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Adult Equivalence Scales, Inequality and Poverty in New Zealand - WP 04/21

5 Alternative Equivalence Scales (continued)

It is of interest to consider the commodity specific equivalence scales produced by Michelini (1999) for New Zealand: these are scales 11, 12, 13 and 14. They all produce relatively high inequality measures. However, scale 14 is placed on the downward sloping segment of its inequality profile, while the others are on the upward sloping segment of their profiles. A comparison of those scales alone may also give the impression that inequality is not sensitive to a large variation in , whereas intermediate values would give substantially lower measures of inequality. The scales derived from the Rothbarth estimates for both the United Kingdom and Australia, compiled by van de Ven (scales 20 and 25), give relatively lower measures of inequality.

Figure 30 – Inequality, Unit of Analysis: Equivalent Adult,

Figure 31 shows the poverty curves of the poverty measure, using the individual as the unit of analysis and a poverty line of $195 per week. Plotted on this figure are the measures of poverty produced using each of the 29 equivalence scales. The variation in poverty is substantial. The scales giving the largest difference in inequality do not give the largest poverty differential. This is obtained for scales 14 and 13: poverty increases by over 540 percent when moving from the former to the latter scales. It can also be seen that, whereas the Michelini scales 13 and 14 produce similar inequality measures – being on different sides of the U-shaped profiles – they produce substantially different poverty measures. It is clear that considerable care needs to be taken in comparing results for alternative scales, and in particular much caution is required before declaring that analyses are not affected by the choice of scale.

Figure 31 – Poverty - , Unit of Analysis: Individual,
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