In public debate, inequality is often associated with income and living standards. Yet these are far from the only relevant considerations: measuring inequality must encompass many other aspects of social life.
Income inequality
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The concept of living standard allows us to compare the resources of people living in households of different sizes or compositions. By convention, every member of a household has the same living standard, calculated by dividing the household's disposable income, RD, by its number of consumption units, UC. Disposable income is the income available to households for consumption and saving. It includes all income (wages, dividends, any rental income, etc.) and social benefits, less all direct taxes. These include income tax, residence tax, the contribution sociale généralisée (CSG), the social debt reduction contribution (CRDS), and social-security levies on income from assets. For consumption units, a person living alone counts as one unit (1 UC). The household's second adult, along with every child over the age of 14, counts as half a consumption unit (0.5 UC). A child under 14 counts as 0.3 UC. The idea is to account for economies of scale: two people sharing a home do not need a second washing machine.
To make comparisons between countries possible, purchasing power parities, or PPPs (also known as real exchange rates), account for cross-country differences in both unit prices and household consumption patterns. These PPPs are established by calculating the ratio between the prices of a "basket" of goods and services that provides the same living standard in two different countries.
Inequality indicators are most often based on deciles or interdecile ratios of living standards (see box).
