OREANDA-NEWS. May 21, 2014. SEB’s latest economic analysis of households in the Baltic States shows that despite the measures implemented from 2008 to 2012, the distribution of income in Latvia seems to be more uneven compared to the other Baltic States.

In 2012 the Gini index, which represents income distribution between groups with different income levels, was the highest in Latvia (35.2 per cent) among all European Union countries, which shows a rather large inequality. Compared to Latvia, the income distribution between groups with different income levels in Estonia is more equal.

Data collected from 2004 onward shows the different directions of change in the Baltic States. Latvia still has the highest Gini index in the European Union, despite a decrease in 2008–2012. In Lithuania the Gini index increased during the economic downturn in 2010 to 37 per cent (the highest indicator in the European Union) and then in 2012 decreased by 5 per cent down to 32 per cent. In Estonia the Gini index was 30.9 per cent in 2008, but 32.5 per cent in 2012. Since 2005 the European Union average has remained stable at around 31 per cent.

The income quintile share ratio (S80/S20)** shows a similar pattern to the Gini index. In 2012 the S80/S20 ratio in Latvia was 6.3, which puts it in third place in Europe after Greece and Spain. In Latvia the income of wealthier households (uppermost quintile) was 6.3 times higher than the income of poorer households (lowest quintile). In Lithuania and Estonia the S80/S20 ratio was 5.3 and 5.4, respectively, which is above the EU average (approximately 5 in 2012), but lower than in Latvia. In Latvia the ratio has been decreasing since 2008. In Lithuania the S80/S20 ratio decreased from 7.3 to 5.3 following the crisis – income inequality decreased by 2 units. In Estonia the ratio was stable from 2008 to 2010 but increased in 2012 by 0.4 points to 5.4.

“In Latvia in 2012 the income of the poorest 20 per cent of the population made up 6.6 per cent of the income of the total population (6.2 per cent in 2008), while the wealthiest 20 per cent of households earned 42 per cent of the total income. In Estonia and Lithuania the income of the first quintile was larger than in Latvia – 7.3 and 7.4 per cent, respectively. In 2012 the wealthiest 20 per cent earned 39.7 per cent of the total income in Estonia and 39.5 per cent in Lithuania. Latvia should continue its actions aimed at reducing inequality in order to also reduce the disparity between Latvia and the other Baltic States,” said Edmunds Rudzitis, SEB Latvia’s social economy expert.

* The Gini coefficient (also known as the Gini index) is one of the most commonly used metrics for measuring income inequality. The coefficient ranges from zero to one and the higher the coefficient, the larger the inequality of income distribution. The Gini coefficient can be expressed in percentages by multiplying the coefficient by hundred.

** The S80/S20 ratio or the income quintile share ratio is another metric for measuring the inequality of income distribution, which is derived by calculating the ratio between the total income of the 20 per cent of households with the highest income and that of the 20 per cent of households with the lowest income. Since the S80/S20 ratio is only concerned with the highest and lowest quintile, it is influenced by the extreme values of income distribution, while the Gini coefficient takes into consideration the distribution of all income.