The costs of children and living standards in Australian households: some new evidence
Rebecca Valenzuela
Department of Economics, Monash University
Contact Email:   Rebecca.Valenzuelabuseco.monash.edu.au

The measurement of the costs of children is an immensely significant and important exercise in a whole range of economic and social policy areas. In the economic literature, a conventional approach to estimating these costs is through the analysis of micro unit expenditure data within the context of a utility framework. This approach yields child cost estimates (otherwise known as equivalence scales) that allow one to make direct comparisons between households of different sizes and composition. Observed differences in the scale values across households and over time bear important implications for the welfare of children in alternative economic and social settings.

This study employs the equivalence scale approach to update previous estimates of costs of children in Australia. A new methodology is applied to the 1984, 1988-89, 1993-94 and 1998-99 Australian Household Expenditure Survey to calculate equivalence scales for various types of households for each survey year and to examine changes in the spending patterns of Australian families over time. From these results, the paper also draws out important policy implications for child welfare and living standards. Among other things, it is shown here that the advent of children results in a substantial reallocation of expenditures towards “non-adult” goods, and that families need to increase their income by some 20 percent if the pre-children living standards are to be maintained. Further, the results show that the estimated scales are stable across a wide range of income levels; however, the ratios are shown to decline over time indicating a possible decline in children’s general welfare levels over the years.

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