Quality of life indicators - material living conditions
- Data from October 2013. Most recent data: Further Eurostat information, Main tables and Database.
This article is part of the Eurostat online publication Quality of life indicators, providing recent statistics on the quality of life in the European Union (EU). The publication presents a detailed analysis of many different dimensions of quality of life, complementing the indicator traditionally used as the measure of economic and social development, gross domestic product (GDP).
The present article focuses on the first dimension of the '8+1' quality of life indicators framework, material living conditions. Quality of life, even for those dimensions beyond the purely material, is constrained by economic conditions, households’ command over resources and commodities. As material resources can be transformed into well-being in line with each individual’s preferences and capabilities, material living standards should not just be viewed in quantitative monetary terms, but also in a wider quality of life context.
- 1 Main statistical findings
- 2 Data sources and availability
- 3 Context
- 4 See also
- 5 Further Eurostat information
- 6 Notes
Main statistical findings
Material living conditions in the context of quality of life
Quality of life, even for those dimensions that reach beyond the material side, is constrained and shaped in fundamental ways by economic conditions that reflect households’ command over resources and commodities. Material resources are only the means to be eventually transformed into well-being, according to each individual’s preferences, values, free will and capabilities . In this sense, economic conditions, while not reflecting quality of life per se, nevertheless provide a framework to measure the potential of individuals and households to achieve and ensure their own self-deﬁned well-being. Material living standards should be viewed in this wider context, rather than constrained only by what can be directly measured in monetary terms.
While gross domestic product (GDP) is mainly a measure of economic activity, it has very often been used as an indicator of economic well-being, and especially of a population’s material living standards. An economy’s performance from the macro-economic perspective is certainly crucial as regards the general, overall level of a society’s material well-being. Nevertheless, material living standards, albeit constrained by the level of overall economic performance, are more closely associated with real household income and consumption. It is this emphasis on a household and income-oriented perspective (complementing the market production-oriented perspective of GDP) that may provide a more in-depth insight into the material dimension of quality of life. Moreover, while average income and consumption metrics are meaningful (and relatively easily calculated through macroeconomic measures in the framework of national accounts), their distribution and fluctuations may be unevenly shared across different groups or distorted by extreme values. In contrast to macroeconomic estimations, household-oriented statistical surveys facilitate the estimation of median values, which are less prone to such distortions. Furthermore, in addition to using medians rather than means, indicators that reflect the actual distribution of material resources within a population are essential for more in-depth analysis.
Material living conditions, therefore, have to be simultaneously assessed in several complementary subdomains. Monetary ‘poverty indicators’ reveal how large is that part of society facing difficulties in achieving the living standards deﬁned formally or informally by society as a whole to be the minimum decent ones, and are indicators of a relative nature. This means that within this approach the standard for defining who is poor (the equivalised median income) is defined at country level and it can differ between Member States. ‘Inequality indicators’ reflect the distribution of income across society’s economic groups. Finally, indicators on ‘material deprivation’ and ‘housing conditions’ directly measure specific different and complementary aspects of living conditions, and can be regarded as indicators of poverty of an absolute type (that use the same standard for any society). The indicators selected for this section can be used as indicative proxies for assessment of the overall, inherently multi-faceted, level of material living conditions.
The concept of equivalised disposable income is used to reflect the fact that incomes of individuals are shared in a household and usually help to achieve economies of scale. A person’s equivalised disposable income is the sum of all income from all different sources acquired by all members of the person’s household, divided by an equivalised household size, according to a standard scale, to take into account the composition of the household in terms of number of adults and children.
Median equivalised disposable income of a country (or a group or demographic or socio-economic stratum) is in a way representative of the population’s standard of living in the country (or group etc.). Since income distribution is often characterised by extreme outliers, in particular in the high income groups, the use of the median — rather than mean values — ensures a more accurate estimation of a representative level. It must also be noted that equivalised disposable income is an indicator calculated both before and after social transfers (i.e. including pensions, allowances and welfare benefits). This article, as do most Eurostat publications, uses the version after social transfers.
