Statistics Explained

Archive:Living standard statistics

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Data extracted in March 2016. Most recent data: Further Eurostat information, Main tables and Database. Planned update: June 2017.

This article focuses on living standards in the European Union (EU), as measured by the median equivalised disposable income. Living standards increased or remained stable in twenty-four EU Member States and fell in four EU Member States in 2014 compared with a year earlier, after adjusting for inflation. In more than half of the EU Member States the median income fell most for the people in employment and least for the unemployed.

Income decreased in the bottom quintile of the income distribution in half of the EU Member States. Income inequality increased in 22 EU Member States because the higher income quintiles decreased less or increased more than the lower income quintiles. Looking at the material conditions of households in 2014, 9.5 % of the EU population reported that they could not afford a meal with meat, chicken, fish or a vegetarian equivalent every second day. This represents a decrease of 0.9 percentage points (pp) compared with 2013.

All figures are based on the latest Statistics on income and living conditions (EU-SILC) data collected in 2015.

Table 1: Median equivalised disposable income in 2014 and change 2014–13
Source: Eurostat (ilc_di03) and (prc_hicp_aind)
Figure 1: Change in median income after adjusting for inflation, 2014 compared with 2013 (%)
Source: Eurostat (ilc_di03) and (prc_hicp_aind)
Table 2: Real change in median disposable income by economic status, change 2014–13 (%)
Source: Eurostat (ilc_di05) and (prc_hicp_aind)
Table 3: Change in equivalised disposable income for first and fifth quintiles, change 2014–13
Source: Eurostat (ilc_di01) and (prc_hicp_aind)
Figure 2: Change in income in the five quintiles in real terms, largest increases and decreases in inequality, change 2014–13 (%)
Source: Eurostat (ilc_di01) and (prc_hicp_aind)
Figure 3: Inability to afford a meal with meat, chicken, fish or a vegetarian equivalent, 2013 and 2014 (%)
Source: Eurostat (ilc_mdes03)

Main statistical findings

Household disposable income corresponds to income from market sources and cash benefits after deduction of direct taxes and regular inter-household cash transfers. It can be considered as the income available to the household for spending or saving. The living standards achievable by a household with a given disposable income depend on how many people and of what age live in the household.

Household income is thus ‘equivalised’ i.e. adjusted for household size and composition so that the incomes of all households can be looked at on a comparable basis. Equivalised disposable income is an indicator of the economic resources available to a standardised household. For a lone-person household it is equal to household income. For a household comprising more than one person, it is an indicator of the household income that would be needed by a lone person household to enjoy the same level of economic wellbeing. This income concept, based on the assumption of income sharing within the household, and of economies of scale resulting from living together, is used in this article.

The latest data, collected during 2015, include income for the reference period from 1 January to 31 December 2014 and non-income variables referring to 2013.

The median is the income value which divides a population, when ranked by income, into two equal-sized groups: exactly 50 % of people fall below that value and 50 % are above it. When analysing income, this is the measure most commonly used to represent average income because the highly skewed nature of the income distribution can lead to the very high incomes of a few having a disproportionate impact on the mean. Poverty thresholds are calculated on the basis of the median equivalised disposable income.

Median equivalised disposable income in national currencies fell in three EU Member States in nominal terms (without adjusting for inflation) in 2014 compared with a year earlier (see Table 1).

The sharpest drop occurred in Cyprus, where median income fell by 10.2 %. It increased the most in Bulgaria (11.7 %), Latvia (10.3 %), Estonia (8.8 %) and Malta (5.4 %). However, nominal changes do not tell the whole story about income changes, as inflation should also be considered. Median incomes have thus been adjusted by the annual rate of change in the Harmonised Index of Consumer Prices (HICP) for 2013 to obtain real changes. After adjusting for inflation, median equivalised disposable income in national currencies fell in four EU Member States in 2014 compared with a year earlier (see Table 1 and Figure 1).

