A dash of data: Spotlight on Italian households

Rachida Dkhissi, 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 into how households in Italy are doing by looking at a number of alternative indicators.

GDP and Household Income

Chart 1 shows how much GDP and household income have declined since the first quarter of 2007, just before the start of the economic crisis, with this period representing the baseline value 100. For the most recent quarter, Q2 2015, GDP per capita, which adjusts economic growth for the size of the population, increased 0.3% from the previous quarter. The index increased from 87.9 in Q1 2015 to 88.2 in Q2 2015, which is still around 12 percentage points below the pre-crisis level. Real household disposable income per capita increased at the same pace as real GDP per capita in Q2 2015 (0.3%), with the index increasing from 86.6 in Q1 2015 to 86.8 in Q2 2015. Real household income has moved in tandem with real GDP per capita: in Q2 2015 the household income index was 13 percentage points below the baseline of Q1 2007. This means that households have less purchasing power now that they had before the crisis. Chart 1 also shows that over the last 8 years, GDP and household income have declined in more quarters than they have grown.

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The primary income of households fell in Q2 2015 compared with the previous quarter. Although there was a slight increase of income for the self-employed, this was entirely offset by a drop in net property income received (mainly due to a decrease in dividends received). . The fact that households experienced an increase in disposable income in Q2 2015 was mainly due to cash social benefits received by households, as can be seen in chart 2, which shows the net cash transfers to households.

Chart 2 also shows that the decline in the net cash transfers to households ratio from Q4 2011 to Q3 2012 corresponded to a time when household disposable income was falling faster than GDP, as shown in chart 1.

 

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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 consumer confidence remained broadly stable in Q2 2015 at 101.5 suggesting that with two consecutive quarters of positive economic growth consumers continued to be relatively confident about their economic situation. This confidence coupled with a rise in household income helped real household consumption expenditure per capita increase by 0.4% in Q2 2015 (chart 4), with the relevant index increasing from 89.4 in Q1 2015 to 89.7 in Q2 2015, the strongest quarterly growth rate since Q3 2010. However, Italian households are still buying less goods and services to meet their own everyday needs than they were before the crisis.

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The households’ savings rate (chart 5), which shows the proportion that households are saving out of current income, decreased 0.1 percentage point in Q2 2015, as compared to the prior quarter, showing that households used their entire increase in income to consume goods and services. The households’ savings rate in Q2 2015 was 11.1%, 3.9 percentage points lower than the peak reached in Q1 2009 (during the depth of the economic crisis). Since Q1 2009, the declining trend in the savings rate reflects households’ need to trade-off between saving and consumption as income kept falling.

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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 can be helpful in assessing households’ debt sustainability. In Q2 2015, household indebtedness in Italy (chart 6) was 82.5% of disposable income, a marginal increase of 0.1 percentage point from the prior quarter showing that households financed some of their consumption by increasing their debt.

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A growing debt ratio is often interpreted as a sign of 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 liabilities) is used as an indicator of the financial vulnerability of households.
In Q2 2015, financial net worth of households (chart 7) in Italy was 280.1% of disposable income, 3.5 percentage points less than Q1 2015. The decrease in the second quarter was mainly due to holding losses on debt securities on the asset side and an increase in household debt (mainly trade credits). This resulted in a slight deterioration of the households’ financial net worth in Q2 2015.

 

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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 Q2 2015, the unemployment rate remained stable at 12.4%, the same rate as the previous quarter. The labour underutilisation rate was 28.9% in Q2 2015, well above the standard unemployment rate and remained unchanged compared with the first quarter.

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One should keep in mind that households’ income, consumption and savings may differ considerably across various groupings 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.

As shown above, in order to properly measure people’s material well-being, looking beyond economic growth is essential. The economic crisis has hit hard for households in Italy. The unemployment rate remains high and income and consumption levels have yet to recover to pre-crisis levels. Yet, the second quarter of 2015 shows a slight improvement in households’ material well-being. To fully grasp people’s overall well-being, one should even go beyond material conditions, and look at a range of other characteristics that shape what people do and how they feel. For more than 10 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 web site.

Useful links

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

A dash of data: Spotlight on French households

Jennifer Ribarsky, OECD Statistics Directorate

Tableau de bord de données : le point sur les ménages français (article in French)

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 France are doing by looking at a few indicators.

