A dash of data: Spotlight on Irish households

Esther Bolton, OECD Statistics Directorate

GDP growth always gets a lot of attention, but when it comes to determining how people are doing it’s interesting to look at other indicators that focus more on the actual material conditions of households. Let’s focus on a few alternative indicators to see how households in Ireland are doing.

GDP and household income

Real household disposable income per capita grew at the same pace as real GDP per capita in Q4 2016, both increasing 2.3% from the previous quarter. However, that does not mean that real GDP and real household income always grew in tandem as shown in chart 1. Real household income levels in Ireland only recently returned to their pre-crisis level (the index was 103.5 in Q4 2016 from a baseline value of 100 in Q1 2007 before the economic crisis), following more than 7 years below that level. On the other hand, real GDP per capita is up more than 27% since Q1 2007 (the index was 127.3 in Q4 2016) due to the remarkable growth rate seen in Ireland in Q1 2015.

What occurred in Ireland in 2015 reflects the growing importance of global value chains, combined with the increasing importance of “intangible assets” used in production, as multinational enterprises (MNEs), in particular, have sought to maximise profits and minimise costs, including through optimisation of their global tax burden, by (re)allocating some of their economic activities in different parts of the world. In 2015, MNEs relocated intangible assets to Ireland, where these assets are being used by Irish enterprises (including Irish affiliates of foreign MNEs) to generate value added.

This is an excellent example of why GDP should not be interpreted as an indicator of the purchasing power or the material well-being of a country. GDP is primarily a gross measure of economic activities on the economic territory of a country, and of the income generated through those activities. High levels of GDP thus do not necessarily mean high levels of income flowing to the residents nor does it mean that their growth rates will be similar(read this post for an explanation on Irish GDP large increase in 2015). A major reason is that some of the income generated by production may be repatriated to non-residents, for example in the case of income generated by affiliates of multinational enterprises.

The divergence between GDP and household disposable income can clearly be seen in Chart 1 with real GDP per capita growing sharply (by 21.3% in Q1 2015 from the previous quarter), while real household income increased by only 1.6%.

Chart 1

The presence of a significant number of foreign affiliates of MNEs (responsible for around half of Ireland’s business sector GDP, that is to say, excluding agriculture, most self-employment, the public sector and some financial services activity) is not the only reason why there can be a divergence between the growth of household income and GDP. Government interventions can also play a role.

As GDP was contracting throughout the quarters of 2008, household income was sustained by increased unemployment benefits and other social benefits received by households. As a result, between Q1 2008 and Q4 2008, the net cash transfers to households’ ratio showed a sharp increase; see Chart 2. Since Q4 2010 the ratio has trended down.

Chart 2

Confidence, consumption and savings

Household disposable income is a meaningful way to assess material living standards, but to get a fuller picture of household material well-being one may also want to look at households’ consumption behaviour.

Consumer confidence (chart 3) trended upward, from a low seen in Q1 2009, until Q4 2015 when it reached its peak (104.7). Since then it has been declining to 103.0 in Q4 2016, yet still 10 points higher than Q1 2009.

Chart 3

Despite the recent downward trend in consumer confidence, the increase in household income helped boost real household consumption expenditure per capita (chart 4), which rose 0.5% in Q4 2016 from the previous quarter (from 95.7 in Q3 2016 to 96.2 in Q4 2016). Since Q1 2013 real household consumption expenditure per capita has increased in line with developments in real household income. However, Irish households are still buying less goods and services than before the crisis.

Chart 4

Because household income increased more than final consumption expenditure, the households’ savings rate (chart 5), which shows the proportion that households are saving out of current income, increased 1.2 percentage points to 13.5% in Q4 2016. The ratio has been trending up since Q1 2016, suggesting that households remain cautious about their future income.

Chart 5

Debt and net worth

The households’ indebtedness ratio, i.e. the total outstanding debt of households as a percentage of their disposable income, may reflect (changes in) financial vulnerabilities of the household sector and provides a useful yardstick to assess their debt sustainability.

The household indebtedness ratio dropped considerably since the crisis, by nearly 75 percentage points, from its highest point in Q4 2009 (230% of disposable income, compared with 155 % of disposable income in Q4 2016). This corresponds to the largest drop in the debt ratio seen amongst OECD countries. The decline was driven by a decrease in loans (primarily mortgages) and rising household income.

Chart 6

When assessing households’ economic vulnerabilities, one should also look at the availability of assets, preferably taking into account both financial assets (saving deposits, shares, etc.) and non-financial assets (for households, predominantly dwellings). Because information on households’ non-financial assets is generally not available, financial net worth (i.e. the excess of financial assets over liabilities) is used as an indicator of the financial vulnerability of households.

In Q4 2016, households’ financial net worth was stable at 214 % of disposable income (chart 7). Since Q1 2009, it has been trending up driven primarily by the reduction in household debt (as seen in chart 6) and increasing financial assets (mainly pension assets and currency and deposits). Between 2009 and 2016, household financial net worth increased by around 145 percentage points. However, some caution is needed interpreting this figure since financial net worth does not take into account housing assets which saw spectacular growth due to a bubble in house prices until it burst in 2007 followed by sharp declines afterwards.

Chart 7

Unemployment

The unemployment rate and the labour underutilisation rate (chart 8) also provide indications of potential vulnerabilities of the household sector. More generally, unemployment has a major impact on people’s well-being. The unemployment rate was 7.1% in Q4 2016, pursuing the downward trend observed since Q1 2012 when it reached a peak of 15.1%. The labour underutilisation rate takes into account the share of underemployed workers and discouraged job seekers. Since Q4 2015, this rate has been twice the size of the unemployment rate, compared with around one and half time pre-crisis, indicating higher slack in the labour market.

