Journal of Health Economics 22 (2003) 295–312

Income related inequalities in mental health

in Great Britain: analysing the causes of
health inequality over time
John Wildman∗
Economics, The Ridley Building, University of Newcastle, Newcastle Upon Tyne, NE1 7RU, UK
Received 25 June 2001; received in revised form 25 January 2002; accepted 13 September 2002

Abstract
Using regression techniques this paper estimates the level of income related health inequality in
GB in 1992 and 1998. Inequality is decomposed to investigate which socio-demographic factors are
important contributors to health differences. The paper includes a range of measured and subjective
income variables to control for absolute income. A relative deprivation measure is included to test
the impact of income inequality on health inequality. It is found that subjective financial status is
a major determinant of ill-health and makes a major contribution to income related inequalities in
health. Relative deprivation is an important contributor for women but not for men.
© 2003 Elsevier Science B.V. All rights reserved.
JEL classification: I1; I3

Keywords: Income related inequalities in health; Absolute income; Relative income

1. Introduction

Recent papers (Kakwani et al., 1997; van Doorslaer et al., 1997) have found significant
income related inequalities in health in a number of developed countries. In these studies the
UK and US were classed as high inequality countries, with significantly larger concentration
indices than any of the other countries. In 1997, the UK had a concentration index of −0.115
and the US −0.136, suggesting that income related inequalities in health affected the poorest
members of each country (van Doorslaer et al., 1997).1
∗ Tel.: +44-191-222-8645; fax: +44-191-222-6551.

E-mail address: j.r.wildman@ncl.ac.uk (J. Wildman).

1 van Doorslaer et al. (1997) used the UK as the level of analysis, due to data constraints this paper focuses on

Great Britain.

0167-6296/03/$ – see front matter © 2003 Elsevier Science B.V. All rights reserved.
PII: S 0 1 6 7 - 6 2 9 6 ( 0 2 ) 0 0 1 0 1 - 7
296 J. Wildman / Journal of Health Economics 22 (2003) 295–312

This paper focuses on Great Britain and the nature of income related inequalities in
health over time. Previous investigations into income related inequalities in health have
been based on the self-assessed health question ‘how do you currently rate your health?’
In this paper, a measure of mental health is used to investigate whether there are sig-
nificant mental health inequalities. The paper also investigates the impact of income in-
equality on health inequality. The ‘relative income hypothesis’ (Wilkinson, 1996) states
that income inequality has a larger impact than ‘absolute income’ on individual health
in developed countries. If income inequality is having a large negative impact on in-
dividual health then it may be an important factor in generating health inequality, sug-
gesting that any policy aimed at reducing health inequality must redistribute income
(Wildman, 2001). Alternatively, income inequality could be proxying for social capi-
tal, hierarchy or other social concerns which may need to be addressed (Wilkinson,
1996).
To date, papers measuring income related inequalities in health have relied on cross-
sectional comparisons across countries. Using panel data, we compare the same country
over time. Further, with the standard assumption that slope coefficients remain constant over
time, we can use decomposition to ascertain how the impact of the independent variables
change over time. Seven years of data are used to estimate the models, we concentrate on
the results for the first and seventh waves, given that the time between these two periods
is likely to show the largest changes. Even across seven waves the factors affecting mental
health and inequality may not change substantially, a longer time period may be required
to fully tease out the underlying relationships. This paper gives an indication of how that
may be achieved.
One problem with cross country studies is that cultural factors influence the answers
to essentially similar questions. The use of a single country over time eliminates this
problem.
This paper follows the methods of Kakwani et al. (1997), to estimate concentration indices
for income related inequalities in health between 1992 and 1998 using seven waves of data
from the British Household Panel Survey (BHPS). The indices are then decomposed to
analyse the contribution of each variable to the overall level of income related inequalities
in health, an approach used by Wagstaff et al. (2001a,b).
The concentration index is one measure of inequality and it is sensitive to inequality in the
middle of the distribution, other measures are more sensitive to the tails of the distribution
(the coefficient of variation, for example). The concentration index is favoured because it
can measure income related inequalities, measuring inequality when individuals are ranked
by income. Other measures of inequality measure inequality in that dimension, for example
the coefficient of variation only reveals inequality in health and not income related inequality
as measured by Kakwani et al. (1997).
The ability to measure income related inequality in health and decompose it into its
constituent parts has significant policy relevance. The change in income related inequalities
in health can be measured over time. With increased attention on health inequalities in the
UK, it is vital for policy makers to ascertain trends. Decomposition allows policy makers
to target areas that may make the largest contribution to removing health inequalities, or
identify factors that are beyond their control, which is important given the focus of removing
‘avoidable’ health inequality.
 J. Wildman / Journal of Health Economics 22 (2003) 295–312 297

Fig. 1. Illustrating the methodology.

2. Methods

A summary of the methods used is provided in Fig. 1. The first step involves the estimation
of the concentration index of mental health when individuals are ranked by income (as
described in Section 2.1. This uses the methods of Kakwani et al. (1997). The concentration
index is measured separately for men and women for waves 1 and 7 of the data.
The next step involves decomposing the measured concentration index (from Eq. (1)).
This is achieved by calculating the concentration indices for each of the independent vari-
ables using Eq. (1). A determinants of health model is then estimated (Eq. (4)) to discover the
marginal impact of each of the independent variables, the estimation technique is described
in Section 2.2. The estimates from the determinants of health model are then combined with
the concentration indices, using the formula given in Eq. (5) in Section 2.3.

