Sensitivity of Australian income distributions to choice of equivalence scale: Exploring some parameters of Indigenous incomes

Abstract

Indigenous families experience substantial and multiple forms of economic burden arising from the size and structure of their families and households. Indigenous households are more likely to have more than one family in residence than other Australian households and are more likely to be multi-generational with older Indigenous people living with younger people in extended family households. Given that equivalence scales attempt to control for family size and composition and the relative costs of maintaining various families, such differences are likely to be reflected in their income distributions—hence, it is important to consider whether these distributions are affected by using alternative scales. This paper seeks to characterise the economies of household size in Indigenous and other Australian households using equivalence scales that cover the range of feasible values and 1995 National Health Survey data. Furthermore, the extent of reranking in income distribution when using the various scales provides an intuitive benchmark for the sensitivity of the respective distributions. The analysis will be conducted for both households and income units to illustrate potential sensitivities of the results to the inclusion of extended kin networks in the definition of households.