For cross-country comparisons, however, income expressed in national currency would be misleading (even in the case of a common currency or after conversion through exchange rates) given the difference in price levels between different economies. To ensure comparability purchasing power parities (PPPs) are calculated and factored in. Accordingly, income estimations are further converted into purchasing power standard (PPS) units, i.e. a virtual currency, a unit of which has the same purchasing power regardless of each country’s price level.
In the EU-28 in 2011, median disposable income varied widely from 3 556 PPS a year in Romania to 26 669 PPS in Luxembourg. An almost clear geographical divide can be observed. Median income is higher (over 16 000 PPS) in the Nordic and western countries and Cyprus. It is considerably lower (under 10 000 PPS) in the Baltic and eastern Member States, which joined the EU after 2004, and in Portugal. Income in the major part of the Mediterranean countries lies in the range of 10 000 PPS to 16 000 PPS.
Income distribution and inequality
While median disposable income is a useful indicator of the average citizen’s purchasing power (and therefore indicative of overall material living standards), it is its distribution that finally determines who has access to the goods and services produced within the economy. But there is more to income distribution than mere allocation of the wealth produced. Income differences are often evaluated in terms of fairness according to values specific to each society. When experienced as inequality, the impact of such differences on people’s quality of life, as they subjectively perceive them, exceeds the actual objectively measurable difference in material living conditions. The self-perception of economic status and material living conditions is, in many ways, a relative concept, as people tend to compare them with those of their peers, and adjust what they experience as their needs accordingly. Beyond the economic implications, inequality has always been a social and political issue of debate.
The income quintile share ratio, often referred to as the ‘S80/S20 ratio’, is defined as the ratio of the total income received by the top quintile (i.e. the 20 % of the population with the highest income) to that received by the bottom quintile (i.e. the 20 % of the population with the lowest income). For example, an S80/S20 ratio of 6 means that those at the top of the income scale earn on average six times more than those at the bottom. While it does not convey information on the distribution of income across all economic groups, it is a convenient way to compare inequality over time or across countries.
In 2011, the S80/S20 income quintile share ratio in the EU-28 was 5.1. Nordic countries (with the exception of Denmark) are the most egalitarian, together with the Czech Republic and Slovenia, with ratios in the range of 3.3 to 3.7. Inequalities are more sharp (ranging generally from 5.3 to 6.6) in the Baltic and Balkan states, and in southern Europe, where Spain’s 7.1 is the most acute. With the notable exception of the UK (5.3) most western countries have moderate inequality levels.
It is interesting to note a general trend in Europe whereby the richer a country is per capita the lower the level of inequality, although the direction of the causality (or even the existence thereof) is not always clear. It may be that richer countries can afford more efficient welfare states and income re-distribution policies. On the other hand, the nature of historical, societal and institutional development may also act to facilitate both economic growth and more even income distributions.
Inequality decreases among the elderly: in the EU-28 in 2011, the S80/S20 ratio was 5.3 for people aged less than 65, and 4.1 for over 65s. This trend can be observed in most EU countries, with the exception of Croatia, France and Sweden, where the difference between the two age groups is negligible. In Austria, Cyprus, Slovenia and Switzerland, income inequality is higher among those over 65, but only slightly. These discrepancies in inequality ratios for working and retirement age populations are significantly wider in the south (Greece, Italy and Spain), but also in the Baltic states (Estonia, Latvia, Lithuania) and some Eastern countries (Bulgaria and Romania), where the S80/S20 ratio falls significantly after the age of 65.
The reasons may vary. For the southern European states, one possible reason for the flattening of income inequalities among retired people could be the less than adequate income replacement rates of pension systems. For the Baltic and eastern states, one possible explanation might be that the income distribution for this generation of pensioners could be mirroring the possibly flatter income distributions of the political regimes under which they spent most of their working life. In any case, further research is needed to verify these hypotheses.
