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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.

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)

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= factor income

+ current transfers received (without imputed rent)

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= gross money income

– current transfers paid

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= 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.

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.

Long-term low-income

Long-term low-income earners are those who have belonged to low-income households in two years within the three previous years in addition to the statistical year (see the definition of low income). The definition is based on the recommendations of Eurostat, the Statistical Office of the European Communities.

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.

Mean income

The arithmetic mean income is received when the income of all income recipients is added up and divided by the number of observations. Mean income is more sensitive to extreme observations than median income.

Median income

When income recipients are put in the order of size by income, median income is the income of the middle income recipient. An equal number of income recipients remain on both sides of the middle income recipient. Median income is not as sensitive to extreme observations as mean income.

Property income

Property income includes rental, interest and dividend income derived from registers, taxable capital gains and pensions based on private insurance, and other property income derived from taxation data. Dividend income includes both untaxed and taxable dividend income, and interest on co-operative capital. In addition, property income in income distribution statistics includes interest income subject to withholding tax and tax-free interest income from abroad on which data are obtained with an interview, and which do not come under the scope of the definition used in total statistics on income distribution.

Reference person

The household member with the highest gross income is selected as the reference person in total statistics on income distribution. Income is determined from register data.

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.