Review of approaches for measurement of microenterprise and household income

The study provided input to the process of determining whether and how income should be included as an impact category in the Assessing the Impact of Microenterprise Services (AIMS) project. The paper is based on a review of selected literature on measurement of income at the microenterprise and household level, primarily in the developing country context. Proxy measures for household income and alternative economic impact variables are also discussed. Resources reviewed included actual impact studies and practical manuals for collecting data on income and the alternative measures of welfare, as well as assessments of the relative merits of various measurement approaches. The paper is not intended to be comprehensive but to present brief information on a selected range of options. The paper begins with an introduction to some conceptual issues relating to the importance of income as a variable in studying the impact of microenterprise assistance programs, followed by a discussion of major problems and constraints that affect income measurement at a more practical level. A series of potential options for collecting information on income and selected alternative measures of economic well-being is then presented. The strengths and weaknesses of each option are described, with attention to the issues of the accuracy and reliability of the data that can potentially be collected using the approach, as well as the operational feasibility of the approach, particularly the relative requirements in terms of time, expertise, and cost. Special attention is paid to the effectiveness of each method in dealing with the issue of the fungibility of capital between the assisted enterprise and the household, and among various household uses. The methods are discussed in approximate order ranging from simpler methods to more complex ones. The paper shows that a variety of techniques have been developed to measure microenterprise and household income; some of these approaches are based on use of alternative variables to household income. No single approach seems able to overcome all of the constraints that affect measurement of the economic status or well-being of the microenterprise or household. More sophisticated and complex approaches are more expensive to implement, but may produce more accurate quantitative data on economic welfare. The most widely used approaches rely on recall of income and other flow data, which involves serious constraints. Numerous studies recommend using more than one approach to gather information on changes in income of microenterprises or their households. Collection of qualitative information is often recommended as a valuable way to complement and verify quantitative data. The final selection of the approach for measuring the impact of microenterprise services on microenterprise and household income for the AIMS core impact assessments should be based on the following criteria: the extent to which the approach can produce accurate and reliable data on income or an acceptable alternative economic impact indicator, the relative cost of the approach, and the extent to which the method is compatible with the data collection approaches recommended for the other critical impact variables to be used in the AIMS core impact assessments. Includes bibliography. (Author abstract, modified)