1287.0 - Standards for Cash Income Statistics, 1997
ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 19/12/1997
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MEASUREMENT ISSUES AND RELATED CLASSIFICATIONS
21. Standard imputation procedures are used for household surveys to estimate a dollar value in cases of partial response or non-response to questions on the amount of income received. A matching procedure using key predictive variables imputes dollar values to non-response data based on the actual dollar value data collected in the same survey. Further information about the procedure is available from the ABS. 22. The size and composition of any unit affects its need for economic resources. For example, a household comprising only one person would normally need less income to enjoy the same standard of living as a multi-person household. One way of adjusting for this difference is simply to divide the income of the unit by the number of persons comprising the unit so that all income is presented on a per capita basis. However, such an adjustment assumes all individuals have the same resource needs to enjoy the same standard of living and that there are no economies derived from living together. 23. Various calibrations, known as equivalence scales, have been devised to make adjustments to the actual incomes of counting units in a way that recognises differences in needs of individuals within those units and the economies that flow from sharing resources. The scales differ in their detail and complexity but commonly recognise that the extra level of resources required by larger groups of people is not directly proportional to the number of people. They also typically recognise that children have fewer needs than adults. 24. When household income is adjusted according to an equivalence scale, it allows direct comparison of household income of households with different compositions. The Equivalised household cash income of a Lone person household equals the 'Total cash income'. The 'Total cash income' of a multiperson household is divided by an equivalising factor calculated on the basis of the number of adults and children comprising the household. For example, say the 'Total cash income' of a household comprising three adults and two children under 15 is $2000 per week. If we allocate an equivalising factor of 1.0 to the first adult, 0.5 to the other two adults and 0.3 to each child the household has an equivalising factor of 2.6. When we divide the household's 'Total cash income' of $2000 by 2.6, we arrive at an Equivalised household cash income of $769.23 per week. The members of this household are therefore considered to enjoy a level of economic wellbeing equivalent to that enjoyed by a Lone person with a 'Total cash income' of $769.23 per week, even though the 'Total cash income' for that household is actually much higher. 25. While there has been considerable research by statistical and other agencies trying to estimate appropriate values for equivalence scales, no single standard has emerged. In theory, there are many factors which might be taken into account when devising equivalence scales, such as recognising that people in the labour force are likely to face transport and other costs that do not contribute to their standard of living. It might also be desirable to reflect the different needs of children at different ages, and the different cost levels faced by people living in different geographic areas. On the other hand, the tastes and preferences of people vary widely, resulting in markedly different expenditure patterns between households with similar income levels and similar composition. Furthermore, it is likely that equivalence scales that appropriately adjust incomes of low income households are not as appropriate for higher income households, and vice versa. This is because the proportion of total income spent on housing tends to fall as incomes rise, and cheaper per capita housing is a major source of economies of scale that flow from people living together. 26. It is therefore difficult to define, estimate and use equivalence scales which take all relevant factors into account. As a result, analysts tend to use simple equivalence scales which are chosen subjectively but are nevertheless consistent with the quantitative research that has been undertaken. A major advantage of simpler scales is that they are more transparent to the user, that is, it is easier to evaluate the assumptions being made in the equivalising process. 27. The ABS adopts the modified OECD scale when equivalising. The equivalence factor is derived by allocating points to each person in a household. In the 2001 SIHC, taking the first adult in the household as having a weight of 1 point, each additional person who is 15 years or older is allocated 0.5 points, and each child under the age of 15 is allocated 0.3 points. Equivalised household income is derived by dividing total household income by a factor equal to the sum of the equivalence points allocated to the household members. The equivalised income of a household containing a single person is the same as its unequivalised income. The equivalised income of a household comprising more than one person lies between the value of its total income and the per capita value of its unequivalised income.
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