Economic and social portrait of Luxembourg : 3.2. Standard of living and living conditions

An initial way of understanding the standard of living of a population is to refer to monetary indicators, for example, macroeconomic aggregates such as gross domestic product or gross national product related to the number of inhabitants. From the microeconomic viewpoint, this concerns disposable income or consumer spending per household calculated from individual data gathered during surveys.What is striking in this respect is not so much that Luxembourg is at the top of the list, but rather that it is so far ahead of the other countries. For the second country (Belgium), the indicator used (disposable income) is 28 % lower and the gap is 39 % compared with the community average.

Disposable income, adult equivalent, PPS

The disposable income of a household is equal to the income received by the various members of the household (wages, rent, interest and various benefits) from which we deduct taxes, social security contributions and other deductions. For a given disposable income, the living standard of a couple with no children is generally higher than that of a couple with several dependent children. Due to economies of scale (it does not take twice as much energy to cook two steaks instead of one), the disposable income is not divided by the size of the household. The size and composition of a household are taken into account by means of adult equivalents (or consumption units). Within a household, the first adult is equal to one unit, while that of the other members is a fraction (for example 0.8, 0.5, 0.3, 0.1). Living standards are therefore measured by dividing disposable income by the total of the various weightings. There are different scales or systems of weightings. The most common,such as those used by the OECD, allocate the higher weighting to persons other than the reference person and particularly to children.Others based on the hypothesis of very large economies of scale, assign them a much lower weighting. Scales of the first type entail sharp falls in living standards of families with large numbers of children.With the latter, it is the relative position of households consisting of a single person that deteriorates, and the reduction in living standards of households with children becomes much lower.

In order to facilitate comparisons between countries, we use purchasing power parities (PPPs). PPPs are defined as conversion factors that even out the purchasing power of various currencies by eliminating divergences in price levels between countries. Put most simply, PPPs are nothing more than price ratios.The volume of economic aggregates, or income respectively, in purchasing power standard (PPS) is obtained by dividing their original value in national currency by the corresponding PPP. By way of example, and to simplify: In Germany GDP per head was around 25 200 euro in 2001. Given that price levels in Germany were index 104.79 based on index 100 for Europe as a whole, the amount of 25 200 should be divided by 1.0479. GDP per head in Germany expressed in PPS is therefore 24 050.Having eliminated the difference in price levels, this amount can validly be compared to that of other European countries whose price levels have been determined (compared to the European average) and calculated the GDP per head in PPS. Income, or consumer expenditure, expressed in PPS allows comparison of “real” purchasing power between different countries.

For comparisons it is necessary to take account of indirect taxation charged on consumer expenditure, the amount of which is relatively higher for households with lower incomes devoting a large proportion of their resources to consumption.This aspect should not be overlooked in comparisons between countries. International comparisons may be distorted by the exclusion of public goods and services (education, health and culture) from which households benefit. So high direct taxes reducing disposable income can have the effect of making available a large amount of public goods or services.

The question arises as to why, in this comparison, Luxembourg is so far ahead of the other EU countries, while it only appears in the leading group when one considers salaries and the wages alone. An initial explanation would be that replacement earnings, such as pensions or unemployment benefit, are particularly high. Concerning pensions, they are much higher than those observed in other countries. Expressed in PPS, they amount to over 20 000,whereas for all other countries they do not exceed 15 000, and the community average is approximately 11 000 (1995 figures).

Becoming unemployed almost always entails a considerable fall in the household’s resources, and the low number of unemployed people certainly has largely positive effects on the average amount of these resources. The very generous family policy implemented for the past 15 years obviously has substantial repercussions on the impact of households with dependent children. We have already mentioned the low rate of deductions on salaries which reduce the difference between gross and net income more than in most other countries.

Poverty and inequality of income

The measurement of poverty put forward by the EU Commission (EUROSTAT) starts out from the distribution of income per household within a given country. It is relative in character and thresholds of poverty vary from one country to another, because they are not tied to a fixed amount of disposable income that is identical throughout the EU. Households with disposable income below 60 % of the national median are considered poor. The median is the value of a distribution which divides them into two equal parts. This proportion of poor households is often calculated before and after social transfers. In this way, the effectiveness of redistribution policies can be evaluated. Without social transfers, Luxembourg records a poverty level equal to the Community average which was 26 % in 1999. By including these transfers in disposable income, this is greatly reduced to 12 %. The fact that it is now below the Community average of 18 % seems to show that the effects of transfers are relatively large. Scandinavian countries, Finland (8 %), Denmark (9 %) and Sweden (10 %) recorded the lowest poverty levels (after social transfers). But it should always be borne in mind that the relative character of the measurement implies that 12 % of the poor people in the Netherlands have lower income than the 12 % of poor people in Luxembourg.