Chart 8

Overall, the last quarter of 2016 saw a continued increase in Irish households’ material wellbeing with income and consumption per capita continuing to expand, a further decline in debt, an increase in financial net worth (although total net worth still remains below its pre-crisis level ) and a fall in the unemployment rate. However, the savings rate increased in line with declining consumer confidence (although consumer confidence is now much higher than its pre-crisis level). And despite the continued fall in the unemployment rate, many workers would prefer to work more, as indicated by the remaining high level of the underemployment rate.

One should keep in mind that households’ income, consumption and savings may differ considerably across various groups of households; the same holds for households’ indebtedness and (financial) net worth. The OECD is working on these distributional aspects and preliminary results can be found here and here.

To fully grasp people’s overall well-being, one should go beyond material conditions, and also look at a range of other dimensions of what shapes people’s lives, as is done in the OECD Better Life Initiative.

Useful links

Are the Irish 26.3% better off?”, OECD Insights post, 5 October 2016

For many years, OECD has been focusing on people’s well-being and societal progress. To learn more on OECD’s work on measuring well-being, visit the Better Life Initiative.

Interested in how households are doing in other OECD countries? Visit our household’s economic well-being dashboard.

A dash of data: Spotlight on Dutch households

Florence Wolff, OECD Statistics Directorate

Economic growth (GDP) always gets a lot of attention, but when it comes to determining how people are doing it’s interesting to look at other indicators that focus more on the actual material conditions of households. Let’s focus on a few alternative indicators to see how households in the Netherlands are doing.

GDP and household income

Real household disposable income per capita increased at a slower pace than real GDP per capita in Q3 2016. Whereas real GDP per capita increased by 0.6 % from the previous quarter (the index increased from 102.2 in Q2 2016 to 102.8 in Q3 2016), real household income increased by 0.4% (the index increased from 97.1 in Q2 2016 to 97.5 in Q3 2016). The rise in household disposable income in Q3 2016 was driven by an increase in compensation of employees but this gain was somewhat offset by an increase in taxes, which explains the drop in the net cash transfers to households ratio (chart 2).

Chart 1 also provides a longer-term perspective and shows that Dutch households have yet to recover to their pre-crisis level of household income, which means that households have less purchasing power now than they had before the crisis. Also of note is that household income has been more volatile than GDP and has been trending upward since Q3 2014.

The divergent patterns between household disposable income and GDP are often related to changes in net cash transfers to households (chart 2), from government as well as from pension funds. For instance, government intervention that cushioned households’ material conditions in Q2 2009 resulted in a large increase in net cash transfers to households during that quarter (seen in chart 1 as a sharp increase in real household income in Q2 2009 compared with a slight drop in GDP). Since then, net transfers have been trending downwards slightly, mainly because of government acting to consolidate its finances.

Confidence, consumption and savings

Household disposable income is a meaningful way to assess material living standards, but to get a fuller picture of household material well-being one may also want to look at households’ consumption behaviour. Consumer confidence (chart 3) continued to rise in Q3 2016 (the index increased from 100.4 in Q2 2016 to 100.8 in Q3 2016). Coupled with a rise in real household income, this boosted real household consumption expenditure per capita by 0.7% in Q3 2016 (the index increased from 96.9 in Q2 2016 to 97.6 in Q3 2016) (chart 4). Real household consumption expenditures have been trending up since Q3 2014, in line with a similar trend in household income; however, Dutch households are still buying less goods and services per capita than they were before the crisis.

The households’ savings rate (chart 5), which shows the proportion that households are saving out of current income, was relatively stable at 12.3% in Q3 2016 indicating that Dutch households chose to spend the increase in their income in Q3 2016 on goods and services while preserving the level of their savings. Like in many other OECD countries, it is worth noting that Dutch households increased their savings during the economic crisis (with a peak at 16.9% in Q2 2009) – as a buffer to the deterioration in financial markets and the increased uncertainty over future income -, and that their savings rate has still not dropped back down to the levels observed before the crisis, indicating that Dutch households remain cautious.

Debt and net worth

The households’ indebtedness ratio, i.e. the total outstanding debt of households as a percentage of their disposable income, may reflect (changes in) financial vulnerabilities of the household sector and provides a useful yardstick to assess their debt sustainability. In Q3 2016, household indebtedness was 255 % of disposable income, slightly above the minimum reached in Q1 2016 (254.7%), yet remaining one of the highest levels among OECD countries. One reason for the high debt levels in the Netherlands relates to generous tax incentives on mortgage loans which constitute the bulk of household debt. Debt levels had been declining for several years because households redeemed relatively large amounts and took up fewer new mortgages. In the more recent period however, the decrease of the debt ratio has ended, mainly due to the revival of the housing market and the low interest rates.

When assessing households’ economic vulnerabilities, one should also look at the availability of assets, preferably taking into account both financial assets (saving deposits, shares, etc.) and non-financial assets (for households, predominantly dwellings). Because information on households’ non-financial assets is generally not available on a quarterly basis, financial net worth (i.e. the excess of financial assets over liabilities) is used as an indicator of the financial vulnerability of households.

