Social Europe

politics, economy and employment & labour

  • Themes
    • Global cities
    • Strategic autonomy
    • War in Ukraine
    • European digital sphere
    • Recovery and resilience
  • Publications
    • Books
    • Dossiers
    • Occasional Papers
    • Research Essays
    • Brexit Paper Series
  • Podcast
  • Videos
  • Newsletter
  • Membership

An EU Perspective On Wage Inequality

Enrique Fernández-Macías 19th May 2015

Enrique Fernández-Macías

Enrique Fernández-Macías

In the years before the financial crisis of 2008, there was a significant reduction in overall EU wage inequality, driven by economic convergence between rich and poor Member States. The 2008 crisis reversed the trend, expanding pre-existing wage differentials between countries. The impact of the crisis on wage inequalities within countries has also varied greatly across the EU.

It is still far-fetched to speak about a single European labour market but the very significant extent of economic integration in recent years makes a European perspective on the wage distribution not only relevant, but necessary in order to evaluate the wider consequences of the single market. And yet, there is a surprising lack of studies from a truly EU perspective on this issue. In the report “Recent developments in the distribution of wages from an EU perspective”, my colleague and I present the findings of a study recently carried out by Eurofound trying to cover this gap and look at wages from a pan-European perspective.

Visualizing the distribution of wages from an EU perspective

Because the EU labour market is still strongly divided by national boundaries, any analysis of wages from an EU perspective has to simultaneously take into account two axes of the distribution: the between-countries and the within-country. This is visually represented by figure 1.

1

This figure represents, on the horizontal axis, intervals of monthly full-time equivalent wages in Purchasing-Power Parity (PPP) Euros; in the vertical axis, the percentage of European employees reporting wages in each interval. So, for instance, we can see that nearly 4% of European employees earn between 1500 and 1600 euros per month, on a full-time equivalent PPP basis. But, critically important, each bar is broken down by country: this way, we can see that although countries have distinct positions in the overall EU wage structure (for instance, Eastern Member States dominate the bottom 20% while the UK is disproportionately present in the top 1%), there is a significant amount of overlap (for instance, the UK and Germany have a significant presence in the bottom 20% as well, despite their dominant presence at high wage levels). Again, it is important to emphasize that the comparison is carried out in PPP terms: otherwise, there would be much less overlap.


Become part of our Community of Thought Leaders


Get fresh perspectives delivered straight to your inbox. Sign up for our newsletter to receive thought-provoking opinion articles and expert analysis on the most pressing political, economic and social issues of our time. Join our community of engaged readers and be a part of the conversation.

Sign up here

The distribution of wages in Europe before and after the crisis

Table 1 below shows a number of inequality statistics for the EU wage distribution, and their change over the period 2004-2011. Two points stand out:

  • The Gini index for EU full-time equivalent EU wages in PPP is 0.346 (in 2011). This value is considerably higher than the comparable measure for most EU countries but lower than the value of the three most unequal member states (the UK, Portugal and Latvia). It is also lower than the comparable measure for the US, the most comparable international entity (which, according to a recent OECD estimate, would be around 0.4 for full-time employees).
  • Between 2004 and 2008, EU-level wage inequality decreased. After 2008, it increased. The pre-2008 decrease was entirely the result of a reduction of between-countries wage differentials (within-country inequality remained broadly stable). After 2008, there was no further reduction of between-countries differentials while within-country inequality tended to increase in overall terms.

2The evolution of wage differentials between countries

Figure 2 below provides a more detailed look at the evolution of between-countries wage differentials, drawing from AMECO data. The 2004-2008 convergence in national wage levels was mostly driven by a rapid process of catch-up by Eastern Member States and a stagnation (even decrease) of wages in the two biggest countries (UK and Germany). Southern European average wage levels only converged in nominal terms before 2008, remaining stagnant in real terms. The reversal of convergence after 2008 was driven by a large drop in wage levels in Southern Europe (in nominal and real terms), while German wages started to grow timidly.

3

The recent evolution of wage inequalities within EU countries

Finally, figure 3 shows the evolution of the Gini index of full-time equivalent wages for each Member State over the period 2004-2011. There is a wide diversity of developments, but perhaps the most common pattern is a cyclical one, with wage inequality increasing until 2008 and decreasing afterwards. The biggest exception is the UK, where wage inequality behaved in the opposite way and so strongly that it largely determined the within component of overall EU inequality. On the other hand, wage inequality consistently decreased throughout the whole period in many Eastern European member states, while it consistently increased in Austria, Belgium and Denmark.

4

However, the impact of the crisis on within-country wage inequalities must be put in the wider context of developments in income inequalities. In particular, in some Southern European countries the reduction of wage inequalities after the crisis was the result of a massive destruction of employment, which shifted some of the existing inequality outside of the labour market, increasing it significantly in overall terms.

This blog is based on research, carried out by the author jointly with Carlos Vacas-Soriano for Eurofound:  http://www.eurofound.europa.eu/publications/report/2015/working-conditions-labour-market/recent-developments-in-the-distribution-of-wages-in-europé

Enrique Fernández Macías
Enrique Fernández-Macías

Enrique Fernández-Macías is a researcher in the Joint Research Centre of the European Commission in Sevilla, developing a research programme on automation, digitisation and platformisation of work in Europe.


