It is frequently alleged that inequality is overstated when the nonmarket sector is ignored. This paper tests this proposition empirically, using detailed survey data from Malaysia. The authors find that when the definition of income is broadened to include the value of nonmarket activities, income levels rise, especially among the poor, and inequality falls. In these data, it is the average number of hours of work considered to produce "income," and not their distribution, that affects income inequality. This underscores the need for great caution in interpreting intercountry or intertemporal comparisons of inequality.
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