Inequalities in the distribution of income are highlighted by another indicator put forward by the Commission: the relationship between the share of total income of the richest 20 % and the poorest 20 %. In Luxembourg, the share of households at the top of the scale is 4.6 times greater than that of households at the bottom of the scale. While this ratio is lower than the community average of 5.4, those recorded in countries such as Sweden, Finland, Denmark and even Austria show a far more egalitarian distribution of income. In general, there is a rather close correlation between rates of poverty and inequality of income, and the most inegalitarian countries have the highest proportion of poor people.

These differences in living standards can also be analysed according to a socio-demographic topology of households. According to the results of the PSELL survey (Panel Socio-Économique “Liewen zu Lëtzebuerg” - Vivre au Luxembourg) conducted each year by CEPS/INSTEAD, single-parent and large families have the lowest standard of living (disposable income taking account of consumption units) in Luxembourg. The level of lower incomes - i.e. the level of households with the standard of living below 60 % of the median national income - is lowest among nuclear families without dependant children (7.3 %).

Macroeconomic aggregates: Luxembourg is still the “richest”

The privileged position of Luxembourg is apparent once again if we refer to the gross national income per head. Chapter 1 contains an explanation of the reasons for preferring this aggregate to GDP, once they are related to the number of inhabitants.

To have an overall picture concerning living standard indicators,we can juxtapose the evaluations of living standards based on the aggregates from national accounts (gross national income), and the other values calculated from individual data drawn from a sample survey (disposable income). As the third indicator of living standards, we can take into consideration wages and salaries (average wage costs). The table setting out the trends since 1995 of these three indicators in Luxembourg shows that, in real terms, disposable income is increasing faster than wage costs, but less rapidly than gross national income per habitant. Even if these three indicators are not directly comparable, there is every reason to believe that during the period under consideration (1995- 2000), the living standards of residents have risen by approximately 10 %.

Consumer spending and household equipment

The fact that residents of Luxembourg benefit from a standard of living which is well above that of the other countries of the European Union seems to be confirmed by figures relating to consumer spending by households, where the lead exceeds even that observed for income.The average annual expenditure by Luxembourg households, expressed in PPS, would be some 45 000, and that of the next country around 27 000. It must be said that these figures come from surveys on budgets of households which were carried out before 1999, and where the level of harmonisation probably has not achieved that of the Community panel on households used for the statistics on distribution and income. This situation may affect comparisons between countries. So it may appear surprising that, if we leave out Luxembourg, the range of consumer spending is much narrower than that of income.

Likewise, the differences between blue and white collar as shown in the EUROSTAT table must be examined, taking account of these methodological reserves. With a discrepancy of +52.0 %, Luxembourg is in the company of countries known for being the most inegalitarian, i.e. Greece (+48.6 %), Portugal (71.1 %) and Spain (38.7 %).This difference slightly exceeds the 20 % in Belgium, Denmark, France and Sweden. It is much less pronounced in the Netherlands (+13.1 %) and in Austria (+11.8 %).

Besides consumer spending, the levels of equipment of households with consumer goods are often believed to give indications about the standard of living. So we can see that the percentage of households with at least one car rose from 55.1 % in 1970 to 78.8 % in 2001. The best indicator to judge the progress made or to highlight differences between socio-economic categories relates to possession of a dishwasher. While two-thirds of today’s households have one, fewer than 5 % had one 30 years earlier.

The trend in consumption structure is another aspect of changes in living standards and conditions. We can use the weighting of the main consumer functions in the retail price index to measure the changes in the structure. These statistics should be treated with caution. The weighting only considers current spending, excluding in particular the “housing, heating and lighting” category interest on loans for the purchase of real estate. Rent was only introduced into the weighting in 1987. Nevertheless, the associated graph enables the reader to notice three fundamental changes:

Human development Index

The idea underlying the creation of a human development index (HDI) by the United Nations is that monetary income cannot be the only criteria to assess living standards and welfare achieved in a particular country. Besides gross domestic product (GDP) per inhabitant which, for reasons set out above, tends to overestimate the economic success of Luxembourg, two other statistics are introduced. One of them, life expectancy at birth, should provide indications on the health situation and the progress made in the field of health care. The other, mean years of schooling, which takes account of various levels of education, is used to measure the cultural level.The methodological indications concerning the production of this indicator shown in the appendix to the relevant report are not very clear. It seems, however, that the method of calculation leads the UN to underestimate the level of schooling (education enrolment ratio) in Luxembourg.

