Social Europe

politics, economy and employment & labour

  • Themes
    • European digital sphere
    • Recovery and resilience
  • Publications
    • Books
    • Dossiers
    • Occasional Papers
    • Research Essays
    • Brexit Paper Series
  • Podcast
  • Videos
  • Newsletter

Covid-19 and Europe-wide inequality

Michael Dauderstädt 23rd March 2021

Between 2017 and 2019, income disparities in Europe decreased. The pandemic stopped that decline.

Europe-wide inequality,EU-wide inequality
Michael Dauderstädt

When the pandemic hit the European Union its economy had decelerated somewhat but unemployment had reached its lowest level for years, while inflation remained stubbornly below its 2 per cent target. Inequality had decreased, too. All these achievements were however disrupted by an enormous economic shock as the economies of the member states went into lockdown.

In 2019, EU-wide inequality had reached its lowest level since the 2007 eastern enlargement (Figure 1). After many years of stagnation, in 2016 income disparities had eventually started to decline.

The impact of the pandemic is difficult to assess, due to the lack of recent household-survey data. Ignoring possible changes in the distribution of disposable income within countries in 2020—available evidence is ambiguous at best—we base our calculations of EU-wide inequality in that year on known disparities of growth among member states. Our estimate (published by the Friedrich Ebert Foundation) shows that the pandemic strongly slowed the previous decline in inequality but did not reverse it.

Quintile ratio

To gain a realistic estimate of EU-wide inequality, we use EU-SILC household-survey data from Eurostat (latest available year 2019) to combine within- and between-country inequality. We measure the quintile ratio (S80/S20), dividing the income of the richest fifth of the population by that of the poorest. The resulting 2019 pre-crisis value of EU-wide inequality is the lowest since 2008, with a value of 7.9 for the quintile ratio at exchange rates and 5.56 at purchasing-power parities.

Our job is keeping you informed!


Subscribe to our free newsletter and stay up to date with the latest Social Europe content.


We will never send you spam and you can unsubscribe anytime.

Thank you!

Please check your inbox and click on the link in the confirmation email to complete your newsletter subscription.

.

Figure 1 presents that ratio since 2005 at exchange rates and PPP. The lowest curve, oscillating around five, is the official Eurostat value for the whole EU. It is much lower and more stable than our values because it neglects the income disparities among countries. It just gives the average, weighted by population, of the national values of the quintile ratio.

Figure 1: EU-wide inequality (S80/S20 indicator), 2005-20

Europe-wide inequality,EU-wide inequality
Source: Eurostat and author’s calculation

EU-wide inequality declined between 2005 and 2009. The apparent jump in 2007 was caused by the inclusion of Romania and Bulgaria, two poor and large countries which joined the EU that year. In 2009, the financial crisis and the Great Recession hit the EU and caused inequality to increase substantially, which bodes ill for the current crisis.

That rise was partially reversed in 2011. Afterwards, the EU entered a phase when inequality changed little. In 2017, inequality eventually resumed its decline, reaching a new all-time low (for the EU-27+) in 2019.

The evolution of EU-wide inequality is driven mostly by the higher growth of poorer member states, in particular in central and eastern Europe. Their nominal gross domestic product grew by 51 per cent between 2008 and 2019, while that of the richer member states in the north-west increased by just 20 per cent. These structural features need to be taken into account when we analyse the impact of the pandemic.

Hard to guess

The case of Germany shows the ambiguities involved in so doing. The pandemic and the associated lockdowns hit people working in personal services who could not work from home harder than those in better-paid administrative or management jobs. There are also clear indications that inequality of wealth has grown as asset prices have strongly increased in the wake of loose monetary policies. On the one hand, additional wealth should translate into higher capital incomes in the medium term (as when rents increase). On the other hand, zero or negative interest rates reduce income from savings. The resulting total effect on the income of the richer, asset-owning strata remains hard to guess.


We need your support


Social Europe is an independent publisher and we believe in freely available content. For this model to be sustainable, however, we depend on the solidarity of our readers. Become a Social Europe member for less than 5 Euro per month and help us produce more articles, podcasts and videos. Thank you very much for your support!

Become a Social Europe Member

It seems quite likely that the distribution of market income worsened in 2020. But we want to estimate disposable income: inequality of disposable income is usually much lower because redistribution through the tax and welfare systems shifts income from the richer strata to the poorer. During the pandemic, all countries have adopted measures to protect jobs and income.

In the end, it is likely that disposable income did not change a lot. The case of Germany, where different studies deliver mixed results (DIW, WSI, ifo, IdW) seems to confirm that ambiguous finding. Whether that is true for other member states with less generous income support during the pandemic remains open.

Different degrees

Whatever these uncertainties regarding within-country inequality in 2020, between-country distribution of income is much clearer, as the estimates of GDP growth are already pretty reliable. The pandemic has affected the member states to different degrees. Countries depending on tourism suffered more than those relying on manufacturing. Less indebted member states, such as Germany, could afford stronger fiscal-support programmes than already highly-indebted countries.

These qualities, however, are not closely correlated with per capita income before the crisis. As Figure 2 shows, the dispersion within both income brackets is very high, although the richest member states have tended to have shallower recessions.