GDP and Household Income

Chart 1 shows how much seasonally adjusted GDP and household income have grown since the first quarter of 2007, before the start of the economic crisis, with this period representing the baseline value 100. For the most recent quarter, Q1 2015, GDP per capita, which adjusts GDP for the size of the population, increased 0.6% from the previous quarter. The index increased from 99.5 in Q4 2014 (just below the 2007 baseline) to 100.1 in Q1 2015, so only returning to the pre-crisis level of real GDP after more than 6 years below that level. Real household disposable income per capita increased strongly in Q1 2015, by 1.2%. The index increased from 101.1 in Q4 2014 to 102.3 in Q1 2015, and has remained close to or above the baseline since the beginning of the crisis).

 

The increase in households’ purchasing power in Q1 2015 was mainly driven by increases in compensation of employees and a fall in taxes paid by households. The drop in taxes and the slight drop in social contributions paid in particular by the self-employed as a result of the Responsibility and Solidarity Pact were accompanied by a slight increase in social benefits; as a consequence, net cash transfers to households (chart 2) played a role by increasing disposable income at a faster rate than primary income.

Also, chart 2 clearly shows that households’ material conditions in France were sustained during the economic crisis through the redistribution process. The net cash transfers to households ratio started increasing during the depths of the economic crisis (the ratio peaked in Q3 2009 at 92.0) and the real household disposable income began to diverge from the pattern exhibited by economic growth, as shown in chart 1.

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 look also at households’ consumption behaviour. Chart 3 shows that consumer confidence ticked-up in Q1 2015 (the index increased from 99.3 in Q4 2014 to 99.7 in Q1 2015) suggesting that consumers are now more confident about their economic situation. This confidence helped boost real household consumption expenditure per capita by 0.9% in Q1 2015 (chart 4), with the relevant index increasing from 101.6 in Q4 2014 to 102.5 in Q1 2015, the strongest quarterly growth rate of the time period shown.

The households’ savings rate (chart 5), which shows the proportion that households are saving out of current income, increased 0.4 percentage points in Q1 2015, as compared to the prior quarter. Households chose to use some of their increase in income to increase the amount of their savings. The households’ savings rate in Q1 2015 was 15.0%, 1.3 percentage points lower than the peak reached in Q3 2009 (during the depths of the economic crisis). The crisis led to a substantial increase in the savings rate of households, reflecting households’ greater uncertainty on the development of their future income.

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 can be helpful in assessing debt sustainability. In Q1 2015, household indebtedness in France (chart 6) was 102.2% of disposable income, an increase of 2.3 percentage points from the prior quarter.

A growing debt ratio is often interpreted as a sign of 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 liabilities) is used as an indicator of the financial vulnerability of households.

In Q1 2015, financial net worth of households (chart 7) in France was 246.8% of disposable income, 10.5 percentage points more than Q4 2014. The increase in the first quarter was predominantly due to holding gains on assets (in particular in equity and investment fund shares), but also financial investments, in particular a sharp rise in savings deposits and increases in life insurance contracts, accounting for a significant share of the increase in net worth.

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 Q1 2015, the unemployment rate was 10.3%, down from 10.5% in Q4 2014. The labour underutilisation rate was 17.8% in Q1 2015, well above the standard unemployment rate but down slightly from the fourth quarter.

As shown above, in order to properly measure people’s material well-being, looking beyond economic growth is essential. In the first quarter of 2015, households in France appear to be better off than GDP figures alone would suggest. To fully grasp people’s overall well-being, one should even go beyond household material conditions, and look at a range of other characteristics that shape what people do and how they feel.

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.

If the tortoise can do it, anyone can: greening household behaviour

Tortoises rushing about the Galapagos
Tortoises rushing about the Galapagos

Today’s post is by Naazia Ebrahim of the OECD Environment Directorate

Please join me in an ode to the giant tortoise, recently confirmed to be back from near extinction on the Galapagos Espanola Island after conservation work that began forty years ago. The population currently stands at over 1000, a spectacular recovery considering that only 15 remained in the late 1960s, when they were summarily rounded up and placed into a breeding program. There are now enough adults and juveniles surviving and repopulating to be self-sustaining.

