How should I adjust HHINCOME for household size?


#1

I’m trying to use the online data analyzer to show average household income by year, but I’m not sure how to adjust for household size (so that the changing size of households doesn’t skew the results). Is there a way to do this?


#2

Several methods have been used by researchers to adjust household income for size. Most simply, you could divide HHINCOME by the number of person records in a household (NUMPREC). This would give you a per-capita income for each household. Another common adjustment uses “equivalence scales”, which take into account the fact that household expenses increase less than linearly for each additional person. This is accomplished by dividing HHINCOME by the household size (NUMPREC) raised to a power between 0 and 1. In other words, Adjusted Household Income = HHINCOME / (NUMPREC)^e, where “e” is the scale elasticity. A typical value for the scale elasticity is 0.5 (see “Economic inequality through the prisms of income and consumption”, p. 13). However you choose to adjust HHINCOME, you can create a new variable in the online data analysis system that applies this adjustment (Menu: “Create Variables”->“Compute a new variable”).

Hope this helps.