Risk of poverty
While poverty is an intuitively familiar concept and policy target, its statistical measurement raises methodological difficulties, especially when examined as a quality of life dimension. The intuitive meaning of poverty, i.e. the practical difficulty to satisfy basic needs and achieve a decent living standard, increasingly acquires both a multi-dimensional nature and a relative perspective as societies grow economically. The achievement of this minimum living standard in a society can be the result of the interplay between distinct monetary dimensions, such as consumption patterns and income and wealth resources. Also, it varies among different societies — or even communities — and is constantly redefined by changing economic conditions.
The issue of poverty measurement is a complex one, not only because of the difficulties in defining it unambiguously. Ideally all three dimensions (i.e. income, consumption, and wealth) should be measured using the same data source, in order to better identify vulnerable populations. Moreover, statistical poverty measurement can be based on one of two approaches: absolute (i.e. against a predefined set of basic needs); or relative (i.e. against an average level that varies from one society to another). In addition, both objective and subjective indicators should be used. Consequently risk of poverty is a relative and objective indicator of poverty, while severe material deprivation is an absolute and objective one. In contrast, measures of economic insecurity (such as the ability to face unexpected financial expenses) are subjective measures, which can be used as proxies for wealth.
In Europe, the relative approach based on income and including social transfers is used to reflect the notion that poverty is related to social exclusion. It refers to economic conditions under which a person cannot afford to participate fully in the society in which they live, as described for example in the 2004 Joint Report by the Commission and the Council on social inclusion. According to this approach, for each country a person’s risk-of-poverty threshold is conventionally set at 60 % of the national median equivalised disposable income. Since it is directly related to median disposable income, the monetary value of this risk of poverty threshold not only varies between countries, but also over time for each specific country. Even when expressed in purchasing parity standard (PPS) units to alleviate the effect of differences of price levels in different countries, the variation persists.
This indicates the relative nature of this statistical measure: risk of poverty is deﬁned in comparison with the overall income level in each society. It reflects poverty as experienced by a person when comparing their economic status with that of their fellow citizens, and should not be used for country comparisons in a superficial way. A given country demonstrating a higher percentage of its population at risk of poverty may nevertheless demonstrate considerably higher overall real income levels, even for the population lying below the risk of poverty threshold. For example, in 2011 the Czech Republic had a very low risk of poverty rate of 9.8 % (considerably lower than the EU-28 average of 16.9 %) at a threshold of 5 915 PPS (or 4 471 €). At the same time, Germany had a higher at risk of poverty rate of 15.8 %, but at a poverty threshold more than double — 10 945 PPS (or 11 426 €).
Risk of poverty measures based on this relative threshold should not, however, be treated as mere inequality measures. Inequality is about differences in income across the whole of the income distribution; relative poverty is about the number of people who have low incomes relative to those in the middle of the income distribution. There is no logical or arithmetic reason why there should always be significant shares of people in relative poverty as currently defined (people with an income below 60 % of the country’s median), and the two indicators capture different aspects of the income distribution within a society.
The same effect is to be seen in variations of the risk of poverty threshold over time, especially in times of rapid change in economic conditions, such as those seen during the recent economic and financial crisis. In Greece, the risk of poverty threshold rose from 5 306 € in 2004 to 7 178 € in 2010, and fell back to 6 591 € in 2011. The effect of economic growth (positive or negative) on actual poverty, as statistically defined, depends on the distribution of these changes among the different economic groups of the population. Thus, a fall in overall income levels and therefore of the median disposable income will lead to a lower threshold. Consequently, and counter-intuitively, this may lead to lower risk of poverty rates, even masking real increases in the number of people who are finding it difficult to make ends meet. Similarly, an increase in median income may lead to a rise in poverty rates, if this increase is not uniformly shared among economic groups. For this reason, for comparisons over time, it may also be advisable to anchor the threshold at a specific point in time (i.e. a past reference year) during crises or other periods of major change in the economic environment.
