# **2. DATA AND METHODOLOGICAL APPROACH**

This paper utilizes household survey data from the 2006 European Union Survey of Income and Living Conditions (EU-SILC). The EU-SILC is an instrument aiming at collecting timely and comparable micro data on income poverty and social exclusion in countries of the European Union. This instrument is anchored in the European Statistical System, and aims to provide two types of data: (i) cross-sectional data pertaining to a given time or a certain time period with variables on income, poverty, social exclusion and other living conditions, and (ii) longitudinal data pertaining to individual-level changes over time, observed periodically typically over a four years period. The reference population of EU-SILC is all private households and their current members residing in the territory of the member states at the time of data collection. Persons living in collective households and in institutions are generally excluded from the target population, but in general the excluded population in each country is no more than 2 percent of the total national population.

## **Box 1: Definitions of Key EU-SILC Variables Used in the Analysis**

**Total disposable household income** is the sum for all household members of gross personal income components (including gross employee cash or near cash income, gross non-cash employee income, gross cash benefits or losses from self-employment, value of goods produced for own consumption, unemployment benefits, old-age benefits, survivor benefits, sickness benefits, disability benefits, and education-related allowances) plus gross income components at the household level (including imputed rent, income from rental of a property or land, family/children related allowances, social exclusion not elsewhere classified, housing allowances, regular inter-household cash transfers received, interest dividends, profit from capital investments in unincorporated business, income received by people aged under 16) minus interest paid on mortgage, regular taxes on wealth, regular inter-household cash transfers paid, tax on income and social insurance contributions (including tax adjustments-repayment/receipt on income, income tax at source, and social insurance contributions).

**Per capita disposable income** is computed as total disposable household income / household size.

**Benefits** include unemployment, old-age, survivors, sickness, disability, education, family benefits, other social exclusion, and housing allowances.

**Taxes** include regular taxes on wealth, taxes on income and social insurance contributions, as well as employer’s social contributions.

Four main types of data are gathered in EU-SILC: (i) variables measured at the household level; (ii) information on household size and composition and basic characteristics of household members; (iii) income and other more complex variables termed ‘basic variables’ (education, basic labor information and second job) measured at the personal level, but aggregated to construct householdlevel variables; and (iv) variables collected and analyzed at the person-level termed ‘the detailed variables’ (health, access to health care, detailed labor information, activity history and calendar of activities’). The main EU-SILC variables used in our analysis are per capita disposable income as well as data on taxes and benefits (Box 1). Further details pertaining to the specific variables included in the micro data sets, as well as the specific sample selection procedures followed in each country covered in the survey, can be found in the EU-SILC user database description.<sup>3</sup> All 25 EU member countries were covered in the 2006 EU-SILC round.<sup>4</sup> In addition to several key variables of interest noted above, the EU-SILC dataset also includes two variables of particular interest for our analysis:

> 3 UDB description ver 2005-4 from 15-09-07; <u>UDB description ver 2006-1 from 01-03-08, Eurostat, Directorate F: Social</u> Statistics and Information Society, Unit F-3: Living conditions and social protection statistics, Luxembourg.

> 4 Bulgaria and Romania were not yet members of the European Union in 2006. In addition, Germany and Malta were not part of the database we received from Eurostat, so are excluded from the analysis.

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