Concepts and definitions
- Cash income
Cash income is obtained when imputed income items are deducted from household gross income. Imputed items are imputed income obtained from an owner-occupied dwelling in own use. Cash income includes benefits in kind connected to employment relationships.
Gross income = the household's factor income (wages and salaries, entrepreneurial and property income) + current transfers received by the household
- Consumption unit
Income and consumption expenditure calculated per consumption unit can be used to compare households of different size and structure with each other. There are several different ways of calculating consumption units. Since 2002 the income distribution statistics have used the OECD's adjusted consumption unit scale where
- the first adult of the household receives the weight 1
- other over 13-year-olds receive the weight 0.5
- children receive the weight 0.3 (0 to 13-year-olds).
Until 2004 the Household Budget Survey utilised the original OECD scale previously also used in the income distribution statistics, which is formed as follows:
- the first adult of the household receives the weight 1
- other adults receive the weight 0.7
- children receive the weight 0.5.
Those aged 0 to 17 were defined as children.
The selected consumption unit scale has a significant effect on income levels and on placement of different population groups in the income distribution.
- Current transfers paid
The household's current transfers paid are mainly formed of direct taxes and social security contributions. In addition, current transfers paid include compulsory pension and unemployment insurance premiums and child maintenance support paid. Taxes paid do not include church tax, voluntary individual insurance premiums (from 2000 regarded as savings in the income distribution statistics) and indirect taxes. Current transfers paid are based on register data, except for withholding taxes paid on interest income.
- Current transfers received
Current transfers received by households and persons are formed of earnings-related and national pensions and other social security benefits, social allowance and other current transfers received.
Other social security benefits are such as rehabilitation allowances, daily and parental allowances, compensations of statutory accident insurance and earnings-related unemployment allowance.
Social allowance is such as child benefit, support for care of small children, conscript's allowance, social assistance, general housing allowance, study and research grants, basic unemployment allowance and labour market allowance.
Other current transfers received are current transfers received between households. The data are mainly based on register data.
- Decile groups or income deciles
In most statistics the distribution of a variable, such as income or property, in the population is described by means of deciles or income deciles. Sometimes also fifths or quintiles are used, formed in the corresponding way as deciles.
An example of how deciles are formed:
Nowadays the decile groups used in the income distribution statistics are formed by dividing first the household's income by the household's consumption units (so-called equivalent income). Each household member will have the same equivalent income. The persons are then arranged in the order of their income and divided into ten groups of equal size. Each decile then has 10 per cent of the population. The first decile contains the lowest income tenth and last the highest income one. The income shares of decile groups show how large share of the total sum of the income in question the decile groups get.
- Disposable income
The key income concept in the income distribution statistics is disposable income, which is also used in the Household Budget Survey. The formation of disposable income can be described as follows:
+ Wages and salaries
+ Entrepreneurial income
+ Property income
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= Factor income
+ Current transfers received
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= Gross income- Current transfers paid
= Disposable incomeWages and salaries include income paid for households as pay - either in money or benefit in kind. Income from incentive stock options is included in the income concept in benefits in kind and thus in wages and salaries.
Entrepreneurial income includes income from agriculture and forestry, business activity and business group and copyright fees. Entrepreneurial income in agriculture also contains various subsidies and compensations such as agricultural subsidies, European Union agricultural aid and compensation for harvest losses.
Property income is rental, interest and dividend income received by households, imputed net rent from an owner-occupied dwelling, taxable capital gain and pensions based on private insurance and other income.
Current transfers received comprise earnings-related pensions and national pensions and other social security benefits, social assistance and other current transfers received.
Current transfers paid comprise direct taxes and social security contributions. In addition, current transfers paid comprise compulsory pension and unemployment insurance premiums and in the income distribution statistics also child maintenance support paid.
The key income distribution statistics concept, disposable income, is arrived at when current transfers paid are deducted from gross income. The concept of disposable income in the Household Budget Survey is based on register data, and does not, differing from the income distribution statistics, include wages and salaries subject withholding tax and tax-free interest income and current transfers between several households (e.g. child maintenance support).
- Disposable money income
The household's disposable money income is a corresponding concept to the household's disposable income but it does not include imputed income items (e.g. imputed income received from an owner-occupied dwelling in own use). The concept includes benefits in kind related to employment relationships.
The household's disposable money income = household members' total wages and salaries + entrepreneurial income + property income (excl. imputed income items) + current transfers received - current transfers paid.
- Dwelling income or imputed net rent
Dwelling income or imputed net rent describes the benefit gained by the household for the owner-occupied dwelling it lives in compared with a corresponding household living in a rental dwelling with market rent. Dwelling income from living in an owner-occupied dwelling is the difference obtained when deducting the housing costs paid by the household for its dwelling (e.g. maintenance charges, insurance, maintenance costs and interest on housing loan) from the so-called imputed gross rent. Dwelling income may become negative if the deduction items exceed the gross rent.
In the income distribution statistics and the Household Budget Survey dwelling income obtained from an owner-occupied dwelling is included in property income, which together with wages and salaries and entrepreneurial income form factor income. Dwelling income from one's own dwelling is also included in disposable income.
- Earned income
Earned income is the sum of earned and entrepreneurial income received by households and income recipients during the year.
The earned income concept of the income distribution statistics includes income items taxed in taxation both as earned and capital income. From the statistical year 1999 onwards the concept earnings has been called earned income in the income distribution statistics. The content of the concept has not changed.
