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Equivalence Adjustment of Income

Another way to measure income inequality is to use an equivalence-adjusted income estimate that takes into consideration the number of people living in the household and how these people share resources and take advantage of economies of scale. For example, the money-income-based distribution treats an income of $30,000 for a single-person household and a family household similarly, while the equivalence-adjusted income of $30,000 for a single-person household would be more than twice the equivalence-adjusted income of $30,000 for a family household with two adults and two children. The equivalence adjustment used here is based on a three-parameter scale that reflects:

  1. On average, children consume less than adults.
  2. As family size increases, expenses do not increase at the same rate.
  3. The increase in expenses is larger for a first child of a single-parent family than the first child of a two-adult family.

The three-parameter scale is calculated in the following way:

  • One and two adults: scale = (number of adults)0.5
  • Single parents: scale = (number of adults + 0.8*first child + 0.5*other children)0.7
  • All other families: scale = (number of adults + 0.5*number of children)0.7

Page Last Revised - October 8, 2021
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