The sharpest drop in real terms occurred in Cyprus, where the median equivalised disposable income fell by 9.0 % followed by Greece (– 7.0 %), Spain (– 1.7%) and the Netherlands (– 0.1 %). Median income stagnated in real terms in Germany and Italy and increased in real terms by less than 3.0 % in Belgium, Ireland, France, Luxembourg, Portugal, Slovenia, Slovakia, Finland, the Czech Republic, Denmark, Lithuania, Sweden and the United Kingdom. It increased by more than 3.0 % in Bulgaria (+ 15.1 %), Latvia (+ 10.7 %), Estonia (+ 9.2 %), Hungary (+ 5.3 %), Malta (+ 4.9 %), Romania (+ 3.9 %), Austria (+ 3.6 %), Croatia and Poland (both + 3.5 %). Increases or decreases in median income can essentially be explained by changes in family situation, employment situation, the welfare system and taxes.

Median income fell most for the unemployed

The activity status presented in the analysis is self-declared as measured by EU-SILC. Data are presented for persons who declared their main activity status as being: employees, employed persons other than employees (e.g. self-employed), retired and unemployed.

The median equivalised disposable income for a specific category of persons has to be regarded in the household context as it is influenced also by the income of other persons in the household.

In 11 EU Member States, median equivalised disposable income fell in real terms for the unemployed in 2014 compared with 2013 (see Table 2). It fell by more than 7 % in Finland (– 7.3 %), Cyprus (– 8.0 %) and the United Kingdom (– 10.0 %). Median equivalised disposable income for the unemployed improved in the 17 remaining EU Member States, with Latvia (+ 14.3 %), Bulgaria (+ 11.1 %) and Estonia (+ 11.0 %) displaying the highest increases.

The decrease in median income for the unemployed can partly be explained by the rise in long-term unemployment and by the fact that in most countries the unemployed only have access to unemployment benefits for a limited period of time. Changes in the benefit system in some countries could also be part of the explanation.

For the employees, the median income fell most in Cyprus (– 8.3 %), Greece (– 5.5 %) and Slovakia (– 1.1 %). On the other hand, the highest increases (by more than 5 %) were recorded in Bulgaria (+ 12.2 %), Estonia (+ 11.9 %), Latvia (+ 8.3 %) and Hungary (+ 6.8 %).

Income had fallen most for employed persons other than employees in Estonia (– 13.8 %), Greece (– 11.2 %) and Hungary (– 9.5 %).

For retired people, the smallest income change, compared to the other categories was observed in France (– 0.4 %), Germany (– 0.1 %), Italy (+ 0.4 %) the Czech Republic and Spain (+ 0.7 % each).

Effects of income changes on income inequalities

Median equivalised disposable income does not give a complete picture of changes across the income distribution. Table 3 shows the change in real terms between 2013 and 2014 for the first and fifth quintiles of the income distribution. As a basis for calculations, the median of the interval covered by each quintile is used, being a measure of the average situation in each quintile.

In the bottom quintile, income decreased from 2013 to 2014 in 13 EU Member States after adjusting for inflation. The sharpest fall (more than 7 %) occurred in France, where the median income decreased by 9.0 %, followed by Latvia and Slovenia (– 7.8 % each). It increased the most in Lithuania (+ 11.7 %), the Czech Republic (+ 8.5 %) and Luxembourg (+ 7.6 %).

In the top quintile, income only decreased in six EU Member States. Drops were registered France and Cyprus (both – 0.1 %), Spain (– 0.7 %), Italy and Croatia (both – 2.0 %) and Latvia (– 6.6 %). It increased the most in Ireland (+ 13.9 %), the Czech Republic (+ 12.5 %) and Luxembourg (+ 7.9 %).

