Growth and economic well-being: OECD household income grows slightly in the third quarter of 2020 despite GDP rebound

Real household income per capita, which provides a better picture of changes in people’s economic well-being, rose by only 0.6% in the OECD area in the third quarter of 2020, despite a sharp 9.1% rise in real GDP per capita. Reduced growth in household income for the OECD area as a whole was largely due to marked decreases in income levels in the United States (-4.2 %) and Canada (-3.6 %). In most OECD countries, however, the rebound of real GDP per capita in the third quarter of 2020 helped lift household income.  

 The strong growth in household income in Italy (6.4 %), the United Kingdom (5.1 %), Germany (4.3 %) and France (3.5 %) followed consecutive falls in the first and second quarters of 2020 in all four countries. The third quarter increases in income reflected, to a certain extent, the strong growth in GDP per capita in France (18.4 %), Italy (16.1 %), the United Kingdom (15.9 %) and Germany (8.5 %).   

The fall in household income in the United States and Canada followed marked, but short term, increases of 10.5 % and 11.2 % respectively in the second quarter, predominantly due to large government transfers to households. The relatively sharp declines in the second quarter along with the strong rebounds for the other Major Seven economies are examples of the high volatility currently being experienced in aggregate levels of household income in many countries as governments’ fiscal policy responses to the crisis vary in their levels of support and duration. 

To remove some of the volatility, it is worthwhile to look at the cumulative growth of the measures over the first three quarters of 2020. Across the Major Seven economies, cumulative growth in household income was either strongly positive or only slightly negative, despite strong cumulative falls in real GDP per capita for each Major seven economy, ranging from a decline of (minus) 3.8 % in the United States to (minus) 5.9 % in Canada.

 Across the OECD area, Chile reported the largest cumulative increase in real household income per capita (29.7%), driven by the introduction of policies allowing households immediate access to pension funds during the third quarter of 2020 . Canada (7.9 %), Australia (6.9 %), the United States (6.5 %), Netherlands (4.5 %) and Poland (3.6 %) also recorded high accumulated growth in household incomes over the course of 2020, despite declines in their cumulative GDP, as shown in the previously released G20 GDP growth, news release.

Methodological Notes:

Note that households in this release refer to households and non-profit institutions serving households (e.g. non-profit sports membership clubs).

Further methodological information can be downloaded from: http://www.oecd.org/sdd/na/QSA_Methodological_Note.pdf  

Technical notes for OECD Growth and economic well-being News Release

A key indicator of households’ material conditions, or economic well-being, is per capita household income, after deducting taxes and social contributions and including social benefits. It provides a better gauge than gross domestic product (GDP) of the resources households have at their disposal to buy goods and services or save for the future.

Over the very long term the average annual growth rates of the two statistics tend to be similar, since the incomes earned by households account for a large share of the total income generated through production in the economy, as recorded by GDP. However, over shorter time periods, especially during severe economic recessions or rapid expansions, trends in household disposable income and GDP may differ significantly. Many factors can contribute to such a divergence; for instance, changes in the government’s policies related to taxes or social benefits, or in how companies allocate their earnings between dividends, retained earnings and compensation of employees.

Data shown in this release was last updated on the 2nd of February 2021

Definition of the indicators

Real GDP per capita

Gross domestic product (GDP) is the standard measure of the value added generated through the production of goods and services in a country during a certain period. Equivalently, it measures the income earned from that production, or the total amount spent on final goods and services (less imports). While GDP is the single most important indicator to capture these economic activities, it falls short of providing a suitable measure of people’s material well-being.

Real GDP per capita shows GDP, adjusted for inflation by the GDP deflator, per member of the population.

Real household disposable income per capita

Household disposable income equals the total income received, after deduction of taxes on income and wealth and social contributions, and includes monetary social benefits (such as unemployment benefits). It does not include in-kind transfers, such as those related to health and education provided free or at economically insignificant prices by government.

Household disposable income may be used either for final consumption or saving. Disposable income thus represents the maximum amount households can consume without reducing their net wealth (without taking into account holding gains or losses on assets).

Real household income per capita shows household disposable income, adjusted for inflation in household final consumption, per member of the population. Note that households in this release include households and non-profit institutions serving households (e.g. non-profit sports membership clubs) as these cannot be separately identified across all countries.

Because the composition of GDP and household final consumption differs, the evolution of deflators for these two measures can differ, sometimes significantly, particularly in resource rich and export intensive economies. The GDP deflator, for example, includes price changes in exports unlike the deflator for household final consumption which includes only the aggregate price of consumer goods and services acquired by households.

Country notes

The statistical data in this publication are supplied by and under the responsibility of the relevant statistical authorities. The use of such data by the OECD is without prejudice to the status of or sovereignty over any territory, or to the delimitation of international frontiers and boundaries.

Japan – Household income is currently compiled and provided by the national statistical authority only once a year. Therefore, it is not available for the most recent quarters.

The estimation method to compile the OECD-total and the Major Seven aggregates is available in the methodological note (see below).

Further information

Further methodological information can be downloaded from:

www.oecd.org