We would like to thank David Bloom for helpful suggestions.

Introduction

Household composition, in addition to prices and incomes, has been found to be an important determinant of household expenditure patterns. The number and age composition of children in the household, for example, have consistently been found to influen ce patterns of household demand, even when analyzing the consumption of fairly aggregate commodity groupings. The incorporation of demographic variables into analyses of consumer demand dates back at least to Barten (1964), who attempted to use the effect as of household composition on demand to derive price elasticities from cross-sectional data. More recently, researchers have incorporated household composition into demand analysis as a means to estimate the cost of children and the allocation of househ old income between children and adults (Espenshade 1984, Deaton, et. al. 1989, Lazear and Michael 1988). Results from this research indicate that, in addition to the number and ages of children, the age, race and education level of the household head also influence expenditure patterns.

While the fact that demographic variables influence consumption patterns is interesting in its own right, this paper is concerned with one potential consequence of varying expenditure patterns. In particular, given that relative prices are typically no t constant, variation across households in expenditure patterns might generate variation in the rate of inflation experienced across households ...

This paper addresses the effects of using group-specific price indexes, versus an economy-wide price index, on the measurement of certain social indicators. We focus on two trends that have received increased attention in recent years: trends in child poverty, and trends in educational real wage differentials.