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EUROPEAN COMMISSION

Why socio-economicinequalities increase?

Facts and policy responses in Europe

Directorate-General for Research2010 Socio-economic Sciences and Humanities EUR 24471 EN


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3

Foreword

There is now compelling scientific evidence that since the mid-1970s socio-economic inequalities have increased significantly in the world includingin Europe. This publication not only confirms this observation but goesmuch further by showing where socio-inequalities are to be found in theEuropean Union and their characteristics.

Socio-economic inequalities are nothing new and many EU citizens andpolicymakers at times feel that inequalities are an inevitable consequenceof our modernity. However such a stance takes no account of the fact that

research shows that between the 1930s and the 1970s socio-inequalities were indeed reduced,and sometimes very significantly, in many parts of the World including Europe, mainly throughthe strong influence of the Welfare State. Thus socio-economic inequalities are not an auto-matic consequence of modernity, they can be reduced and kept at bay.

There is also ever more evidence that countries and regions with higher socio-economic ine-

qualities experience the most acute socio-economic problems whether we speak about lowereconomic growth, increases in violence, poorer educational achievement, declining civic or elec-toral participation or higher mortality rates. On the contrary, countries with a lower level ofsocio-economic inequalities fare better in all these domains.

An intriguing question remains to be addressed. Why are socio-inequalities on the rise every-where in the world, including in Europe? The question is particularly important given that therehas been a period of sustained economic growth since the 1980s. It means that the type of growthwitnessed in recent decades fosters inequalities and, with them, all the social and economicevils that we see in the EU and which weaken it as a model for progress and well-being. As theDirectorate for Science, Economy and Society already stressed in a 2009 publication onThe World in 2025 , what is badly needed is a new model of development which acts as a but-tress to a positive socio-ecological transition. Fighting socio-economic inequalities whilst at thesame time remaining with the same old models of growth and not daring to be politically boldenough to accept the need for change will only lead to frustration and the ineffective use of ourlimited resources. The way forward is a new socio-ecological model which takes account ofEuropean democratic values such as equity, and will allow real progress. This will make surethat socio-economic inequalities will decline and soon.

Jean-Michel BAER Director

Science, Economy and Society


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Acknowledgements

This report was written by Diane Perrons, Professor of Economic Geography and Gender Stud-ies and Dr Ania Plomien, Lecturer in Gender and Social Science, both at the Gender Institute,London School of Economics. In order to complete their work they analysed the final reports,working papers and published articles from research financed by DG Research under Frame-work Programme 6 on socio-economic inequalities. In addition they read reports from related

studies financed by the Commission, OECD, ILO, IMF and the wider academic literature.

Philippe Keraudren and Luca Rizzo of the European Commission DG Research supervisedthe work.

Several European Commission DG Research colleagues deserve special thanks for theircontribution and support: Cornelia Smet, Joelle Moratis, Ian Perry and Halina Walasek.


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Table of contents

1. Introduction: Setting the Scene 71.1 The Research Projects 9

2. The European Policy Context 112.1 Development of EU Social and Economic Policies 13

2.2 Future Policies to Support Social Protection and Social Inclusion 15

3. Key Thematic Research Findings 173.1 Rising Inequalities in the European Union 18

3.1.1 Earnings Inequalities 18 3.1.2 Income Inequalities 20 3.1.3 Key Messages and Policy Implications 24

3.2 The Knowledge Economy, Education and Inequality 25 3.2.1 Innovation and Inequality 253.2.2 The Knowledge Economy and Territorial Disparities 27

3.2.3 Education and Inclusion 27 3.2.4 Key Messages and Policy Implications 293.3 Labour Market Change, Earnings Inequalities and In-Work Poverty 30

3.3.1 New Forms of Work and Earnings Inequalities 30 3.3.2 Atypical Work and Fair Pay 31 3.3.3 Key Messages and Policy Implications 32

