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

EU Income Inequality And The Great Recession

Carlos Vacas-Soriano and Enrique Fernández-Macías 21st March 2017

Carlos Vacas-Soriano

Carlos Vacas-Soriano

EU-wide income inequality declined notably prior to 2008, driven by a strong process of income convergence between European countries. The Great Recession broke this trend. After 2008, income convergence has been sluggish, while inequality within many countries has increased significantly.

Despite the implicit assumption stemming from many EU policy documents that European economic integration should lead to some degree of convergence between countries, studies adopting an EU-wide approach to mapping trends in income disparities remain surprisingly sparse. These are, however, especially necessary when the process of European integration has first been accelerated by the adoption of the euro and EU enlargement towards the East and then dramatically put to the test by the uneven impact of the Great Recession across Europe. In an earlier study and a very recent one for Eurofound we help to fill in this gap by mapping income inequalities from a truly EU-wide perspective between 2004-2013.

Enrique-Fernández-Macías

Enrique-Fernández-Macías

A Single European Income Distribution

Adopting an EU-wide perspective on income inequality requires considering income levels across European countries as part of a single EU-wide income distribution which reflects income disparities both between and within Member States. This is done in figure 1 showing the percentage of European individuals aged 15-64 (vertical axis) reporting different levels of equivalised household disposable income (horizontal axis). For instance, around 4.5% of Europeans of working age have an (equivalised) household disposable income between €10,000 and €11,000 per year.

Two main insights emerge regarding income disparities. One, income disparities between countries are evidenced by the different positions of countries, with Eastern European countries (and Mediterranean countries to a lesser extent) being much more present in the bottom income quintile, while EU15 countries account for almost all the people found in the top quintile. Two, there is also a significant overlap in national income distributions (for instance the countries dominating the top quintile also have a significant share of population in the lowest income quintile), showing that income disparities within countries are larger than income disparities between countries in the European Union.

vacasgraph 01


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

Figure 1.EU household disposable income distribution in PPS-euro, 2013 (Source: EU-SILC)

Table 1 provides a dynamic picture of the evolution of EU-wide income inequalities and the main forces behind it. While inequalities within countries represent the lion’s share of EU-wide income inequality levels, the evolution of disparities in average income between countries has played a key role during the period:

  • EU income inequalities declined notably before the crisis, as measured both by the Gini and the Theil index. The latter shows that this was almost entirely due to a process of convergence in average income levels between countries, since inequalities within countries declined only very slightly.
  • From 2008, the trend reversed, with EU-wide income inequalities modestly growing: the process of income convergence between countries faltered and an upwards trend in domestic inequalities developed.
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Gini 0.355 0.344 0.343 0.337 0.330 0.333 0.333 0.333 0.334 0.336
Theil-Total 0.231 0.213 0.212 0.211 0.196 0.200 0.203 0.198 0.202 0.201
Theil-Between 0.056 0.047 0.047 0.038 0.031 0.033 0.031 0.032 0.032 0.031
Theil-Within 0.175 0.165 0.166 0.174 0.165 0.167 0.173 0.166 0.170 0.171
Table 1. EU household disposable income inequality, Gini and Theil indexes (Source: EU-SILC)

Income Disparities Between European Countries

A detailed picture of the income convergence process between countries is provided by figure 2, which depicts relative average household disposable income levels in comparable terms and their change before and after the crisis:

  • The pre-crisis convergence was largely a catch-up process among low-income countries, particularly strong in Eastern Europe (apart from Spain, Mediterranean countries failed to converge). In most high-income countries, income levels remained stable or even declined (notably in the UK) until 2008.
  • After 2008, Mediterranean countries saw a decline in income levels while most Eastern European countries continued to grow but at a much lower rate. This, together with a return of income growth in the UK and Germany, led to a halt in the process of EU income convergence.

 

Screen Shot 2017 03 21 at 10.41.57

Figure 2. Average household disposable income across countries (in PPP, EU24 = 100)

Income inequalities Within European Countries

Table 2 compares trends in income inequalities across countries before and after the effect of the public tax and benefit system is considered. Two main insights emerge.

One, the Great Recession pushed market income inequalities upwards across almost all countries, and the main driver was labour income losses associated with unemployment. This is reflected by the fact that those countries most affected by growing unemployment between 2008 and 2013 are among those that suffered the largest surges in market inequalities (Mediterranean countries generally and Ireland), while the contrary applies to the European core countries generally (such as Germany, France, Austria, Luxembourg or the UK). Although not shown in the figure, the same labour market turbulences pushing market income inequalities upwards resulted in relatively stable levels of wage inequality (and even declining in some of the countries most hit by unemployment as Greece), since lower-paid employees were more likely to lose their job than the rest.