Despite these limitations, the main advantage of the at risk of poverty (AROP) indicator is that it takes into account the fact that, in periods of growth, some citizens do not benefit from it and remain relatively poor, as compared with the rest of society. As such, the percentage of the population below 60 % of the median equivalised income, i.e. population at risk of poverty, is used as a component of the main indicator to monitor the European Union’s progress towards the fundamental policy target of achieving at least 20 million fewer people in poverty or social exclusion by 2020. The most recent EU-28 average at the time of writing the article (2011) is 16.9 %, with considerable variation from high risk of poverty countries with rates at or above 20 % to low risk of poverty countries at or below 10.0 %. However, because of the economic and financial crisis, the situation in Europe has deteriorated. In the period from 2008 to 2011, the number of people below the risk of poverty threshold in EU-27 countries increased by 2.6 million, and reached a total of 83.7 million people.
This was mainly due to the situation in the countries that are part of the euro area, where the increase was twice as high, from 16.0 % and 51.7 million people in 2008, to 16.9 % and 55.2 million people in 2011, while the increase in other Member States was modest (from 17.3 % to 17.5 %, respectively). The effects of the crisis can be seen more clearly using AROP anchored at a fixed point in time — using the monetary threshold levels of 2008 updated for inflation. Apart from comparability over time, as described above, rates of risk of poverty, with reference to a fixed point in time, may also provide a better insight, especially in the case of the economic circumstances of a crisis: a person’s subjective poverty is perceived not only in relation to peers at a specific time, but also in relation to a previously attained standard of living.
While cross-country comparisons may not be straightforward to interpret, given the effects of inflation, analysis of the indicator for specific groups in the same country is revealing. It may help identify the most vulnerable groups in society and formulate corresponding policies. For example, for most countries, at risk of poverty rates for single-parent households are significantly higher than for the overall population: the EU-28 average rate in 2011 was as high as 34.6 %. It is worth noting that the rate for this group is high even for countries where the overall rate is low. The same holds true for households with children and very low work intensity (67.7 % at EU-28 level for people less than 60 years old). Often there is also a considerable disadvantage correlated with educational level: in EU-28 in 2011, risk of poverty was a threat for 26.7 % of people aged 18 to 64 with a low educational level, compared with just 7.5 % for those in the same age group but with a high educational level.
The persistent at-risk-of-poverty rate shows the percentage of the population living in households where the equivalised disposable income was below the at-risk-of-poverty threshold for the current year and for at least two out of the three preceding years. This indicator reflects that part of the population for which risk of poverty is chronic and therefore the accompanying risk of social exclusion more acute.
In 2011, 10.0 % of the population was at persistent risk of poverty in the EU-28. This chronic risk of poverty was most prevalent in Bulgaria and Romania, and significantly higher than the EU average in Italy, Malta, Portugal and Spain. At the other end of the spectrum, persistent poverty rates were well below the EU average in the Czech Republic and Sweden. What is particularly noteworthy is the high risk of persistent risk of poverty in Germany, one of the EU countries with the lowest overall and youth unemployment rates in Europe. More specifically, the persistent at-risk-of-poverty rate in Germany at the end of 2011 was 10.4 %, not very different from some southern (Cyprus, Greece, Spain) and Baltic states (Estonia, Latvia).
Material conditions: severe material deprivation, structural problems of the dwelling
While risk of poverty is based on a relative poverty definition, severe material deprivation provides a necessary complementary view, based on objective and absolute criteria. Material deprivation refers to a state of economic strain, defined as the enforced inability to afford indicative material standards, considered by most people to be desirable or even necessary to lead an adequate life. These include: unexpected expenses; a one-week annual holiday away from home; a meal involving meat, chicken, fish or protein equivalent every second day; the adequate heating of a dwelling; durable goods like a washing machine, colour television, telephone or car; and payment of rent, mortgage or utility bills. The severe material deprivation rate is defined as the rate of the population faced with the enforced inability to afford at least four of the above-mentioned items.