In Q3 2016, financial net worth of households was at its highest level, at 477.4% of disposable income (chart 7) – an increase of 7 percentage points from the previous quarter, and of 214.1 percentage points since 2010. These levels are amongst the highest among the OECD. The increase in Dutch households’ financial net worth in Q3 2016 mainly reflects the increase of pension entitlements (a large proportion of Dutch households’ wealth). Not counting assets related to pensions, the financial net worth of Dutch households was 15.5% of disposable income in the third quarter of 2016. All in all, the increase in assets significantly outpaced the declining trend in households’ debt (chart 6).

 

Unemployment

The unemployment rate and the labour underutilisation rate (chart 8) also provide indications of potential vulnerabilities of the household sector. More generally, unemployment has a major impact on people’s well-being. In Q3 2016 the unemployment rate dropped to 5.8% confirming a downward trend observed since Q1 2014 when it reached a maximum of 7.8% in the period observed. The labour underutilisation rate, which takes into account underemployed workers and discouraged job seekers, is on average a little more than two times the size of the unemployment rate, indicating unmet aspirations among Dutch workers to work more. It is interesting to note that part-time employment is a long-standing characteristic of the labour market in the Netherlands: it is the OECD country with the highest part-time employment rate – with more than 35% of employed people working part-time – and where the share of involuntary part-timers (wanting full-time work) is low. This indicates the Dutch people’s preference for part-time work arrangements, in particular Dutch women, and therefore does not affect much the labour underutilisation rate.

One should keep in mind that households’ income, consumption and savings may differ considerably across various groups of households; the same holds for households’ indebtedness and (financial) net worth. The OECD is working on these distributional aspects and preliminary results can be found here and here. In addition, the Dutch Central Bureau of Statistics has information on income, consumption, and wealth broken down by household characteristics.

Like in many other countries, the economic crisis affected Dutch households who still haven’t recovered their pre-crisis income and consumption levels. Yet, overall, the third quarter of 2016 saw an increase of Dutch households’ material well-being, with expanding income and consumption per capita while their savings remain stable and unemployment continued to decrease.

However, to fully grasp people’s overall well-being, one should go beyond material conditions, and also look at a range of other dimensions of what shapes people’s lives, as is done in the OECD Better Life Initiative.

Useful links

For many years, OECD has been focusing on people’s well-being and societal progress. To learn more on OECD’s work on measuring well-being, visit the Better Life Initiative.

Interested in how households are doing in other OECD countries? Visit our household’s economic well-being dashboard.

A dash of data: Spotlight on Spanish households

Federico Giovannelli,  OECD Statistics Directorate

Economic growth (GDP) always gets a lot of attention, but when it comes to determining how people are doing it’s interesting to look at other indicators that focus more on the actual material conditions of households. This blog looks at a number of alternative indicators to see how households in Spain are faring.

GDP and household income

Real household disposable income per capita fell slightly (-0.1%) in Q2 2016 compared to the previous quarter (the index decreased from 94.0 in Q1 2016 to 93.9 in Q2 2016) despite rather robust economic growth, with real GDP per capita increasing by 0.8% (the index increased from 96.3 in Q1 2016 to 97.1 in Q2 2016). The slight drop in real household income comes after a 2.0% growth in Q1 2016 and, as shown in chart 1, developments in household incomes tend to be slightly more volatile than economic growth. The divergent patterns are often related to changes in net cash transfers to households (as shown in chart 2).

Chart 1 also provides a longer-term perspective and shows how much GDP and household incomes have developed since the first quarter of 2007, just before the start of the economic crisis. Despite an upward trend in both real household income and economic growth since early 2013, Spanish households still have an income which is 6% below the pre-crisis levels, while GDP per capita is 3% below.

chart1_c

In nominal terms (i.e. not adjusted for price changes), household disposable income increased in Q2 2016 compared with the previous quarter, driven by increases in compensation of employees and income from self-employment. These gains were slightly offset by an increase in social contributions paid, resulting in a drop in net cash transfers to households (i.e. benefits received minus taxes and social contributions paid) (Chart 2). The increase in nominal household disposable income was however not enough to keep pace with inflation. As a result, real purchasing power of households fell in the second quarter of 2016.

chart2_c

Confidence, consumption and savings

Household disposable income is a meaningful way to assess material living standards, but to get a fuller picture of household economic well-being, one may also want to look at households’ consumption behaviour. Chart 3 shows that consumer confidence continued to fall for the second consecutive quarter in Q2 2016 (the index decreased from 101.5 in Q1 2016 to 101.2 in Q2 2016) albeit remaining above its longer term average. Notwithstanding a drop in consumer confidence and in real household disposable income per capita (as seen in chart 1), real household consumption expenditure per capita (chart 4) continued to grow in Q2 2016 (by 0.6%, with the index increasing from 91.7 in Q1 2016 to 92.3 in Q2 2016). As in the case of GDP and household income, household final consumption has still not recovered its pre-crisis levels.

chart3_c

chart4_c

Because in Q2 2016 Spanish households increased their consumption more than the increase in their income, the households’ savings rate (chart 5), which shows the proportion that households are saving out of current income, fell 0.6 percentage points to 7.9% in Q2 2016. Over the whole period, Spanish households saved increasing portions of their income during the depth of the economic crisis (up to Q2 2009, when the rate attained its peak of 14.1%), while they showed more volatile saving behaviours over the subsequent time period (with an average saving rate of 9.1% between Q4 2010 and Q2 2016). However, it is worth noting that the households’ savings rate never dropped back to the levels observed before the start of the crisis, partly reflecting households’ responses to deteriorations in financial markets and an increased level of uncertainty over future income.