3.4 Persistent Gender Inequality 32 3.4.1 Gender, Parenting and Pay 33 3.4.2 Key Messages and Policy Implications 36

3.5 Persistent Child Poverty and Intergenerational Transmission of Inequality 36 3.5.1 Child Poverty and Inequality 36 3.5.2 Intergenerational Transmission of Inequalities 39 3.5.3 Key Messages and Policy Implications 42

4. Conclusion: Supporting Strategies for Sustainable and Inclusive Development 434.1 Economic Change and Widening Socio-Economic Inequalities 444.2 Holistic Approach to Social and Economic Policies and Redressing Inequality 45

5. Annex 475.1 Further Reading 485.2 List of European Project Titles and Websites Relevant to Inequality 48


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Introduction: Setting the Scene ` 1


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8

Socio-economic inequalities have beenrising in the European Union (EU) and

in most countries are higher today thanin 1980 (1).These trends are similarto those found in the United States

of America (USA) and otherindustrialised economies and reflect the

combined effects of changes takingplace in the labour market, linked to

globalisation and technological change,in social variables, such as householdcomposition, and in the redistributive

activity of welfare states.

Inequality matters because it contravenes thevalues of EU citizens, the European Commis-sions objectives for economic and socialcohesion, and the specific objectives ofEurope 2020 Strategy ( 2), for smart, sustain-

able and inclusive growth ( 3).

Research very convincingly shows that egali-tarian societies are associated with higher lev-els of economic growth and political inclusion.By contrast unequal societies experiencehigher rates of crime, ill-health drug abuse,and persistent poverty ( 4). Cohesion and growthobjectives are therefore complementary aswell as critical to socio-economic well being.

This report is based on an extensive review of13 research projects financed by DG Researchunder Framework Programme 6 that investi-gated the processes underlying inequality,poverty and exclusion and the effectiveness ofstrategies designed to promote social cohe-sion in EU Member States (MS). The reportpresents the main findings from their finalreports, working papers, as well as frombooks and academic articles stemming fromthe projects. In addition the review draws onrelated work financed by the European Com-mission, other institutions including theInternational Labour Organisation, OECD andUN Development Programme and the widerliterature.

1 INEQ; LoWER3; Salverda, W. and Mayhew, K. (2009) Capitalist Economies and Wage Inequality, Oxford Review of Economic Policy , 25 (1):126-154; Franzini, M. and Pianta, M. (2009) Mechanisms of Inequality: An Introduction, International Review of Applied Economics , 23 (3):233-237.

2 European Commission (2010) Europe 2020: A European strategy for smart, sustainable and inclusive growth, COM(2010) 2020.3 More specific objectives include reducing poverty, expanding the employment rate and reducing the proportion of early school

leavers and will be aided by flagship initiatives: including the Innovation Flagship Initiatives, the "European Platform AgainstPoverty" and an "Agenda for New Skills and Jobs".

(4) Wilkinson, R. and Pickett, K. (2009) The Spirit Level. Why More Equal Societies Almost Always Do Better , London: Allen Lane.

` 1Introduction: Setting the Scene


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9W H Y S O C I O - E C O N O M I C I N E Q U A L I T I E S I N C R E A S E ?

1.1 The Research Projects

The 13 research projects investigated theprocesses generating and aiming to redresseconomic and social inequalities and relateto the three main sources of income:

market earnings from paid employment; social transfers through taxes and benefits; non-cash resources, such as education,

which also increase well-being.

Correspondingly the research projects, whileinterrelated, can be grouped under threemain themes:

1. INEQ, LoWER3, EQUALSOC, DYNREGand RESIST investigated the processesgenerating disparities in market earningsand highlighted the roles of economicrestructuring associated with the develop-ment of a knowledge economy, innovation,

education and changing labour markets;2. PROFIT and WELLCHIfocused on socialinequalities including social transfers andthe effectiveness of social policies designedto redress inequality;

3. AIMP-AP, CAPRIGHT, KATARSIS, INCLUD-ED, LLL2010 and EUREQUALfocused onnon-cash incomes and analysed the effec-tiveness of policies designed to redressmulti-dimensional forms of inequality andexclusion, including education, lifelonglearning and political inclusion.

