6549.0 - Household Income, Consumption, Saving and Wealth, A Provisional Framework, 1995  
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Contents >> Chapter 2. Scope and main components of the ICW framework and international standards

Introduction

2.1. The ICW framework has been developed to describe, and provide links between, the factors that make up the economic well-being of the household. In the past, the models provided in international standards have often been limited to flows of cash income and some restricted elements of income in-kind, usually those obtained via the market place. Consumption has similarly been limited to the using up of these resources. In the ICW framework, the concept of income has been broadened to support a more comprehensive measure of economic well-being which takes into account household transactions that have been neglected in the past.

2.2. One of the main restrictions of current international guidelines has been that they tended to view the household purely as a consumption unit. The household received income, consumed some of it in satisfying its wants and, at times, saved some of the income for the future. In the ICW framework, a more complex picture of the household is developed which presents it not only as a unit of consumption but also as a unit that produces goods and services for its own consumption without any intervention from the market place.


Economic well-being

2.3. Economic well-being is determined by all economic resources available to the household. It encompasses the household's access to goods and services through its current income and its capital receipts whether they are received in cash or in-kind. It also includes the notional dissaving value of the household's net stock of assets and liabilities, otherwise referred to as the household's net worth. Economic well-being can be viewed either from the receipts side i.e. the household's capacity to consume and save, or from the consumption side i.e. the household's actual consumption and its method of financing this consumption.


Income

2.4. The concept of income is very broad and includes components that may not usually be included in common usage of the term. For our purposes, income consists of receipts, as money or in-kind, that are received or accrued regularly and are of a recurring nature. Income may accrue from a wide range of sources both from outside and within the household itself.

2.5. The notion of receipts being regular and recurring is adopted from the ILO definition of income and is used to distinguish between capital receipts and those ongoing receipts that most households come to depend on for their day-to-day living. For most households it is these ongoing receipts (and the expectation of their continuance) that is the main predictor of the household's consumption.

2.6. Cash income may be generated through involvement in economic production, either within the market economy or outside it. This form of income is received for contributing the factors of production (labour, capital assets and knowledge) to the national economy. The concept of income also includes transfer incomes. These can be received as benefits from government (e.g. government pensions and benefits), from other households (e.g. gifts, child support), and from other private organisations.

2.7. Non-cash income similarly covers income-in-kind from the above sources. It includes non-cash benefits received by employees and by owners of small businesses. It includes non-cash government benefits directed to pensioners and beneficiaries and directed to the broader population groups in the form of government expenditure on services such as health, housing, welfare, etc.

2.8. In addition, non-cash income in the ICW includes the value of the production of goods and services provided by the household to itself. Households produce for their own consumption services such as child care and cooking as part of their unpaid household work. They also provide services deriving from the ownership of assets such as the family home and household durables such as car, refrigerator and the like.


Consumption

2.9. The concept of consumption is based on the 'using up' of services and non-durable goods. In addition to final consumption expenditure, where households purchase non-durable goods and services, it also covers consumption of goods and services received in-kind from government, other households and private organisations. It also includes the using up of goods and services provided from within the household. This concept of consumption is therefore much broader then one which is based solely on the current consumption expenditure of the household in the market place.

2.10. Also included in the concept of consumption is the transfer of economic resources from one household to other households and private institutions such as charities. The transfers may be compulsory, such as some child support payments or voluntary such as gifts of money or goods. (Transfers of economic resources to government in the form of direct taxes and compulsory fees and fines are treated separately from consumption.)


Net worth

2.11. Net worth is defined as the difference between the household's stock of assets and its stock of liabilities at a particular point in time. The concept of assets covers both financial and non-financial assets, including all consumer durables owned by the household. The concept of liabilities covers all debts owed by the household whether they be to other households, private institutions or government.

2.12. It could be argued that assets should also include the value of human capital held by the household such as the education and skills of its members. For practical reasons, however, these are excluded from the concept of net worth in this framework. (See Permanent income and lifetime earnings)


Statistical units

2.13. The main counting or statistical units which have relevance to the concepts of income, consumption and wealth are persons, income units, families and households. These units are defined in Chapter 7.

