equivalentieschalen

Equivalentieschalen are tools used in welfare analysis to adjust household income for household size and composition, enabling meaningful comparisons of living standards across households. By accounting for economies of scale and different needs within a household, these scales allow economists and policymakers to compare “how well off” households of different sizes.

How they work: Each household receives a scale factor that reflects the combined needs of its members. The equivalised income is obtained by dividing the household’s total income by this factor. The result is intended to represent a per-person income that takes into account shared costs and varying requirements of adults and children.

Common scales: The original OECD equivalence scale, introduced in the 1980s, assigns 1.0 to the first adult, 0.7 to each additional adult, and 0.5 to each child. The OECD-modified scale adjusts the child weight to 0.3, while keeping 1.0 for the first adult and 0.5 for additional adults. The square-root scale, another widely used approach, sets the factor as the square root of the number of household members. Countries also develop their own country-specific scales.

Applications: Equivalencieschalen are used to construct equivalised income for poverty measurement, social benefit assessment, tax policy design, and cross-country comparisons of living standards. They influence poverty rates and the perceived distribution of resources.

Limitations: Scales encode normative assumptions about economies of scale and relative needs, which may not reflect cultural differences or specific household circumstances. Different scales can yield different policy conclusions, and the choice of scale remains a topic of methodological debate.