Engel’s Law Explained

Quick Definition: Engel’s Law states that the proportion of spending on food decreases as incomes rise.

What is Engel’s Law?

Engel’s Law is named after the statistician Ernst Engel, who was the first to investigate the relationship between income and spending on food in 1857.

The law states that as income rises, the proportion of income that is spent on food decreases. This proportion, also called the Engel’s Coefficient, means that consumers increase their spending on food by a smaller amount than the increase in income. For example, a household which sees their income double is unlikely to double their spending on food.

What is its application?

The law implies that poor households spend a greater proportion of their income on food than higher-income households. When the costs of food increase, it will hit the poorest the hardest. This is because they already spent a large proportion of their income on food so when food prices increase further, they may not be able to feed themselves adequately.

Engel’s law can also be used as an indicator of living standards in different countries. If the Engel coefficient is high, it means the country is poorer and has a lower standard of living. The United Nations (UN) uses the Engel coefficient to show living standards:

  • A coefficient above 59 percent represents poverty
  • 50-59 percent, indicates barely meeting daily needs
  • 40-50 percent, a moderately well-off standard of living;
  • 30-40 percent, a well-to-do standard of living;
  • below 30 percent, represents a wealthy life.

Key terms

  • Income – This is the money people earn from wages, dividends and rents.
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