Equivalence Scale Analysis

Both fixed scales assign weight 1 to the first adult but differ in the weights for others. The old OECD (Oxford) scale gives 0.7 to each additional adult and 0.5 to each child, implying modest economies of scale. The modified OECD scale, now standard in EU income statistics, gives 0.5 to additional adults and 0.3 to children, implying stronger sharing and thus larger equivalent incomes for big households. Because the modified scale discounts extra members more, it generally produces somewhat different poverty and inequality figures, especially for large households.

Both estimate scales from consumption behavior but use different welfare indicators. The Engel method assumes households with the same food budget share are equally well off and infers the cost of additional members from how food shares respond to size and income. The Rothbarth method instead uses spending on adult-specific (adult-only) goods, holding that spending constant to measure the cost of children. The Engel approach is known to overstate the cost of children — adding a child raises the food share, which Engel misreads as a larger welfare loss — whereas Rothbarth tends to give lower estimates; the true scale is often taken to lie between them.

Because the scale determines how household income is converted to individual welfare, it reshapes the entire welfare distribution before any inequality or poverty measure is computed. A scale closer to per capita (high elasticity) makes large households look poorer and can raise measured poverty and inequality; a scale with strong economies of scale (low elasticity) does the opposite. Buhmann and colleagues showed that both the level of poverty and inequality and, in some cases, the ranking of countries can change with the elasticity, which is why reporting the scale and conducting sensitivity analysis is essential.