2.1. Measuring inequality

A thorough exposition of the measurement of income related inequality in health is given

in Kakwani et al. (1997). Regression techniques are used to estimate the concentration
index. The concentration index is twice the area between a concentration curve and the
45 ◦ line. The Lorenz curve for health orders individuals by health and plots the proportion
of health held by the cumulative proportion of the population. The concentration index is
similar but re-ranks individuals according to income (Lambert, 1993).
To obtain the concentration index and a standard error, individuals are ranked according
to income and OLS is run on the following equation:


Hi
2σR2 = α + γ R i + ui , (1)
µ
where σR2 is the variance of relative rank, Hi is the variable under consideration, in this case
health, µ is the mean of the variable Hi , α is the intercept term and Ri is the relative rank
of the individual.2
2 Where relative rank is measured as (2r − 1)/2n, where r is the rank of individual i and n is the sample size
i i
(Kakwani et al., 1997).
298 J. Wildman / Journal of Health Economics 22 (2003) 295–312

The estimator of γ is equal to

 
2 n 1
γ̂ = i=1 (Hi − µ) Ri − . (2)
nµ 2
The estimator is equal to the concentration index.3 Kakwani et al. (1997) note that the
standard errors are biased and present estimators that adjust for the serial correlation in the
model due to the lack of independence between the observations.

2.2. Panel data estimates of the determinants of health

A linear model is specified for the health of individual i at time t (Hit ). We assume that
all the βs are constant for all individuals (i) and over time (t) and that αi is constant over
time.
Hit = µt + αi + β  Xit + εit , (3)
where αi is the unobserved time-invariant fixed effect, β is a vector of coefficients repre-
senting the partial effects of the exogenous regressors Xit , and µt is a mean intercept. The
mean intercept µt is only identifiable from the fixed effect α by imposing the following
N α = 0. The individual fixed effect can be interpreted as the ith individual’s
restriction i=1 i
deviation from the common mean (Hsiao, 1986).
Eq. (3) can be estimated using the least squares dummy variable estimator or by the
covariance estimator, that removes αi by transforming the data into mean deviations,
giving:
Hit − H̄i = µt − µ̄ + β  (Xit − X̄i ) + (εit − ε̄i ), (4)
where ¯· represents the individual mean over time of the variable concerned. Eq. (4) relies
on within-group variation to identify the parameters of interest. OLS estimation of Eq. (4)
leads to consistent and unbiased estimates of the βs as N and/or t → ∞ (Verbeek, 2000).

2.3. Decomposition

The concentration index for income related inequalities in health can be decomposed
using the methods of Wagstaff et al. (2001a). The concentration index is additively decom-
posable (Wagstaff et al., 2001a; Kakwani, 1980) and can be written as
   
T βl X̄l ε̄
CH = l=1 Cxl + Cε , (5)
H̄ H̄
where CH is the concentration index of the dependent variable, in this case mental health,
Cxl are the concentration indices of all the explanatory variables from the determinants of
health equation and Cε is the concentration index for the residual. The β coefficient comes
from Eq(4). And H̄ , X̄l and ε̄ are the means of the dependent variable, the lth independent
variable and the residual. The use of the coefficients from Eq. (4) allow the contribution of
3 To measure the concentration index using individual data one simply ranks individuals according to income and
n
calculates the index using the formula CI = 2/(nµ)i=1 Hi Ri − 1. This formula and equation (2) are equivalent.
 J. Wildman / Journal of Health Economics 22 (2003) 295–312 299

each variable to be calculated. All the variables are retained (even the insignificant ones) to
keep consistency between the two stages.

3. Data

3.1. The BHPS

The models are estimated using data from the British Household Panel Survey (BHPS).
The BHPS was chosen because it is a recent panel data set with good quality income and
health variables.
The BHPS is a longitudinal survey of private households in Great Britain (England,
Wales and Scotland) and was designed as an annual survey of each adult member (16+) of
a nationally representative sample of over 5000 households, giving approximately 10,000
individual interviews.
The longitudinal nature of the BHPS requires that individuals are re-interviewed each
year. All individuals who were interviewed at wave one were re-interviewed (unless they
dropped out, e.g. because of death or lack of cooperation) and these are known as the
original sample members (OSMs). The sample for other waves consists of all adults in all
households containing at least one member who was resident in a household interviewed
at wave one. The authors hope that this will keep the sample broadly representative of the
population of Britain (Taylor et al., 1998). Information at both the household and individual
level was collected, covering questions on neighbourhood, income, employment, health and
caring, demographics, and values and opinions.
For estimation of the empirical models a subset of individuals who had given a full
interview at each of the seven waves, between 1991 and 1997, is used.4 This gives a panel
of individuals with observations at each year of interview, allowing the use of panel data
models.5 After the creation of balanced panels and excluding individuals with missing values
on variables of interest the total number of available observations was 5234, consisting of
2135 men and 2919 women.

3.2. Dependent variable

The self completion questionnaire component of the BHPS includes a reduced version
of the General Health Questionnaire (GHQ). The GHQ was developed as a screening in-
strument for psychiatric illness; there are 12 individual elements in the shortened GHQ
covering concentration, sleep loss due to worry, perception of role, capability in decision
making, whether constantly under strain, perception of problems in overcoming difficulties,
enjoyment of day-to-day activities, ability to face problems, loss of confidence, self-worth,
general happiness and whether suffering depression or unhappiness. Respondents indicate
on a four point scale (ranging from 0 to 3, 0 being the best score) how they have recently felt
when responding to each item. The predictive validity and content validity of the GHQ are
4 The 69.6% of individuals who were interviewed at wave 1 also received a full interview at wave 7.
5 An alternative approach would be to use the cross-sections for waves 1 and 7 but this prevents the use of panel
data estimation and so does not control for unobservable heterogeneity.
300 J. Wildman / Journal of Health Economics 22 (2003) 295–312

