Engel coefficient

Engel coefficient

The consumption structure determines the quality of life

How do we evaluate the standard of living of a person or a family? The most direct thing is to look at the texture and grade of his clothes, the conditions of his living, what brand of transportation car he owns, what kind of expenses are three meals a day, whether he has made foreign exchange investments, whether he often bursts into high-end consumer places, and how many countries he has visited. We know that to break down, consumption items are too complex, and people's consumption choices vary widely according to their own preferences. If you want to measure the standard of living of residents in a region and a country, you need relatively simple and accurate scientific methods of measurement.

So, can you find an economic indicator to reflect people's living standards? The Engel coefficient is a standard commonly used to measure people's living standards internationally.

In the mid-19th century, the German statistician Engel studied the changes in consumption structure based on statistical data and deduced and proved a law: the proportion of total expenditure on food is inversely proportional to household income. That is to say, the lower a family's income, the larger the Engel coefficient; as family income increases, the Engel coefficient will decline. People call this law derived by Engel "Engel's law".

We say that Engel's law exists because "eating" is the first need for survival. When the income level is very low, the most important problem to be solved is to fill the stomach. "Eating" must occupy an important position in consumer spending. As income increases, on the basis of filling the stomach, the focus of consumption will begin to shift to other aspects such as clothing and use.

"Running all day long is only for hunger, so you have to have food and think about clothes. Wear it on Aya Luo, but look up and think the house is low...." Although Zhu Zaiyu's "Ten Deficiencies" in the Ming Dynasty is a loose song reflecting the infinite desires of human beings, it is not difficult to see the importance of eating in the beginning and the changes in consumption structure after food and clothing are solved.

The Engel coefficient is widely used internationally. It is the proportion of food expenditure in total consumption expenditure, that is, the proportion of household spending on food in total expenditure. Expressed as a percentage, this coefficient is between 0 and 100%. If a family spends all its money on food, then the Engel coefficient is 100%, indicating that their standard of living is very low and at the level of "breadwinning"; if a family spends less on food than the total cost of living, the smaller the Engel coefficient, indicating that they spend more on other pleasures and the quality of life is relatively high. According to the standard proposed by the Food and Agriculture Organization of the United Nations, the Engel coefficient is above 59% for poverty, 50% to 59% for food and clothing, 40% to 50% for well-off, 30% to 40% for affluence, and less than 30% for the richest. Our country's statistics bureau publishes the Engel coefficient for urban and rural households every year, using this coefficient to reflect people's quality of life.

By extension, we say that the poorer a country is, the greater the proportion of its average consumption expenditure that goes towards food, and this proportion decreases as the country gets richer.

Does the Engel coefficient fail in China?

According to Engel's law, the decline of Engel's coefficient is an important symbol of a country's economic development and the improvement of people's living standards. In the early days of our country's founding, the Engel's coefficient for urban residents was around 80%, but after that it hovered above 60% for a long time, and the quality and standard of life were not high. After the reform and opening up, the per capita disposable income of urban households has increased from 343.4 yuan in 1978 to 13,785.5 yuan in 2007. The Engel's coefficient has dropped from 57.5% in 1978 to 39.4% in 2000, and has dropped to 36.5% in 2009. The Engel's coefficient for rural households is not to be outdone. It has dropped from 67.7% in 1978 to 49.1% in 2000, and has dropped to 41.0% in 2009. We can see that although it is still higher than that of urban residents, the quality of life has been greatly improved.

We simply look at the numbers. According to the standards of the Food and Agriculture Organization of the United Nations, the lives of rural residents in our country have entered a moderately prosperous stage at the beginning of the new century, and the lives of urban residents have also entered a wealthy stage. The problem is that digital affluence often encounters real poverty. The official announcement that there are currently 15 million poor people in our country, and their lives are still far from the standards of moderately affluent and affluent. And because our country's social security system is not sound enough, high medical expenses, pension expenses, education expenses, etc. may also make some people fall back from a state of high income to the edge of poverty.

In the face of the contradiction between numbers and reality, some people can't help but ask: "Is the Engel coefficient malfunctioning in China?" Some scholars in our country believe that the division of the Engel coefficient is far from suitable for our national laziness. Because many times, Chinese people's food is squeezed out. A family that bears the burden of education and medical care, saving food expenses cannot be counted as rich at all. Research by the National Bureau of Statistics also shows that the proportion of health care consumption expenditure of residents in our country is relatively high, about 7% in 2005. Compared with 3.97% in Japan and 4.73% in South Korea, it is basically double that of developed countries.

Some scholars also believe that the Engel coefficient has been difficult to reflect the true state of our country's people are wealthy, only using the Engel coefficient to judge the standard of living is a glimpse of the leopard, but also need to study the consumption structure of the Chinese people. The real indicator to measure the degree of affluence of life should be the proportion of leisure expenditure to total expenditure. According to the data of the International Center of the National Bureau of Statistics, the proportion of consumption of miscellaneous goods and services, entertainment, etc. in China is still much lower than that of the world's major developed countries. 20% of the income of Americans is used for entertainment and leisure, while the average income of China's urban population is only 3.5% for miscellaneous services and entertainment, and the proportion of the rural population is even smaller, only 2.13%, so we still have a big gap.