In this commentary we note differences amongst recent movements in real household income and other indicators of real income. In particular, by 2012/3 the two household measures were showing little signs of recovery, in contrast to the two GDP measures
To assess the standard of living of individuals or households more directly, various measures of household real income are frequently used. Real household disposable income consists of wages and salaries, income received by households from pensions, benefits, share dividends, net interest and self-employment income after taxation and social contributions. So real household disposable income per head shows the average amount of spending power available in principle to each household member.
Real household income per head averages incomes across the entire distribution. An alternative approach is to use median household income. If all households in the UK were sorted in a list from poorest to richest, the income of a household half-way down the list is the median. As it represents the middle of the income distribution, the median household real income provides a better indication of the standard of living of the ‘typical’ household. This is because the median is not affected by changes at the top of the distribution (say by increasing shares of the top 10%).