The projects focused on inequality whichmeans that they analysed disparities in thedistribution of resources across the whole ofsociety , that is, those generating economicgrowth and affluence as well as those lead-ing to poverty and social exclusion.

Inequality is defined and measured in anumber of ways which are discussed belowand defined in Box 1.1. Socio-economic ine-quality refers to differences in a range ofeconomic and social factors that influencewell-being, including income, education, andhealth. Economic inequalities relate prima-rily to disparities in earnings, derived frompaid employment and in household incomes,which reflect the combined effects of earn-ings and net social transfers (taxes and ben-efits). Social inequality refers to differences

in access to social commodities, e.g. healthcare or education, or to social and institu-tional networks. When obtaining social goodsdepends on wealth, social and economicinequalities are linked.

Inequality is also related to poverty and socialexclusion which are distinct, but interrelatedconcepts. Poverty is defined primarily in eco-nomic terms and relates to people whose

incomes and resources preclude them fromhaving a standard of living considered accept-able in the society in which they live ( 5).Changes to either poverty or inequality mayoccur independently of each other but gener-ally countries with high levels of inequalitytend to have high rates of poverty ( 6). Socialexclusion encompasses aspects of povertyand inequality and highlights the complex,dynamic, and relational natures of disadvan-tage as well as the processes through whichpeople become excluded.

One of the key messages from the researchis that the economic and social dimensionsof inequality and poverty are interrelated ,hence the need to examine socio-economicinequalities. Correspondingly, economic andsocial policies need to be attentive to theirimpact on socio-economic inequalities .

5 European Council's definition 1975.6 See UNDP (2005) International Co-operation at a Crossroads: Aid, Trade and Security in an Unequal World,

http://hdr.undp.org/en/media/HDR05_complete.pdf
http://hdr.undp.org/en/media/HDR05_complete.pdfhttp://hdr.undp.org/en/media/HDR05_complete.pdf


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I N T R O D U C T I O N : S E T T I N G T H E S C E N E10

Box 1.1 Inequality, Poverty,and Social Exclusion 7 :

Inequality Refers to disparities in the distribution of

monetary resources within or betweenpopulations. A variety of measures are used:- the Gini coefficient captures differencesin inequality in household incomes over timeor between different regions and countries.It ranges between 0 (absence of inequality)

and 1 (total inequality);- decile ratios measure disparities in earningsbetween high and low paid workers. Frequentlyused are the 90/10 decile ratio, which contraststhe top 10 % of earners with the lowest 10 %.

Socio-economic inequality Relates to disparities in both economic and

social resources, linked to social class andincludes earnings, income, education and

health that contribute to a sense of well-being. Measures incorporate such indicators asincome, education, occupation, or health status.

Poverty The EU uses an at-risk of poverty measure,

defined as those living below 60 % nationalmedian equivalised disposable income, as notall those with low incomes are necessarily poor.

The unit of measurement is households adjustedfor household size: equivalised incomes aredefined as the households total disposableincome divided by its equivalent size.

7 Based on EUROSTAT (2010) Combating poverty and social exclusion (2010) edition. A statistical portrait ofthe European Union 2010, Luxembourg: OOPEC.

8 SILC (Statistics on Income and Living Conditions) Survey, reported in EUROSTAT (2010) op.cit.

The poverty threshold is the value in PPS in atthe 60 % median income level for any particularstate. This means that those defined as poorliving at or below the poverty threshold in onecountry for example UK (poverty threshold =PPS 17 000 and 17 % of the population livein poverty) are considerably richer than thosein another, for example the Czech Republic(poverty threshold =PPS 6000 and 10 % livein poverty) (8).

Social Exclusion Multidimensional: relating to many spheres:

- economic: livelihoods, employment, property,housing, poverty and material deprivation;- social: education, health, personal contacts,respect;- political: civic engagement and citizenship.

Multi-layered: existing at individual, household,community or national level.

