Income Research Paper Series – Research Paper
Low Income Lines, 2013-2014
Low income measures
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What is the LIM?
For the purpose of making international comparisons, the LIM is the most commonly used low income measure. In simple terms, the LIM is a fixed percentage (50%) of median adjusted householdNote 1 income, where “adjusted” indicates that household needs are taken into account. Adjustment for household sizes reflects the fact that a household’s needs increase as the number of members increases. Most would agree that a household of six has greater needs than a household of two, although these needs are not necessarily three times as costly.
The LIMs are calculated three times for each year; with market income, before-tax income, and after-tax income drawn from an annual survey of household income.Note 2 Because a new set of LIMs is calculated each year using new data, they do not require updating using an inflation index. Unlike the low income cut-offs, which are derived from an expenditure survey and then compared to an income survey, the LIMs are both derived and applied using a single income survey.
How is the LIM calculated?
In order to calculate the LIMsNote 3, first calculate “equivalent household income” for each household by dividing household income by its “adjusted size”, that is the square root of the number of persons in the household. Next, assign this adjusted household income to each individual in the household. Then determine the median of this “equivalent household income” over the population of individuals, that is the amount where half of all individuals will be above it and half below. The LIM for a household of one person is 50% of this median “equivalent household income”, and the LIMs for other sizes of households are equal to this value multiplied by their “equivalent household size”.