Blog Post

Income inequality has been falling in the EU

The properly measured EU-wide Gini coefficient of disposable income inequality shows that inequality in the EU as whole declined in 1994-2008, after which it remained broadly stable. However, within the EU, there are large differences in income inequality which require policy action.

By: Date: November 23, 2016 Topic: European Macroeconomics & Governance

How has income inequality evolved among the citizens of the 28 current EU members?

Lacking correct official statistics, I have estimated the EU-wide Gini coefficient using a method which is very precise, as I explained in a recent paper. I also estimate the Gini coefficient for world citizens as well as for other major regions of the world.

My most striking result shows that income inequality in the 28 countries which are now members of the European Union has been on a unique course in recent decades. Inequality is much lower among EU citizens than in other parts of the world, and actually fell in 1994-2008.

As the figure above indicates, there was a sharp increase in income inequality among the citizens of the EU28 in 1989-93, reaching the level observed in the United States at that time.

A major reason for this increase was the massive output declines in the central and eastern European states during their transition from socialist to market-based economies. As their income declined by about a quarter or more in 1989-93, citizens in these countries became even poorer relative to citizens in western European member states, and EU28-wide income inequality therefore increased.

Nevertheless, the EU-wide Gini coefficient of income inequality in 1993 was 36, well below the 50+ values observed in Africa, Asia and Latin America.

After 1994, inequality declined steadily until 2008, since when it has remained relatively stable. In contrast, income inequality in the United States increased almost continuously from the late 1970s until 2013.

How could EU-wide income inequality decline when income inequality actually increased by more than 1 Gini point in 15 of the 28 countries in 1994-2008? One reason is that there were 7 countries in which it declined by more than 1 Gini point, and there were 6 other countries in which income inequality hardly changed.

But, more importantly, I find that that the decline in EU-wide income inequality in 1994-2008 was almost entirely due to the convergence of average incomes. People in poorer regions of the EU increased their income relative to richer regions.

Unfortunately, this process has stopped with the global and European financial and economic crisis: while central European member states continue to close their gaps with the richest member states of the EU, some southern European member states, like Italy and Greece, are falling behind. Thus overall convergence within the EU was minimal in the past five years.

How should we interpret my new findings?

It is important to remember that high levels of income inequality have various negative consequences (including poor health outcomes, weak social mobility and potential swings towards political populism), as I analysed in a recent report on inclusive growth with Guntram Wolff.

With this in mind, the positive message of my calculations is that income inequality was falling among the citizens of the current 28 EU member states in 1994-2008. Moreover, levels of income inequality in Europe are well below levels observed in the other main regions of the world.

However, the bad news is that the decline stopped in 2008, and the current EU Gini coefficient of 33 is still high in comparison to Norway (23), Japan (30) or Canada (31). Above all there are large differences within the EU. While in Belgium, the Czech Republic, Slovenia and the Scandinavian countries the national Gini is about 25, it is around 35 in Bulgaria, Greece, Spain and the Baltic countries.

Recent work on income inequality has found that many of the negative impacts are related to local levels of inequality (see, for example, my recent work about the impact of income inequality on votes for Brexit and Trump). Therefore, efforts to address income inequalities should be stepped up in a number of countries as well as at the EU level.

Finally, I note that Eurostat publishes a misleading Gini coefficient of income inequality for the EU28, which is simply the population-weighted average of country-specific Gini coefficients. However, the average of the Gini coefficients of individual countries does not correspond to the Gini coefficient of the combined population of those countries, partly because of the differences in average income in different countries, and partly because of differences in within-country income distributions (see more details on this issue in my paper).I therefore recommend that Eurostat stop publishing these misleading Gini coefficients for the EU and instead calculate the EU-wide indicators of income distribution either by combining household level data from all countries, or by using my estimates.

Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

View comments
Read article More on this topic More by this author

Blog Post

A few good (wo)men – on the representation of women in economics

Last week, the American Economics Association Annual Meetings held a session on Gender Issues in Economics and later announced that a new code of professional conduct is in the pipeline. In this blogs review we revise the recent contributions on female representation and perception in economics.

By: Inês Goncalves Raposo Topic: Global Economics & Governance Date: January 15, 2018
Read about event

Past Event

Past Event

Sustainable growth in transition countries

This event will feature a presentation of the EBRD Transition Report 2017-18.

Speakers: Jonathan Charles, Zsolt Darvas, Sergei Guriev, Debora Revoltella and Lucio Vinhas de Souza Topic: European Macroeconomics & Governance, Finance & Financial Regulation Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: November 28, 2017
Read about event

Past Event

Past Event

Bruegel Annual Meetings 2017

The Annual Meetings are Bruegel’s flagship event. They offer a mixture of large public debates and small private sessions about key issues in European and global economics. In a series of high-level discussions, Bruegel’s scholars, members and stakeholders will address the economic policy challenges facing Europe.