One of the most decisive factors having an impact on the risk of being materially deprived is education. In all EU countries, the percentage of people affected by severe material deprivation is lower among those who hold tertiary education degrees and much higher among those who have only completed compulsory education, or less. In fact, the share of the population with high educational attainment who are materially deprived is almost zero in the Czech Republic, Finland, Luxembourg and Sweden. On the other hand, two out of three Bulgarians with low educational attainment live in conditions of severe material deprivation. In contrast, the degree of urbanisation does not appear to be a determining factor in most EU Member States. Only in Bulgaria, Hungary, Latvia and Romania do people who live in thinly populated areas face a significantly higher risk of material deprivation.
Housing conditions have an important impact on quality of life. Low housing quality is associated with lower well-being and psychological stress. Therefore, indicators measuring them are a necessary complement to material deprivation when assessing material conditions. Several aspects of an objective nature are important such as the existence of structural problems of the dwelling (damp walls, leaking roof etc.), overcrowding and the lack of basic amenities (toilet and shower or bath). In this article, for the purpose of illustrating housing conditions for the European population, we have chosen to analyse the first indicator — structural problems of the dwelling — as it is the most comparable one. A subjective indicator on satisfaction with housing conditions is being collected in SILC 2013 and will complement the objective indicators described above.
Overall, in the EU-28 in 2011, 15.5 % of Europeans lived in low-quality housing conditions. The existence of structural problems with the dwelling is a particularly acute problem for vulnerable groups of the population and especially for single-parent households with dependent children: in Europe, almost one in four persons (23.2 %) in this group lives in dwellings which have this type of problem. In most European countries, the percentage of people belonging to this demographic group who do not live in decent housing conditions exceeds the corresponding country average for the overall population by a significant margin. This problem is particularly acute in Belgium (42.8 %) and Slovenia (39.1 %), but also in several western European countries, including Austria, Denmark, Germany, Italy, Portugal and UK, where rates exceed or are very near the EU-28 average.
In comparison, households with two adults and at least one of them over 65 years old, who live in dwellings with structural problems, are consistently fewer than the average in most European countries. Interesting exceptions are Croatia, Greece and Malta. While single-parent households with dependent children in these countries are not disadvantaged as regards decent housing (as compared with both country and European averages), it is senior citizens who are considerably more disadvantaged.
Making ends meet, a subjective indicator of poverty
Poverty and social exclusion may also be measured in a subjective way, such as the self-reported difficulty to make ends meet, which provides a measurement of poverty in terms of the household’s experienced feeling of poverty. The proportion of the EU population living in households that have a (great) difficulty to make ends meet rose only slightly between 2008 and 2011, despite the economic downturn. The steepest rises, listed by order of magnitude, were recorded in: Latvia (but the figures are not entirely comparable because of a break in series), Hungary, Lithuania, Greece, Ireland, and Estonia. In contrast, self-reported difficulty in making ends meet decreased in Bulgaria and, interestingly enough, in Portugal, Spain and Italy, even though the latter three were hit by the economic and financial crisis.
The European economic model of social transfers has proved quite successful in reducing poverty and social exclusion. Nevertheless, there are still wide discrepancies and inequalities in terms of material living standards, both between EU Member States, as well as within them. In 2011, more than one in four Romanians faced severe material deprivation, while less than 1.5 % of citizens in Luxembourg and Sweden had the same problem. When it comes to variations within Member States, one illustration is that in Hungary households with low work intensity and dependent children were twice as likely to be at risk of poverty than households with low work intensity and no children.
