Disposable income and social inequalities grow in Luxembourg

(CS) While the disposable income of households has roughly tripled since the 1980s, social inequalities such as risk of poverty and the income gap have also increased, according to a Statec report.

Between 1985 and 2009 the average disposable income, following tax deductions and social contributions, has increased from 19,000 euros per year to 61,000 euros. The highest rate of income increase was experienced in the late '80s during a time of high economic growth of around 7 percent of GDP per year.

However, when taking into account rising inflation rates, the real value of disposable income has remained more or less stable since 2005, despite the fact that the monetary value has increased.

Highest Purchasing Power Standard in Europe

Luxembourg also ranks first in Europe with a Purchasing Power Standard (PPS) of 27,000. The PPS is a fake currency used by Eurostat to determine the value of money in countries with different-sized economies, eliminating differences in price structure for goods and services.

The Grand Duchy is followed by Norway (24,000 SPA) and Switzerland (22,000 SPA). On the bottom end of the chart are several Eastern European states, such as Romania (3,500 SPA) and Bulgaria (5,900 SPA).

Meanwhile, on average 70 percent of household income in Luxembourg are generated through salaries, 27 percent come from social benefits and only 3 percent comes from capital, such as real estate.

However, the least wealthy 10 percent of households depend far more on social benefits, with around 44 percent of their income arising from social transfers. On the other hand, some 80 percent of income are generated through salaries in the top 10 percent of households.

Income gap and poverty risk growing

The same period of time which saw disposable income more than triple on average, also saw a widening income gap in Luxembourg.

The income of the 5 percent lowest income households was on average 11 times lower than that of the top 5 percent income households. When looking at the bottom 1 percent households, the figure increases dramatically, with the top 1 percent households earning 40 times more.

At the same time, Luxembourg's Gini coefficient has increased. The Gini rates perfect equality and absolute inequality on a scale of 0 to 1. Luxembourg's coefficient has become increasingly unequal, rising from 0.254 in 1985 to 0.283 in 2009.

While Luxembourg ranks above its neighbours Germany and France, it is below Belgium, the Netherlands, Austria and Europe's Nordic nations.

The rate of people at risk of poverty, earning 60 percent less than the national average, has also increased, from 13 percent in 1985 to 14.5 percent in 2009. This number increases to 45 percent when subtracting social benefits from household revenue.