Living conditions in Europe - income distribution and income inequality
Data extracted in November 2022.
Planned article update: November 2023.
Highlights
In 2021, the 20 % of the population with the highest income received 38.2 % of disposable income in the EU Member States.
In 2021, social transfers reduced income inequality as measured by Gini coefficient among the EU population from 52.2 % to 30.1 %.
Monetary data presented in this article are shown in Purchasing power standards (PPS). A PPS is a unit that takes account of price-level differences between countries. Note that the data for the EU are calculated as population-weighted averages of national data for the EU Member States. For example, distribution of income (in income quintiles) reflects the average distribution within the Member States rather than the distribution within the EU as a whole. To take into account differences in household size and composition, the concept of equivalised disposable income (further in text disposable income) is used. It is based on expressing total net (referred to as disposable) household income in relation to the number of household members, also taking account of their age.
Full article
Key findings
Median annual disposable income highest in Luxembourg and lowest in Romania
In 2021, the median annual disposable income was PPS 18 019 per inhabitant for the EU. It varied considerably across the EU Member States and ranged from PPS 8 703 in Romania to PPS 32 132 in Luxembourg. The highest levels of median annual disposable income per inhabitant were recorded in Western and Nordic EU Member States.
People with high income received at least one-third of the total income
Across all EU Member States, the 20 % of the population with the highest disposable income (the top or fifth quintile) accounted for more than 30 % of total income, a share that in 2021 reached a peak of 46.3 % in Bulgaria. By contrast, the 20 % of the population with the lowest income (the bottom or first quintile) accounted for less than 10.5 % of total income, in all EU Member States.
Income inequality as measured by Gini coefficient above the EU average in 11 Member States
The Gini coefficient gives the extent to which the distribution of income within a country deviates from a perfectly equal distribution. A Gini value of 100 % means that only one person receives all the income in the country, while a Gini value of 0 % means that income is distributed equally across the population. In 2021, the Gini coefficient for the EU was 30.1 %. In 2021, the highest levels of inequality in terms of disposable income in the EU were experienced in Bulgaria (39.7 %), Latvia (35.7 %), Lithuania (35.4 %) and Romania (34.3 %). On the other hand, among the EU Member States, income was most equally distributed in Slovenia (23.0 %) and Slovakia (20.9 %, 2020 data).
Income of people at top income quintile was 5 times greater than those at bottom quintile
Income inequality can also be measured by the income quintile share ratio (S80/S20), which compares the income received by the 20 % of the population with the highest income (top quintile) with that received by the 20 % of the population with the lowest income (bottom quintile of the population). High values for this ratio reveal considerable disparities in the distribution of income between the upper and lower income groups. In 2021, the income quintile share ratio for the EU was 5.0, showing that, on average, the income received by the 20 % of the population with the highest income was five times higher than the income received by the 20 % of the population with the lowest income. The respective share for the EU population aged 65 years and over was 4.2 %, suggesting lower income disparities compared with the total population.
Social transfers reduced income inequalities
Social transfers cover assistance given by central, state or local institutional units and include, among others, pensions, unemployment benefits, sickness and invalidity benefits, housing allowances, social assistance and tax rebates. In 2021, social transfers reduced income inequality among the EU population. The Gini coefficient for income was 52.2 % before social transfers (including pensions), but decreased to 30.1 % after taking account of these transfers.
Income distribution
Median annual disposable income highest in Luxembourg and lowest in Romania
In 2021, the median annual disposable income was PPS 18 019 per inhabitant in the EU. Across the EU Member States, it ranged from PPS 32 132 in Luxembourg and PPS 24 560 in the Netherlands to PPS 9 375 in Bulgaria and PPS 8 703 in Romania.
Map 1 shows that the highest levels of median annual disposable income were recorded in Western and Nordic EU Member States. A median disposable income of more than PPS 20 000 per inhabitant was recorded in Luxembourg, the Netherlands, Austria, Germany, Denmark, Belgium, Sweden, Ireland, Finland and France. By contrast, the median disposable income was lower in most Southern and Eastern Member States. A median disposable income of less than PPS 10 000 per inhabitant was recorded in Hungary, Greece, Bulgaria and Romania.
