Dynamics of Income and Living Standard

In poverty research, many different approaches of measuring poverty have been developed. The most basic distinction is between indirect and direct approaches. Indirect measurement concentrates on the resources available, while direct measurement tries to capture an actual deficiency. The resource approach based on income is the most popular indirect measure. The standard of living approach provides a direct way of measuring poverty. It refers to goods of the household and the pursuit of activities of household members.

The living standard is generated primarily from resources. However, similar resources must not lead to a comparable living standard. There are several reasons responsible for differences in the transmission. In addition to individual preferences, also debts and assets, support networks, education level, household composition and regional differences can affect this process.

At the transmission of resources into living standard also the course of time is of central importance. Despite strong fluctuations in income the living standard can stay on a nearly constant level due to foresighted economic activities. Even during periods in which the income falls (e.g. unemployment) the living standard can still be kept at the previous level and decreases only delayed.

This paper examines the relationship between available resources and the actual living standard of households over time. This implies the following research questions:

• How does the living standard respond to changes in the resources? Do households fit their living standard at temporary changes in income or do changes in living standard more depends on long-term changes?
• Are there differences between several dimensions of living standard?
• How do debts, savings, networks and education affect the living standard?
• And what is the short-term and long-term impact of changes in employment status?

For empirical analyses the Panel Study `Labour Market and Social Security' (PASS), a longitudinal data set for Germany, is used.