chart5_c

Debt and net worth

The households’ indebtedness ratio, i.e. the total outstanding debt of households as a percentage of their disposable income, may reflect (changes in) financial vulnerabilities of the household sector and provides a useful yardstick to assess their debt sustainability. In Q2 2016, household indebtedness was 113.1% of disposable income, a slight increase of 0.5 percentage point from the previous quarter (chart 6). Before the crisis, Spanish households’ indebtedness mainly increased in light of the real estate bubble and the concomitant borrowing facility, which led the ratio to its peak value of 143.9% in Q4 2007. Since then, the households’ level of indebtedness has progressively declined.

chart6_c

When assessing households’ economic vulnerabilities, one should also look at the availability of assets, preferably taking into account both financial assets (saving deposits, shares, etc.) and non-financial assets (predominantly dwellings). Because information on households’ non-financial assets is generally not available on a quarterly basis, financial net worth (i.e. the excess of financial assets over liabilities) is used as an indicator of the financial vulnerability of households. In Q2 2016, financial net worth of households was 173.1% of disposable income (chart 7), 0.5 percentage points less than in the previous quarter. Households’ financial net worth actually grew slightly in Q2 2016, but it was outpaced by the growth in nominal household income thus causing the ratio to fall. The slight pick-up in financial net worth was mainly due to increases in currency and deposits and other accounts receivable, only partially offset by the rise in household debt (as seen in chart 6).

chart7_c

Unemployment

The unemployment rate and the labour underutilisation rate (chart 8) also provide indications of potential vulnerabilities of the household sector. More generally, unemployment has a major impact on people’s well-being, especially in Spain where the unemployment rate is currently the second highest among OECD countries. In Q2 2016 the unemployment rate dropped to 20.1%, confirming a downward trend observed since Q3 2013 (26.2%). Until then, the unemployment rate in Spain had increased in all quarters since Q2 2007, when it was 8%. The labour underutilisation rate, which takes into account underemployed workers and discouraged job seekers, is on average about one and a half the size of the unemployment rate. Among the different groups, youth (14-24 years old) are the most affected by unemployment.

chart8_c

One should keep in mind that households’ income, consumption and savings may differ considerably across various groups of households; the same holds for households’ indebtedness and (financial) net worth. The OECD is working on these distributional aspects and preliminary results can be found here and here.

Spain was one of the hardest hit countries during the crisis: unemployment remains high; income and consumption per capita have yet to recover to their pre-crisis levels. Yet, overall, the second quarter of 2016 saw a slight improvement of Spanish households’ material well-being, with expanding consumption per capita and decreasing unemployment, despite a slight contraction of household income per capita which shows a relatively volatile trend, but has been improving over the last four years. However, to fully grasp people’s overall well-being, one should go beyond material conditions, and also look at a range of other dimensions of what shapes people’s lives, as is done in the OECD Better Life Initiative.

Useful links

For many years, OECD has been focusing on people’s well-being and societal progress. To learn more on OECD’s work on measuring well-being, visit the Better Life Initiative.

Interested in how households are doing in other OECD countries? Visit our household’s economic well-being dashboard.

Statistical Insights: What does GDP per capita tell us about households’ material well-being?

OECD Statistics Directorate

Although GDP per capita is often used as a broad measure of average living standards, high levels of GDP per capita do not necessarily mean high levels of household disposable income, a key measure of average material well-being of people. For example, in 2014 Norway had the highest GDP per capita in the OECD (162% of the OECD average[1]), but only 115% of the OECD average for household disposable income[2]. And in Ireland, GDP per capita was 24% above the OECD average, while household disposable income per capita was 22% below the OECD average. Conversely, in the United States GDP per capita was 34% above the OECD average while household disposable income was 46% above the OECD average. These differences between GDP per capita and household disposable income per capita reflect two important factors. First, not all income generated by production (GDP) necessarily remains in the country; some of it may be appropriated by non-residents, for example by foreign-owned firms repatriating profits to their parents. Secondly, some parts may be retained by corporations and government and not accrue to households.

International rankings of household disposable income per capita and GDP per capita can differ significantly

GDP per capita, by design an indicator of the total income generated by economic activity in a country, is often used as a measure of people’s material well-being. However, not all of this income necessarily ends up in the purse of households. Some may be appropriated by government to build up sovereign wealth funds or to pay off debts, some may be appropriated by firms to build up balance sheets, and yet some may be appropriated by parent companies abroad repatriating profits from their affiliates. At the same time, households can also receive income from abroad for example from dividends and interest receipts through investments abroad.

As such, a preferred measure of people’s material well-being is household disposable income per capita, which represents the maximum amount a household can consume without having to reduce its assets or to increase its liabilities.

The above-mentioned factors can create significant differences between measures of household disposable income per capita and GDP per capita. The United States for example see its position relative to the OECD average jump by more than 10 percentage points (46% above the OECD-average of household disposable income, compared to 34% above the OECD average of GDP per capita), ranking it 1st among OECD countries on household disposable income compared to 3rd on GDP per capita (figure 1). This reflects in part repatriated (and redistributed) profits from US multinational activities abroad but also relatively lower general government expenditure and taxes on households..

On the other hand, Norway falls from 1st on a GDP basis to 4th on a household disposable income basis while Ireland drops dramatically (from 4th to 19th). For Ireland, one of the reasons relates to the presence of a significant number of foreign affiliates of multinational enterprises (responsible for around half of private sector GDP). While Irish GDP per capita was well above the OECD-average (24% higher), Irish household disposable income was significantly below the OECD-average (22% lower). Similar differences in household disposable income per capita relative to GDP per capita can also be seen in other countries where foreign affiliates play an important role in overall GDP (and that have only limited outward foreign investment) such as Hungary and the Czech Republic. Switzerland also sees falls in its household income vs GDP ranking, partly because of the relatively large number of cross-border workers.