Dynamic: refers to the process through which

individuals or groups become excluded fromfull participation in the society within whichthey live. > Dynamic: refers t


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The EuropeanPolicy Context ` 2


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` 2The European Policy ContextEuropean Unions (EU) policies for

combating social inequalities involvehard law instruments such as

directives, regulations, or decisions;and soft law measures such as theOpen Method of Coordination (OMC) or

various Community Programmes, whichprovide a framework and funding for

national strategy development andpolicy coordination between the

Member States (MS). All EU institutions the Parliament, the Council of the EU,

the Commission, as well as the SocialPartners participate in this process.

` Figure 2.1 Select EU Social and Economic Policy Developments

This section gives a brief overview of EU poli-cies for combating inequalities and points tofuture policies to support social protection andsocial inclusion, as expressed in the Europe2020 Strategy. Crucially, while EU policies

address various dimensions of social andeconomic patterns of inequality and thus arerelevant to some of the underlying processesassociated with inequality, such as employ-ment or education, these policies do nottarget socio-economic inequality directly .

1957 1961 1974 1989 1992 1997 2000 2005 2006 2007 2010

EuropeanSocial Charter

Social ActionTreaty of Rome Social PolicyTreatyof Maastricht

Lisbon StrategySocial PolicyAgendaSocial InclusionOMC

Gender EqualityPactGender EqualityRoadmap

Year forCombatingPoverty & SocialExclusionEurope2020

Charter of BasicSocial Rightsfor Workers

Treatyof AmsterdamEmploymentOMC

Social AgendaYouth Pact

Year of EqualOpportunitiesProgressTreaty of LisbonCharterof FundamentalRights


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T H E E U R O P E A N P O L I C Y C O N T E X T

the Commissions Recommendation on activeinclusion of people excluded from the labourmarket ( 21), urging MS to combine adequateincome support, inclusive labour markets andaccess to quality services. Finally, educationand training policies were also an essentialpart of the renewed strategy. The Copenha-gen Process, in particular, was intensified inorder to develop lifelong learning policies thatwould effectively accompany and buttressinnovation policies in Europe.

Fighting poverty is especially relevant to chil-dren the focus of the 2007 Social Protectionand Social Inclusion policy cycle ( 22). Accessi-ble and affordable quality childcare is centralin this respect and has been reflected in thecoverage rate target to reach 33 per cent ofchildren under three and 90 per cent betweenthree and school age by 2010 ( 23). In 2006 theSpring European Council committed to takenecessary measures to rapidly and signifi-

cantly reduce child poverty, giving all childrenequal opportunities, regardless of their socialbackground ( 24).

Other specific groups of European citizensalso require attention. The European YouthPact adopted in 2005 comprised of three pri-ority fields: education and training, employ-ment and social inclusion, and reconciliationof working and private life ( 25). The unequalposition of ethnic and migrant population,especially female migrants from outside theEU, has also entered the EU policy sphere.

The Social Inclusion Process was establishedto significantly eradicate poverty by 2010. Thefirst objectives were designed: to facilitateparticipation in employment and access toresources, rights, goods and services; to pre-vent risks of exclusion; to help the most vul-nerable; and to mobilise all relevant bodies ( 17).Employment was highlighted as the bestdefence against social exclusion and as suchthe European Employment Strategy (EES) wasclosely linked to the Social Inclusion Process.

A five year evaluation of the Lisbon Strategysignalled that the objectives of sustainableeconomic growth leading to more and better jobs and improved social cohesion were farfrom realised and that the Strategy neededrefocusing. Consequently in 2006, on thebasis of the Commissions Communica-tion (18), the European Council adopted theSocial Protection and Social Inclusion process,whereby the fields of social inclusion, pen-

sions, and health and long-term care werebrought together. Similarly, the EES wasmerged with the broad guidelines foreconomic policies and became part of theIntegrated Guidelines ( 19). Additionally,an integrated flexicurity approach was intro-duced to achieve social and employmentgoals, as flexicurity policies should addressat the same time the flexibility of labourmarkets (work organisation and labour rela-tions, reconciliation of work and private life)and employment security and social protec-tion (20). Further impetus came in the form of

17 Presidency Conclusions, Nice European Council Meeting, 7-9 December 2000.18 European Commission (2005) Working together, working better: A new framework for the open coordination of social protection

and inclusion policies in the EU. Communication from the Commission COM(2005) 706 final, Brussels.19 Council of the EU (2005) Council Decision of 12 July 2005 on Guidelines for the employment policies of the Member States

(2005/600/). Official Journal of the EU.20 European Commission (2007) Towards Common Principles of Flexicurity: More and Better Jobs Through Flexibility and Security.

