Income inequality and poverty indicators

Indicators on poverty and income inequality are based on EU statistics on income and living conditions (EU-SILC). They represent an essential tool to prepare the European Semester (the annual cycle of economic policy coordination between EU countries).

Efforts for improving the timeliness of EU-SILC data are ongoing and significant progress has been done with the new EU regulation 2019/1700. However, the information on income collected in EU-SILC refers to the previous year and therefore monetary poverty and inequality indicators will always have a certain time lag – at least one year.

Flash estimates are calculated basedon statistical or econometric model and have a release date appreciably earlier than the actual data. These estimates will complement the EU-SILC data and can be used in preliminary discussions and analysis until the final EU-SILC data become available.

To give a better overview of the evolution in income distribution, these are complemented by the changes in the nominal income deciles (D1, D3, MEDIAN, D7 and D9). These positional indicators are more sensitive to income changes and therefore suitable as early warnings.

As these indicators are experimental, and to reflect the uncertainty involved in this kind of estimations, Eurostat decided to disseminate an uncertainty interval for the expected change, rather than point estimates.

The main approaches used are:

(1) Microsimulation

Microsimulation and ‘nowcasting’ techniques are used to estimate the evolution of income poverty and inequality. This methodology considers both the evolution of employment incomes related to the labour market changes, as well as the impact of social policies. For the latter, estimations are based on EUROMOD, the tax benefit model at EU level.

(2) Flash estimates based on national sources

For a limited number of countries, flash estimates are based either on a) national registers data or b) data collected in national surveys via one or few questions on the current income. In the latter case, this differs from usual EU-SILC income indicators as they refer to the current reference period at the time of the interview, e.g. current month. The EU-SILC collects structural detailed information on income covering the whole previous year period.