Income inequality and poverty indicators

Experimental statistics logo

Why do we need flash estimates of income inequality and poverty indicators?

Providing timelier social statistics – especially indicators on income poverty and inequality – is a priority for the Commission and the European Statistical System.

In order to better monitor the effectiveness of social policies at EU level, it is important to have timelier indicators.

Therefore, flash estimates, released much earlier than the final data, have been developed. These can be used in preliminary discussions and analyses until the final data become available.

Read moreLess

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) and to monitor progress towards the Europe 2020 poverty and social exclusion target.

In 2018, EU-SILC income indicators for 2016 (SILC 2017) will be available for all countries only by autumn, which is late for the EU’s policy agenda. Efforts for improving the timeliness of EU-SILC data are ongoing but the collection and processing of EU-SILC data based on both survey and administrative sources, will always have a certain time lag.

A new approach was therefore proposed, which consists in the development of flash estimates. These are calculated on the basis of a statistical or econometric model and have a release date appreciably earlier than the actual data: in autumn 2018, flash estimates of income for 2017 (SILC 2018) are available. These will complement the EU-SILC data and can be used in preliminary discussions and analysis until the final EU-SILC data become available.

Why are these indicators published as experimental statistics?

Their experimental nature is mainly related to the methodology used for their production which is based on microsimulation and macro-economic models. These methods are not traditionally used in the calculation of social statistics indicators.

As with any other estimate, the indicators should be interpreted with caution — their accuracy depends on several factors.  The flash estimates cannot perfectly capture changes in the EU-SILC estimates.

Although there are still limitations in the current methodology and its ability to replicate changes in EU-SILC, it can provide an early indication of the direction of change.

How are these indicators produced?

The key income indicators for which flash estimates will be available are:

  • AROP – at-risk-of-poverty rate for the total population
  • QSR – income quintile share ratio.

Read moreLess

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

As these indicators are experimental and in order 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 is used in general for assessing the effects on income distribution of different policies. In the context of flash estimates, this methodology is further enhanced in order to take into account the evolution in employment and main indexation factors at the level of income components.

The methodology makes use of EUROMOD, the tax benefit model at EU level developed by the Institute for Social and Economic Research (ISER) at the University of Essex. The methodology was further developed in cooperation with ISER, building also on their previous nowcasting exercises.

(2) Flash estimates based on national sources

For four countries, flash estimates of income 2017 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) while EU-SILC collects structural detailed information on income covering the whole previous year period.

(3) Macroeconomic time series (METS)

This family of models relies on macro-level data, such as GDP, unemployment, wages and salaries, and social benefits. METS models are designed to capture the impact of changes in macroeconomic circumstances on income indicators. They may also capture changes in social and economic policies – but only if these changes are reflected in the macro-level figures.

These models were not used anymore for flash estimates 2017. Following further analysis of the performance and the consultation of both users and Member States microsimulation was selected for all countries where national sources are not available.

PDF Methodological note

Access the statistics

PDF Flash estimates 2017: experimental results

For more information see also:

PDF Country profiles and time series

Excel file Main tables

html icon Archive - 2016 data

Feedback

To help Eurostat improve these experimental statistics, users and researchers are kindly invited to give us their feedback:

  • Would you have comments or suggestions for improvements of the methods applied for this flash estimate exercise?
  • Are there any other factors Eurostat should consider?
  • What other indicators or breakdowns could be useful as early warnings on trends in income distribution and poverty?
  • Are there other indicators Eurostat should analyse for policy purposes?
  • Could the uncertainty interval be further improved? Would point estimates be desirable in the future?