Speakers: Carlos Sallé Alonso, José Antonio Álvarez Álvarez, Agnès Bénassy-Quéré, Pervenche Béres, Matthias Buck, Grégory Claeys, Zsolt Darvas, Jean Luc Demarty, Maria Demertzis, Anna Ekström, Lowri Evans, Ferdinando Giugliano, Sandro Gozi, Peter Grünenfelder, Reiner Hoffmann, Levin Holle, Kate Kalutkiewicz, Steffen Kampeter, Peter Kažimír, Emmanuel Lagarrigue, Matti Maasikas, Steven Maijoor, Reza Moghadam, Nathalie Moll, James Murray, Johan Van Overtveldt, Julia Reinaud, André Sapir, Dirk Schoenmaker, Mateusz Szczurek, Marianne Thyssen, Jean-Claude Trichet, Reinhilde Veugelers, Nicolas Véron, Ida Wolden Bache, Liviu Voinea, Guntram B. Wolff and Georg Zachmann Topic: Energy & Climate, European Macroeconomics & Governance, Finance & Financial Regulation, Global Economics & Governance, Innovation & Competition Policy Location: Square - Brussels Meeting Centre Date: September 7, 2017
Read article More on this topic More by this author


The EU and the US: a relationship in motion

Europe’s post-crisis recovery has been disappointing in comparison with the USA. But lower rates of inequality are staving off populism and bolstering support for globalisation. With the USA an increasingly unpredictable partner, the EU must address internal imbalances and build alliances to defend the multilateral order.

By: Maria Demertzis Topic: Global Economics & Governance Date: July 28, 2017
Read article More by this author

Blog Post

How to make finance a force for sustainability

Traditional finance focuses on financial return, considering the financial sector separate from both society and the environment. In contrast, sustainable finance considers financial, social and environmental returns in combination. In a new essay, Dirk Schoenmaker provides a framework for sustainable finance highlighting the move from the narrow shareholder model to a broader stakeholder model. Here he presents the key arguments.

By: Dirk Schoenmaker Topic: Energy & Climate, Finance & Financial Regulation Date: July 12, 2017
Read article Download PDF More by this author

Essay / Lecture

Investing for the common good: a sustainable finance framework

Traditional finance focuses solely on financial return and risk. By contrast, sustainable finance considers financial, social and environmental returns in combination. This essay provides a new framework for sustainable finance highlighting the move from the narrow shareholder model to the broader stakeholder model, aimed at long-term value creation for the wider community. Major obstacles to sustainable finance are short-termism and insufficient private efforts. To overcome these obstacles, this essay develops guidelines for governing sustainable finance.

By: Dirk Schoenmaker Topic: Energy & Climate, Finance & Financial Regulation Date: July 11, 2017
Read article Download PDF More by this author

Parliamentary Testimony

European Parliament

Combating inequalities as a lever to boost job creation and growth

This presentation was delivered in Brussels at the Employment and Social Affairs Committee (EMPL) of the European Parliament on 29 May 2017.

By: Zsolt Darvas Topic: European Parliament, Testimonies Date: June 20, 2017
Read about event

Past Event

Past Event

Inclusive growth: global and European lessons for Spain

Can manufacturing still be a driver for inclusive growth around the world? What European and national policies can foster inclusive growth in Europe? What is the situation in Spain and what can Spain learn from the global and European experiences?

Speakers: Cristina Cabrera, Zsolt Darvas, Maria Demertzis, Alejandra Kindelán, Robert Lawrence and Federico Steinberg Topic: European Macroeconomics & Governance, Global Economics & Governance Location: Calle Los Madrazo 36-38 Madrid Date: May 31, 2017
Read article More on this topic More by this author

Blog Post

The decline of the labour share of income

What’s at stake: at odds with the conventional wisdom of constant factor shares, the portion of national income accruing to labour has been trending downward in the last three decades. This phenomenon has been linked to globalisation as well as to the change in the technological landscape - particularly “robotisation”. We review the recent literature on this issue.

By: Silvia Merler Topic: Global Economics & Governance Date: April 24, 2017
Read about event More on this topic

Past Event

Past Event

Global outlook and policy priorities

At this event the Managing Director of the International Monetary Fund, Christine Lagarde, will speak about the global outlook and policy priorities, ahead of the 2017 IMF Spring Meetings

Speakers: Christine Lagarde, Jean-Claude Trichet and Guntram B. Wolff Topic: Global Economics & Governance Location: Brussels Date: April 12, 2017
Read article More on this topic More by this author

Blog Post

Building a more resilient and inclusive global economy

Curtain raiser speech ahead of the 2017 IMF Spring Meetings delivered at Bruegel by the Managing Director of the International Monetary Fund.

By: Christine Lagarde Topic: Global Economics & Governance Date: April 12, 2017
Read article Download PDF More on this topic

Policy Contribution

Making the best of the European single market

Now more than ever, the EU needs to address concerns about the significant decline in productivity growth and the increasing perception of unfairness. Completing the single market would unlock the EU's growth potential. At the same time, the EU should empower member states to fight inequality by helping them better distribute the gains arising from economic integration.

By: Vincent Aussilloux, Agnès Bénassy-Quéré, Clemens Fuest and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: February 2, 2017
Load more posts