Support Progressive Ideas: Become a Social Europe Member!


Support independent publishing and progressive ideas by becoming a Social Europe member for less than 5 Euro per month. You can help us create more high-quality articles, podcasts and videos that challenge conventional thinking and foster a more informed and democratic society. Join us in our mission - your support makes all the difference!

Become a Social Europe Member

You are here: Home / Politics / An EU Perspective On Wage Inequality

Most Popular Posts

Belarus,Lithuania A tale of two countries: Belarus and LithuaniaThorvaldur Gylfason and Eduard Hochreiter
dissent,social critique,identity,politics,gender Delegitimising social critique and dissent on the leftEszter Kováts
retirement,Finland,ageing,pension,reform Late retirement: possible for many, not for allKati Kuitto
Credit Suisse,CS,UBS,regulation The failure of Credit Suisse—not just a one-offPeter Bofinger
Europe,transition,climate For a just and democratic climate transitionJulia Cagé, Lucas Chancel, Anne-Laure Delatte and 8 more

Most Recent Posts

Barcelona,feminist,feminism Barcelona: a feminist municipalism now at riskLaura Pérez Castaño
Spain,elections,Sánchez Is Spain on the right track?Bettina Luise Rürup
CBI,Confederation of British Industry,harassment Crisis at Britain’s CBI holds lessons for othersMarianna Fotaki
central and eastern Europe,CEE,renewable Central and eastern Europe: a renewable-energy win-winPaweł Czyżak
Cape Town,inequality Tackling inequality in the city—Cape TownWarren Smit

Other Social Europe Publications

Bildschirmfoto 2023 05 08 um 21.36.25 scaled 1 RE No. 13: Failed Market Approaches to Long-Term Care
front cover Towards a social-democratic century?
Cover e1655225066994 National recovery and resilience plans
Untitled design The transatlantic relationship
Women Corona e1631700896969 500 Women and the coronavirus crisis

Hans Böckler Stiftung Advertisement

The macroeconomic effects of re-applying the EU fiscal rules

Against the background of the European Commission's reform plans for the Stability and Growth Pact (SGP), this policy brief uses the macroeconometric multi-country model NiGEM to simulate the macroeconomic implications of the most relevant reform options from 2024 onwards. Next to a return to the existing and unreformed rules, the most prominent options include an expenditure rule linked to a debt anchor.

Our results for the euro area and its four biggest economies—France, Italy, Germany and Spain—indicate that returning to the rules of the SGP would lead to severe cuts in public spending, particularly if the SGP rules were interpreted as in the past. A more flexible interpretation would only somewhat ease the fiscal-adjustment burden. An expenditure rule along the lines of the European Fiscal Board would, however, not necessarily alleviate that burden in and of itself.

Our simulations show great care must be taken to specify the expenditure rule, such that fiscal consolidation is achieved in a growth-friendly way. Raising the debt ceiling to 90 per cent of gross domestic product and applying less demanding fiscal adjustments, as proposed by the IMK, would go a long way.


DOWNLOAD HERE

ETUI advertisement

The four transitions and the missing one

Europe is at a crossroads, painfully navigating four transitions (green, digital, economic and geopolitical) at once but missing the transformative and ambitious social transition it needs. In other words, if the EU is to withstand the storm, we do not have the luxury of abstaining from reflecting on its social foundations, of which intermittent democratic discontent is only one expression. It is against this background that the ETUI/ETUC publishes its annual flagship publication Benchmarking Working Europe 2023, with the support of more than 70 graphs and a special contribution from two guest editors, Professors Kalypso Nikolaidïs and Albena Azmanova.


DOWNLOAD HERE

Eurofound advertisement

Unaffordable and inadequate housing in Europe

Unaffordable housing is a matter of great concern in the European Union. It leads to homelessness, housing insecurity, financial strain and inadequate housing. It also prevents young people from leaving their family home. These problems affect people’s health and wellbeing, embody unequal living conditions and opportunities, and result in healthcare costs, reduced productivity and environmental damage.

This new report maps housing problems in the EU and the policies that address them, drawing on Eurofound’s Living, working and Covid-19 e-survey, EU Statistics on Income and Living Conditions and input from the Network of Eurofound Correspondents.


DOWNLOAD HERE

Foundation for European Progressive Studies Advertisement

The spring issue of the Progressive Post magazine from FEPS is out!

The Special Coverage of this new edition is dedicated to Feminist Foreign Policy, to try to gauge its potential but also the risk that it could be perceived as another attempt by the west to impose its vision on the global south.

In this issue, we also look at the human cost of the war in Ukraine, analyse the increasing connection between the centre right and the far right, and explore the difficulties, particularly for women, of finding a good work-life balance and living good working lives.


DOWNLOAD HERE

About Social Europe

Our Mission

Article Submission

Membership

Advertisements

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641

Social Europe Archives

Search Social Europe

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Follow us

RSS Feed

Follow us on Facebook

Follow us on Twitter

Follow us on LinkedIn

Follow us on YouTube