Measures of income inequality are based on data on people’s household disposable income (see “Definition and measurement” in GE1 for more detail). The main indicator of income distribution used is the Gini coefficient. Values of the Gini coefficient range between 0 in the case of “perfect equality” (each person gets the same income) and 1 in the case of “perfect inequality” (all income goes to the share of the population with the highest income). Life expectancy data is discussed in “Definition and measurement” of indicator HE1.

Perceptions of a decent standard of living vary across countries and over time. Thus no commonly agreed measure of poverty exists across OECD countries. As with income inequality, the starting point for poverty measurement is equivalised household disposable income provided by national consultants (see “Definition and measurement” under EQ1. Income inequality). People are classified as poor when their equivalised household income is less than half of the median prevailing in each country. The use of a relative income-threshold means that richer countries have the higher poverty thresholds. Higher poverty thresholds in richer countries capture the notion that avoiding poverty means an ability to access to the goods and services that are regarded as customary or the norm in any given county. The poverty rate is a headcount of how many people fall below the poverty line.

Data on income difficulties is drawn from the Gallup World Poll. The Gallup World Poll is conducted in over 140 countries around the world based on a common questionnaire, translated into the predominant languages of each country. With few exceptions, all samples are probability based and nationally representative of the resident population aged 15 years and over in the entire country, including rural areas. While this ensures a high degree of comparability across countries, results may be affected by sampling and non-sampling error. Sample sizes vary between around 1 000 and 4 000, depending on the country. The Gallup data for this question does not include Switzerland. The data used is the response to the question “Which one of these phrases comes closest to your own feelings about your household’s income these days?”. The following four responses are possible: Living comfortably on present income, Getting by on present income, Finding it difficult on present income, Finding it very difficult on present income. The statistics presented combines the last two categories. Rates calculated omitted don’t knows and refused from the denominator. This non-response was 11% in Italy and also high in the Russian Federation and Belgium (7%). Household income data sources are described in CO1 and income distribution data in EQ1 and EQ2. The Gini coefficient is a measure of income inequality. Values range between 0 – perfect equality – and 1 – all income goes to one person.

The indicators show gross earnings levels expressed as a percentage of average full time earnings, required for a family to reach a 60% median income threshold from benefits of last resort. Benefits of last resort are paid when all other sources of income are exhausted. 60% was shown because many countries have benefits of last resort above 50%. Benefit income includes family-related benefits and housing benefits (with and without), on top of core benefits. It is expressed as a percentage of average full-time wages. Income tax and social security as well as tax-related benefits are also counted. The indicators are shown for 2009 and for lone-parents and couples with two children aged 4 and 6. In the married-couple case, a one earner couple is assumed. Family incomes in these situations are simulated using the OECD Tax-Benefit Model (methodology available in Benefits and Wages 2007). Median incomes come from Growing Unequal? (2008). They relate to the mid-2000s and are converted to 2009 prices. No bars are shown for countries where the sum of all benefits, excluding earnings, exceeds 60% of median income. For Australia, Canada, Israel, New Zealand, Switzerland, Turkey and Korea, the indicators are for 2008.

Social expenditure is classified as public when general government (i.e. central administration, local governments and social security institutions) controls the financial flows. For example, sickness benefits financed by compulsory contributions from employers and employees to social insurance funds are considered “public”, whereas sickness benefits paid directly by employers to their employees are classified as “private”. For cross-country comparisons, the indicator of social spending used here refers to public spending as a share of GDP. The spending flows shown here are recorded before deduction of direct and indirect tax payments levied on these benefits and before addition of tax expenditures provided for social purposes (“gross spending”). Spending by lower tiers of government may be underestimated in some federal countries. Private social spending, which is considerable in a number of countries such as Korea and Canada, is not considered here because of the considerably greater error in the data. The Gini coefficient is a measure of income inequality. Values range between 0 – perfect equality – and 1 – all income goes to one person.