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Appendix 4: Jensen equivalised household income

Revised Jensen Scale and Jensen Equivalised Annual Household Income

Annual household income, derived by summing annual personal income for all household members, provides basic information about household wealth. However, as an indicator of relative standard of living, median annual household income is inadequate. For example, a one-adult household with an annual household income of $35,000 is likely to be able to access a higher standard of living than a household of 10 people with that income.

To allow household income to be compared across household types, a scale can be used to equivalise annual household income for household composition. Equivalised income is a ranked measure of income. The equivalence scale used in this paper is the RJS developed by John Jensen of the (then) Department of Social Welfare (1988).

The scale is constructed so that a two-adult household has a rating of 1. Households with fewer members score less than 1, those with more score more than 1. The scale also accounts for children being likely to require less income than adults to maintain a similar standard of living. JEAH income is calculated for individual households by reweighting household income to a two-adult household.

Diagram, Jensen equivalised annual household income.

For example, a two-adult household with an annual total income of $35,000 will also have a JEAH income of $35,000, since its Jensen Rating is 1.

If this household included a seven-year-old child, its Jensen Rating would increase to 1.19 and its JEAH would be:
$35,000 = $29,400 (rounded to nearest $100)
1.19

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