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Santa, Monica, California, Rand Corporation, 1984 Sep. 28 p. (Rand Paper P-7070)This study used data from the 1976-77 Malaysian Family Life Survey to test the hypothesis that traditional income measures that exclude household production activities underestimate the well-being of the poor and overstate inequality. Mean levels of 9 components of income were considered. When net transfer payments, the value of services provided by living in a home one owns, in-kind income, and the imputed value of cottage industry production were added to the 3 standard components of household income (wage income, business income, and capital and interest income), average annual household income was increased by 17%. Another 17% increase occurred when the value of housework was added to total observable income. Finally, inclusion of the value of cooking and child care yielded a composite measure of actual income whose mean exceeded the mean of the 3 standard measures of household income by 56%. As the definition of income is broadened, inequality unambiguously falls. The income share of the poorest quintile of the sample increased by more than 40% when the various in-kind forms of income were added. Although a failure to consider nonmarket sources of income leads to a serious understatement of the well-being of the poorest 20% of the population, a failure to adjust for variation in leisure consumption leads to an overstatement. Malaysian poor appear to compensate for their low market income by producing many goods and services for their own consumption, a practice that implies above average working hours and a sacrifice in the area of leisure consumption. When incomes are standardized to eliminate variation in hours of leisure, measures of income inequality are sensitive to the number of hours chosen for standardization: generally, the larger the average number of work hours on which one standardizes, the lower the estimate of inequality. This finding suggests that much of what has been described as increasing equality due to economic growth may be spurious.