COM(2007) 359 final of 27/6/07.21 European Commission (2008) Commission Recommendation of 3 October 2008 on the active inclusion of people excluded

from the labour market (notified under document number C(2008)5737) OJ L 307, 18/11/2008.

22 Council of the EU (2009) Joint Report on Social Protection and Social Inclusion, 7503/09, Brussels.23 Council of the EU (2002) Barcelona European Council of 15-16 March: Presidency Conclusions.24 Council of the EU (2006) European Council Brussels 23-24 March: Presidency Conclusions.25 Council of the EU (2005) European Council Brussels of 22-23 March: Presidency Conclusions.

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T H E E U R O P E A N P O L I C Y C O N T E X T

meet social and economic objectives are ofkey importance. As a recent Draft JointEmployment Report ( 35) points out, since theoutbreak of the economic crisis the EU socialand territorial cohesion has been at riskbecause countries and regions are affectedin different ways and to varied degrees ofintensity.

In this context the European Commission haslaunched a consultation on the future Europe2020 Strategy ( 36), with a formal Communica-

tion (37) addressed to the European Councilwith three mutually reinforcing priorities:

smart growth: developing an economy basedon knowledge and innovation;

sustainable growth: promoting a moreresource efficient, greener and more com-petitive economy;

inclusive growth: fostering a high-employ-ment economy delivering social and

territorial cohesion.

The European Council finalized this process inJune 2010 when the detailed parameters of thestrategy, including the integrated guidelinesand national targets, were adopted.

The Europe 2020 Strategy purports toimplement several flagship initiatives fora smart, sustainable and inclusive growth thatshould help fight socio-economic inequalities.The following Section 3 on the results of theFramework Programme research in SocialSciences and the Humanities shows how com-

bating socio-economic inequalities is actuallyfundamental not only to an inclusive EU butalso to growth.

16

35 European Commission (2009) Draft Report from the Commission to the Council Draft Joint Employment Report (JER)

2009/2010. COM(2009)674/3. Brussels.36 European Commission (2009) Commission Working Document: Consultation on the Future Europe 2020 Strategy,COM(2009) 647/3, Brussels.

37 European Commission (2010) Communication from the Commission Europe 2020: A strategy for smart, sustainable,and inclusive growth.


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Key ThematicResearch Findings ` 3


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` 3Key Thematic Research FindingsThe EU has consistently supported

economic growth with economic andsocial cohesion from its inception andthe Europe 2020 Strategy confirms

the objectives for cohesive growth andinclusion. Yet research projects financed

under Framework Programme 6 showthat socio-economic inequalities arehigh and have been rising within the

majority of MS, in the last threedecades, similarly to trends elsewherein the world ( 38). For the majority of MS

socio-economic inequalities werehigher in 2007 than in 1980 . The

projects analyse changes in inequality,explore the processes generating

inequality and the effectiveness of

policies and initiatives designed toredress these inequalities.

3.1 Rising Inequalities inthe European Union

3.1.1 Earnings InequalitiesThe main source of income for individuals and

households in the EU is earnings fromemployment. Earnings inequalities have beenrising in the majority of MS, similarly to trendsfound elsewhere in the world includingthe USA, China and India. Figure 3.1 fromEQUALSOC shows the increase in earningsinequalities, measured by the inter-decileratio, for a number of EU member states andselected OECD countries ( 39).

38 OECD (2008)Growing Unequal. Income Distribution and Poverty in OECD Countries , Paris: OECD In many states inequalitiesrose most steeply between the 1980s and mid 1990s and subsequently stabilised at a high level as the INEQ project showed.

