Description:
This indicator uses the Palma ratio to measure income inequality. The Palma ratio divides the richest 10% of the population’s share of net household income by that of the poorest 40%.
Source of Data:
The indicator is published as part of the annual publication: Poverty and Income Inequality in Scotland. The unit of measurement is the individual.
The data source is the Family Resources Survey (Households Below Average Income dataset), an Official Statistics dataset owned by the Department for Work and Pensions. Around 2,000 Scottish households respond to this survey.
The responses are weighted and grossed up to be representative of all private households in Scotland. Incomes are equivalised (to take into account household composition) using the modified OECD equivalence scale. Comparisons for his indicator can then be made between the richest 10% and poorest 40% of the population.
Definitions:
Income is equivalised net disposable income before housing costs. This measure estimates income from all sources (including earnings, benefits, tax credits, pensions, and investments) after deductions for income tax, national insurance contributions, council tax, pension contributions and maintenance payments but before deductions for housing costs such as rent and/or mortgage payments. The data will be adjusted for inflation and presented in the most recent year's prices.
Equivalisation sums the income of all householders, adjusts it to reflect the composition of the household, and applies the resulting income to all householders. More information is available here.
Deciles are created by ranking all individuals in private households by their equivalised incomes, then splitting them into ten evenly sized groups. The total equivalised income of the highest decile is summed and divided by the sum total of the income of the lowest four deciles, to arrive at the “Palma” ratio: the ratio of income to the top 10% of households compared to the bottom 40%. This is expressed as a percentage, i.e. a Palma ratio of 112% means that people in the top decile have 12% more income than those in the bottom four deciles combined.
Criteria for Change:
- Performance is improving if the indicator decreases for three periods in a row by at least 1 percentage point each period.
- Performance is worsening if the indicator increases for three periods in a row by at least 1 percentage point each period.
- Otherwise, performance is maintaining.
Future issues or reviews:
The coronavirus - COVID 19 pandemic severely disrupted the data collection in 2020/21. As a result, we were unable to obtain a representative sample for Scotland in that year. This means that the periods 2018-21, 2019-22 and 2020-23 only contain data from two financial years each.
Due to the missing year of data and because survey response rates have declined since the pandemic, results of this indicator need interpreted with caution as they can be more volatile.
The grossing of the FRS datasets will be adjusted to account for the new census population figures. Revisions will be made to poverty results going back to 2013 and will be published in March 2025.