The low level of the education index brings Luxembourg down from the first place that it would have as a result of its economic performance to 16th place. But it should also be noted that the life expectancy at birth indicator puts the country in an average position. HDI Country Life expectancy Adult literacy Combined primary, PIB per capita Ranking at birth rate secondary and tertiary (in PPP US$)

Education

Even if the classification of the country according to the HDI sometimes produces surprising results, and it is certainly not immune from criticism, the results obtained by Luxembourg should provide food for thought.

It is true that the overall level of education used in the HDI does not take account of attendance at education establishments abroad, but its relatively low level is probably the reflection of certain specific features of Luxembourg. The massive presence of immigrants who have not come to Luxembourg to study but to work,and therefore having low levels of education,drags the national level downward.We may also wonder whether the absence of complete university courses in the country does not act against Luxembourg, as the relatively high cost of university education abroad may have a deterrent effect for a certain number of residents.

Figures taken from the general census of the population in 2001 show two things clearly. Firstly, the schooling rate of 20- to 24-year-olds (35.0 %) is much lower than that of 15- to 19-year-olds (82.1 %). If we consider that between 20 and 24 years of age, the great majority of people who are still in education are attending higher education establishments, we can conclude that in Luxembourg, this proportion is only approximately 30 % in the age group under consideration.

Concerning differences in schooling between Luxembourg nationals and foreigners, we observe that while among 15- to 19-year-olds, the discrepancy is still quite low with rates of 85.2 % and 77.0 % respectively. This widens greatly in the next 5-year age bracket. The rate in question is only 24.6 % for foreigners while it reaches 42.5 % for Luxembourg nationals.

Education is one of the fields in Luxembourg where improvement is possible and necessary.This is also clear from the comparative table concerning the percentage of the population who have completed at least the second cycle of secondary education, per age group, in 2000. In the 25- to 29-year-old age bracket, only 70 % of the Luxembourg population completed the second cycle of secondary education. Only three other countries came behind Luxembourg: Ireland, Spain and Portugal. By comparing these results with those of the age range from 50 to 64, which reflect the operation of the school system 30 to 35 years ago, we also note that progress in this area is less significant in Luxembourg than in many European countries.

In 2000, the proportion of young people leaving school prematurely and not continuing their education or any training (proportion of young people aged 18 to 24 who attended only the first cycle of secondary education) was 17 % in Luxembourg.With this rate Luxembourg is doing better than the average for Europe of 15 (20 % of young people leaving school prematurely), but less well than its neighbours (12 % in Belgium, 15 % in Germany and 13 % in France). The results of the Nordic countries are also better than those of Luxembourg (12 % of young people leaving school early in Denmark and 8 % in Sweden).

Finally, we cannot remain silent about the mediocre results achieved by Luxembourg in the PISA survey (Programme for International Student Assessment) of the OECD conducted in 2000. In each of the three fields evaluated (reading,mathematics and sciences), the study did not so much concern the verification of knowledge laid down in the curriculum as the ability to apply that knowledge. Luxembourg can only claim very poor results compared with other OECD countries. In the three fields evaluated, Luxembourg came in 29th place among 31 countries that took part in the study. In reading, Finland, Canada and New Zealand came top of the list. Among EU countries, Luxembourg came last, with Germany coming in 12th place.

It is therefore understandable that the government considers education one of its priority areas of action.

Indicators of sustainable development

In accordance with the decisions taken by the first United Nations conference on the Environment and Development, Luxembourg drew up a national action plan for sustainable development (NPSD) aimed at achieving a number of objectives in fields such as socio-economic equity, social welfare, the economy and protection of the natural and human environment. The results of the implementation of the NPSD will be verified using a system of performance indicators that enable progress to be evaluated. A first list of 27 sustainable development indicators has been drawn up. It includes nine social indicators, nine economic indicators and nine environmental indicators. Some of the social and economic indicators, such as the poverty level or GDP per head, have already been presented, so we shall limit our remarks to a number of the environmental indicators set out in a brochure published on this subject by the Environment Ministry in 2002, outlining the objectives of government policy in this field.

• Encouraging a different kind of mobility

The objective of the strategy “mobilitéit.lu” promoted by the transport ministry “is to guarantee and manage mobility for all, by limiting the environmental effects of road transport, without affecting economic growth”. It is a matter of encouraging “a mobility policy based on curtailing the increase in individual traffic and accelerated development of supply of public transport with a view to improving the breakdown between modes of transport (relative share of the number of journeys carried out by public transport in the total number of journeys carried out by motorised vehicles during a working day) in favour of public transport”. According to the Traffic Model Unit, this proportion will rise from 11.1 % in 1997 to 12.3 % in 2002, the objective being to increase it to 25 % over the medium term (in 2020).

