OECD household income falls in the fourth quarter of 2020, but grows overall during COVID affected year

Real household income per capita, which provides a better picture of people’s economic well-being than GDP, fell by 1.4 % in the OECD area in the fourth quarter of 2020. This decline occurred despite a continued rise in real GDP per capita for the OECD area by 1.0%, following the sharp increase by 9.2 % recorded in the previous quarter. Cumulatively however, since 2019 Q4, real household income per capita increased by 2.0 % in the OECD area, while real GDP per capita declined by 3.4 %.

Overall, the decline of 1.4 % is the largest quarterly decline in real household income per capita since 2013 Q1 and reflects many governments across OECD countries reducing the level of COVID related transfer payments to households, after the unprecedented levels of support provided earlier in 2020.

The United States and Canada continued to record falls in real household income per capita by (minus) 2.5% and (minus) 1.4% respectively, which followed strong declines in the previous quarter. This decline was despite both countries recording increases in real GDP per capita of 0.9 % and 2.3 % respectively. It should be noted that the United States recently enacted a second and third round of fiscal stimulus. The estimate of household income in this release does not reflect any payments associated with these policies; however, they are expected to have a significant impact on both household income for the United States and the entire OECD area in 2021 Q1.  Among the major seven economies, falls in household income were also recorded in Italy (minus 1.9 %) and Germany (minus 0.4 %), following strong increases in the previous quarter.

Across other OECD countries, household income per capita fell in Australia (minus 3.6 %), Chile (minus 8.8 %), Denmark (minus 3.8 %), Greece (minus 1.9 %) and Spain (minus 2.5 %).

Conversely, within the major seven economies, France and the United Kingdom recorded positive growth in household income per capita in the fourth quarter, of 1.4 % and 0.5 % respectively, reflecting the quarterly variances across countries of the timing, duration and intensity of government policies in respect to COVID.

Note: As a consequence of measures put in place by governments to reduce the spread of the Coronavirus (COVID-19), many statistical agencies are facing unprecedented collection, compilation and methodological challenges to develop indicators across a number of domains. To address these challenges, the statistical community is developing guidance, both conceptual and practical, to help ensure the continued delivery of timely and reliable statistics. However, in some cases, there will inevitably be an impact on quality and, as such, the statistics included in this press release may be subject to larger, and more frequent, than normal revisions.

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 4th of May 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.