Income inequality

There are criteria for measuring income inequality. A well-known standard is the Theil coefficient. As income discrepancies grow larger in a particular population, the Theil coefficient also grows. The minimum value of the Theil coefficient is 0; the maximum value depends on the size of the sample. To facilitate comparison between consecutive years, data have been adjusted for differences in sample size.

Income inequality is determined on the basis of data from the Income Panel Survey conducted by Statistics Netherlands. The current panel comprises approximately 80 thousand persons. Statistics Netherlands – in cooperation with Dutch tax authorities – annually collects demographic and income data of this group as well as their household members (a total of about 250 thousand).

The basic principle for measuring income inequality is the standardised disposable household income, as a person’s standard of living is related to the income of the household he/she belongs to. Disposable household income is composed of the wages of the individual household members, profits (self-employed persons) and income from wealth plus benefits and other allowances received and minus social contributions and taxes. The disposable household income is adjusted for size and composition of the household to facilitate comparison between the various types of households. The standardised household income is subsequently apportioned to each of the household members.

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