For Norway, however, the divergence reflects other factors, linked to the large surplus generated by the Norwegian mining sector (around 25% of total economy value added), which is invested by the Norwegian government in its sovereign wealth fund[3].

graph1-gdp-income-per-capita-900-fw

Note: Data refer to 2013 for household adjusted disposable income for Mexico, New Zealand, and Switzerland.

Developments in household disposable income per capita can also differ significantly from developments in GDP per capita

Many factors can also contribute to diverging patterns of growth between household disposable income and GDP, for instance, declining shares of compensation of employees in value-added, and rising shares of profits retained by corporations. And in real terms, differences in consumer price inflation and changes in the GDP deflator, reflecting in part evolutions in terms of trade, can also contribute to divergences. Differences in tax and redistribution policy can also play a significant role.

Prior to the global financial crisis (2001-2007), real economic growth in many countries outpaced growth in real household disposable income, (figure 2, panel 1). However, post crisis (2008-2014), around 60% of countries saw real household disposable income grow faster than real GDP, as governments intervened (including through automatic stabilisers) to cushion the negative impact of the crisis on households’ income. But countries hit hardest by the crisis saw real household disposable income contract at a faster pace than GDP (figure 2, panel 2).

Figure 2. Real GDP and real household disposable income, per capita

Average annual growth rates; adjusted for price changes

graph2-panel1-and-panel2-900-fw

Note: In panel 1, average annual growth rates for Mexico 2003-2007. In panel 2, average annual growth rates for New Zealand and Switzerland 2008-2013

The measures explained

Gross Domestic Product (GDP):

Gross domestic product (GDP) is the standard measure of the value added generated through the production of goods and services in a country during a certain period. Equivalently, it measures the income earned from that production, or the total amount spent on final goods and services (less imports).

Household adjusted disposable income:

Household adjusted disposable income equals the total income received, after deduction of taxes on income and wealth and social contributions, and includes monetary social benefits (such as unemployment benefits) and in-kind social benefits (such as government provided health and education).

Purchasing power parities (PPPs):

In their simplest form, PPPs are price relatives that show the ratio of the prices in national currencies of the same good or service in different countries. The Big Mac currency index from The Economist magazine is a well-known example of a one-product PPP. The Big Mac index is “the exchange rate that would mean that hamburgers cost the same in America as abroad”. For example, if the price of a hamburger in the UK is £2.29 and in the US, it is $3.54, the PPP for hamburgers between the UK and the US is £2.29 to $3.54 or 0.65 pounds to the dollar.

Where to find the underlying data

The underlying data are published in the OECD data warehouse: OECD.Stat.

Further reading

  • Bournot, S. , F. Koechlin, and P. Schreyer (2011), “2008 Benchmark PPPs measurement and uses” OECD Statistics Brief no. 17. www.oecd.org/std/47359870.pdf
  • European Commission; IMF; OECD; UN; and World Bank (2009), “System of National Accounts 2008“ http://unstats.un.org/unsd/nationalaccount/docs/SNA2008.pdf
  • Lequiller, F. and D. Blades (2014), Understanding National Accounts: Second Edition, OECD Publishing,Paris.
    DOI: http://dx.doi.org/10.1787/9789264214637-en
  • Ribarsky, J., C. Kang and E. Bolton (2016), “The drivers of differences between growth in GDP and household adjusted disposable income in OECD countries”, OECD Statistics Working Papers, No. 2016/06, OECD Publishing, Paris.
    DOI: http://dx.doi.org/10.1787/5jlz6qj247r8-en

Contacts

For further information please contact the OECD Statistics Directorate at [email protected]

[1] In all graphs and calculations, the following OECD-countries have been excluded, because of lack of data on household disposable income: Iceland, Israel, Luxembourg and Turkey.

[2] For convenience, household disposable income refers to household adjusted disposable income, which includes goods and services provided for free or at reduced prices by government and non-profit institutions serving households. It predominantly consists of health and education services and provides a more comparable measure, across countries and over time.

[3] Note that this suggests that some care is needed in interpreting the sustainability of household disposable income over the longer term.  Contemporaneous comparisons for example look at sustainability in the context of sustainable household finances, i.e. not building up household liabilities or reducing assets. But over the longer term persistently high government deficits or unfunded pension schemes may imply future declines in household disposable income (all other things being equal), while government surpluses may act as a buffer against potential declines (again all other things being equal).

A dash of data: Spotlight on Australian households

Bettina Wistrom, OECD Statistics Directorate

Economic growth (GDP) always gets a lot of attention, but when it comes to determining how people are doing it’s interesting to look at other indicators that focus more on the actual material conditions of households. Let’s see how households in Australia are doing by looking at a few alternative indicators.

GDP and household income

Real household disposable income per capita increased 0.9% in Q1 2016 compared to the previous quarter (the index increased from 113.7 in Q4 2015 to 114.7 in Q1 2016), outpacing GDP per capita which increased 0.6% from the previous quarter (the index increased from 108.1 in Q4 2015 to 108.8 in Q1 2016). The rise in household disposable income mainly reflected a growing compensation of employees and income from self-employment, and – to a slighter extent – an increase in interest received by households.

