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At risk of poverty or social exclusion (AROPE)
At risk of poverty or social exclusion, abbreviated as AROPE, refers to the situation of people either at risk of poverty, and/or severely materially deprived and/or living in a household with a very low work intensity. The AROPE rate, the share of the total population which is at risk of poverty or social exclusion, is the headline indicator to monitor the EU 2020 Strategy poverty target.
The at-risk-of-poverty threshold is set at 60 % of the national median equivalised disposable income after social transfers
At-risk-of-poverty rate = Risk of monetary poverty
The at-risk-of-poverty rate (AROP) is the share of people with an equivalised disposable income (after social transfer) below the at-risk-of-poverty threshold.
This indicator does not measure wealth or poverty, but low income in comparison to other residents in that country, which does not necessarily imply a low standard of living.
The at-risk-of-poverty rate before social transfers: Share of people having an equivalised disposable income below the poverty threshold after the deduction of all social transfers.
The at-risk-of-poverty rate before social transfers, pensions excluded: Share of people having an equivalised disposable income below the poverty threshold after the deduction of social transfers with the exception of pensions
Disposable income includes all income from work (employee wages and earnings from self-employment); private income from investment and property; transfers between households; all social transfers received in cash.
Equivalised income is a measure of household income that takes account of the differences in a household's size and composition, and thus is equivalised or made equivalent for all household sizes and compositions. It is used for the calculation of poverty and social exclusion indicators.
The equivalised income is calculated by dividing the household’s total income from all sources by its equivalent size (cf. equivalence scale).
The equivalence scale is calculated using the modified OECD equivalence scale. This scale attributes a weight to all members of the household:
- 1.0 to the first adult;
- 0.5 to the second and each subsequent person aged 14 and over;
- 0.3 to each child aged under 14.
The equivalent size is the sum of the weights of all the members of a given household.
Equivalised disposable income
The equivalised disposable income is the total income of a household, after tax and other deductions (transfers to other households), that is available for spending or saving, divided by the equivalent scale (cf. equivalized income).
The equivalised disposable income is calculated in three steps:
- all monetary incomes received from any source by each member of a household are added up; these include income from work, investment and social benefits, plus any other household income; taxes and social contributions that have been paid, are deducted from this sum;
- in order to reflect differences in a household's size and composition, the total (net) household income is divided by the equivalence scale.
- finally, the resulting figure is called the equivalised disposable income and is attributed equally to each member of the household.
The Gini coefficient measures the extent to which the distribution of income within a country deviates from a perfectly equal distribution. A coefficient of 0 expresses perfect equality where everyone has the same income, while a coefficient of 100 expresses full inequality where only one person has all the income.
Income quintile group
Income quintile groups are computed on the basis of the total equivalised disposable income attributed to each member of the household.
The data (of each person) are ordered according to the value of the total equivalised disposable income. Four cut-point values (the so-called quintile cut-off points) of income are identified, dividing the survey population into five groups equally represented by 20 % of individuals each:
- first quintile group of equivalised income;
- second quintile group of equivalised income;
- third quintile group of equivalised income;
- fourth quintile group of equivalised income;
- fifth quintile group of equivalised income.
The first quintile group represents 20 % of the population with the lowest income (an income smaller or equal to the first cut-off value), and the fifth quintile group represents the 20 % of population with the highest income (an income greater than the fourth cut-off value).
The material deprivation rate is an indicator that expresses the inability to afford some items considered by most people to be desirable or even necessary to lead an adequate life. The indicator distinguishes between individuals who cannot afford a certain good or service, and those who do not have this good or service for another reason, e.g. because they do not want or do not need it.
The indicator measures the percentage of the population that cannot afford at least three of the following nine items:
- to pay their rent, mortgage or utility bills;
- to keep their home adequately warm;
- to face unexpected expenses;
- to eat meat or proteins regularly;
- to go on holiday;
- a colour television set;
- a washing machine;
- a car;
- a telephone.
Severe material deprivation rate (SMD) is defined as the enforced inability to pay for at least four of the above-mentioned items.
Low work intensity (LWI)
The indicator persons living in households with very low work intensity is defined as the number of persons living in a household where the members of working age worked less than 20 % of their total potential during the previous 12 months.
The work intensity of a household is the ratio of the total number of months that all working-age household members have worked during the income reference year and the total number of months the same household members theoretically could have worked in the same period.
A working-age person is a person aged 18-59 years, with the exclusion of students in the age group between 18 and 24 years.
Households composed only of children, of students aged less than 25 and/or people aged 60 or more are completely excluded from the indicator calculation.
Relative median at-risk-of-poverty gap (RMG)
The relative median at-risk-of-poverty gap is calculated as the difference between the median equivalised disposable income of people below the at-risk-of-poverty threshold and the at-risk-of-poverty threshold, expressed as a percentage of the at-risk-of-poverty threshold.
S80/S20 ratio= Income quintile share ratio
The income quintile share ratio or the S80/S20 ratio is a measure of the inequality of income distribution. It is calculated as the ratio of total income received by the 20 % of the population with the highest income (the top quintile) to that received by the 20 % of the population with the lowest income (the bottom quintile).
All incomes are compiled as equivalised disposable incomes.
Social transfers cover the social help given by central, state or local institutional units . They include:
- old-age (retirement) and survivors’ (widows' and widowers') pensions;
- unemployment benefits;
- family-related benefits;
- sickness and invalidity benefits;
- education-related benefits;
- housing allowances;
- social assistance;
- other benefits.