The Scale Elasticity Estimation from the KLIPS Satisfaction Data

Abstract

This study introduces the concept of subjective equivalence index and estimates the scale elasticity by using the satisfaction survey data in the KLIPS(Korean Labor and Income Panel Study). Based on the work of Schwarze(2003), we estimate the scale elasticity for obtaining the subjective equivalence index and compare the subjective equivalence index approach with the consumption expenditure equivalence index approaches. The subjective equivalence index approach has an advantage in obtaining directly and intuitively from the satisfaction degree of the involved consumers. From the data of 2001-2012 in the KLIPS, we obtain the scale elasticity of 0.61 which is less than 0.68 in Kim and Song(2010) from the data of 1998-2007 in the KLIPS. Additionally, we obtain that the scale elasticity of the families in metropolitan cities is less than that in provinces. Additionally, the scale elasticity of the families with female household heads is greater than that with male household heads. As the age of household heads increases, does the scale elasticity decrease. However, the families with household heads over 60 year old have the scale elasticity with greater than 1, showing the diseconomy of scale in family consumption. These findings suggest that policy makers should be keen to consider the family composition and/or the family location in addition to the family size in calculating the minimum cost of living and in designing the other welfare policies. More detailed analyses and profound interpretations are needed for more concrete calculations on the minimum cost of living, as usual.