good in comparison with other well-known scaling tests of mental illness (Bowling, 1991).
The GHQ also performs well in reliability tests (Bowling, 1991).
For the dependent variable the Likert scale is used. The Likert scale obtains an overall
score by summing the individual components of the GHQ, giving a health variable (GHQ1),
which ranges from 0 to 36 and is increasing in ill-health. The GHQ is skewed to the left for
males but is closer to a normal distribution (although still slightly left-skewed) for females.
The GHQ variable is a useful measure of health for determining the effect of income
related variables because it measures mental well-being. The latter is important if in-
come and deprivation are affecting individuals via stress or psychosocial mechanisms
(Wilkinson, 1996).
The GHQ has proven to be robust against retest effects (Pevalin, 2000). Pevalin (2000)
investigates the GHQ measure across the first seven waves of the BHPS and finds no effect
of retest. Pevalin does, however, find some differences between individuals over 65 who are
still in the panel and those who have dropped out, with the latter group having higher mean
GHQ scores in 1994 than individuals who stayed in the sample (Pevalin, 2000). Of the 636
deaths in the BHPS up to wave 7, over 70% occurred in the over 65 group. This indicates
possible bias for older individuals and may lead to the effect of age being reduced. However,
given that the majority of the sample are similar this may not be problematic. Comparing
the mean GHQ score for the initial representative sample of individuals to those individuals
who remained until wave 7 shows little variation. The mean GHQ score for the whole of
wave 1 is 10.17, the mean for the sub-sample is 10.33. For women the equivalent figures
are 11.29 and 11.66. The average age of the sub-sample is slightly higher, for men the mean
age for the full wave 1 sample was 43.18, for the sub-sample it is 45.64. For women the
equivalent figures are 45.55 and 46.12.
If the income of individuals who drop out due to death is correlated with their GHQ score
then there exists a possible selection bias. To investigate whether this poses a problem, the
GHQ scores and incomes of individuals in the year prior to death are investigated. The mean
log of income for those individuals who dropped out from the sample due to death is 9.2,
which is lower than the mean for the sample used in estimation but the mean GHQ score
for both groups are similar. There was a small (0.034) positive but insignificant correlation
between GHQ and income in the year prior to death. There was a small negative and
insignificant correlation between GHQ scores and age in the year prior to death (−0.045).
These associations suggest that attrition is not a significant problem for these models.

3.3. The independent variables

3.3.1. Income variables

The primary income variable used in the empirical models to measure absolute income
is annual household income. The income variable FIHHYR is included in the BHPS as
a derived variable, which gives annual total household income in the reference year. The
reference year is defined as the 12 months prior to the start of the interview period (the 1st
September of the year in question).6
6 Income variables for all waves of the BHPS include imputed data and imputation flags. The flags do not

distinguish at the individual level how substantial the imputation was, and variables which are computed from
other variables with imputations may contain widely varying proportions imputed (Taylor et al., 1998).
 J. Wildman / Journal of Health Economics 22 (2003) 295–312 301

The log of income (LNY) is used to allow a non-linear relationship between health and
income, as suggested by previous work (Ettner, 1996; Ecob and Davey Smith, 1999).7
A range of dummy variables are also used to capture individual’s subjective perception of
their financial situation. These dummy variables can be categorised into: those concerning
‘permanent’ income and those concerning ‘transitory’ income.
The permanent income variables are interpreted to capture the individual’s perception of
their overall financial situation and are generated from the question, ‘How well would you
say you yourself are managing financially these days?’ Respondents are given the choices:
living comfortably, doing alright, just about getting by, finding it quite difficult, finding it
very difficult. Dummy variables FINSIT1–FINSIT5 are generated for these responses, with
FINSIT3—just about getting by—always being the excluded category. The coefficient on
FINSIT1 and FINSIT2 are expected to be negative, while those on FINSIT4 and FINSIT5
are expected to be positive. Indicating that good (poor) financial status lowers (increases)
ill-health.
The transitory income variables are intended to capture perceived changes in an individual’s
financial situation and are generated from the question, ‘Would you say that you yourself
are better off or worse off financially than you were a year ago?’ Respondents are given
the choices: better off, worse off and about the same. Dummy variables CFINSIT1, CFIN-
SIT2 and CFINSIT3 are generated and CFINSIT3—about the same—is excluded. The
coefficient on CFINSIT1 is expected to be negative and positive on CFINSIT2. A second
transitory income variable is intended to capture financial expectations and is generated
from the question, ‘What are your expectations for the year ahead?’ Respondents are given
the choices: do not know, better off, worse off and about the same. Dummy variables XFIN-
SIT1, XFINSIT2, XFINSIT3 and XFINSIT4 are used and XFINSIT4—about the same—is
excluded.8

3.4. The relative deprivation measure

The deprivation measure constructed is based on the deprivation measure described in

Hey and Lambert (1980). Hey and Lambert (1980) suggest that the level of deprivation felt
by individual i with income m with respect to income y (D(m; y), is

y − m if m < y,
D(m; y) = (6)
0 if m ≥ y.

The individual feels more deprived as the number of individuals in society with income
y increases. An overall measure of deprivation for the individual is given by weighting the
measure by the proportion of society with income y.

7 Wildman and Jones (2002) estimate the relationship using semiparametric methods that impose no functional

relationship between health and income. The semiparametric models and the parametric models using the log of
income provide similar estimates, suggesting that the log of income is a suitable parameterisation of measured
household income.
8 The category ‘do not know’ was allowed for the CFINSIT variables but there were no ‘do not knows’ in the

data set used.