• Reducing emissions of greenhouse gases

Luxembourg has set itself the objective, already set out by Luxembourg within the context of the Kyoto Protocol in 1997, of reducing emissions of greenhouse gases by 28 % by 2010 compared with 1990.The six gases responsible for the greenhouse effect are carbon dioxide (CO2), methane (CH4) nitrous oxide (N2O) and fluorinated industrial gases (HFC, PFC and SF6). The replacement during the 1990s of blast furnaces in the Luxembourg steel industry by the electric arc process significantly reduced the emissions of the gases in question. It appears that in recent years we have seen a reversal of this trend for which the transport sector is largely responsible.

• Ensuring sustainable development of the forests

The health of trees is measured using a range of 17 criteria such as the state of treetops, loss of leaves or the nature of discoloration. Between 1985 and 2000, the percentage of trees considered healthy fell from nearly 80 % to less than 45 %. Various analyses have shown that this deterioration mainly affects beech trees.

• Improving energy efficiency and promoting the use of renewable resources

The objective of the National Plan for Sustainable Development (NPSD) is to reduce the energy intensity, i.e. the gross energy consumption per unit of GDP, by 20 % between 1993 and 2010. This objective has already been achieved. But this result is due mainly to growth in GDP which was higher than that of the gross consumption of energy defined by the total energy needs of the country (importation and energy produced on national soil). Energy consumption fell between 1990 and 1995 from the 3.56 MTPE (millions of tonnes petroleum equivalent) 3.32 MTPE. From 1995, onwards the trend was reversed. In 2001, 3.82 MPTE were consumed in Luxembourg, or an increase of over 15 % compared with 1995. It was the increase in demand from transport, over 90 % between 1990 and 2000, which was responsible for this change. On the other hand, demand from industry fell by 45 % during the same period, due mainly to the fall in coal imports resulting from the replacement of the cast iron-steel process by the electric-arc process in the steel industry.

In the energy field, the NPSD also set objectives of covering 45 % of the consumption of the national electricity grid from national production by 2005 and doubling the share of renewable energy and co-generation by 2010. In 2000, renewable energy represented 3.9 % of final electricity consumption of the national grid, of which 80 % came from hydroelectric stations and 16.5 % came from wind power. The share of co-generation was 5.6 % of this consumption during the same year. The new gas and steam turbine power station built at Esch-sur-Alzette should enable targets to be met for co-generation and generate 45 % of consumption by national production.

• Improving the quality of watercourses

“What is at issue is to protect the quality of water and guarantee the conservation, or even development, of a balanced ecosystem rich in biological diversity.”The indicator chosen is the percentage of watercourses with high or excessive biochemical and organic pollution (summer months). Activity reports by the Ministry of the Environment show a positive change in the last decade.

• Sustainable land use in Luxembourg

The growth in the population raises the questions of land use, forms of construction (in which individual houses are currently dominant) and conservation of a balanced ecosystem.The percentage of the national territory occupied by buildings and communication routes has increased significantly during the last decade, rising from 7.47 % (19 136 hectares) in 1990 to 10 % (25 860 hectares) in 1999. These figures correspond to land use of two hectares per day. The target of the national plan for sustainable development is to reduce its annual consumption by 50 % between now and 2010.

The increase in the percentage of land devoted to building has occurred at the expense of agricultural land, the share of which in national territory fell from 57.1 % in 1990 to 54.4 % in 1999.The law of 21 May 1999 relating to land use and the new land use steering plan established new planning instruments, including regional land use plans, sectoral land use plans and comprehensive development area maps, which should meet the requirements for an integrated approach in this field.

During the recent discussion on the prospect of Luxembourg having over 700 000 inhabitants in 2050, the question of excessive urbanisation, with the underlying idea of “unsustainable” increase in the population density (inhabitants per square kilometre),was on the agenda.This density rose from approximately 141 inhabitants per square kilometre at the start of the 1980s to 170 inhabitants per square kilometre in 2001. The concentrations are highest in the centre of the country, where the capital is located, and in the south.

With regard to development since 1980,we observe a reduction of the density in the City of Luxembourg, and an increase in the surrounding communes.

A comparison of the population density in Luxembourg taken overall with that of other European regions provides useful additional detail. In the relevant graph, we have restricted ourselves to regions located in the vicinity of Luxembourg. The population density of the country ranges between that of sparsely inhabited regions, such as the Belgian Province of Luxembourg or Champagne-Ardenne,and that part of regions where the population is rather dense such as in the Saar, Hainaut, etc.However, even with 700 000 inhabitants, Luxembourg would not reach the current figures of the Saar where population density (417 inhabitants per square kilometre) is still far from that of conurbations such as Ile de France (912), Düsseldorf (996), Hamburg (2 254), Cologne (758), Brussels (5918), etc.

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