Each year, Stanford Ph.D. candidates specializing in contemporary Asia join APARC as predoctoral fellows to advance their work in a collaborative research environment. This academic year, Ph.D. candidate in Economics Sally Zhang is using her time at APARC to form professional connections with a network of interdisciplinary scholars and finalize her dissertation. In it, she provides the first direct empirical evidence that working household members hide employment income from one another. Using a nationally representative dataset in Indonesia and field survey data collected in Kenya, she shows that workers hide up to 20% of their income from other household members.
In this post, Zhang describes her predoctoral fellowship experience at APARC and discusses her research on intrahousehold allocations in developing countries. APARC's predoctoral fellowship is now accepting applications for the 2023-24 academic year.
Most people do not live alone but rather in households where they can care for one another. Households make many important economic decisions that affect the welfare of their members, such as where to live, what to purchase, and how much to invest in children's nutrition and education. However, not all members of the household benefit equally from its decisions. Indeed, previous literature has found that women and children are more likely to live in poverty than men, even within the same household. So, understanding how households make decisions can help us create policies that reduce poverty and promote gender equality.
In my fieldwork, I learned that household members often do not share information about their income with one another, and many hide income from others in the household. I took an interest in studying this topic because without accurate knowledge of household income, households may be unable to make the best decisions, especially when resources are already limited. For example, if households underinvest in children's human capital due to income hiding, this can lead to worse development outcomes for the children and perpetuate the cycle of poverty. However, not much economic literature has been devoted to this topic.
In my paper, "Hidden in Plain Sight: Asymmetric Information and Hidden Income within the Household," I provide the first direct empirical evidence that working household members hide employment income from one another. Using a nationally representative dataset in Indonesia and field survey data collected in Kenya, I find that workers hide up to 20% of their income from other household members. Income hiding has real implications for household consumption and child development. Children who grow up in households where income is hidden from wives are more likely to be underweight for their age and less likely to be employed in adulthood.
A novel contribution of my paper is that I develop a unique survey-based method of measuring income hiding. Hidden income, by its nature, is difficult to measure. In my paper, I measure hiding by eliciting the same person's income multiple times, varying who answers the question and whether they answer it privately. For example, I compare how much a husband says he earns to how much his wife says he earns. I also compare how much a husband says he earns in private to how much he says he earns when his wife is around. If reported income differs systematically depending on who is doing the reporting and whether other household members are physically present, this suggests that there may be income hiding in the household (In the paper, I rule out alternative explanations such as measurement error or misreporting to the surveyor driving the results). Similarly, I can use the same methodology to measure hidden consumption, hidden savings, and hidden transfers.
I use two datasets in my paper: a nationally representative survey in Indonesia and a field survey that I conducted in western Kenya. Indonesia and Kenya are both lower-middle-income countries with high labor force participation rates. Most workers in these countries are self-employed or work in informal positions, suggesting that their income is easily hidden from others. For example, observing your spouse's income would be challenging if they are a street vendor or a motorbike taxi driver whose income fluctuates daily. By examining hidden income in both Indonesia and Kenya, I show that hidden income is a prevalent phenomenon in the developing world and that my methodology is useful in different contexts.
In both Indonesia and Kenya, I find that working household members hide employment income from other household members. The average magnitude of hiding is between 9% and 20%. In Indonesia, income hiding is correlated with more household spending on tobacco and more transfers to extended families, and less spending on protein-rich food. This is concerning because most low- and middle-income households in Indonesia do not have adequate protein intake, and inadequate protein is a major cause of child malnutrition. Indeed, I find that income hiding is correlated with worse child nutrition, but only when income is hidden from women. Households with measured income hiding from wives are 16% more likely to have underweight children compared to similar households where income is not hidden from wives. As adults, these children still fare worse than their counterparts who grew up in households without measured hidden income: girls are 22% more likely to be underweight, and boys are 7% less likely to be employed. In contrast, income hidden from men is not correlated with worse child outcomes. Such gender differences suggest that people may hide income for different reasons, and understanding why they hide is important for understanding the welfare impact of hidden income. In my ongoing research, I continue to study the causal mechanisms and consequences of intrahousehold hidden income.
I am honored to be a predoctoral fellow at APARC during the 2022-2023 academic year. With a group of interdisciplinary researchers, the center provides me with a unique opportunity to discuss my research with area experts outside my field. In addition, I had the opportunity to form personal connections with other fellows and learn about their diverse research interests and life experiences. Being located in Encina Hall has also encouraged me to attend events and meet scholars from different institutes across the Freeman Spogli Institute for International Studies, such as young researcher workshops at the Stanford Center on China's Economy and Institutions.
As a sixth-year graduate student, I am primarily focused on completing my dissertation and exploring potential opportunities on the job market. I am deeply grateful for the relationships and opportunities that I have gained through APARC, as they will undoubtedly be invaluable to me in my future professional development.