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Appendix II:

Measurement of

Household Income

Inequality

When the divorce rate is rising, especially when it is rising dispro-
portionately for poorer people than for wealthier people, then the mea-
surement of household income inequality could be fairly distorted. This is a
purely statistical point about the way household income is measured. Be-
low is a stylised example to demonstrate this.

Suppose there are only two households in society, each consisting
of a working husband and wife. One household has an income of $40,000
(the husband and wife each earn $20,000), and one has an income of $20,000
(the husband and wife each earn $10,000). The average household income
in this two-household society is $30,000.

Now suppose the husband and wife in the lower-income family
gets divorced. They each keep their jobs. Now there are three households,
one earning $40,000 and two earning $10,000. The average household in-
come has fallen from $30,000 to $20,000, a drop of 33% even though every-
one’s income is unchanged.

This example shows that, during a time when individual income is
actually unchanging, a rise in the divorce rate among families below the av-
erage income is going to pull down the measured rate of average house-
hold income.

Figure 9. Distortion of household income inequality

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