Concepts and definitions

Consumption unit

Income and consumption expenditure calculated per consumption unit can be used to compare households of different sizes and structures with each other. There are several different ways of calculating consumption units. From 2002, the income distribution statistics and the Household Budget Survey 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).

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 contributions and unemployment insurance premiums, as well as 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. From 2011 onwards, current transfers paid also include part of current transfers between households (e.g. bills paid for other households and money given for studying).

Current transfers received

Current transfers received by households and persons are formed of earnings-related and national pensions and other social security benefits, social allowances 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 allowances are such as child benefits, 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.

Disposable income

Before the statistical reference year 2011, the income distribution statistics primarily utilised the concept of disposable income. In the income distribution statistics and in the Household Budget Survey, households' disposable income included all salaries and wages, entrepreneurial income and property income (including imputed rent from owner-occupied dwellings and taxable sales profits from property), benefits in kind and current transfers received, from which sum, current transfers paid were deducted.

The formation of disposable income can be described as follows:

+ Wages and salaries

+ Entrepreneurial income

+ Property income (incl. imputed rent from owner-occupied dwellings and sales profits)

-----------------------------------------------

= Factor income

+ Current transfers received (incl. imputed rent from a rental dwelling from another household)

---------------------------------------------

= Gross income

– Current transfers paid

--------------------------------------------

= Disposable income

When social current transfers in kind are added to income, adjusted disposable income is obtained. This concept is not formed in the income distribution statistics.

The imputed rent of owner-occupiers was regarded as factor income (property income) and imputed rent for a dwelling rented from another household as current transfers received in the income distribution statistics. Imputed rent is still formed in the income distribution statistics but from the statistical reference year 2011, it is treated as a separate income item (see "Imputed rent"). Similarly, taxable realised capital gains or sales profits are treated as a memorandum item according to international recommendations.

Wages 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

Households' disposable money income includes monetary income items and benefits in kind connected to employment relationships. Money income does not include imputed income items, of which the main one is imputed rent.

The formation of disposable money income can be described as follows:

+ wages and salaries

+ entrepreneurial income

+ property income (without imputed rent)

-----------------------------------------------

= factor income

+ current transfers received (without imputed rent)

---------------------------------------------

= gross money income

– current transfers paid

--------------------------------------------

= disposable money income

When current transfers paid are deducted from gross money income, the remaining income is the household's disposable money income.

The primary income concept used in the income distribution statistics is household's disposable money income according to international recommendations, in which case sales profits and taxes paid on them do not belong to the scope of the income concept. Following international recommendations, they are treated as a memorandum item outside the income concept.

The concept of disposable money income in the total statistics on income distribution differs from disposable money income in the income distribution statistics. As a conceptual difference, the income concept of the total statistics on income distribution includes taxable realised capital gains. For practical reasons, the total statistics on income distribution do not include the majority of interest income and current transfers received and paid between households (e.g. child maintenance support). Real property tax is not deducted in the total statistics on income distribution either.

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 of earnings has been used for 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. Income from agriculture does not include imputed income received from products taken into own use.

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 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

In the income distribution statistics, 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 coefficient is the most common indicator describing income differences. The higher value the Gini coefficient gets, the more unequally is income distributed. The biggest possible value for 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. In the income distribution statistics, Gini coefficients are presented as percentages (multiplied by one hundred). The Gini coefficient describes relative income differences. The Gini coefficient does not change if the incomes of all income earners change by the same percentage.

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.

Housing expenditure

Housing expenditure includes operating expenditure, interests on and amortisations of housing loans, capital charges, and real estate tax for the household's actual dwelling.

Income deciles

The income distribution is described by means of tenths or deciles. Sometimes fifths or quintiles are also used, formed in the corresponding way as deciles.

An example of how income deciles are formed:

Nowadays the decile groups or income deciles 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 income decile then has 10 per cent of the population. The first income decile contains the lowest income tenth and the last one the highest income tenth. The income shares of income deciles show how large share of the total sum of the income in question each decile gets.

Income share of housing costs

Housing costs include operating expenditure, interests on housing loans and real estate tax paid by the household for its actual dwelling. Depending on its tenure status, the dwelling's operating expenditure comprises maintenance charges, rents, water and waste charges, separate energy expenses, costs of maintenance repairs, and other operating and maintenance expenditure of the dwelling.

The income share of housing costs (in gross) indicates the share of housing costs in the household's disposable income (excl. real estate tax). In the income share of housing costs in net, housing costs and disposable money income do not include housing allowances received by the household as current transfers (general housing allowance, housing allowance for pensioners, students' housing supplement) and tax deduction benefit for interests on housing loans.

Low income

Low-income earners (persons at risk of poverty) are considered those whose household's disposable money income per consumption unit (so-called equivalent income) is lower than 60 per cent of the equivalent median money income of all households. The proportion of the population falling below this income limit is called the low income rate (at-risk-of-poverty-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 national definition for low income or poverty line in Finland.

From the statistical reference year 2011 onwards, the income distribution statistics started to use the money income concept meeting international recommendations for statistics on low income earning (poverty risk). In reports published before that, a wider income concept was used, that is, households' disposable equivalent income, when income included so-called imputed rent and sales profits.

Money income

Money 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. Money income includes benefits in kind connected to employment relationships.

Gross money income = the household's factor income (wages and salaries, entrepreneurial and property income) + current transfers received by the household.

Property income

Property income includes rental, interest and dividend income, pensions based on private insurance and other income (from 2000). Interest income subject to the Act on Withholding Tax is included in interest income as gross. Withholding taxes paid on them are included in current transfers paid. In international recommendations, sales profits are not counted as income, so taxable realised capital gains are not included in the income concept in the income distribution statistics. Instead, they are included in income in the total statistics on income distribution.

In the statistics published before the statistical reference year 2011, dwelling income and taxable sales profits were included in property income. From the statistical reference year 2011, dwelling income and sales profits were removed from the income concept, because the compilation of statistics is based on the concept of disposable money income fulfilling international recommendations. Data on the previous income concept including dwelling income and sales profits are still formed as reference data and they can be requested from Statistics Finland.

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 (the 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 as pay – either in money or benefits in kind. In the income concept, income from incentive stock options is included in benefits in kind and thus in wages and salaries. 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. Their generating costs are deducted from wages and salaries, but not travel expenses.