Despite these sharp differences, some clear patterns emerge. The risk of poverty and social exclusion is much higher in southern and Eastern Europe than in the western and northern European states. Income inequality is also less prevalent in central Europe, Scandinavia and Benelux than in southern and Eastern Europe and the Baltics. Almost throughout Europe, however, inequality of income decreases in older age groups, while the risk of severe material deprivation is sharply reduced for those who pursue higher education studies. And although there are some exceptions, the general trend in Europe is that nations with lower material inequalities are also characterised by higher median incomes.
Data sources and availability
Material living conditions refer to an individual’s standard of living as expressed through three different sub-dimensions: income; consumption; and material conditions. The data used in this section are primarily derived from EU-SILC. EU-SILC is carried out annually and is the main survey that measures income and living conditions in Europe, and is the main source of information used to link different aspects of Quality of Life at the household and individual level.
Income refers to income levels (‘Mean and median income by age and sex’), monetary poverty (‘at-risk-of-poverty rate (AROP) by poverty threshold, age and sex’, and ‘at-risk-of-poverty rate anchored at a fixed moment in time (2008) by age and sex’), the distribution of income (‘S80/S20 income quintile share ratio by sex and selected age group’), and ‘satisfaction with financial situation of the household’ (under development in SILC 2013).
Material conditions refers to material deprivation (‘severely materially deprived’ people and ‘inability to make ends meet’) and housing conditions (‘share of total population living in a dwelling with a leaking roof, damp walls, floors or foundation, or rot in window frames or floor, overcrowding and its positive counterpart, share of people living in under occupied dwellings) lack of bath or shower and toilet’) and ‘satisfaction with accommodation’ (under development in SILC 2013).
Indicators on consumption are to be developed. These include: ratio of basic expenses to total household budget higher than 75 %, consumption of government services, and non-market services.
We use material resources, according to our own values and priorities, to pursue our own self-defined well-being. Our quality of life is, therefore, fundamentally constrained by our own access to the material resources we need or wish, even if only as material means to be transformed into well-being. In this perspective, economic conditions and, in particular, material living conditions, while not reflecting quality of life per se, provide a framework for the measurement of the potential of individuals and households to achieve it.
The importance of having access to material resources is recognised at the European political level. Reducing poverty, by lifting at least 20 million people out of the risk of poverty or social exclusion, is one of the five EU headline targets of Europe 2020, a strategy for smart, sustainable and inclusive growth. People at risk of poverty or social exclusion (AROPE) are those who are in at least one of the following situations: being at risk of poverty after social transfers; being severely materially deprived; or living in households with very low work intensity. The first two indicators are analysed in this article, as they are part of the Quality of Life framework.
- All articles on living conditions and social protection
- Quality of life indicators (online publication)
Further Eurostat information
- Income distribution and monetary poverty (t_ilc_ip)
- Monetary poverty (t_ilc_li)
- Monetary poverty for elderly people (t_ilc_pn)
- In-work poverty (t_ilc_iw)
- Distribution of income (t_ilc_di)
- Income distribution and monetary poverty (t_ilc_ip)
- Material deprivation (ilc_md)
- Material deprivation by dimension (t_ilc_mddd)
- Housing deprivation (t_ilc_mdho)
- Environment of the dwelling (t_ilc_mddw)
- Material deprivation (ilc_md)
- Income distribution and monetary poverty (ilc_ip)
- Monetary poverty (ilc_li)
- Monetary poverty for elderly people (ilc_pn)
- In-work poverty (ilc_iw)
- Distribution of income (ilc_di)
- Material deprivation (ilc_md)
- Material deprivation by dimension (ilc_mddd)
- Economic strain (ilc_mdes)
- Economic strain linked to dwelling (ilc_mded)
- Durables (ilc_mddu)
- Housing deprivation (ilc_mdho)
- Environment of the dwelling (ilc_mddw)
- Income distribution and monetary poverty (ilc_ip)
Source data for tables, figures and maps(MS Excel)
- Abdallah, S. and Stoll, L. (2012), Review of individual-level drivers of subjective well-being, produced as part of the contract ‘Analysis, implementation and dissemination of well-being indicators’, Eurostat.