dramatic.

It is likely that we shall not have the necessary data to adjust

income figures by age for survival probabilities in all but a few

instances. To that extent it is fortunate that the adjustment tends, if

anything, to increase the existing disparity in lifetime incomes and the

above example is useful for illustrating this point. The group with the

lower lifetime income before the adjustment, agriculture, also has lower

probabilities of surviving to various ages so that the adjustment reduces

its lifetime income by a greater extent and so widens the disparity

between its lifetime income and that for nonagriculture. Kuznets makes

6/ These are taken from Report, The Survey of Population Change, 1974-1975, National Statistical Office, Bangkok, Table 9.

-16 -the point in his discussion that the discount rate is likely to be higher

among the lower than among the upper income groups.7/ Adjusting for

survival probabilities and discounting for the future are therefore not

going to make a qualitative difference to conclusions based on lifetime

incomes defined in terms of average gross current income.

In comparisons of different socioeconomic groups, we would like to

be able to compare their lifetime incomes which are free of variations

over the life cycle. The level of inequality in income per person in the

total population can be decomposed into three sources: the inequality in

the lifetime incomes of the different groups, defined to reflect real

differences in the overall levels of income for the groups over their

lifetime; the inequality within each group caused by variations in the

level of income over the lifetime; and the inequality in income per

person within each age cohort within a group.

If we were to apply this to a simple case, for example in a

comparison between the agricultural and nonagricultural populations, then

the breakdown of total inequality in income per person would consist of

the inequality due to the difference in lifetime incomes between the two

sectors, the inequality across age groups within each of the two sectors,

and the inequality across individuals within each age group of each

sector. If we ignore the third source of inequality, which cannot be

attributed to sector or the individual-s age and which in fact

7/ Presumably this is due at least in part to their lower expectation of

life.

_ 17 -

contributes by far the largest share to total income inequality, we can

estimate the relative importance of the contributions of the first two

sources. This would naturally depend on the choice of the measure of

inequality used. In Table 3, we show the decomposition results using the

variance of income as our measure of income inequality. The inequality

between the two sectors accounts for 87% of the total inequality, while

the 'life-cycle' inequality, the sum of the inequalities across age

groups within each of the two sectors, accounts for the remaining 13%.

The 'life-cycle' inequality is relatively unimportant in this case which

indicates that the breakdown into the two socioeconomic groups has been

quite successful in capturing differences in lifetime incomes between

them. Using the variance of the logarithms of income as the measure of

inequality instead, the contribution of the between-sector inequality is

86%.8/

A similar calculation for 1975/76 shows a slightly smaller

contribution to total inequality coming from the inequality between

sectors, 85%, with a correspondingly higher contribution from the

inequality across age groups within sectors. The results for 1975/76 are

similar whether we use the variance of incomes or the variance of the

logarithms of incomes as the measure of inequality.

8/ The calculation here uses the logarithms of the mean incomes by agegroups, rather than the means of the individual logarithms ofincomes.

- 18 -Table 3: DECOttOSITION OF THE VARIANCE OF INCOMES PER PERSON

AND VARIANCE OF TLE LOGARITHMS OF INCOME PER PERSON,

THAILAND, 1968/69 and 1975/76

Weight Income Logarithm of Income

(Baht/Year)

1968/69:

Sector

Agriculture .6974 1704.61 7.4304

Nonagriculture .3026 3819.95 8.2359

Total 1.0000 2344.71 7.6741

Variance

Between sectors 944,303 (86.61%) .1369 (86.05%)

Within sectors across 146,023 (13.39%) .0222 (13.95%)

age groupsTotal -1,090,326 (100.00%) .1591 (100.00%)

1975/76:

Sector

Agriculture .6350 3338.89 8.0950

Nonagriculture .3650 6335.55 8.7362

Total 1.0000 4432.67 8.3290

Variance

Between sectors 2,081,333 (84.88%) .0953 (85.09%)

Within sectors across 370,845 (15.12%) .0167 (14.91%)

age groupsTotal 2,452,178 (100.00%) .1120 (100.00%)

1 9~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-19 -IV. DEMOGRAPHIC FACTORS AND LIFETIME INCOMES

Using lifetime income based on household income per person at

different ages over the lifetime of a person means that we are interested

in the level of his material welfare which is the outcome of household

formation and the household's capacity to earn income. Households are

formed, some members break away to set up new households, and the

original households are eventually dissolved. Some members work and earn

income while others are dependent on them. The net result is that at any

point in time a household has a number of members and a certain level of

total income, and we take the level of income per person to indicate the

level of material welfare for all the members of the household. We

expect a number of household demographic characteristics to be related to

the level of household income per person and thus for changes in these

household characteristics over the lifetime of an individual to be

reflected in this level. In particular, household size and the number of

workers can be expected to be important in this regard.