People in the top 20 % of the income distribution received 38.2 % of disposable income
In 2021, 38.2 % of the disposable income in the EU Member States was attributed to the 20 % of the population with the highest income, while the 20 % with the lowest income received a 7.9 % share (see Figure 1).
In 2021, the 20 % of the population with the highest income in Bulgaria, Lithuania, Latvia and Portugal received more than 40.0 % of the disposable income within their respective countries. In most of the EU Member States, the share of the highest 20 % was in 2021 at least 35.0 % of total disposable income. Values below 35.0 % were recorded in Belgium (33.8 %), Slovenia (33.2 %) and Slovakia (31.2 %, 2020 data).
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(%)
Source: Eurostat (ilc_di01)
At the other end of the income scale, the 20% of the population with the lowest income (people in the bottom quintile) received less than 7.9 % (which was the average in the EU Member States) of the disposable income in 11 Member States. Among those Member States, shares below 7.0 % were recorded in Greece, Italy, Latvia, Spain, Bulgaria and Romania (where the lowest share of 5.6 % was recorded). Only in Czechia, Slovenia, Slovakia (2020 data) and Finland was the share of disposable income received by people in the bottom quintile greater than or equal to 10.0 %, while it was close to this level in Belgium (9.9 %) and Ireland (9.5 %).
Social transfers contributed PPS 5 602 per inhabitant to median disposable income
Figure 2 shows the overall impact of social transfers on disposable income. This information is split between transfers for pensions and other social transfers, for example, social security benefits and social assistance that aim to alleviate or reduce the risk of poverty.
(PPS per inhabitant)
Source: Eurostat (ilc_di03), (ilc_di13) and (ilc_di14)
In 2021, the median annual disposable income was PPS 18 019 per inhabitant in the EU. Median disposable income in the EU was PPS 5 602 per inhabitant higher as a result of all social transfers (including pensions) and was PPS 1 683 higher from social transfers other than pensions.
Among the EU Member States, there were considerable variations in the contribution made by social transfers to median disposable income in 2021. The largest transfers were observed in Luxembourg, where social transfers (including pensions) increased the median disposable income by PPS 9 073 per inhabitant. Social transfers (including pensions) were also relatively high in Austria (PPS 7 808) and France (PPS 7 436).
A somewhat different pattern emerges if pensions are excluded from the analysis. In 2021, social transfers other than pensions contributed more than PPS 2 500 per inhabitant to median disposable income in Belgium (PPS 3 099), Ireland (PPS 2 953), Luxembourg (PPS 2 924) and Sweden (PPS 2 662).
It is interesting to compare the level of social transfers across the EU Member States including and excluding pensions. In Estonia, social transfers including pensions in 2021 were only around 1.7 times higher than social transfers excluding pensions. By contrast, the respective ratio recorded a peak in Greece and was much higher, with the value of social transfers including pensions 7.2 times higher than social transfers excluding pensions. The next highest ratios were recorded in Portugal, Croatia and France where transfers including pensions were respectively 5.5, 4.7 and 4.5 times higher than transfers excluding pensions.
Income inequality
While median disposable income provides a measure of average living standards, excluding the potential distortion of aggregate measures such as GDP per capita, it still fails to offer a complete picture as it does not capture the distribution of income within the population and thereby does little to reflect economic inequalities. Gini coefficient and the income quantile share ratio (S80/S20), described below, are used to provide insight into income inequalities.
Income inequality as measured by Gini coefficient above the EU average in 11 Member States
In 2021, the Gini coefficient for the EU was 30.1 %. The highest income disparities among the EU Member States (with a Gini coefficient of at least 35.0 % as shown by the darkest shade in Map 2) were recorded in Bulgaria (39.7 %), Latvia (35.7 %) and Lithuania (35.4 %). A second group of Member States, with a Gini coefficient above the EU average of 30.1 % (in the range of 30.6 % to 34.3%), comprised Estonia, Germany, Malta, Greece, Italy, Spain, Portugal and Romania. At the other end of the scale, income was more evenly distributed in Slovakia (2020 data), Slovenia, Belgium and Czechia, where the Gini coefficient was less than 25.0 %.