All in all, income inequality rose in 22 EU Member States, because income in the fifth quintile decreased less or increased more than in the first quintile. In order to explore in greater depth the effects of income changes on income inequalities we need to gain a better understanding of the income dynamics in different parts of the income distribution. For this purpose we divided countries into groups sharing similar characteristics in terms of changes in income in the first four quintiles between 2013 and 2014. [1]

In the first group (see Figure 2) composed of Cyprus, Spain, Greece, Romania, Portugal, Finland, the Netherlands, Germany, Slovenia, Italy, Belgium, the Czech Republic, Denmark, Sweden, the United Kingdom, Estonia, Austria and Lithuania, income decreased most in the lower quintiles and decreased less (or increased) in the upper quintiles, thereby contributing to an increase in income inequality. This pattern was particularly clear (i.e. systematic over all quintiles) in Estonia, Spain and Romania. In these three EU Member States, the higher income quintiles evolved much more favourably than the lower income quintiles, leading to an increase in the income inequality gap.

In the second group (see Figure 2), composed of Slovakia, France, Ireland, Luxembourg, Croatia, Latvia, Poland, Hungary, Malta and Bulgaria, income decreased most (or increased least) for the highest quintiles and decreased least (or increased most) in the lower quintiles, thereby contributing to a decrease in income inequality. This pattern was particularly visible in Luxembourg, Latvia and Croatia.

Material deprivation

Around one tenth of EU citizens cannot afford a meal with meat, chicken, fish or a vegetarian equivalent every second day. Material deprivation complements the income perspective by providing an estimate of the proportion of people whose living conditions are severely affected by a lack of resources.

Among material deprivation items, the inability to afford a meal with meat, chicken, fish or a vegetarian equivalent every second day showed one of the greatest changes in 2014 at EU-28 level compared with 2013 (see Figure 3). In 2014, 9.5 % of the EU population reported that they could not afford this item — a decrease of 0.9 pp compared with 2013 (10.4 %).

Looking at the EU Member States it appears that material deprivation is in some cases correlated with the decrease in income in the lowest quintiles. In 2014, the percentage of people reporting that they could not afford a meal with meat, chicken, fish or a vegetarian equivalent every second day ranged from 3.0 % or less in the Netherlands, Finland, Luxembourg, Denmark and Sweden to 39.5 % in Bulgaria. The figures for the FYR of Macedonia and Serbia were also high, at 52.2 % and 26.1 % respectively.

Compared with 2013, the percentage of people reporting that they could not afford such a meal every second day increased by 0.7 pp in Portugal and by 0.6 pp in Malta and at the same time it fell by 11.6 pp in Bulgaria (although a break in the time series could in part explain this drop), 6.7 pp in Hungary and 4.2 pp in Latvia.

Data sources and availability

The reference source for statistics and indicators on income and living conditions is EU-SILC (EU statistics on income and living conditions). This survey is organised under the Framework Regulation 1177/2003. EU-SILC is the main source of information used in the European Union to develop indicators monitoring poverty and social exclusion.

Definitions

Income: Gross income includes income from market sources and cash benefits. The former includes employee cash or near-cash income, non-cash employee income, cash benefits from self-employment, income from rental of property or land, regular inter-household cash transfers received, interest, dividends, profit from capital investments in unincorporated businesses, income received by people aged under 16 and pensions from individual private plans. Cash benefits are the sum of all unemployment, old-age, survivor’s, sickness and disability benefits; education-related, family/children-related and housing allowances; and benefits for social exclusion or those not elsewhere classified. Direct taxes and regular inter-household cash transfers paid are deducted from gross income to give disposable income.

The current definition of total household disposable income used for calculating the indicators presented excludes imputed rent — i.e. money that the household saves on full (market) rent by living in its own accommodation or in accommodation it rents at a price that is lower than the market rent. The definition of income currently used also excludes non-monetary income components, in particular the value of goods produced for own consumption, social transfers in kind and non-cash employee income except company cars.

Income reference period: The income reference period is a fixed 12-month period (such as the previous calendar or tax year) for all countries except the United Kingdom, for which the income reference period is the current year, and IE, for which the survey is continuous and income is collected for the last twelve months. The data used in this publication are derived from EU-SILC operation 2015. The income reference period is therefore 1 January 2014 to 31 December 2014.