- Entrepreneurial income
Entrepreneurial income includes income from agriculture and forestry, business activity and business group and copyright fees. Entrepreneurial income in agriculture also contains various subsidies and compensations such as agricultural subsidies, European Union agricultural aid and compensation for harvest losses. Since 2000 income from agriculture has not included imputed income received from products taken into own use. Entrepreneurial income is based on the tax register data.
- Equivalent income
Equivalent income is an income concept by which incomes of households of different types are made comparable by taking account of shared consumption benefits.
Equivalent income = the household's disposable income divided by the number of consumption units in the household.
From 2002 the income distribution statistics have used the OECD's adjusted consumption unit scale recommended by Eurostat, the Statistical Office of the European Communities, where
- the first adult of the household receives the weight 1
- other over 13-year-olds receive the weight 0.5
- children receive the weight 0.3 (0 to 13-year-olds are defined as children)
The assumption is that income is evenly distributed inside the household between all household members in relation to the above-mentioned consumption need.
- Factor income
Factor income is monetary compensations received by households for participation in the production activity as wages and salaries, entrepreneurial income and property income.
- GINI co-efficient
The Gini co-efficient describes the unevenness of a variable (such as income or property distribution). It is a generally used indicator of inequality, where the extent of the dispersion of income is described with one numerical value.
The higher value the Gini coefficient gets, the more unequally is income distributed. The biggest possible value of the Gini coefficient is one. Then the highest earning income recipient receives all the income. The smallest Gini coefficient value is 0, when the income of all income recipients is equal.
- Gross income
The household's gross income is obtained when current transfers received by the household are added to the household's factor income (wages and salaries, entrepreneurial and property income), but paid current transfers (e.g. taxes and social security contributions) are not deducted.
- Household
A household is formed of all those persons who live together and have meals together or otherwise use their income together. The concept of household is only used in interview surveys.
Excluded from the household population are those living permanently abroad and the institutional population (such as long-term residents of old-age homes, care institutions, prisons or hospitals).
The corresponding register-based information is household-dwelling unit. A household-dwelling unit is formed of persons living permanently in the same dwelling or address. More than one household may belong to the same household-dwelling unit. The concept of household-dwelling unit is used in register-based statistics in place of the household concept.
- Low income
Low-income earners are considered those whose household's total disposable income per consumption unit (so-called equivalent income) is lower than 60 per cent of the equivalent median income of all households. The proportion of those below this income limit is called the low income rate. The euro-denominated limit for low income varies by year. The definition is based on the recommendations of Eurostat, the Statistical Office of the European Communities. There is no official definition for low income or poverty line in Finland.
- Property income
Property income includes rental, interest and dividend income, imputed net rent from an owner-occupied dwelling (or dwelling income), taxable capital gain and pension based on private insurance and other income (from 2000). Other dividend and interest income derived from taxation data is classified under dividend income. Interest income subject to withholding tax legislation is included in interest income in gross. Withholding taxes paid on them are included in current transfers paid. Information on property income is derived from registers, except for interest income subject to withholding tax and tax-free interest income from abroad, which is obtained from the interview.
- Reference person
In the income distribution statistics and in the statistics of household's assets the person with the highest personal income is chosen as the household's reference person. Personal income is defined according to register data and interview data.
Although income is the main criterion determining the reference person, in some cases (e.g. entrepreneur households) the activity of the whole household is taken into account. Households of pensioner parents with children (including those over the age of consent) are also special cases where the parent with the higher income is selected as the reference person if the combined incomes of the parents clearly exceed those of a child.
- Socio-economic group
In the Household Budget Survey and income distribution survey a socio-economic group is formed for household members on the basis of the person's activity in the last 12 months. For determining the socio-economic group, persons are first divided into economically active and inactive. As a rule, all those who have participated in the production activity for at least six months during the survey year are counted as economically active. Economically active are further divided into self-employed and wage and salary earners on the basis of information reported in the interview. Self-employed are also such persons who have been taxed as employees in taxation (typically entrepreneurs working as employees in their own company). Economically inactive are grouped into students, pensioners, unemployed and others. Unemployed are persons who have been unemployed for at least six months during the year.
The socio-economic group of the household is determined by the household's reference person.
The classification is based on the Statistics Finland's classification standard of socio-economic groups from 1989. There account is taken of the person's occupation, status in occupation, nature of work and stage in life (Classification of Socio-economic Group 1989. Helsinki. Statistics Finland, Handbooks, 17).
- Unemployed
In the income distribution statistics persons who have been unemployed for at least six months during the year are classified as unemployed. Months of unemployment are asked from persons in the interview. Interview months are checked and where needed, corrected on the basis of register data (Social Insurance Institution's register data on unemployment allowances and times of receipt, the tax register's unemployment allowances).
- Wages and salaries
Wages and salaries include income paid to households or persons during the year in pay - either in money or benefits in kind. Their generating costs are deducted from wages and salaries, but not travel expenses. The concept of wages and salaries used in the income distribution statistics includes not only wages and salaries for regular working hours but also overtime compensations and income received from secondary jobs. Realised incentive stock options are also included in wages and salaries in the income concept of the income distribution statistics. Wages and salaries are derived from the tax register, except for part of wages and salaries earned abroad, which are obtained from the interview.
Official Statistics of Finland (OSF):
Income distribution statistics [e-publication].
ISSN=1799-1331. Helsinki: Statistics Finland [referred: 9.2.2012].
Access method: http://www.stat.fi/til/tjt/kas_en.html.
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