Although one can never say ‘giant tortoise’ enough times, the island still requires some habitat restoration. The tortoises should be able to help that along, because in addition to being long-lived, they are also superb ecosystem engineers. They disperse seeds and other organisms, stimulate recruitment of cactus trees (one of their primary food sources) by distributing pods as they eat, and also, under the right conditions, control woody plant growth, which helps maintain habitat for an endangered albatross that also nests on the island. One could almost call them “masters of the (island) house”. Whoever thought this waddly wild wonk would be a model for humans to improve environment through adept household behaviour?

If society is Espanola Island – in need of some major restructuring to achieve ecological health – then the tortoises are the epitome of small, incremental change-makers that eventually create a paradigm shift. Their localised, small-scale influences – grazing on cacti and spreading seeds in their home range – eventually combine to shift the entire ecosystem towards its natural equilibrium.

But the tortoises could not, and cannot, do it all on their own. Sound like a familiar cry? The population decline was not simply due to natural causes: feral goats introduced in the late 1800s chewed their way through the island’s vegetation, destroying the cacti and causing an explosion of woody plants, which further inhibited cactus regrowth – a disastrous combination for the tortoises. (This is of course a prime example of the dangers of invasive species. The next time border control stops you in case there are fruit flies in your cut mango, don’t complain!) The breeding program thus had to be paired with a concerted goat eradication effort, which itself took around 20 years. Even with population viability, a good deal more effort needs to be put into removing woody plants before the tortoises can be fully effective as ecosystem engineers.

So, although the tortoises are powerfully influential in the aggregate, even they need a helping hand – or in other words, when the system has been flipped into a state unconducive to change, small-scale efforts can only take you so far. As found in a recent OECD study, greener household behaviour can combine to create major reductions in waste, as well as water and energy use. These actions may even form the vanguard of a wider societal transition, but these incremental moves are sometimes overpowered by larger structural failings. Moreover, evidence suggests that even when individuals are open to pro-environmental actions, including lifestyle sacrifices, they may not follow through due to societal pressures or perceived time, effort, and cost constraints – but they may accept political changes that will externally drive this behaviour.

Thus, for issues requiring large-scale reorganisation such as the energy or food supply systems, it is essential to create an enabling environment for society’s members to achieve their full potential. Taking a cue from Espanola Island, policy-makers may do well to foster top-down change, or barring that, to eradicate some of the “goats”. (No goats were harmed in the writing of this piece. The author would also like to clarify that she loves goats.)

Useful links

Greening household behaviour

OECD Environment Directorate on iSSUU, including Policy Highlights on water, food, transport, waste and energy

 

World Environment Day: Greening household behaviour

World Environment DayDo you suffer from Lord Henry Wotton syndrome? He’s the chap in Oscar Wilde’s Picture of Dorian Gray who said “To get back my youth I would do anything in the world, except take exercise, get up early, or be respectable”. It’s an attitude we all have to something or other we feel is desirable, but not to the point of making much of an effort. Saving the environment falls into that category for many people, but the good news for the planet is that the OECD has identified a group of people who “believe that sacrifices will be necessary to solve environmental problems”.

These “environmentally motivated” citizens form one of three groups identified in Greening Household Behaviour, based on the Environmental Policy and Individual Behaviour Change (EPIC) survey carried out in 2011 in 12,000 households in 11 OECD countries. The other two groups are the “environmental sceptics” who believe that environmental problems are exaggerated; and the “technological optimists” who believe that the problems are real, but that technological innovations are key to solving them.

You could divide the respondents in various other ways too, by age for example. In six of the eleven countries, older respondents were more likely to agree that their own generation bore significant responsibility for solving environmental problems, and that these problems should not be simply left for future generations.

Since the report is based on a survey, it’s interesting to try to spot differences between what people say they are prepared to do, and what they actually do (and what you do you yourself). Around 60% of respondents for example said they’d be willing to pay more for electricity generated from renewable sources for instance. One that intrigued me was the 45% of people who claimed they always washed clothes in cold water. Everybody I know is part of the 12% who answered “never” to that one, but I live in profligate Paris. How about you? Do you always, often, occasionally or never turn of equipment that has a stand-by function? Look at table 3.12 to see how you compare.

