The Elephant in the Room: the Many Dimensions of Inequality in Europe
A think piece for the ESPAS 2016 conference by Stijn Hoorens, Associate Director, Head of Office, RAND Brussels
The gap between rich and poor has widened. Austerity programmes enacted by a series of EU governments since 2009, with the aim of reducing budget deficits, have had a disproportionate effect on those with lower incomes and exacerbated income differences. 1 in 4 Europeans are estimated to be at risk of poverty and social exclusion in the EU. Recent publications (e.g. Branko Milanovic’s Elephant chart) suggest that lower middle classes in rich countries have been one of the most prominent losers of globalisation in the past couple of decades. And they fuel expectations that inequality will further increase in years to come.
If there is one challenge governments should single out for attention, it is breaking this vicious cycle affecting the most vulnerable groups in our society.
Not only does this represent a reversal of progress for the EU — income inequality had declined in most member states in recent decades — but it also is at odds with one of the foundational purposes of the Union: inclusive growth.
Inequality can be measured across several dimensions. Young people (between 15 and 24) for instance, are the only age group whose income has not grown in real terms over the past half century. Moreover, they have been disproportionally hit by the crisis. One in five workers in this age group is unemployed. In some countries, such as Spain and Greece, it is one in two. These conditions could leave lasting scars. Historic evidence suggests that unemployment early in careers, or even graduating from school in times of economic crisis, can have lasting, harmful effects on young people’s lifetime careers and salaries.
The interaction of all these dimensions — the income gap, a skills gap, an age gap, a gender gap, the digital divide, and the vulnerability of particular household compositions — could feed a vicious cycle for vulnerable groups, including young people, the older poor, low-skilled workers, migrants and their children, and single parents and their children. These groups are at risk of becoming trapped in poverty and social exclusion. If there is one challenge governments should single out for attention, it is breaking this vicious cycle affecting the most vulnerable groups in our society.