In Figure 2 we use data for Thailand in 1968/69 and 1975/76 to plot

a number of characteristics of the household to which an individual

belongs against his age: household income per person, average age of

household head, household size, number of children, number of workers and

number of workers per household member. Some distinct phases in the

life-cycle of an individual can be seen.

Using 1968/69 we see that starting from birth, individuals belong to

households headed by relatively young people with average age in the

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2 1~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-21 -early 40's. Throughout their childhood their household heads are

becoming older, as would be expected. Their household size on average is

large, with the peak being reached in the 5-14 age group. The household

has few workers and the number of workers is increasing with the

individual's age; the same is true for the number of workers per

household member. The level of income per person is at it lowest level

for these youngest age groups.

In the 15-24 age group, the average age of the household head

reaches a peak at about 48 years of age; household size continues to

fall; the number of workers reaches its highest level in the 20-24 age

group, as does the number of workers per household member. The level of

income per person is rising in this phase and a peak is reached in the

20-29 age group.

It is evident that around age 25 individuals leave their original

households to form new households; the average age of the household head

drops to around 40 again for the 25-39 age group and then starts to rise

again. Similarly, average household size, which has been falling, starts

to rise again, reaching a peak in the 40-44 age group. The number of

workers drops to a low in the 30-34 age group, while the number of

workers per member reaches a low in the 35-39 age group before rising

again. Income per capita falls in this phase in which the household adds

children to its list of members and also reaches a low in the 30-39 age

group.

- 22 -

For individuals in their 40's, average household size starts to

decline while the number of workers keeps rising over this period. The

level of income per person rises, as would be expected. After age 50,

however, the number of workers starts to fall, and so does the number of

workers per household member. Income per person eventually declines.

Figure 3 shows household income per person, average age of head and

number of workers per person by age groups of individuals in agricultural

and nonagricultural households in 1968/69 and 1975/76. They illustrate

the clear positive relationship between income per person and the number

of workers per person, the latter being the outcome of various household

demographic characteristics as shown in Figure 2, namely household size,

age of household head, and number of children. For both sectors and both

time periods the profiles of income per person by age have double peaks

roughly corresponding to the peaks in the number of workers per household

member. The correspondence is only approximate, reflecting some variation

in average income per worker for households of individuals belonging to

different age groups.

The association described above between income per person and number

of workers per person is based on cross-sectional data in which we have

found that those individuals belonging to age groups having higher

numbers of workers per household member on average also have higher

incomes per person. Over time the change in income per person

experienced by any particular age cohort can be thought to consist of the

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change in income due to changes in their age, changes in the price level,

changes in productivity and changes in the demographic characteristics of

the households to which the individuals belong.

In Table 4 we attempt to account for deviations in income per person

of different age cohorts from what we should expect from the 1968/69

experience for the period 1975/76 for the agricultural and

nonagricultural sectors. The first panel for each sector gives the

expected and actual values for income per worker in money terms. For

example, for the first age cohort considered, the former would be the

income per worker figure that applies to the 7-11 age group in 1968/69

and is the one that we should therefore expect the 0-4 age group in

1968/69 to have by 1975/76. The latter figure gives the actual value of

income per worker for the 7-11 age group in 1975/76. The percentage

deviation in real income per worker from the expected value given in the

third panel is calculated from the expected and actual values, after

allowing for an increase in the price level between the two dates.9/ The

second panel for each sector gives the expected and actual values for the

number of workers per household member. The extent to which an actual

value deviates from the expected value reflects the total change in the

demographic composition of households from what would be expected if no

change had taken place between the two dates. This is shown in the second

9/ The Consumer Price Index for Urban Areas, Whole Kingdom, was used.

This was taken from the Bank of Thailand Statistical Bulletin,

December 1979, Table V.14.

