Married or cohabiting couples enjoy large-scale economies in living costs, new research finds, but substantial diseconomies when children or further adults are added.

Essex University researchers tried to identify the adjustment needed when comparing the incomes of any two families with a different size and structure – on the basis that poverty depends not just on a family’s income but also on their needs. To do this, the researchers analysed the relationship between income, demographic structure and subjective assessments of financial well-being by drawing on data from the British Household Panel Survey (BHPS) for the years 1991–2008.

Key findings

• A married or cohabiting couple have living costs only slightly higher than those of an adult living alone.
• The addition of a first child brings large new capital costs that cause income needs to almost double. Adding further children causes living costs to rise further, though more gradually.
• These findings are at variance with the view underlying much ‘official’ poverty analysis. They suggest the adjustment needed to compare the incomes of different family types (the ‘equivalence scale’) should give more weight to the presence of children in the household.
• The number of children in poverty could be as much as 30 per cent higher if measured using the suggested approach, compared with the ‘official’ approach.

Source: Christopher Bollinger, Cheti Nicoletti and Stephen Pudney, Two Can Live as Cheaply as One… But Three’s a Crowd, Working Paper 2012-10, Institute for Social and Economic Research

Link: Paper