Engel's Coefficient is the proportion of total food expenditure in total personal consumption expenditure. Engel, a German statistician in the 19th century, based on statistical data, drew a rule on the change of consumption structure: the smaller a family's income is, the greater the proportion of food spending in the family income (or total expenditure). With the increase of family income, the proportion of food spending in the family income (or total expenditure) will decline. By extension, the poorer a country is, the greater the proportion of the average income (or average expenditure) of each national in the expenditure on food. As the country becomes richer, this proportion shows a downward trend.
Engel coefficient is the proportional number obtained according to Engel's law. In the middle of the 19th century, German statistician and economist Engel investigated the consumption of Belgian families with different incomes, studied the impact of income increase on the composition of consumption demand and expenditure, and proposed a principle with regularity, which was named Engel's Law. Its main content is that the smaller the income of a family or individual, the greater the proportion of the expenditure on purchasing subsistence food in the family or individual income. For a country, the poorer the country is, the greater the proportion of the average expenditure of each citizen used to buy food. Engel's coefficient is finally determined by the proportion of food expenditure in total expenditure. When the Engel coefficient reaches 59% or more, it is poverty, 50-59% is food and clothing, 40-50% is well-off, 30-40% is rich, and below 30% is the richest.
The formula of Engel's law:
Percentage change of food expenditure ÷ percentage change of total expenditure x100%=ratio of food expenditure to total expenditure (R1)
Or the change percentage of food expenditure ÷ the change percentage of income x100%=the ratio of food expenditure to income (R2)
Note: R2 is also called income elasticity of food expenditure.
Engel's law is based on empirical data. It is applicable on the premise that all other variables are constant. Therefore, when examining the change of food expenditure in the proportion of income, we should also consider the impact of urbanization, food processing, catering industry and food structure changes on the increase of household food expenditure. Only when the average food consumption level is quite high, the further increase of income will not have an important impact on food expenditure.
Engel's coefficient is a proportional number obtained according to Engel's law, and it is an indicator of living standards. The calculation formula is as follows:
Engel coefficient: food expenditure amount ÷ total expenditure amount x 100%=Engel coefficient
In addition to food expenditure, the expenditure on clothing, housing, daily necessities, etc. also shows a decreasing trend after the proportion of the growing family income or total expenditure rises for a period of time.
Engel's coefficient is an important indicator to measure the level of residents' living standards in the world, which generally decreases with the improvement of residents' household income and living standards. Since the reform and opening up, the Engel coefficient of urban and rural households in China has dropped from 57.5% and 67.7% in 1978 to 35.7% and 41.1% in 2010, respectively.
(Editor in charge: Zang Mengya)