302 J. Wildman / Journal of Health Economics 22 (2003) 295–312

The deprivation for an individual with income y is calculated from the formula (Chakravarty,
1990):

dy (F ) = µ[1 − F1 (y)] − y[1 − F (y)], (7)

where µ is mean income, F1 (y) is the cumulative proportion of total income at the income
y and F (y) is the cumulative proportion of the population up to the individual with income
y (where the population is ranked by income).
A deprivation measure is calculated for individuals with income lower than 50% of
average income.9 For this measure, individuals with income above 50% of average income
have no deprivation, while the individual with the lowest income has the highest level of
deprivation. The measure is normalised to ensure that it lies on the (0, 1) scale.

3.5. Other independent variables

A quartic polynomial in age is included in the model (AGE, AGE2, AGE3 and AGE4).
For physical health, it is expected that ill-health will tend to increase with age. For mental
health the relationship is not so clear. Using the Health and Lifestyle Survey (HALS) data
Cox et al. (1992) find no consistent relationship between age and GHQ measures.
Variables for household size (HHSIZE) and number of children (NKIDS) are included.
These variables are included partly to allow for a direct effect, but also to equivalise house-
hold income. Regional dummies are included to control for any regional effect, the co-
efficients of these variables are unreliable in the panel data models due to minimal time
variation. 10 Indicators of marital status are included in the model (WIDOWED (widowed),
DIVSEP (divorced or separated) and NVRMAR (never married) are included in the models,
married is always the excluded category).
Job status is included in the model to proxy social class, the categories are SELF
(self-employed), UNEMP (unemployed), RETIRED (retired), DISAB (disabled), FAM-
CARE (family carer, for women only, there were too few cases for men) and OTHER (other
groups); the category employed was always excluded. Social class data is limited in the
BHPS, for example individuals who are retired receive no social class classification. At
wave 3 a job history questionnaire was included in the BHPS that asked questions concern-
ing job status over each individual’s life; respondents could then be attributed a social class,
but the sample size is much reduced and the variable is time-invariant.
The full set of explanatory variables and their sample means are summerised in Table 1.
The variables allow the estimation of determinants of health models similar to those esti-
mated by Ettner (1996).

9 Wildman and Jones (2002) estimate the models presented here using this measure of deprivation and one for the

whole population. The population level measure is very highly correlated with income presenting multicollinearity
problems.
10 The region variables are not time-invariant but they show little variation over time. Since the within estimator

relies on within variation to identify the parameters the estimates are not reliable and are included to overcome
any potential omitted variable bias.
 J. Wildman / Journal of Health Economics 22 (2003) 295–312 303

Table 1
Definitions of variables and sample means
Men (N = 2315) Women (N = 2919)

GHQ1 General Health Questionnaire 10.329 11.660

LNY Log of annual household income 9.851 9.688
AGE Age at 1/12 in the year of interview 45.636 46.123
AGE2 Age squared 23.504 24.062
AGE3 Age cubed 138.300 138.699
AGE4 Age quartic 8159.767 8631.007
NKIDS Number of children in the household 0.602 0.663
HHSIZE Household size 2.879 2.800
SELFEMP Self employed 0.129 0.038
EMPLOYED Employed Omitted
UNEMP Unemployed 0.055 0.022
RETIRED Retired 0.172 0.192
DISAB Disabled 0.036 0.022
FAMCARE Family carer 0.162
OTHER Other job catagories 0.032 0.050
WIDOW Widowed 0.031 0.107
DIVSEP Divorced or seperated 0.051 0.080
NVRMAR Never married 0.167 0.117
MARRIED Married Omitted
SOUTHW Residence in the South West 0.099 0.091
SOUTHE Residence in the South East Omitted
LONDON Residence in London 0.099 0.088
MIDLAND Residence in the Midlands 0.178 0.170
NORTHW Residence in the North West 0.106 0.109
NORTHE Residence in the North East 0.160 0.168
SCOT Residence in Scotland 0.076 0.089
WALES Residence in Wales 0.047 0.050
RDEP Deprivation below poverty line 0.034 0.062
Subjective financial status
Overall financial status
FINSIT1 Good 0.306 0.283
FINSIT2 Alright 0.324 0.323
FINSIT3 Getting by Omitted
FINSIT4 Difficult 0.062 0.069
FINSIT5 Very difficult 0.027 0.032
Change from last year
CFINSIT1 Better 0.273 0.233
CFINSIT2 Worse 0.287 0.279
CFINSIT3 About the same Omitted
Expectations for next year
XFINSIT1 Uncertain 0.041 0.044
XFINSIT2 Good 0.278 0.217
XFINIST3 Bad 0.153 0.142
XFINIST4 About the same Omitted
304 J. Wildman / Journal of Health Economics 22 (2003) 295–312

4. Results

4.1. The determinants of health

The determinants of health are estimated using panel data models. An F-test for the
impact of individual effects is significant demonstrating that the data cannot be pooled.
The determinants of health are estimated using a fixed effects methods because the random
effects model does not pass a Hausman test, probably due to the correlation between the
independent variables and the error term. Due to the method of estimation the time-invariant
variables can not be estimated, also the region of residence variables are not reported due
to the lack of variation in the data, the variables are included only to prevent problems of
omitted variables.
Panel data methods can control for unobservable heterogeneity by using the within indi-
vidual differences as instruments, they can provide information on causality and overcome
the problem of correlated unobservable fixed effects. Results are presented for both men
and women and these results are used in the decomposition analysis. The models are taken
from Wildman and Jones (2002) who compare the results of determinants of health models
using parametric and semiparametric panel data methods.
Males and females are considered as separate samples. A Chow test of the data (Chow,
1960) is significant so one cannot reject the hypothesis that the determinants of mental
health for men and women are different. Also the separation allows the impact of being a
family carer to be measured (for men there are insufficient observations) and the functional
forms of the models for men and women are different.

