equivalence scale is to scale up or down the threshold for the reference family to provide corresponding thresholds for other family types.
The concept underlying such a scale appears straightforward and is similar in spirit to a standard cost-of-living index number. If it costs twice as much at one time to maintain a given standard of living as it did at an earlier date, then one needs twice as much money to reach the equivalent standard of living. The idea of an equivalence scale is the same, but instead of comparing two different sets of prices, one compares two different family types. In spite of this apparent simplicity, a precise characterization of equivalence scales is elusive, and the many scales proposed in the literature differ not only by the usual margin of empirical uncertainty, but also in their underlying conception: different authors are not always measuring the same thing. As a result, it is possible to find a wide range of scales, which have very different implications for the total number of people in poverty as well as for the distribution of poverty among families of different types. Depending on the scale used, the poverty rate can be substantially higher or lower, and the demographic composition of those considered poor can change dramatically.
One simple method of adjusting the reference family threshold by family type is to scale it in proportion to the number of people in a family. In the language of ''equivalence scales," a single person would need one-quarter as much as a family of four, a married couple without children one-half as much as a family of four, and a family of eight twice as much as a family of four. Most people, including the members of the panel, regard this as an extreme position, since it makes no allowance for the fact that children are different from adults, nor for the economies of scale possible for larger families by sharing kitchens, bathrooms, and bedrooms or by buying products in bulk. This straight proportion rule clearly understates the needs of small families relative to large ones, and, hence, it will overestimate the number of poor people in large families relative to those in small families.
The opposite extreme is to make no adjustments for family type and to apply the basic poverty threshold to all families irrespective of size or composition. This "zero" adjustment for family size is as unpalatable as is the straight proportion adjustment of multiplying the threshold by family size. It assumes that one adult needs as much as a two-adult/two-child family and also that a four-adult family or a family of two adults and three or more children needs no more than the two-adult/two-child family. There is widespread agreement that the appropriate adjustment lies somewhere between the two extremes; however, there is much less agreement on exactly how much to adjust the threshold for children relative to adults or how to measure economies of scale for larger households.