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Empirical Evidence of Engel’s Law Among Social Grant Recievers

Engel's law is an observation in economics stating that as income increases, the proportion of income spent on food decreases, even if absolute expenditure on food increases. The law was named after the statistician Ernst Engel (1821–1896). One application of this statistic is treating it as a reflection of the living standard of a country. As this proportion — or "Engel coefficient" — increases, the country is by nature poorer; conversely a low Engel coefficient indicates a higher standard of living.
Engel's Law
image source: Wikipedia
Using data collected through National Social and Economic Survey (NSES) by BPS-Statistics Indonesia, I tried to examine the existence of Engel's Law among households that received social grants in West Papua-Indonesia. Some studies found that giving additional money to the low-income households resulted in an increase in overall expenditure on food (on absolute) but the proportion of income spent on food would decrease.

The table below showed that the average of household income per month was $240.17. The smallest household income per month was $37.63 and the highest one was $1000.25. If the household incomes were grouped, more than 30 percent of the households had income between $150 and $250 whereas less than 2 percent of households had income less than $50 per month. The amount of money, on absolute, spent on food consumption increased as the household income increased.

The highest average of food consumption per month was in household income group of above $550 which was $357.27. Household with income group below $50 had the lowest average of food consumption per month which was $33.02. Sampson et al. (2004) and Claire Smith et al. (2013) reported that giving additional money to the low-income households resulted in an increase in overall expenditure on food. This finding showed similar result with the previous studies, there was an indication of positive relationship between household income and the food consumption.

The Average of Food Consumption and Average of Percentage Income Spent on Food based on Household Income Per Month Group
Household Income Group ($)
Percentage of Household Income Group (%)
Average of Food Consumption ($)
Average of Percentage Income Spent on Food per month (%)
<50
1.50
33.02
73.13
50-150
26.45
62.98
61.55
150-250
34.77
130.70
67.01
250-350
20.08
176.74
60.41
350-450
7.73
232.95
59.46
450-550
5.03
267.02
53.75
>550
4.443
357.27
52.57

100.00
145.38
62.44
Source: Analysis Output of Microdata of National Social and Economic Survey-West Papua, 2015

On the other hand, the proportion of income spent on food decreased as the income increased. The highest average of percentage income spent on food per month was in the household with income group below $50 (73.13%). The lowest one was household with income group above $550 (52.57%). Even though averages of income spent on food per month for each groups of income were above 50 percent, there was decreasing trend as the household income increased. The graph below will clearly show the proof of Engel’s Law among households receiving social grants.

The Average of Percentage Income Spent on Food and Non-Food per Month Based on Household Income Group
Source: Analysis Output of Microdata of National Social and Economic Survey-West Papua, 2015

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