(%)
Source: Eurostat (ilc_di12)
Income of people at top income quintile five times greater than those at bottom quintile
Income inequalities within countries may also be illustrated through the income quintile share ratio (S80/S20), which is calculated as the ratio between the share of income received by the top quintile and the share of income received by the bottom quintile. High values for this ratio suggest that there are considerable disparities in the distribution of income between upper and lower income groups.
In 2021, the income quintile share ratio for the EU was 5.0 — see Figure 3. This outlines that, on average, the income received by the 20 % of the population with the highest income was five times higher than the income received by the 20 % of the population with the lowest income.
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Among the EU Member States, the income quintile share ratio ranged from 3.0 in Slovakia (2020 data) and below 4.0 in Denmark, the Netherlands, Ireland, Finland, Czechia, Belgium and Slovenia to above 6.0 in Lithuania, Spain, Latvia and Romania, peaking at 7.5 in Bulgaria.
The distribution of income was often more equitable among older people
On the basis of the same measure, people aged 65 years and over in the EU experienced less income inequality than the total population, as their income quintile share ratio was 4.2 in 2021. This pattern of a more equitable distribution of income among older people (compared with the total population) applied in the vast majority of EU Member States. The only exceptions were Cyprus (4.2 % and 4.6 % for the total and older population respectively), Portugal, Ireland and Slovenia (5.7 %, 3.8 % and 3.2 % respectively, with the same shares for both total and older population).
Social transfers reduced income inequalities
The effect of welfare systems, in other words, pensions and other social transfers, in addressing income inequality can be demonstrated by comparing Gini coefficients before and after social transfers to provide a quantitative assessment of their redistributive impact.
In 2021, the Gini coefficient for median equivalised disposable income before all social transfers was 52.2 % in the EU, while it decreased to 30.1 % after social transfers. The impact of pensions and other social transfers on income inequality was particularly large in Germany, the Netherlands and France — where the Gini coefficient decreased by between 25.1 to 29.5 percentage points (pp) — and in Sweden where the coefficient decreased by 30.1 pp (see Figure 4). Among EU Member States, the lowest impact of pensions and other social transfers on income inequality was recorded in Latvia (12.5 pp).
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(%)
Source: Eurostat (ilc_di12), (ilc_di12b) and (ilc_di12c)
Source data for tables and graphs
Data sources
The data used in this article are derived from EU statistics on income and living conditions (EU-SILC). EU-SILC data are compiled annually and are the main source of statistics that measure income and living conditions in Europe. It is also the main source of information used to link different aspects relating to the quality of life of households and individuals.
The reference population for the information presented in this article is all private households and their current members residing in the territory of an EU Member State (or non-EU member country) at the time of data collection. Persons living in collective households and in institutions are generally excluded from the target population. The data for the EU are population-weighted averages of national data.
Context
In order to take into account differences in household size and composition and thus enable comparisons of income levels, the concept of equivalised disposable income is used. It is based on expressing total net (also referred to as disposable) household income in relation to the number of 'equivalent adults', using a standard (equivalence) scale. Eurostat uses a 'modified OECD scale' which gives a weight to each member of a household according to their age and then adds the weights up to arrive at an equivalised household size (taking into account the number of persons in the household – more details are provided in the glossary). Household disposable income, derived as the sum of the income received by every member of the household and by the household as a whole, is divided by the equivalised household size to determine the equivalised disposable income attributed to each household member.
The median of the equivalised disposable income distribution is typically used in the EU as a key measure for analysing standards of living within each economy. It is simply the income level that divides the population into two groups of equal size: one group encompasses half the population with a level of disposable income above the median and the other group encompasses the half of the population with a level of disposable income below the median. The use of the median (rather than the arithmetic mean) avoids any potential distortion that may be caused by the existence of extreme values, such as a few extremely rich households that may raise the arithmetic mean.
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- Ageing Europe — statistics on pensions, income and expenditure
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Background articles
- Income and living conditions (ESMS metadata file — ilc_esms)
- Income and living conditions — information on data
- Income and living conditions — methodology