Two, the redistributive effect of European welfare states largely cushioned these growing inequalities, as reflected by significantly larger inequality increases in household market income than in household disposable income across several countries (Mediterranean countries generally, Latvia, Belgium, Netherlands, Finland or the UK),.


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

Household disposable income inequalities expanded in two-thirds of EU Member States between 2008 and 2013, and not only in peripheral countries severely impacted by the Great Recession but as well in some traditionally more egalitarian countries in the European core (Germany or Sweden). However, the increases have been quite moderate and only above 10% in seven countries (Cyprus, Hungary, Estonia, Denmark, Slovenia, Spain and Ireland). On the contrary, household disposable income inequalities fell in one third of the countries over the same period (Luxembourg, Latvia, Lithuania, Poland, the UK, France, The Netherlands and Portugal).

Overall, the Great Recession reversed previous trends and pushed income inequalities upwards across most European countries largely due to growing unemployment, while EU-wide inequalities increased partially due to the income convergence between countries stalling. Nevertheless, the surges in income inequalities were generally moderate largely as a result of the cushioning impact of European tax and benefit systems.

Screen Shot 2017 03 21 at 10.16.42

 

Table 2. Income inequalities and unemployment across European countries (Source: EU-SILC). Countries have been ranked by the relative increase in household disposable income inequalities in the period 2008-2013.

This blog is based on research carried out by the authors for Eurofound

Carlos Vacas-Soriano and Enrique Fernández-Macías

Carlos Vacas-Soriano and Enrique Fernández-Macías are research managers at Eurofound.

You are here: Home / Economy / EU Income Inequality And The Great Recession

Most Popular Posts

Russia,information war Russia is winning the information warAiste Merfeldaite
Nanterre,police Nanterre and the suburbs: the lid comes offJoseph Downing
Russia,nuclear Russia’s dangerous nuclear consensusAna Palacio
Belarus,Lithuania A tale of two countries: Belarus and LithuaniaThorvaldur Gylfason and Eduard Hochreiter
retirement,Finland,ageing,pension,reform Late retirement: possible for many, not for allKati Kuitto

Most Recent Posts

Russia,journalists,Ukraine,target Ukraine: journalists in Russia’s sightsKelly Bjorkland and Simon Smith
European Union,enlargement,Balkans EU enlargement—back to the futureEmilija Tudzarovska
European Health Data Space,EHDS,Big Tech Fostering public research or boosting Big Tech?Philip Freeman and Jan Willem Goudriaan
migrant workers,non-EU Non-EU migrant workers—the ties that bindLilana Keith
ECB,European Central Bank,deposit facility How the ECB’s ‘deposit facility’ subsidises banksDavid Hollanders

Other Social Europe Publications

strategic autonomy Strategic autonomy
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

Eurofound advertisement

Eurofound Talks: housing

In this episode of the Eurofound Talks podcast, Mary McCaughey speaks with Eurofound’s senior research manager, Hans Dubois, about the issues that feed into housing insecurity in Europe and the actions that need to be taken to address them. Together, they analyse findings from Eurofound’s recent Unaffordable and inadequate housing in Europe report, which presents data from Eurofound’s Living, working and COVID-19 e-survey, European Union Statistics on Income and Living Conditions and input from the Network of Eurofound Correspondents on various indicators of housing security and living conditions.


LISTEN HERE

Foundation for European Progressive Studies Advertisement

The summer issue of the Progressive Post magazine by FEPS is out!

The Special Coverage of this new edition is dedicated to the importance of biodiversity, not only as a good in itself but also for the very existence of humankind. We need a paradigm change in the mostly utilitarian relation humans have with nature.

In this issue, we also look at the hazards of unregulated artificial intelligence, explore the shortcomings of the EU's approach to migration and asylum management, and analyse the social downside of the EU's current ethnically-focused Roma policy.


DOWNLOAD HERE

Hans Böckler Stiftung Advertisement

WSI European Collective Bargaining Report 2022 / 2023

With real wages falling by 4 per cent in 2022, workers in the European Union suffered an unprecedented loss in purchasing power. The reason for this was the rapid increase in consumer prices, behind which nominal wage growth fell significantly. Meanwhile, inflation is no longer driven by energy import prices, but by domestic factors. The increased profit margins of companies are a major reason for persistent inflation. In this difficult environment, trade unions are faced with the challenge of securing real wages—and companies have the responsibility of making their contribution to returning to the path of political stability by reducing excess profits.


DOWNLOAD HERE

ETUI advertisement

The future of remote work

The 12 chapters collected in this volume provide a multidisciplinary perspective on the impact and the future trajectories of remote work, from the nexus between the location from where work is performed and how it is performed to how remote locations may affect the way work is managed and organised, as well as the applicability of existing legislation. Additional questions concern remote work’s environmental and social impact and the rapidly changing nature of the relationship between work and life.


AVAILABLE 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