Inequality increased in two thirds of EU member states between 2006 and 2011

The European Parliament has published the results of the study Wage dispersion in the EU, elaborated by the Laboratory of Knowledge Transfer on Applied Economics (AQR-Lab) of the University of Barcelona. The study analyses the role of labour market institutions in the evolution of wage inequality across the EU member states. Among conclusions, researchers emphasized that inequality increased in two thirds of EU member states between 2006 and 2011. Considering inequality levels for annual earnings, Spain heads the classification, followed by Cyprus, Hungary and Slovakia.

The group of researchers of the University of Barcelona (UB), composed by Jordi Suriñach, Enrique López Bazo, Raúl Ramos and Vicente Royuela, has elaborated a study together with Christian Dreger, expert from the German Institute for Economics Research (DIW, Berlin).

The study is based on the analysis of the information collected from the European Union Survey on Income and Living Conditions (EU-SILC) and the Structure of Earnings Survey (SES), among other European statistics. Researchers compared different inequality measures, for instance the Gini coefficient, which is a measure of statistical dispersion that represents the unequal income distribution of a nation's residents.

Inequality increases in eighteen countries

Results indicate that wage inequality has increased, although not substantially, in eighteen out of twenty-six EU member states, while in the other eight countries it has decreased. “In some countries, inequality increased notably. However, other countries did not experience variations and inequality decreased in some member states like Portugal and Greece”, affirms Jordi Suriñach. Moreover, most countries inequality has increased in the bottom part of the distribution and not only in the top part.

In the case of Spain, researchers point out that the main cause for inequality rise is the increase of unemployment rather than greater wage inequality. “However, an analysis of more modern data (the study finished in 2011) will enable to observe the impact of precarious forms of work, for instance part time jobs, on wage inequality”, highlights Raúl Ramos.

Higher minimum wage, but lower purchasing power

Besides the increase of wage inequality, workers’ real purchasing power has decreased and the number of low wage job positions has been increased. In particular, low wage earners are those employees earning two thirds or less of the national median gross hourly earnings. “Recession has affected minimum wages by lowering its real purchasing power, particularly in the more recent periods. But, at the same time, they have been less affected than actual wages. In fact, real minimum wages have increased in most EU countries”, explains Jordi Suriñach.

Thus, countries with average or low wage bargaining levels saw minimum wages with important increases: Bulgaria, Estonia, Latvia and Romania had annual growth rates over 5%, while Greece, Portugal and Spain experienced average increases around 1%.

Effects of policies on inequality

Concerning the influence of government policies on inequality, researchers found that countries displaying a centralised system of wage bargaining, measured in terms of wage bargaining coordination, show lower rates of inequality. According to the study, improving competition in regulated markets has also a robust influence in reducing inequality in annual wage.

Trade unions and collective bargaining

The study also proves the decrease of the percentage of union members to wage and salary earners employed —union density— and bargaining coverage. However, low unionisation coupled with high bargaining coverage is the more common outcome. “For example, density rates in France and Spain are lower than in Northern Europe, but this measure largely underestimates the role of trade unions in the wage setting process, as coverage rates are still rather high (over 80% on average in Spain and 90% in France), concludes Jordi Suriñach.

This is the second project that the European Parliament has commissioned to AQR-Lab in the last two years. The first one, developed in 2013, is entitled The European Dimension in the National Reforms Programmes and the Stability or Convergence Programmes.

Further information

Wage and Income Inequality in the European Union

http://www.europarl.europa.eu/thinktank/en/document.html?reference=IPOL_STU%282015%29536294

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