This recent development continues the trend observed since the first quarter of 2007. Indeed Australian real household disposable income per capita has grown considerably more than real GDP per capita: 14.7% versus 8.8% (chart 1). The growth in household income over that period partly reflects government interventions during the first years of the crisis which, it is worth noting, did not impact the Australian economy as severely as it did other OECD countries. Even though there was a dip in economic activity in Q4 2008, the Australian economy was never formally in recession (defined as two consecutive quarters of negative growth).

Chart1-Australia-2016q1

Chart 2 shows that net cash transfers to households increased sharply at the start of the financial crisis, mainly due to increases in social benefits. Since the peak in Q2 2009, net cash transfers to households exhibit a downward trend corresponding to the time period when economic growth and household disposable income have started to move (more or less) in tandem.

Chart2-Australia-2016q1

Confidence, consumption and savings

Household disposable income is a meaningful way to assess material living standards, but to get a fuller picture of household economic well-being, one may also want to look at households’ consumption behaviour. Consumer confidence (chart 3) remained broadly stable at 99.7 in Q1 2016. This contributed to sustaining real household consumption expenditure per capita which increased by 0.3% in Q1 2016 (the index increased from 107.7 in Q4 2015 to 108.0 in Q1 2016) (chart 4).

chart3-australia-2016q1

Chart4-Australia-2016q1

The households’ savings rate (chart 5) shows the proportion that households are saving out of current income. In Q1 2016, the savings rate ticked-up to 15.8% showing that households chose to save some of their additional income, rather than spending it on goods and services. Overall, Australian households have a relatively high savings rate. Over the whole period observed, the average rate is 16.2%, one of the highest among OECD countries. In Q4 2008, the savings rate increased sharply, to its highest level (19%), partly reflecting households’ responses to deteriorations in financial markets and an increased level of uncertainty over future income.

Chart5-Australia-2016q1

Debt and net worth

The households’ indebtedness ratio, i.e. the total outstanding debt of households as a percentage of their disposable income, may reflect (changes in) financial vulnerabilities of the household sector and provides a useful yardstick to assess their debt sustainability. In Q1 2016, household indebtedness increased to 198.5% of disposable income (chart 6), doubling over the past 20 years and one of the highest levels among OECD countries. This rise in household’s indebtedness followed the introduction of mortgage packages in the 1980s and 90s, which allowed homeowners to draw down on their mortgages when needed, without having to sell their house. In addition Australian households have increasingly borrowed money to finance house purchases (Chart 6).

Chart6-Australia-2016q1

When assessing households’ economic vulnerabilities, one should also look at the availability of assets, preferably taking into account both financial assets (saving deposits, shares, etc.) and non-financial assets (for households, predominantly dwellings). Because information on households’ non-financial assets is generally not available on a quarterly basis, financial net worth (i.e. the excess of financial assets over liabilities) is used as an indicator of the financial vulnerability of households.

In Q1 2016, financial net worth of households was 183.9% of disposable income (chart 7), 4.9 percentage points less than in the previous quarter. This decrease was predominately driven by the rise in household debt (chart 6), and holding losses on pension assets, equity and investment fund shares.

Chart7-Australia-2016q1

The unemployment rate and the labour underutilisation rate (chart 8) also provide indications of potential vulnerabilities of the household sector. More generally, unemployment has a major impact on people’s well-being. In Q1 2016 the unemployment rate in Australia remained at 5.8%, while the  labour underutilisation rate, which takes into account underemployed workers and discouraged job seekers, decreased slightly to 21.3% (from 21.8% in Q4 2015). Notwithstanding this small decline, the gap between the unemployment rate and the labour underutilisation rate remains large in Australia – the largest among OECD countries, indicating unmet aspirations for more work among Australian workers.

Chart8-Australia-2016q1

One should keep in mind that households’ income, consumption and savings may differ considerably across various groups of households; the same holds for households’ indebtedness and (financial) net worth. The OECD is working on these distributional aspects and preliminary results can be found here and here. The Australian Bureau of Statistics (ABS) has also a long history analysing households’ developments broken down by income and household characteristics.

Overall, the first quarter of 2016 saw a continued increase of Australian households’ material well-being with still expanding income and consumption per capita. The upward trend in the household debt-to-income ratio and the high labour underutilisation rate – reflecting the challenge for some groups of workers to bounce back after displacement – remain a source of concern. Despite increasing household debt, financial net worth is slowly getting back to its pre-crisis level. However, to fully grasp people’s overall well-being, one should go beyond material conditions, and also look at a range of other dimensions of what shapes people’s lives, as is done in the OECD Better Life Initiative.

Useful links

For many years, OECD has been focusing on people’s well-being and societal progress. To learn more on OECD’s work on measuring well-being, visit the Better Life Initiative.

Interested in how households are doing in other OECD countries? Visit our household’s economic well-being dashboard.

A dash of data: Spotlight on Canadian households

Matthew Dequeljoe, OECD Statistics Directorate

Economic growth (GDP) always gets a lot of attention, but when it comes to determining how people are doing it’s interesting to look at other indicators that focus more on the actual material conditions of households. This blog looks at a number of alternative indicators to see how households in Canada are faring.

GDP and Household Income

Neither real GDP per capita, which adjusts economic growth for price changes and the size of the population, nor real household disposable income per capita kept pace with the population growth in Q4 2015. The Canadian population grew 0.4% in the fourth quarter of 2015, outpacing real GDP and real disposable income growth which were both positive but relatively modest (increasing 0.2% and 0.3%, respectively). As a consequence, real GDP per capita decreased 0.2% (the index fell from 103.8 in Q3 2015 to 103.6 in Q4 2015), while the decrease in real household disposable income per capita, by 0.1%, was slightly less (with the index moving from 112.8 in Q3 2015 to 112.7 in Q4 2015).

