At risk of poverty

When measuring risk of poverty for international comparisons, the income method is the most widely used. The method is based on calculation of disposable household income which identifies the upper limit of a household’s consumption options, and in that respect the level of financial welfare for the household.

Measuring the risk of poverty by means of the income method it not without challenges. The main findings in analysis based on this method is that some households have lower income than others. However, it does not indicate if a household is living below the level of poverty-risk have a reasonable standard of living, nor does the calculation consider debt and property.

The income method is used for comparing risk of poverty among households across between countries, as the equivalent income is measured in relation to the median level of income in each country. Other methods of measuring risk of poverty must be used when comparing the standard of living or the fulfilment of social needs. Those methods are not addressed here.

In the Nordic countries the income method can illustrate the effects of social transfers for financially vulnerable groups eligible for this support. One purpose of financial redistribution in the Nordic welfare states is to reduce the proportion of the population in financially vulnerable positions. However, only few of the Nordic countries have defined the risk of poverty in greater detail, although it is a recurring theme of interest in social policies.

Traditionally, the Nordic countries have based their analysis of risk of poverty on the calculation of household disposable income less than 50 per cent of the median equivalent disposable income. In effect this represents the lowest quartile on disposable income within a country.

The following graph show the rate of all households in the Nordic countries and EU with an income less than 50 per cent of the median income. 

The table presents the most recent data on representative types of households in the Nordic countries.

The EU-SILC survey, which form the basis for the statistics on risk of poverty based on the income method, cover several thresholds of measure. The most used is the calculation of household disposable income less than 60 per cent of the median equivalent disposable income.

The following graph show the rate of all households in the Nordic countries and EU with an income less than 60 per cent of the median income. 

The table presents the most recent data on representative types of households in the Nordic countries.

Looking at the tables with most recent data on rate of households at risk of poverty, it is observed that there are significant differences between the households of similar kind. By that statement is meant the households with dependent children, or households with at least one individual older than 65 years, or for that matter also households with one or two adults younger than 65 years. In all comparisons mentioned, the rate of households at risk of poverty is higher for a single adult household than is the case of two adult households.

The following six graphs use data on 60 per cent of the median income to illustrate a country comparison on the pairing of these household types to show developments of the rate of types of households the past two decades.

There is a risk of becoming financially vulnerable when being a single parent with dependent children. This is clearly the picture of the rate of households in risk of poverty. This is perhaps also why this group of individuals often receive financial support as either cash benefits of tax reduction in all the Nordic countries. Still the rate of risk of poverty is high in countries like Norway and Sweden, which are periodically at same level of the average of the EU countries.

The long-term effect for children in this group of households are often in focus for policy analysis, as it is considered of consequences for the individual child to grow up in a financial vulnerable situation. However, analysing the long-term consequences of risk of poverty require more methods than just using the income method.

Looking at households of two adults with dependent children Sweden stands out as a Nordic country with the relatively highest rate of households at risk of poverty and have in that respect distanced itself from the other countries since 2007. The remaining countries have throughout the period of interest been at the same level, just above 5 per cent. As is the case in other comparisons, this demonstrates the effect of being better off financially when sharing a household.

The risk of poverty, a measured by the income method, seem to be relatively high among elderly people living alone in the Nordic countries. For countries like Finland and Sweden the rate is identical to the average of the EU countries whereas the other Nordic countries are somewhat lower. A reason why the rate is high in some of the Nordic countries is perhaps due to the employment related pensions systems, where especially women have had difficulties in accruing rights for income as pensioners due to unregular attendance at the labour market. Read more about the pension systems here: Basic pension or guaranteed minimum pension to elderly people

For households with couples where at least one adult is 65 years or above, the rate of households at risk of poverty is remarkably low, compared to households with single adults of similar age. This is a general feature for all the Nordic countries since 2011.

Looking at the timeseries on rate of households with one adult younger than 65 years at 60 per cent of median income, it is noticeable that the rate of most of the Nordic countries are above the average rate of the EU countries. This is odd as the rate of risk of poverty in the Nordic countries tend to be below the average rate of the EU countries. 

This might be because this group of individuals are perhaps not observed as a target group for social policy interventions in the Nordic countries. For example, in many of the Nordic countries the financial social benefits for adults without dependent children are among the lowest of social benefits available, as is explained on this page: Financial social assistance or cash benefits

When households consist of two adults younger than 65 years, the rate of risk of poverty is considerably lower, demonstrating the effect of being better off financially when sharing household. In this case all the Nordic countries have been below the average rate of the EU countries, except perhaps for Denmark, which in recent years have demonstrated a higher rate, though declining up until today.

The statistics in this article come from national statistical agencies in the Nordic countries but is sourced through Eurostat and therefore comply with definitions provided by Eurostat. In this case the Nordic Statistics database provide the figures for graphs and tables.

Most of the data on at-risk-of-poverty rate by poverty threshold and household type come from EU-SILC and EHCP surveys, except data from Greenland which is provided by Statistics Greenland using guidelines from EU-SILC.

The poverty thresholds presented in the statistics are in either 50 per cent or 60 per cent of the median equivalent disposable income after social transfers. 

The median is the point on the scale of income, which divides the population into two groups of equal size. The poverty threshold is therefore 50 per cent or 60 per cent of the median level, focusing only on groups in society that are represented in the lower half of all income. To be able to compare the different households represented in the statistics, the disposable income is equivalised and thereby adjusted for size and composition. The household disposable income is earnings and cash benefits (social transfers) and after deduction of direct taxes and cash transfers.

It is important to stress the effect of social transfers, as they tend to have a significant effect on income for otherwise financially vulnerable groups in the Nordic countries.