When comparing incomes across countries, we adjust for the local price of all goods and services (known as purchasing power parity, or PPP). But when comparing the incomes of poorer households, shouldn’t we focus on the price of things that matter most to them?🧵 - ThreadSky

simonpittaway.bsky.social • 51 days ago

When comparing incomes across countries, we adjust for the local price of all goods and services (known as purchasing power parity, or PPP). But when comparing the incomes of poorer households, shouldn’t we focus on the price of things that matter most to them?🧵

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simonpittaway.bsky.social•51 days ago

When it comes to prices, the OECD does great, detailed work in measuring them across countries. According to them, the things households buy are 8% more expensive in the UK than the OECD average.

simonpittaway.bsky.social•51 days ago

But that 8% premium is an average, and some things are much more expensive than others. For example, food and drink is 12% cheaper in the UK than the OECD average (reflecting both supermarket competition and VAT carve-outs) while housing is a massive *44%* more expensive.

simonpittaway.bsky.social•51 days ago

These price gaps play out differently across the income distribution, as poorer households spend more on essentials (like housing and food) and less on luxuries (like hospitality) than richer households.

simonpittaway.bsky.social•51 days ago

To make this more concrete, we can plot the UK price of goods and services (relative to the OECD average) against the extent to which they’re over-represented in poorer households’ spending baskets. Housing sticks out as both expensive and especially important to poorer families.

simonpittaway.bsky.social•51 days ago

It turns out that expensive housing outweighs cheap food, drink and communications (e.g. internet and phone bills) to make the UK an especially pricey place for poorer households.

This matters when comparing incomes here and abroad.

simonpittaway.bsky.social•51 days ago

Even with an aggregate PPP adjustment, there are big income gaps between poorer UK households and their counterparts in Western Europe. But if we use an income-specific PPP (i.e. weighting prices based on low- and middle-income spending baskets) these gaps widen further.

samsachdev.bsky.social•51 days ago

1/Am not an expert. This is just a guess. Would it help to not use aggregate stats and consider a unit root test of stationary on the time series of prices? That is, the purpose of this approach is to derive coefficients from regression in order to test relationships from each other. Or, to isolate

samsachdev.bsky.social•51 days ago

2/time dependent variables and test against what may simply be caused by random fluctuations.

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