Quarterly developments may be volatile. Chart 1 provides a longer-term perspective and shows how much GDP and household income have increased since the first quarter of 2007, just before the start of the economic crisis. Over this period, real disposable income per capita has increased substantially more than real GDP per capita (12.7 percent versus 3.6 percent, respectively).

Canada-chart1

In nominal terms (i.e. not adjusted for price changes) household disposable income increased in Q4 2015 compared with the previous quarter driven by increases in primary income, as compensation of employees and, to a lesser extent, income from self-employment rose. These gains were slightly offset by an increase in taxes, resulting in a drop in net cash transfers to households (i.e. benefits received minus taxes and social contributions paid) (Chart 2).

Chart 2 also shows that net cash transfers to households rose during the economic crisis  and sustained households’ disposable income levels. The increase starting in Q1 2008 to its peak in Q1 2010 corresponded to the time when real household disposable income began to diverge from Canada’s overall economic growth trend as seen in Chart 1.

Canada-chart2

Confidence, Consumption, and Savings

Household disposable income is a meaningful way to assess material living standards, but to get a fuller picture of household economic well-being it is interesting to also look at households’ consumption behaviour. Chart 3 shows that the index of consumer confidence in Canada has still not recovered its pre-crisis level.  It decreased by 0.1 percentage points and stood at 99.3 in the fourth quarter of 2015. The index of real household consumption expenditure dropped from 111.2 in Q3 2015, its highest value since 2007Q1, to 111.0 indicating that households on average have slightly decreased their purchases of goods and services (Chart 4).

Canada-chart3

Canada-chart4

The households’ savings rate (Chart 5), which corresponds to the share  that households are saving out of current income, remained stable in Q4 2015 at 8.1%, 2.5 percentage points higher than its lowest point reached in Q4 2007 at 5.7%. The savings rate increased during the depth of the recession, in part reflecting households’ responses to deteriorations in financial markets and an increased level of uncertainty over future income.

Canada-chart5Note: It is necessary to adjust household income for the difference between pension contributions paid and pension benefits received (called adjustment for the change in pension entitlements) to appropriately calculate the change in net worth of households, since pensions are considered a financial asset of households.

Debt and net worth

The households’ indebtedness ratio (i.e. the total outstanding debt of households as a percentage of their disposable income) is a measure of (changes in) financial vulnerabilities of the household sector  and its evolution over time allows for an assessment of households’ debt sustainability. In Q4 2015, household indebtedness in Canada (Chart 6) increased to 166.2% of disposable income, its highest level since 1990. As mortgage debt makes up the largest component of household debt in Canada, Chart 6 shows that Canadian households have continued to increase their borrowings to finance house purchases, in the face of low interest rates and high house prices.

Canada-chart6

A growing debt ratio is often interpreted as a sign of increasing financial vulnerability. However, when assessing vulnerabilities, one should also look at the availability of assets, preferably taking into account both financial assets (saving deposits, shares, etc.) and non-financial assets (for households, predominantly dwellings). Because information on households’ non-financial assets is generally not available on a quarterly basis, financial net worth (i.e. the excess of financial assets over financial liabilities) is used as an indicator of the financial vulnerability of households.

In Q4 2015, households’ financial net worth (Chart 7) in Canada was 343.8% of disposable income, rebounding 6.3 percentage points from Q3 2015. Holding gains on equity and investment fund shares helped boost households’ financial assets supported by a depreciating Canadian dollar that increased the value of foreign-denominated assets. Other factors included increased acquisitions of insurance and pension assets.

Canada-chart7 

Unemployment

The unemployment rate and the labour underutilisation rate (Chart 8) also provide indications of other potential vulnerabilities of the household sector. More generally, unemployment has a major impact on people’s well-being. In Q4 2015, the unemployment rate remained stable at 7%, approximately the same rate as in the previous quarter. The unemployment rate has been trending up in recent quarters. In Q4 2015, it was 1.1 percentage points higher than its low point of 5.9% in Q4 2007, but still 0.4 percentage points below the peak of 8.6% in the third quarter of 2009. The labour underutilisation rate was 13.8% in Q4 2015, slightly up from the third quarter and still two percentage points above pre-crisis levels in Q4 2007. The labour underutilisation rate is about twice the size of the unemployment rate.

Canada-chart8

One should keep in mind that households’ income, consumption and savings may differ considerably across various groups of households; the same holds for households’ indebtedness and (financial) wealth. The OECD is working on these distributional aspects and preliminary results can be consulted here and here.

Overall, the fourth quarter of 2015 saw a slight drop for Canadian households’ material well-being with a contraction of income and consumption per capita alongside declining consumer confidence. Moreover, the upward trend in the household debt-to-income ratio remains a source of concern for financial stability. Notwithstanding developments in Q4 2015, taking a longer term perspective shows that income and consumption levels as well as financial net worth have recovered from the economic crisis and surpassed their pre-crisis levels. To fully grasp people’s overall well-being, one should go beyond material conditions, and look at a range of other dimensions of what shapes people’s lives

Useful links

For many years, OECD has been focusing on people’s well-being and societal progress. To learn more on OECD’s work on measuring well-being, visit the Better Life Initiative.

Interested in how households are doing in other OECD countries? Visit our households’ economic well-being dashboard.

