(Sorry for any ignorance on my part. Any assistance is appreciated, so thanks in advance.)
Now and again you’ll see graphs like [this](https://www150.statcan.gc.ca/n1/pub/75-006-x/2015001/article/14194/c-g/c-g01-eng.gif) and [this](https://equitablegrowth.org/wp-content/uploads/2019/03/fig1.png). They seem pretty easy to understand at first–the fifth quintile (or top 20% of the population) holds significantly more wealth and income than the fourth, third, and so on.
However, I have heard that these graphs are actually a bit misleading because the reason why the top quintile is richer is simply because the quintiles measure households rather than individuals and the households in the top quintile contain more people. In other words, the top quintile isn’t richer, it’s just got more people and therefore more cash.
Is this true? If so, what does it mean for wealth inequality? Especially on an individual level? And why is it measured this way?
In: Economics
I don’t know about the specific graphs you linked to but I believe it’s standard to report inequality data at a household level. The UK certainly does this – [this](https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/householdincomeinequalityfinancial/financialyearending2019) is the Office for National Statistics’ main page on income inequality.
Households, pretty much by definition, pool their finances, and two (or more) people living together will have lower costs than if they lived separately. So the actual living standards of, say, two people on £16,000 a year will be quite different if they’re a single household or if they live apart. There are also various taxes and benefits done on a household level, and the data is probably easier to collect.
However the actual data you see are likely to be more complex than that. Statisticians know that larger households *do* cost more money, so there’s a process called “Equivalisation” to account for this. This tries to adjust for the cost of larger households – including both those earning and dependents:
>Equivalence scales make adjustments to the incomes of households so that
households with different compositions can be analysed.
The net result of this is that the upper quintiles *will* have more people in them – specifically more people earning money – but thanks to these adjustments we know that those extra earnings aren’t simply swallowed up by extra costs.
(Assuming the adjustments are accurate. I can’t vouch for that, but this isn’t listed as a limitation of the data by the ONS.)
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