Apart from water and energy, the survey covers transport, waste generation, recycling, and food consumption, the theme of this year’s World Environment Day. The UN chose food to highlight the fact that while 1 in every 7 people in the world go to bed hungry and more than 20,000 children under the age of 5 will die today from hunger, 1.3 billion tonnes of food is wasted every year. This is equivalent to the same amount produced in the whole of sub-Saharan Africa.

We talked about this subject a few years ago on the blog, following the publication of a UK report that estimated that the average household threw away food and drink worth £40 ($65) per month, or around 15% of the shopping budget. Respondents to the Greening Household Behaviour survey report that approximately 10% of food is thrown away. There is a big difference from one country to another, ranging from 6% in France to 14% in Israel and 15% in Korea. Younger respondents report higher levels of food waste. Those concerned with natural resource depletion are less likely to throw food away.

They’re also more likely to buy organic, but here the cross-country differences are even more striking. Australians and Canadians aren’t really willing to pay much more for organic fruit and vegetables (a 5% price increase), while Koreans would accept a 23% hike. The reported willingness-to-pay for meat and poultry that takes animal welfare into account varies from 10% to 20%. Surprisingly (to me at least) the report says that “no significant pattern is found between income and expenditure […] for organic fruit and vegetables nor for meat and poultry labelled as taking animal welfare into account”.

Demand for electricity is another behaviour that doesn’t depend on income levels, but in this case the poor don’t have alternative choices. So without additional policy measures, they’re likely to suffer as a result of higher energy prices. Likewise, water conservation could be improved by according needs-based grants for water efficiency investments, or giving grants to tenants, who often don’t agree to pay to improve a home they don’t own.

How about this household? My colleague Liisa-Maija Harju has been looking at whether the OECD practices what it preaches regarding sustainable buildings, water use and waste management. To mark World Environment Day, OECD Secretary-General Angel Gurria has announced that the Organisation will be introducing a carbon pricing initiative based on an internal “carbon tax” on air travel of €20 per tonne to “reflect the cost of carbon emissions in OECD staff travel [and] encourage management and staff to give greater consideration to environmental aspects in making their travel decisions and arrangements”.

As Douglas Adams says in The Long Dark Tea-Time of the Soul: “It can hardly be a coincidence that no language on earth has ever produced the expression, ‘As pretty as an airport.”

Useful links

Serge Tomasi of OECD’s Development Co-operation Directorate on Putting green growth at the heart of development

OECD work on the environment

OECD work on green growth and sustainable development

The Race for the Green House

During the “space race”, as we called it back in the Atomic Age, US inventor Paul C. Fisher developed a pen with a gas-pressurised cartridge that he claimed could write in zero gravity. NASA bought them, while the Russians used pencils. A reminder that the best solutions don’t have to be high tech or complicated.

I thought about this on seeing Greening Household Behaviour: The Role of Public Policy, published today by the OECD. Years ago, a Swedish collective housing project was looking for ways to cut water heating bills. Everything failed, until somebody came up with the winner. Every household was given a free plastic basin for the washing up, and they stopped letting the hot water run when doing the dishes.

The OECD book suggests an even more obvious solution: charge people for what they use. Households charged for the volume of water used consume 20% less than those who aren’t charged. The book also says that charging by volume of garbage collected encourages people to generate less waste than charging by weight.

As well as water and waste, the authors surveyed 10,000 people across 10 OECD countries on energy use, transport, and organic food consumption.

And as well as demand-side instruments like charging, they looked at the impact of information and supply-side measures. The results suggest that money doesn’t explain everything, and behaviour can be influenced by a sense of civic duty.

There are wide variations by gender, income, education and other factors though. For instance, Mexicans and Koreans worry more about their environment than people in the Netherlands.  And many Australians and Norwegians say their own actions can make a difference.

In line with other surveys, respondents generally seem reluctant to pay more to use green energies like solar or wind, and household demand for environmental quality is unlikely to be enough to reach ambitious policy objectives.

Encouraging changes in the supply of greener energy, transport and other goods and services is one reason public policy has a role. Many of the proposed solutions would hit poorer people disproportionately, charging being the most obvious example, so any policy initiatives have to consider aspects other than the immediate goal as well.

This book is part of a longer exercise. The 2011 round of the OECD Household Survey will identify changes in people’s attitudes and behaviour towards the environment, and examine ways to promote green growth and the development of a low-carbon economy.

Useful links

OECD work on the environment

OECD work on green growth