4.2. Determinants of health results: men

For men there is no impact of measured household income on current mental health but
there is a significant impact of subjective financial well being. The financial well-being
variables have the expected gradient, with ‘very poor’ financial status increasing the Likert
scale by over three points. Other major influences on ill-health include marital status and
job status, with marriage and being employed reducing ill-health. The relative deprivation
measure has no impact on ill-health, suggesting that income inequality does not cause
increased ill-health in men.

4.3. Determinants of health results: women

There is no significant relationship between mental health and measured household

income for women. The subjective income variable has a significant effect in reducing
ill-health.11 Unemployment, being disabled, widowed, divorced or separated significantly
increase ill-health. For women there is a relative deprivation effect, with an increase in rela-
tive deprivation significantly increasing ill-health, suggesting some support for the relative
income hypothesis.
11 Models including all the subjective financial variables did not pass a RESET test suggesting model misspeci-

fication.
 J. Wildman / Journal of Health Economics 22 (2003) 295–312 305

5. Inequality analysis

To make consistent comparisons over time the analysis uses two waves from the panel data
analysis. Waves 1 and 7 are chosen because they are likely to demonstrate the largest change.
To overcome the problems of heteroskedasticity and serial correlation, the concentration
indices are estimated using a procedure giving Newey–West standard errors for coeffi-
cients from OLS regressions. The Newey–West standard errors correct for the presence of
heteroskedasticity and serial correlation.
The results from all the decompositions are given in Tables 2–5. The tables show the con-
centration index for each exogenous variable in column 2 and the corresponding t-statistic

Table 2
Wave 1 decomposition results: men
1 2 3 4 5 6 7 8 9
CI t Beta t Mean Contribution % contribution % contribution

GHQ1 10.014
LNY 0.038 69.574 0.146 1.245 9.751 0.0054 −13.420
AGE −0.058 −11.926 0.358 1.249 42.636 −0.0885 219.185
AGE2 −0.129 −13.409 −0.368 −0.378 20.816 0.0986 −244.265
AGE3 −0.203 −14.142 −0.006 −0.043 112.933 0.0135 −33.658
AGE4 −0.272 −14.227 0.0002 0.362 6631.343 −0.0443 109.671 50.934
NKIDS 0.045 2.526 −0.014 −0.157 0.625 −4.0783 0.100
HHSIZE 0.08 15.31 −0.035 −0.506 2.969 −0.0008 2.079
SELF 0.004 0.119 0.028 0.16 0.126 1.4567 −0.003
UNEMP −0.323 −6.426 0.989 5.708 0.064 −0.0020 5.117
RETIRED −0.529 −15.711 −0.209 −0.953 0.131 0.0014 −3.610
DISAB 0 2.139 8.1 0 0 0
OTHER −0.285 −6.376 0.392 1.66 0.073 −0.0008 2.044
WIDOWED −0.693 −6.376 1.171 2.562 0.024 −0.0019 4.939
DIVSEP −0.335 −5.131 1.816 6.707 0.044 −0.0027 6.692
NVRAMR 0.05 2.083 0.556 2.573 0.200 0.0005 −1.380
SOUTHW −0.033 −0.896 −1.039 −1.809 0.098 0.0003 −0.838
LONDON 0.139 3.182 −0.328 −0.708 0.101 −0.0004 1.141
MIDLAND −0.058 −2.239 −0.442 −0.895 0.175 0.0004 −1.111
NORTHW 0.025 0.69 −1.295 −1.79 0.105 −0.0003 0.846
NORTHE −0.094 −3.455 −0.726 −1.191 0.163 0.0011 −2.754
SCOT −0.082 −2.064 −0.225 −0.213 0.077 0.0001 −0.353
WALES −0.134 −2.411 −1.361 −1.677 0.044 0.0008 −2.025
FINSIT1 0.189 10.303 −0.829 −7.487 0.295 −0.0046 11.459
FINSIT2 0.087 4.759 −0.663 −7.285 0.301 −0.0017 4.295
FINSIT4 −0.258 −5.873 1.446 10.141 0.072 −0.0026 6.654
FINSIT5 −0.396 −5.944 3.411 15.31 0.041 −0.0055 13.844
CFINSIT1 0.165 9.012 −0.400 −4.862 0.270 −0.0017 4.420
CFINSIT2 −0.138 −7.002 0.697 8.467 0.274 −0.0026 6.521
XFINSIT1 −0.086 −1.537 0.475 2.96 0.044 −0.0001 0.454
XFINSIT2 0.076 4.401 −0.289 −3.477 0.317 −0.0006 1.726
XFINSIT3 −0.107 −3.409 0.413 4.273 0.143 −0.0006 1.568
RDEP −0.914 −12.773 0.084 0.155 0.034 −0.0002 0.656
Total −0.0404 100
306 J. Wildman / Journal of Health Economics 22 (2003) 295–312