Equivalised disposable income: In order to reflect differences in household size and composition, the income figures are given per equivalent adult. This means that the total household income is divided by its equivalent size using the ‘modified OECD equivalence scale’ and the resulting figure is allocated to each member of the household, whether adult or children. The scale gives a weight of 1.0 to the first adult, 0.5 to any other household member aged 14 and over and 0.3 to each child below the age of 14. The equivalent size of a household that consists of 2 adults and 2 children below the age of 14 is therefore: 1.0 + 0.5 + (2 x 0.3) = 2.1. Equivalised disposable income is therefore an indicator of the economic resources available to a standardised household. For a lone-person household it is equal to household income. For a household comprising more than one person, it is an indicator of the household income that would be needed by a lone-person household to enjoy the same level of economic wellbeing.

Inflation adjustment: In order to take account of inflation in year-to-year income changes we have used the HICP (Harmonised Index of Consumer Prices). The HICP is the consumer price index as it is calculated in the European Union, according to a harmonized approach and a single set of definitions.

Self-declared main economic status: Main economic status is self-defined and acquired by means of an EU-SILC target variable. This variable captures the person’s own perception of his or her main activity at the time of the survey. It differs from the ILO concept to the extent that people’s own perception of their main status differs from the strict definitions used in the ILO classifications of employment and unemployment. For instance, many people who would regard themselves as full-time students or homemakers may be classified by the ILO criteria as employed if they have a part-time job. Similarly, some people who consider themselves ‘unemployed’ may not meet the strict ILO criteria of taking active steps to find work and being immediately available.

Income quintiles: Quintiles refer to the position in the frequency distribution. The quintile cut-off value is obtained by sorting all incomes, from lowest to highest, and then choosing the value of income under which 20 % (lower limit), 40 % (second limit), 60 % (third), 80 % (fourth) and 100 % (upper limit) of the sample are located. A quintile as such is associated with the segment boundaries between two quintiles. The first segment includes income below the lower quintile cut-off (20 %), the second segment includes income located between the lower cut-off and the second quintile cut-off, and so on. In total, there are five segments. From these segments, the median income by quintile is calculated using cut-off points of 1st, 3rd, 5th, 7th and 9th deciles that correspond respectively to the median of 1st, 2nd, 3rd, 4th and 5th quintiles.

Inability to afford a meal: The severe material deprivation rate is defined as the percentage of the population with an enforced lack of at least four out of nine material deprivation items in the ‘economic strain and durables’ dimension. Not being able to afford a meal with meat, chicken, fish (or a vegetarian equivalent) every second day is one of the deprivation items.

EU-average: EU aggregates are computed as the population-weighted averages of national indicators.

Context

At the Laeken European Council in December 2001, European heads of state and government endorsed a first set of common statistical indicators of social exclusion and poverty; these are subject to a continuing process of refinement by the Indicators Sub-Group of the Social Protection Committee. These indicators are an essential element in the Open Method of Coordination to monitor the progress made by Member States in combating poverty and social exclusion.

EU-SILC was set up to provide the underlying data for these indicators. Organised under a Framework Regulation 1177/2003, it is now the reference source for statistics on income and living conditions and for common indicators for social inclusion in particular.

Under the Europe 2020 agenda, the European Council adopted in June 2010 a headline target on social inclusion. EU-SILC is also the reference source for the three sub-indicators on which this new target is based.

See also

Further Eurostat information

Publications

Main tables

Database

Income and living conditions (ilc)
Income distribution and monetary poverty (ilc_ip)
Distribution of income (ilc_di)
Material deprivation (ilc_md) (Implementation of changes in variables)
Harmonised indices of consumer prices (HICP) (prc_hicp)
HICP (2005 = 100) — annual data (average index and rate of change) (prc_hicp_aind)

Dedicated section

Methodology / Metadata

<noprint>=== Source data for tables, figures and maps (MS Excel) ===

Other information

Notes

  1. ↑ At the time of drafting of this article, data for the fifth quintile were not available.


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