Glamor Economics

Chapter 151

Chapter 19, Section 6 Viewing Living Standards from Diesel, Rice, Oil and Salt—Engel’s Coefficient
In the past, when Chinese met each other, they used to say hello: "Have you eaten?" But this greeting, which has been popular in China for thousands of years, was replaced by "Ni Hao" at some point.Why is "Have you eaten" slowly replaced by "Hello"?Economists believe that this is because as the economy develops, people spend less and less on food and more and more on clothing, cars, and entertainment.This phenomenon is called "Engel coefficient" reduction.

In early 2009, the Wuhan Municipal Bureau of Statistics announced the results of the 2008 Wuhan Residents' Income and Consumption Survey.

In 2008, the per capita consumption expenditure of Wuhan residents was 11432.97 yuan, an increase of 2007 yuan over 832.97, an increase of 7.9%, of which food expenditure increased the most, at 11.8%.

Since 2008, the price of food in Wuhan has risen significantly, especially the price of oil, meat, and aquatic products has risen rapidly, which has driven the increase in food consumption expenditure of residents.

Affected by food prices, the Engel's coefficient (the proportion of food expenditure in consumption expenditure) of Wuhan residents in 2008 was 42.7%, and the Engel's coefficient was 39.5% after removing the price factor, a slight increase from the previous year.

Consumption expenditure refers to all the daily expenditures of a family, including food, clothing, household equipment and services, medical care, transportation and communication, entertainment, education and cultural services, housing, and miscellaneous goods and services.Consumption expenditure reflects the price and consumption level of residents, is a very important macroeconomic variable, and is used as one of the basis for macro-control.

The Engel coefficient we are talking about here is the ratio of total food expenditure to total personal consumption expenditure.It was first proposed by Engel, a German statistician in the 19th century.

Based on statistical data, Engel drew a rule about the changes in consumption structure: the less a family’s income, the larger the proportion of family income (or total expenditure) used to buy food. As family income increases, The proportion of household income (or total expenditure) spent on food would fall.By extension, the poorer a country is, the greater the share of per capita income (or average expenditure) that is spent on food, which tends to decline as countries get richer.Simply put, the smaller the Engel coefficient of a family, the richer the family is.Conversely, if a family's Engel coefficient is larger, it means that the family's economy is more difficult.

Engel's Law mainly reflects the problem of consumer spending patterns.Consumer spending patterns are primarily influenced by two factors: first, the stage of the household life cycle; and second, the location of the consumer's home.Engel's law is proposed based on empirical data, and it is only applicable on the premise that all other variables are assumed to be constant. Therefore, when examining the changes in the proportion of food expenditure in income, the degree of urbanization, food Factors such as processing, catering and structural changes in the food itself.Only when a fairly high level of average food consumption is reached will further increases in income not have a significant impact on food expenditures.

The significance of Engel's coefficient is that it can be used to measure the living standard of people in a country or region.According to the standards proposed by the Food and Agriculture Organization of the United Nations, an Engel coefficient of more than 59% is poor, 50-59% is food and clothing, 40%-50% is well-off, 30%-40% is rich, and less than 30% is the richest.

改革开放以来，我国城镇和农村居民家庭恩格尔系数已由1978年的57.5%和67.7%分别下降到2005年的36.7%和45.5%。2008年，我国城镇居民家庭恩格尔系数为37.9%；农村居民家庭恩格尔系数为43.7%。

When my country uses this standard to make international and urban-rural comparisons, some incomparable factors must be taken into account, such as differences in price comparisons of consumer goods, differences in living habits of residents, and special factors resulting from differences in social and economic systems.For the non-comparable problems in these cross-sectional comparisons, corresponding elimination should be done in the analysis and comparison.In addition, when observing changes in historical conditions, it should be noted that Engel's coefficient reflects a long-term trend, rather than an absolute tendency to decline year by year.It seeks long-term trends while smoothing out short-term fluctuations.

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The income level of residents is an important factor that directly affects the market capacity.The income level of residents is affected by the macroeconomic situation on the one hand, and by the national income distribution policy and consumption policy on the other hand.The income level of residents directly determines the level of purchasing power of consumers.The higher the income level, the stronger the purchasing power, and vice versa.

(End of this chapter)