Table 3
Wave 1 decomposition results: women
1 2 3 4 5 6 7 8 9
CI t Beta t Mean Contribution % contribution % contribution
GIIQ1 11.104
LNY 0.043 93.176 0.128 1.062 9.607 0.0048 −10.043
AGE −0.074 −17.198 0.036 0.117 43.122 −0.0106 22.249
AGE2 −0.164 −19.052 0.519 0.502 21.343 −0.1639 340.991
AGE3 −0.253 −19.781 −0.097 −0.684 117.739 0.2626 −546.353
AGE4 −0.334 −19.632 0.0005 0.774 7040.021 −0.1138 236.857 53.746
NKIDS 0.052 3.483 −0.202 −1.995 0.684 −0.0006 1.363
HHSIZE 0.105 22.479 0.107 1.428 2.885 0.0029 −6.130
SELFEMP 0.082 1.52 0.205 0.787 0.042 6.5524 −0.136
UNEMP −0.071 −1.064 1.417 5.949 0.025 −0.0002 0.475
RETIRED −0.550 −21.288 0.448 2.372 0.158 −0.0035 7.345
DISAB 0.510 2.511 2.136 7.119 0.002 0.0002 −0.559
FAMCARE 0.034 0.514 0.675 4.889 0.027 5.7674 −0.119
OTHER −0.170 −8.509 0.637 3.828 0.212 −0.0020 4.325
WIDOWED −0.635 −14.973 2.219 7.137 0.093 −0.0118 24.600
DIVSEP −0.413 −10.354 0.931 3.877 0.073 −0.0025 5.330
NVRMAR −0.015 −0.543 −0.486 −2.002 0.144 0.0001 −0.198
SOUTHW −0.012 −0.351 −0.851 −1.407 0.089 0.0001 −0.172
LONDON 0.157 4.066 −0.637 −1.349 0.092 −0.0008 1.730
MIDLAND −0.039 −1.607 −0.289 −0.522 0.170 0.0001 −0.361
NORTHW −0.049 −1.508 0.762 1.093 0.107 −0.0003 0.758
NORTHE −0.075 −3.125 0.781 1.112 0.168 −0.0008 1.851
SCOT −0.071 −2.08 −1.764 −1.753 0.090 0.0010 −2.145
WALES −0.134 −3.108 −1.673 −1.921 0.047 0.0009 −2.018
FINSIT1 0.208 11.843 −0.612 −6.646 0.278 −0.0031 6.642
RDEP −0.864 −21.133 1.450 2.937 0.058 −0.0066 13.717
Total −0.0481 100

in column 3. The coefficients and t-statistics from the panel data estimation are given in
columns 4 and 5. The β values and t-statistics in columns 4 and 5 do not change across the
time periods because of the standard assumption that the slope coefficients are time invariant
(Hsiao, 1986). The mean value of the variable is in column 6. The total contribution and
the percentage contribution of each variable are given in columns 7 and 8. The single entry
in column 9 gives the total age effect.

5.1. Men

For wave 1, the concentration index is −0.022, suggesting inequalities in health favour-
ing the better off. The concentration index is also significantly different from zero, with
a confidence interval of −0.033 to −0.011. By wave 7, the concentration index has in-
creased in value (reduced in absolute value) to −0.016, which is also significantly different
from zero. The increase suggests that income related inequalities in health have fallen
over time. Although, the confidence interval of −0.028 to −0.005 overlaps with the result
from wave 1. Since neither result dominates the other, we cannot say that there has been
 J. Wildman / Journal of Health Economics 22 (2003) 295–312 307

Table 4
Wave 7 decomposition results: men
1 2 3 4 5 6 7 8 9
CI t Betas t Mean Contribution % contribution % contribution
GHQ1 10.473
LNY 0.038 59.129 0.146 1.245 9.953 0.0053 −12.786
AGE −0.069 −17.04 0.358 1.249 48.636 −0.1160 276.034
AGE2 −0.148 −18.175 −0.368 −0.378 26.293 0.1371 −326.079
AGE3 −0.226 −18.354 −0.006 −0.043 155.226 0.0199 −47.481
AGE4 −0.298 −17.818 0.0002 0.362 9829.461 −0.0688 163.704 66.176
NKIDS 0.116 5.998 −0.014 −0.157 0.569 −9.2050 0.218
HHSIZE 0.103 20.548 −0.035 −0.506 2.792 −0.0009 2.331
SELFEMP 0.090 2.838 0.028 0.16 0.125 3.1574 −0.075
UNEMP −0.350 −4.678 0.989 5.708 0.035 −0.0011 2.786
RETIRED −0.492 −21.021 −0.209 −0.953 0.208 0.0020 −4.879
DISAB −0.113 −7.708 2.139 8.1 0.044 −0.0010 2.428
OTHER −0.393 −3.397 0.392 1.66 0.015 −0.0002 0.561
WIDOWED −0.675 −8.18 1.171 2.562 0.038 −0.0028 6.828
DIVSEP −0.293 −5.384 1.816 6.707 0.060 −0.0030 7.282
NVRMAR −0.051 −1.601 0.556 2.573 0.135 −0.0003 0.875
SOUTHW −0.049 −1.388 −1.039 −1.809 0.101 0.0004 −1.176
LONDON 0.147 3.678 −0.328 −0.708 0.095 −0.0004 1.048
MIDLAND −0.036 −1.429 −0.442 −0.895 0.180 0.0002 −0.653
NORTHW 0.028 0.774 −1.295 −1.79 0.105 −0.0003 0.877
NORTHE −0.102 3.663 −0.726 −1.191 0.158 0.0011 −2.666
SCOT −0.045 −1.097 −0.225 −0.213 0.074 0.0001 −0.173
WALES −0.060 −1.098 −1.361 −1.677 0.049 0.0003 −0.935
FINSIT1 0.100 6.004 −0.829 −7.487 0.349 −0.0027 6.603
FINSIT2 0.083 5.176 −0.663 −7.285 0.352 −0.0018 4.426
FINSIT4 −0.258 −4.439 1.446 10.141 0.044 −0.0015 3.781
FINSIT5 −0.464 −4.66 3.411 15.31 0.021 −0.0032 7.617
CFINSIT1 0.138 7.951 −0.400 −4.862 0.310 −0.0016 3.918
CFINSIT2 −0.058 −2.478 0.697 8.467 0.215 −0.0008 2.016
XFINSIT1 −0.093 −1.178 0.475 2.96 0.028 −0.0001 0.286
XFINSIT2 0.111 5.967 −0.289 −3.477 0.286 −0.0008 2.096
XFINSIT3 −0.064 −1.648 0.413 4.273 0.095 −0.0002 0.581
RDEP −0.916 −12.183 0.084 0.155 0.034 −0.0002 0.604
Total −0.0420 100

