Koreans Change Concept of Engel’s Coefficient

By Kim Tae-gyu Staff Reporter No matter how much income falls, people cannot slash their spending on eating since they need to survive. This is the main idea behind Engel's coefficient. Calculated as the proportion of expenditure that is spent on food, the coefficient is high for poor homes and vice versa because the demand for food is not elastic. In this sense, some experts claim Engel's coefficient should be extended to include other highly inelastic demands, especially education expenses in Korea. According to the National Statistical Office (NSO) Wednesday, the nation's households spent an average of 299,502 won on education in the first quarter of this year, calculated in real terms. The amount is almost similar to 301,699 won for a year ago, which is surprising as the overall expenditures dipped 6.8 percent during the period due to the global financial crisis. As a result, the proportion of education costs in total expenditure jumped to 15.6 percent over the January-March period, from 14.7 percent last year. "Despite the reduced expenditure, high education costs were sustained. This is hard to believe because even consumption of food substantially fell during the period," an NSO official said. The spending on food plunged 13.6 percent over the same period from 287,261 won to 248,203 won on average. "Education-obsessed Korean parents appear to have eaten less so as to school their children. Because they would not cut the cost out of their overall income or expenditure, it might be categorized as a fresh factor in Engel's coefficient," he said. Under a traditional classification, the coefficient went down to 13 percent during the first quarter, from 14 percent a year before, defying conventional wisdom that the figure goes up in hard times. When education costs are added to food, however, the coefficient remained almost flat from 28.7 percent in 2008 to 28.6 percent this year. KB Securities analyst Jeong Seo-hyun expects the inelasticity of education costs will continue. "Korean parents typically put aside education fees even ahead of buying food. In my view, tutoring costs are the most rigid and inelastic here," Jeong said. "If you cannot scale down the costs in your budget, it is practically equal to food. Accordingly, the concept of a new Engel's coefficient featuring both food and education costs makes sense to me," she said. voc200@koreatimes.co.kr