Disposable household income down 2.4 percent

24/01/2013 15:00

Real disposable income of households in the Netherlands decreased by 2.4 percent in the third quarter of 2012 compared with twelve months previously. It was the fifth quarter in a row that household income fell. The income decrease was mainly caused by the fact that wages have hardly increased while on average prices have risen by more than 2 percent.

Real growth of disposable income and household consumption

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Fifth consecutive quarter with decrease

The fall in real disposable income in the third quarter follows a decrease of 2.8 percent in the second quarter of 2012. In the three preceding quarters, too, disposable household income had been down on twelve months previously. Shortly after the start of the debt crisis in September 2008, disposable household income also fell for a long period, although decreases were then below 2 percent. Since the debt crisis started, disposable income has fallen by nearly 4 percent.

Net wages hardly up

Household income can be divided into four categories: employee wages, income from production, net property income (e.g. interest), and income from social benefits (e.g. state pension, supplementary pension). Employee wages account for around 60 percent of total income, social benefits for around 20 percent. Disposable income consists of the above-mentioned income minus paid taxes and social premiums. These taxes and premiums account for just over 40 percent of total income. The real growth of disposable income is the change in disposable income adjusted for inflation.

Effects on year-on-year change in real disposable income

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Increases in the number of employees and wage rises are often the driving forces of the increase of disposable income, but the number of employees decreased in the second and third quarters. The average increase in collectively agreed wage rates, 1.7 percent compared with twelve months previously, was also modest. Net property income and income from social benefits did increase further, partly because of an increase in the number of unemployment benefits since the end of 2011, and the rise in state and other pension payments that had started earlier. Although disposable income rose, the increase was still smaller than the inflation rate and therefore in real terms households had to get by on less. The inflation rate has been over 2 percent for more than a year now.

Income, spending and saving of households

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Less money for savings

The decrease in disposable income alongside the low level of consumer confidence is putting household consumption under pressure. In the third quarter, real consumption fell by 1.3 percent. This was the sixth consecutive quarter in which consumption fell. In spite of this, the gap between income and consumption is still narrowing. In the third quarter the household saving rate, i.e. the share of income not spent on consumption, fell to 10.8 percent. This share is based on disposable income adjusted for net contributions to pension funds. Although the net contributions to pension funds reduce current disposable income, they can be regarded as savings for retirement. In addition to adding to pension funds reserves, remaining income can be used for investments or put into other assets.