a major change in income related health inequalities over time, when comparing waves 1
and 7.
The coefficients from the panel data estimation are combined with the concentration
indices for all the variables, as seen in columns 2–5 of Table 2. The percentage contribution
to health inequality can then be calculated using this information.
The variables representing subjective financial status all increase health inequality. Sub-
jective financial status ‘good’ (FINSIT1) and ‘much worse’ (FINSIT5) have the largest
effects. The current distribution of FINSIT1 increases health inequality by 11%. This oc-
curs because FINSIT1 has a negative impact on ill-health, and individuals who have a good
subjective financial status are more highly represented in the upper end of the income dis-
tribution. Health inequality is 14% higher because FINSIT5 is over represented in lower
308 J. Wildman / Journal of Health Economics 22 (2003) 295–312

Table 5
Wave 7 decomposition results: women
1 2 3 4 5 6 7 8 9
CI t Beta t Mean Contribution % contribution % contribution
GHQ1 11.965
LNY 0.044 89.651 0.128 1.062 9.787 0.0046 −8.726
AGE −0.079 −22.339 0.036 0.117 49.123 −0.0119 22.291
AGE2 −0.169 24.111 0.519 0.502 26.879 −0.1973 367.987
AGE3 −0.257 −24.604 −0.097 −0.684 161.042 0.3382 −630.549
AGE4 −0.335 −24.104 0.001 0.774 10366.410 −0.1563 291.410 51.141
NKIDS 0.099 6.331 −0.202 −1.995 0.631 −0.0010 1.984
HHSIZE 0.120 26.744 0.107 1.428 2.719 0.0029 −5.468
SELFEMP 0.227 4.465 0.205 0.787 0.041 0.0001 −0.301
UNEMP −0.327 −3.547 1.417 5.949 0.015 −0.0006 1.140
RETIRED −0.476 −26.405 0.448 2.372 0.235 −0.0042 7.844
DISAB −0.219 −4.043 2.136 7.119 0.032 −0.0012 2.373
FAMCARE −0.123 −5.148 0.675 4.889 0.161 −0.0011 2.095
OTHER 0.146 1.432 0.637 3.828 0.011 0.0001 −0.164
WIDOWED −0.614 −19.095 2.219 7.137 0.124 −0.0141 26.442
DIVSEP −0.403 −10.841 0.931 3.877 0.083 −0.0026 4.915
NVRMAR −0.204 −5.81 −0.486 −2.002 0.091 0.0007 −1.415
SOUTHW −0.018 −0.58 −0.851 −1.407 0.091 0.0001 −0.228
LONDON 0.128 3.511 −0.637 −1.349 0.084 −0.0005 1.080
MIDLAND −0.011 −0.479 −0.289 −0.522 0.171 0.0000 −0.085
NORTHW −0.092 −0.59 0.762 1.093 0.109 −0.0006 1.206
NORTHE −0.076 −3.201 0.781 1.112 0.167 −0.0008 1.549
SCOT −0.061 −1.771 −1.764 −1.753 0.087 0.0007 −1.475
WALES −0.073 −1.655 −1.673 −1.921 0.051 0.0005 −0.978
FINSIT1 0.149 10.206 −0.612 −6.646 0.334 −0.0025 4.766
RDEP −0.855 −22.588 1.450 2.937 0.063 −0.0066 12.305
Total −0.0536 100

income groups but has a positive impact on ill-health. Deprivation (RDEP) has a very small
impact on health inequality. The largest impact is the effect of age, suggesting that most
of the income related inequalities in health are driven by age effects. The total age effect
increases health inequality by 50.93%.
By wave 7, there has been little change in inequality and the variables’ contribution to
inequality. The contribution of income is relatively unchanged and the contribution of age
has increased to 66.17%. All other variables have a very similar contribution, reflecting the
small variation in the concentration indices for the variables in the regression model over
the 7 year period.

5.2. Women

For wave 1 the concentration index is −0.020, showing income related health inequality
favouring the wealthy, but it is not as high as for men in wave 1. The confidence interval,
−0.029 to −0.011 does overlap with the concentration index for men for wave 1, so there
is no dominance.
 J. Wildman / Journal of Health Economics 22 (2003) 295–312 309

The decomposition analysis demonstrates differences in the make up of income related

health inequalities for women compared to men. The effect of income and age are very
similar for both men and women. The permanent income variable FINSIT1 also has a
relatively large impact on health inequality.
The impact of being retired is larger for women than for men (although both are relatively
large), with the current distribution of the retired increasing health inequality.
The two variables that are very different to the men’s results are WIDOW and RDEP. The
current distribution of widowed individuals increases health inequality by over 24%. Being
widowed has a positive effect on ill-health and the widowed are concentrated in the lower
end of the income distribution. Deprivation has a larger impact on health inequality than
absolute income, providing further evidence on the impact of income inequality of health.
If deprivation could be removed health inequality would fall by 13%.
By wave 7 the concentration index is −0.010 with a standard error of 0.005. Inequalities
in health have fallen for women in the 7 seven years of the BHPS, although the confidence
interval (−0.020 to −0.0002) does overlap with the concentration index in wave 1 for
women so there is no dominance.