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- 26 -

column of the third panel for each sector. In the final column of the

third panel we show the percentage deviation of real income per person

from the expected value. From these figures we get some idea of the

relative contributions of economic and demographic factors to deviations

from the expected values in incomes per person. The demographic factors

are taken to be those which affect the number of workers per household

member, namely household size, number of children and labor force

participation of adults, whereas economic factors are those which affect

income per worker. This is a gross simplification, since in actual fact

we would expect the economic factors to affect labor force participation

and hence the number of workers per household member and, similarly,

demographic factors can be expected to influence income per worker. The

results show that changes in demographic factors can be expected to have

a significant influence on the level of income per person independently

of economic factors. In the agricultural sector, positive deviations in

real income per worker relative to what would be expected from the

1968/69 period combine with positive deviations in the number of workers

per household member for most age groups, resulting in sizable positive

deviations in income per person compared with the expected values. The

same is true for some of the age groups in nonagriculture. However, for

most age groups in the nonagricultural sector, adverse deviations on the

demographic side, which lead to a reduction in the number of workers per

household member relative to what would be expected, are more than

sufficient to eliminate the gains due to greater than expected real

-27 -incomes per worker, leaving lower real incomes per person than what we

would expect. Where negative deviations on both the economic and

demographic sides reinforce each other, such as in the 22-26 age group

(in 1975/76), a much lower income per person is found compared with what

would be expected.

-28 -V. CONCLUSION

In this paper we argue that, in order to measure differences over

the life-cycle in the level of material well-being of individuals, the

income concept which ought to be used is that of household income per

person with the individuals being classified by their own age and not by

the age of the household head. For purposes of comparing well-being, the

life cycle of the individual rather than that of the household should be

our concern. Using data from the Socioeconomic Surveys for Thailand, we

show the differences in the age-income profiles when we use the following

concepts: household income by age of head, household income per person

by age of head, and household income per person by age of the

individual. These show that life-cycle effects on the distribution of

income will be quite different depending on which of these concepts is

used in the analysis.

We attempt to define lifetime income which is independent of life-

cycle variations. Following Kuznets treatment of lifetime income we

ignore the problems of discounting future incomes and of expected

increases in income levels over time. Lifetime income is defined as the

annual average of gross current income over the life of the individual,

where household income per person is used. However, where data permit we

would adjust the income-by-age data to reflect the survival probabilities

of individuals to different ages. We use data for the agricultural and

-~~~ 9-29 -nonagricultural populations for Thailand to illustrate how different

survival probabilities for different socioeconomic groups imply that the

adjustment affects their lifetime incomes to different extents.

Total income inequality in the distribution of persons classified by

household income per person can be considered as consisting of the

inequality in the levels of lifetime incomes across different

socioeconomic groups, the inequality over the lifetime in the incomes

within socioeconomic groups, and the inequality within age groups within

the socioeconomic groups. We use the Socioeconomic Survey data for

Thailand to show that, at least for the breakdown into agricultural and

nonagricultural households, the inequality between socioeconomic groups

contributes much more to total income inequality than the inequality over

the lifetime within socioeconomic groups.

The profile of household income per person by age of the individual

is related to various household demographic characteristics, such as

household size, average age of head, number of workers and number of

children. A positive relationship is found between household income per

person and the number of workers per person, with income per worker

showing relatively little variation over the life-cycle of individuals.

We have attempted to account for deviations in 1975/76 incomes per

person of different age cohorts from the expected values based on 1968/69

data by using economic and demographic factors. The former is

represented by the deviation from expected value in income per worker and

the latter by the deviation from expected value in the number of workers

-30 -

per household member. We find that both factors can have a significant

effect in changing income per person over time. In particular, those age

cohorts which have experienced favorable changes in the demographic

composition of the households to which they belong, as indicated by a

greater than expected number of workers per household member, will also

have a more favorable income per person than otherwise.

In conclusion, we have in this paper suggested that, in order to

take into account life-cycle effects in the size distribution of income,

household income per person by each person's own age, rather than by the

age of the household head, should be used. Household income per person

can be related to household demographic characteristics, in particular to

the number of workers per household member. However, we have yet to

unravel and understand the entire process of household formation which

determines the whole set of household demographic characteristics at any

particular point in an individual's life cycle and thus shapes the

profile of his level of income per person over his lifetime.

I