A dash of data: Spotlight on German households

Leonie Beisemann, OECD Statistics Directorate

German version available here.

Economic growth (GDP) always gets a lot of attention, but when it comes to determining how people are doing economically it’s interesting to look at other indicators that focus more on the actual material conditions of households. Let’s see how households in Germany are doing by looking at a few of these other indicators.

GDP and household income

Chart 1 shows the development of real GDP per capita and real household disposable income per capita since the first quarter of 2007, with this quarter being set to the baseline level of 100. For the most recent quarter for which we have data, Q3 2015, real GDP per capita, which adjusts economic growth for the size of the population, increased 0.1% from the previous quarter (the index increased from 107.3 in Q2 2015 to 107.4 in Q3 2015). Real household disposable income per capita showed stronger growth, increasing 0.4% from the previous quarter (the index increased from 105.9 in Q2 2015 to 106.3 in Q3 2015). However, despite the stronger growth in household income in the most recent quarter, and the sharp drop in economic growth during the financial crisis, GDP has grown more than household income since 2007: 7.4 % versus 6.3%.

Chart1-HHdashboard-Germany-900.fw

The increase in household disposable income in Q3 2015 was caused by an increase in primary income, mainly due to increases in compensation of employees and dividend income. On the other hand, taxes and social contributions paid by households increased more than social benefits received by households, meaning that net cash transfers to households declined slightly (chart 2).

Chart 2 shows that the net cash transfers to households increased sharply during the depth of the financial crisis (at the beginning of 2009), corresponding to when real household disposable income began to diverge from the pattern exhibited by economic growth, as shown in chart 1. This clearly shows that government intervention was successful in cushioning households from the negative effects of the contraction in economic growth.

Chart2-HHdashboard-Germany-900.fw

Confidence, consumption and saving

Household disposable income is a meaningful way to assess material living standards, but to get a fuller picture of household economic well-being it is interesting to look also at households’ consumption behaviour. Consumer confidence (chart 3) fell in Q3 2015 (the index decreased from 101.5 in Q2 2015 to 101.0 in Q3 2015) reversing the upward trend seen during the first two quarters of 2015. Notwithstanding this slight drop in consumer confidence, real household consumption expenditure per capita increased 0.3% in Q3 2015 (chart 4), with the relevant index increasing from 107.1 in Q2 2015 to 107.4 in Q3 2015.

Chart3-HHdashboard-Germany-900.fw

Chart4-HHdashboard-Germany-900.fw

The household savings rate (chart 5) shows the proportion that households are saving out of current income. In Q3 2015, the savings rate was 16.9%, the same rate as in the previous quarter. Overall, German households have a relatively high savings rate (on average 16.7%, one of the highest among OECD countries). It is also relatively stable (the rate varies the least among OECD countries).

Chart5-HHdashboard-Germany-900.fw

 Debt and net worth

The household indebtedness ratio, i.e. the total outstanding debt of households as a percentage of their disposable income, can be looked at as a measure of (changes in) financial vulnerabilities of the household sector and can be helpful in assessing debt sustainability. In Q3 2015, household indebtedness was 85.5% of gross disposable income (chart 6), 0.2 percentage points higher than the previous quarter (mainly related to a rise in long-term loans). Over a longer period of time, since the beginning of 2007, one can observe a steady decline in household indebtedness in Germany.

Chart6-HHdashboard-Germany-900.fw

When assessing vulnerabilities on the basis of indebtedness, one should also take into account the availability of assets, preferably both financial assets (saving deposits, shares, etc.) and non-financial assets (for households, predominantly dwellings). Because information on households’ non-financial assets is generally not available on a quarterly basis, financial net worth (i.e. the excess of financial assets over liabilities) is used as an indicator of the financial vulnerability of households.

In Q3 2015, financial net worth of households was 196.5% of disposable income (chart 7), 3.2 percentage points less than in the previous quarter. The decrease was mainly due to holding losses on equity and investment fund shares on the asset side and the slight increase in household debt mentioned above.

Chart7-HHdashboard-Germany-900.fw 

Unemployment

The unemployment rate and the labour underutilisation rate (chart 8) also provide indications of potential economic vulnerabilities of the household sector. More generally, unemployment has a major impact on people’s overall well-being. In Q3 2015, the unemployment rate in Germany continued its fall since 2007 and at 4.6% it is the lowest rate of unemployment since 1991. The labour underutilisation rate shows a similar pattern: in Q3 2015, it reached a new low of 9.2%.

Chart8-HHdashboard-Germany-900.fw

One should keep in mind that households’ income, consumption and savings may differ considerably across various groupings of households; the same is true for households’ indebtedness and (financial) wealth. The OECD is working on these distributional aspects and preliminary results have been published in “Measuring inequality in income and consumption in a national accounts framework” and in “Household wealth inequality across OECD countries: new OECD evidence”.

While the financial crisis did affect the German economy, its consequences have been relatively modest when compared with other OECD countries. GDP per capita and household income per capita returned to their pre-crisis levels quickly. The positive developments in household income and consumption reflect continuous improvements in the German labour market since 2010. To fully grasp people’s overall well-being, one should go beyond household material conditions, and look at a range of other aspects of people’s lives and how they feel. Indicators on these other aspects (e.g. health, education, environmental quality, and personal security) are regularly published in the OECD How’s Life publications.

Useful links

For many years, OECD has been focusing on people’s well-being and societal progress. To learn more on OECD’s work on measuring well-being, visit the Better Life Initiative.

Interested in how households are doing in other OECD countries? Visit our households’ economic well-being dashboard.