6. Discussion

The concentration indices calculated using panel data and the GHQ confirm the findings
of van Doorslaer et al. (1997): that Great Britain suffers from income related inequalities
in health. That is not to say that income and mental health are necessarily significantly
related but simply that the concentration index, when individuals are ranked by income,
shows significant inequalities in health, this is due to the correlation between income and
other variables which improve mental health but are omitted when estimating the concen-
tration index. The concentration indices for both men and women in wave 1 are negative
(men = −0.022, women = −0.02), suggesting that poor health is more highly concen-
trated among those in lower income groups, and both indices are significantly different from
zero. Men suffer from more income related health inequality, but there is no dominance
since confidence intervals overlap. The concentration indices are also negative in wave 7
(men = −0.016, women = −0.010).
Between waves 1 and 7 health inequality for both men and women reduces, although the
confidence intervals for waves 1 and 7 overlap, suggesting no dominance. The estimated
concentration indices are still significantly different from zero. Men still suffer from more
income related mental health inequalities than women, but again there is no dominance.
Although, women suffer a higher absolute level of mental ill-health.
The existence of income related inequalities in health are more complicated than they
first appear. If income related inequalities in health exist then policy makers only have
to redistribute income to remove such inequalities! Decomposition of health inequality
reveals that the pathways of inequality are more complex and provide policy makers with
an indication of what can be done to reduce inequality in health.
With decomposition it can be seen that for both men and women the current distribution
of income is actually reducing health inequality but not significantly. Although the reduction
may only apply to the GHQ measure, it is important that policy makers are aware of possible
310 J. Wildman / Journal of Health Economics 22 (2003) 295–312

anomalies. The correlation between income and other variables generate income related
inequalities in health. Once the influence of other variables is accounted for the impact
of income is insignificant. In short there is an omitted variable problem. When estimating
concentration indices using Eq. (1) other independent variables (apart from income rank) are
excluded from the analysis. If these variables are correlated with income and affect health
then the concentration indices may not be a true reflection of income related inequalities in
health.
For men and women in waves 1 and 7, the subjective financial well being scores are
contributing largely to health inequality; in which case health inequalities could be reduced
by making individuals feel better off, or making the rich feel worse off. The income varibles
may be correlated and affecting the results, but estimation of the determinants of health
models using different combinations of income variables does not substantially alter the
estimated coefficients, in all cases the log of income is positive and insignificant (Wildman
and Jones, 2002). There are no deprivation effects for men in either wave of the data but
for women deprivation makes a large positive contribution to health inequality, a larger
impact than income itself, in both waves, providing further evidence of the relative income
hypothesis.
The total impact of age is the largest single contributor to health inequality for men and
women in both years considered. It seems that most of the income related inequalities in
health are actually due to the concentration of the elderly in the lower tail of the income
distribution. The distribution and effect of being retired has a large impact for men (wave 7)
and women (waves 1 and 7).
These contributions demonstrate that reducing health inequality is not simply a case
of redistributing income. Some factors making large contributions cannot be altered. For
example health inequality would be 24% lower for women in wave 1 if individuals who
were widowed were equally distributed across the income range, if being widowed had no
effect on health or if there were no widowed individuals. Decomposing the concentration
index demonstrates that if governments can increase the income of the widows, so they are
not concentrated in lower income groups, it could have a large impact on reducing income
related health inequality.
The results allow policy makers to direct efforts to areas that are contributing the largest
amount to health inequality. Health inequalities are characterised by complex interactions
between endowments, income, lifestyle choices and exogenous factors. The decomposi-
tion highlights some of these complications and offers policy makers a starting point to
reduce income related inequalities in health. Decomposition is not able to provide causal
pathways between the individual determinants of health and health inequality, it is however
an interesting method of describing income related inequalities in health and providing
explanations for the observed patterns.
Decomposition can be used to consider different policy approaches. Much of the literature
stresses the need for income redistribution, however such policies must be well targeted. If
the social decision maker wishes to make substantial inroads into health inequalities then
targeting redistribution at certain groups in society, eg the elderly or widows, will have a
larger impact than general policies of redistribution. The decomposition highlights the role
of different individual determinants of health on health inequalities, offering more detail
than the simple measurement of inequalities.
 J. Wildman / Journal of Health Economics 22 (2003) 295–312 311

Redistributing income to change the concentration of ill-health among the poor is a way
to remove income related health inequalities but does not remove health inequality. For
example, increasing the income of widows so they are evenly spread across the income
distribution will have a large impact on reducing income related inequalities in health. The
issue of the poor health of widows is not addressed by simple income redistribution. Income
related inequalities in health may move towards zero (no income related inequalities in
health) but health inequalities will still exist in society. It may be preferable to measure pure
health inequalities (LeGrand, 1987, 1989) or combine methods of inequality measurement
to ascertain a richer understanding of health inequality issues.

Acknowledgements

The BHPS data were supplied by the: Economic and Social Research Council Research
Centre on Micro-Social Change, British Household Panel Survey. Colchester, Essex: The
Data Archive, 22 December 1998. SN: 3953. The analysis and interpretations presented
here do not reflect the views of the ESRC or the Data Archive. The author acknowledges
the comments of Andrew Jones, Hugh Gravelle, YSHE and two anonymous referees. All
remaining errors are mine.

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