Appendix D - Revised Jensen Scale

Median gross household income is not a suitable indicator of the relative standard of living of a household compared with other households because it does not take into account how household composition affects demands on that income. For example, a one-adult household with a median annual household income of $45,000 is likely to have access to a higher standard of living than a two-adult, three-child household with the same income. In order to compare household income across a range of household types, an equivalence scale is used to equivalise household gross income.

The equivalence scale used for this study is the Revised Jensen Scale (RJS), which is a New Zealand scale derived by John Jensen of the Ministry of Social Development. Its reference point is a two-adult couple-only household, which is given a value of 1. All other household types have their expressed relative to that of the reference two-adult household, with adjustments made for the age and number of children. The scale contains adjustments which take into account the fact that children typically need less income than adults in order to maintain a comparable standard of living.  Gross equivalised household income is calculated by dividing annual gross household income by the appropriate value for the household on the Revised Jensen Scale.

For example, a two-adult household with an annual income of $40,000 would have an annual income equivalised with the Revised Jensen Scale of $40,000, since its rating on the Jensen scale is 1. However, if an eight-year-old child were added to the household, its Jensen Scale rating would change to 1.19, and therefore its equivalised income would be $40,000/1.19 = $33,613.