What’s going on within the household sector? UNECE, 6-9 May 2014, Geneva

Content Background Two research projects within Statistics Netherlands Household breakdown Ageing society Results Conclusion & way forward First I’ll cover the background on these research projects. I will briefly cover the overlap and differences of both projects and explain them in some more detail. For both projects I’ll give some experimental results, different from those presented in the paper but even combined it is not even close to all of the work done.

Background G-20 Data Gaps Initiative Commission on the Measurement of Economic Performance and Social Progress (SSF-commission) Expert Group on Disparities in a National Accounts framework (EGDNA) Demographic changes United Nations National Transfer Accounts (NTA) Resulted in two research projects within Statistics Netherlands There is a need for more information on the households sector. There are a number of initiatives, of which the G20 Data Gaps and the SSF commision are perhaps the most influential, which had in common that they recommended to refine the macro picture. The households sector needed to be enriched with additional micro economic data in order to present distributions and inequalities in the NA framework. As one result of these initiatives the OECD and Eurostat jointly organized an EG, in which around 16 countries tried to harmonized their approaches to achieve this goal. In parallel to this EG (which SN joined by the way) we intensively worked on the breakdown for the Dutch NA in our Household Breakdown project A second demand for additional information in the SNA is driven by demographic changes, in NLD more and more people reach the retirement age, resulting in a larger fraction of the population that is dependent and as a results a smaller fraction that is working / independent. Already in 2005 the UN held a expert meeting about these changing population age structures. Two researchers, Andrew Mason and Ronald Lee, are the driving factors behind the NTA. This NTA aims to bring the age dimention into the SNA, allowing for analysis of intergenerational flows. SN did not participate yet in this NTA project but when we came upon this group of reserarchers and their methodology we did find the results promising, and it became a subject within the project Ageing Society. Household breakdown Ageing society Shared ground: Enriching the SNA with additional micro data Using the same data sources Focus on the household sector Differences: Institutional unit Sequence of accounts

Household breakdown Disitribution of income, consumption and wealth over household groups in 5 categories. Linking micro data to NA transactions. Compiling indicators, allowing the monitoring of inequalities. First results for 2005-2009. The goal is to distribute ICW over household groups in 5 categories (standard of living / housing status / main source of income / household composition / age of the head of the household). Doing this we also get the savings rate for each hosuehold group. Measures of the distribution of income, consumption and wealth are provided by micro data, e.g. surveys, administrative records and censuses. But for many reasons such as differences in concepts, definitions and statistical practices, micro data can yield results that diverge from macro aggregates. These concepts are as closely aligned as possible. In the end for the dimensions mentioned (ICW) distributions are achieved and indicators for inequality are derived. These indicators are for example the ratio for the highest to the lowest and the disparities index. I’ll not go further into detail because this is mentioned in the paper and a discussion paper that is put online on the website of SN. I will show some results.

Household breakdown adjusted disposable income 2009 Equivalized values Ratio highest to lowest: 2005 2,9 2006 2,8 2007 2008 2,7 2009 2,5 This shows the results for the household breakdown in 2009. The adjusted disposable income (so including the stik) is distributed over 5 quintiles showing the 20% households with the lowest income in Q1 and the 20% richest households in Q5. This standard of living is one of the 5 household categories. The ratio highest to lowest is an indicator that shows that for these 5 years the income inequality has decreased. When we do the same for consumption it shows that consumption inequaltiy is stable, wealth shows that wealth inequality decreased as well. We also have estimates on savings by combining income and consumption.

Household breakdown savings rate as % of adjusted disposable income The savings rate as a percentage of adjusted disposable income is more volatile than the income and the consumption measures. This can be due to differences in concepts between the micro sources that are used. Showing the savings rate for the age of the head of the household shows that there is support for the lifecycle hypothesis. The issue is that age is not a household characteristic. It is the charateristic of one person within the household, used as a proxy to identify old and young households. Which is my link to the ageing society, a project where we focus on the individual.

Economic lifecycle account (2008) Ageing society – NTA Economic lifecycle account (2008) The ageing society follows for a large part the methodology of the NTA and is built around the economic lifecycle. This lifecycle shows the dependent ages (young and old) and the independent stage in which a person has a higher labor income than their consumption. This is the stage in which a person can save for future periods, but this is also the stage in which net transfers are negative. The inst unit is the individual, deviating in this respect from the SNA that does not know this unit. But when generations are considered the focus on households is insuffiient. There is no generation for a household, and many intergenerational flows occur within households. The lifecycle deficit is the difference between consumption and labor income. This difference has by definition be covered by the net transfers and the net asset reallocations. Which I did put in my paper, not in this presentation. What I am going to shwo here is a difference in gender, for example. These are not SNA transaction but can be derived quite easily. For example labor income equals the income from self-employment and employer remuneration. And total consumption is private consumption plus stik.

Ageing society – transfer systems (2008) By definition the lifecycle deficit has to be covered by transfers or by asset income. These transfer systems are quite extensive in NLD. Already in 2008, for the unfunded pensions (state pensions) the contributions were not sufficient to cover the benefits. With more people entering the retirement ages this might become even worse. And it is up to policy makers to decide whether the retirement age has to be increased further, or benefits have to be lowered to keep this system affordable. This is one transfer system, these could be private or public or even within households, where children start looking after their parents.

Ageing society – demographic dividend 1 The support ratio presented here is one indicator of demographic depency. This support ratio differs from the usual support ratios because it does not only take into account the number of people in the age groups, but also the consumption and labor income patterns that are representative for these age groups. Which were shown in the previous slides. A benefit from this is that economically active persons in the ‘inactive’ age groups still contribute to the support ratio. In this chart roughly two phases are apparent. In demographics the fenomenon that the share of working people increases is commonly called the demographic dividend. Other things being equal, this increase in the share of working people should have a positive effect on growth of per capita income and government taxes. Whether this actualle led to economic growoth depended on many other things, but the demographic conditions were favourable. This period is denoted by the 1 in the chart. It is clear that NLD reached the end of this demographic dividend around the year 2000. Other countries (developing countries) however may still be in this first demographic dividend phase. So what about the period from then? Andrew Mason (one of the NTA researchers) noted in one of his presentations that the ageing society could lead to a second demographic dividend, giving another possibility for economic growth. This time not driven by increasing labor income, but by increasing savings and wealth. Coming back to the lifecycle hypothesis that states that people save for their retirement phase. Here lies the challenge to turn these savings and accumulation of wealth into economic growth.

Conclusions & way forward Increasing demand for additional information in the SNA can be met by integrating micro data Household breakdown expected to be published at the end of the year. Ageing society work in progress Considerable amount of conceptual challenges Further disitribution of SNA Many opportunities for further research Increasing demand for additional information in the SNA, whether it be a demand for inequalites and distributions or of intergenerational flows. Both can be achieved within the SNA framework by adding micro data! This does take a lot of effort to harmonize the concepts but the results SN found so far are promising. For the household breakdown we expect this to be published at the end of the year, when results and methodology are updated to ESA 2010. We built a short time series for the years 2005-2011 by then. For the ageing society there is much more to be done, estimates so far take into account the flow accounts, I want to add wealth as well, capital transfers etc. Rebuild the entire SNA framework into the NTA framework. Furthermore there are many research opportunities to think of especially in this second dividend phase.

Thank you Arjan Bruil Statistics Netherlands a.bruil@cbs.nl +3170 337 4531