Figure 2: decline of GDP in 2020 (%) in relation to per capita income

Europe-wide inequality,EU-wide inequality
Source: Eurostat and OECD

Due to the data deficiencies and uncertainties, we calculate our estimate of EU-wide inequality for 2020 exclusively on the basis of the reported changes in between-country inequality. Using this method, we obtain the following estimates: inequality measured by the quintile ratio declined slightly (in comparison with 2019), with the estimated values for 2020 (Figure 1) 5.52 at PPP (5.56 in 2019) and 7.78 at exchange rates (7.9 in 2019).

The impact of the pandemic on EU-wide inequality thus appears to be weak. The ensuing recession has slowed down the recent declining trend but not reversed it as the financial crisis did in 2009-10. Given the uncertainties, this assessment must be considered provisional, as it neglects the development of inequality within countries. On that the final judgement will be available from Eurostat in the autumn.

Michael Dauderstädt

Michael Dauderstädt is a freelance consultant and writer. Until 2013, he was director of the division for economic and social policy of the Friedrich Ebert Stiftung.

Home ・ Economy ・ Covid-19 and Europe-wide inequality

Most Popular Posts

schools,Sweden,Swedish,voucher,choice Sweden’s schools: Milton Friedman’s wet dreamLisa Pelling
world order,Russia,China,Europe,United States,US The coming world orderMarc Saxer
south working,remote work ‘South working’: the future of remote workAntonio Aloisi and Luisa Corazza
Russia,Putin,assets,oligarchs Seizing the assets of Russian oligarchsBranko Milanovic
Russians,support,war,Ukraine Why do Russians support the war against Ukraine?Svetlana Erpyleva

Most Recent Posts

transnational list,European constituency,European elections,European public sphere A European constituency for a European public sphereDomènec Ruiz Devesa
hydrogen,gas,LNG,REPowerEU EU hydrogen targets—a neo-colonial resource grabPascoe Sabido and Chloé Mikolajczak
Big Tech,Big Oil,Big Pharma,agribusiness,wealth,capital,Oxfam,report,inequality,companies Control the vampire companiesJayati Ghosh
Labour,Australia,election,climate,Greens,teal Australian Labor’s climate policyAnna Skarbek and Anna Malos
trade,values,Russia,Ukraine,globalisation Peace and trade—a new perspectiveGustav Horn

Other Social Europe Publications

The transatlantic relationship
Women and the coronavirus crisis
RE No. 12: Why No Economic Democracy in Sweden?
US election 2020
Corporate taxation in a globalised era

ETUI advertisement

Bilan social / Social policy in the EU: state of play 2021 and perspectives

The new edition of the Bilan social 2021, co-produced by the European Social Observatory (OSE) and the European Trade Union Institute (ETUI), reveals that while EU social policy-making took a blow in 2020, 2021 was guided by the re-emerging social aspirations of the European Commission and the launch of several important initiatives. Against the background of Covid-19, climate change and the debate on the future of Europe, the French presidency of the Council of the EU and the von der Leyen commission must now be closely scrutinised by EU citizens and social stakeholders.


AVAILABLE HERE

Eurofound advertisement

Living and working in Europe 2021

The Covid-19 pandemic continued to be a defining force in 2021, and Eurofound continued its work of examining and recording the many and diverse impacts across the EU. Living and working in Europe 2021 provides a snapshot of the changes to employment, work and living conditions in Europe. It also summarises the agency’s findings on issues such as gender equality in employment, wealth inequality and labour shortages. These will have a significant bearing on recovery from the pandemic, resilience in the face of the war in Ukraine and a successful transition to a green and digital future.


AVAILABLE HERE

Foundation for European Progressive Studies Advertisement

EU Care Atlas: a new interactive data map showing how care deficits affect the gender earnings gap in the EU

Browse through the EU Care Atlas, a new interactive data map to help uncover what the statistics are often hiding: how care deficits directly feed into the gender earnings gap.

While attention is often focused on the gender pay gap (13%), the EU Care Atlas brings to light the more worrisome and complex picture of women’s economic inequalities. The pay gap is just one of three main elements that explain the overall earnings gap, which is estimated at 36.7%. The EU Care Atlas illustrates the urgent need to look beyond the pay gap and understand the interplay between the overall earnings gap and care imbalances.


BROWSE THROUGH THE MAP

Hans Böckler Stiftung Advertisement

Towards a new Minimum Wage Policy in Germany and Europe: WSI minimum wage report 2022

The past year has seen a much higher political profile for the issue of minimum wages, not only in Germany, which has seen fresh initiatives to tackle low pay, but also in those many other countries in Europe that have embarked on substantial and sustained increases in statutory minimum wages. One key benchmark in determining what should count as an adequate minimum wage is the threshold of 60 per cent of the median wage, a ratio that has also played a role in the European Commission's proposals for an EU-level policy on minimum wages. This year's WSI Minimum Wage Report highlights the feasibility of achieving minimum wages that meet this criterion, given the political will. And with an increase to 12 euro per hour planned for autumn 2022, Germany might now find itself promoted from laggard to minimum-wage trailblazer.


FREE DOWNLOAD

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 on social media

Follow us on Facebook

Follow us on Twitter

Follow us on LinkedIn

Follow us on YouTube