2.14. Although information about individuals or persons is often used to analyse aspects of social welfare, it is not always an appropriate unit when analysing income and consumption data for purposes of measuring economic well-being. An individual may be the preferred statistical unit when analysing, for example, the relationship between earnings and educational attainment. However, for analysing the distribution of income it is usually more meaningful to group people according to the way income is commonly shared within, say families, to form single spending units. For that reason the appropriate statistical unit is often the family or a subset of the family such as the income unit.

2.15. When looking at consumption, it is generally the household that is the smallest unit for which measures of consumption can be made. Except for some items of personal spending, consumption mainly reflects the collective decisions of individuals within the household who share, or live together, in the dwelling and who make common provisions for shelter, food and other essentials such as heating.

2.16. Consequently, the household (including any unincorporated enterprises owned by the household) is the smallest unit for which measures of saving and net worth can be constructed when analysing economic well-being. For this reason, the household is adopted as the default statistical unit in the ICW framework. (See paragraphs 7.4-7.6 for discussion and illustration of unincorporated enterprises owned by the household.)


International standards

2.17. In the development of the ICW framework, the ABS has drawn on related frameworks published by a number of international organisations. The United Nations has provided two frameworks dealing with income, consumption and wealth. The most recent of these is the System of National Accounts 1993 (SNA93) - published under the auspices of the UN and other international organisations. This System of National Accounts describes the economies of countries and the linkages between the main components.

2.18. An earlier framework provided by the UN is a set of provisional guidelines devoted to the collection of data at the micro level and relating to economic resources of households (UN 1977 and 1989). The ILO has also issued guidelines and recommendations for the collection of data on income of households, with particular emphasis on income from employment (ILO 1971, 1992 and 1993). (A brief description of the main orientation of relevant work by international organisations is set out below.)

2.19. These international frameworks are not fully harmonised. The ABS has drawn selectively from them in developing the ICW framework which has adopted a broader scope than that adopted in the international guidelines. Where necessary, the ICW has diverged from one or more of the international standards in creating an internally consistent framework designed to facilitate the balancing of accounts at the individual household level and to meet Australian needs.

United Nations guidelines

2.20. In 1977, the United Nations published its Provisional Guidelines on Statistics of the Distribution of Income, Consumption and Accumulation of Households (Studies in Methods, Series M, No 61). These guidelines have since been used by many countries as a conceptual basis for the development and improvement of statistics in this field. A later publication by the United Nations (1989) has added more detail on the application of these concepts in household surveys.

The System of National Accounts (and the Australian National Accounts)

2.21. A second framework that has had significance for the development of the ICW is the UN System of National Accounts (SNA 1968 and 1993) and its Australian counterpart, the Australian National Accounts (ANA). The system of national accounts integrates and links the definition and classifications of all economic flows and stocks into a coherent structure. It describes and measures the economic well-being of the country as a whole. It does this via the study of key economic flows such as production, income, consumption, investment and saving.

2.22. Attempts to increase coherence between the ICW framework and the ANA have also been affected by the release of the revised SNA in 1994 while work was in progress on the ICW framework. At present the ABS is still making decisions on the implementation of different components of the SNA93 in the ANA. The SNA93 has been taken into account in the development of the ICW but the two are not fully reconciled. Further work on implementation of SNA93 in the Australian System of National Accounts will be taken into account in future versions of the ICW. For a detailed comparison of the components of the ICW with the current ANA and SNA93 see Appendix 1.

International Labour Organisation

2.23. The International Labour Organisation has also contributed to the development of theoretical concepts in this field. In particular, the ILO has described itself as being 'concerned with policies, norms, measurements and the study of trends relating to living and working conditions.' (ILO 1971). The ILO framework was set out in its 1971 publication Scope, Methods and Uses of Family Expenditure Surveys, The Twelfth International Conference of Labour Statisticians, Report III.

2.24. More recently, at the Fifteenth International Conference of Labour Statisticians in Geneva in 1993, the ILO opened up discussion on the concepts and measurement of income from employment in light of the changes that have taken place in the labour market over the last decade. In particular, discussion is continuing on the effect of structural changes in the labour market on forms of employment and the nature of remuneration. A discussion is contained in reports of the conference. (ILO 1992 and 1993).


        2.1. HOUSEHOLD ECONOMIC RESOURCES - MAJOR FLOWS





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