39 See Box 1.1 for a definition of the measures.


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As EQUALSOC shows, the largest increasesin earning inequalities between 1979 and 2000

were in English speaking countries as well asin Northern Europe. By contrast continentalEuropean countries experienced only modestincreases or even decreases ( 41). OECD datafor a slightly longer period show similarincreases in earnings inequality among menand among women of about 10 per cent. Asinequality among men and among womenhave both increased the gender wage gap haslargely remained unchanged (OECD 2008).

Underlying the increase in earnings inequal-ities is the growing imbalance between payincreases and productivity increases, whichhas resulted in a decline in labours shareof value added (IMF 2007). INEQ shows thatEuropean workers, especially the lowerpaid, have not benefitted from increases inproductivity in recent decades. Furthermore,

an increasing proportion of European work-ers have experienced a decline in total income

wages plus social contributions.

W H Y S O C I O - E C O N O M I C I N E Q U A L I T I E S I N C R E A S E ? 19

40 EQUALSOC Sjoberg, O. (2009) Corporate Governance and Earnings Inequality in OECD Countries, 1979-2000,European Sociological Review 25 (5):519-533.41 The data for this diagram comes from the OECD data base and has to be regarded with some caution as the measure of earnings

used is not always comparable. Data for Finland and France for example reflect weekly rather than hourly earnings.42 INEQ (2009) Europes Inequality Challenge, European Policy Brief.

` Figure 3.1 Changes in Earnings Inequalities in Selected Member States and OECD countries 1979-2000

Source: Sjoberg (2009) ( 40) from EQUALSOC

NB: (i) the period relates to 1979 and 2000 or as close as data permits. NB: (ii) the measure of inequality is the inter-decile ratio.

The INEQ project concludes: During the 1996to 1999 period, 48 % of the workforce saw theirearnings rise more slowly than their productivity.Between 2003 and 2006 the gap widened toinclude 61 % of the workforce. Moreover, duringthat same period, 23 % of the workforce sawtheir hourly compensation drop while theirproductivity rose

Between 1996 and 1999, hourly compensation(wages plus social contributions) in major EUcountries declined by 16.5 %. Within just a fewyears between 2003 and 2006 the figuredoubled to 33 % ( 42).

0

1

2

3

4

5

AU(79-00;n=21)

BE(86-93;n=7)

CA(81-94;n=8)

CH(91-00;n=10)

DE(84-00;n=17)

DK(80-00;n=16)

FI(80-00;n=17)

FR(79-00;n=22)

IT(86-96;n=11)

JP(79-00;n=22)

NL(79-99;n=20)

NZ(84-97;n=9)

SE(79-00;n=21)

UK(79-00;n=22)

USA(79-00;n=22)

1979 2000 p90/p10-ratio


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` Figure 3.2 Income Inequality Before And After Social Transfers (Gini Coefficient)

Source: Paulus, Figari and Sutherland (2008) ( 45)

NB: the data for the different countries varies between 2001, 2003 and 2005 depending on availability;see definition of Gini Coefficient in Box 1.1.

As findings from INEQ, EQUALSOC, andLoWER3 show, both earnings and incomes ine-qualities have increased in recent decades formost EU states (see also Table 3.1 ). The levelof inequality varies between different MS. Forexample, inequality declines marginally in

Belgium but rises significantly in the UK. Themain source of rising inequality for manystates is the increased share of income accru-ing to more affluent households, those in thetop quintile (the top 20 % of incomes).

45 Paulus A., Figari F. and Sutherland H., 2008, The effect of taxes and benefits on income distribution in the EU, Chapter 7 inSocial Situation Observatory Report 2008, reproduced in EU (2009) Social protection Committee Growth, Jobs and Social ProgressIn The EU, http://www.lavoro.gov.it/NR/rdonlyres/4502C661-F4FC-4B1D-AC80-A581DAF05E07/0/Lisbon_TF_Final_report.pdfUnfortunately this Figure does not map the situation in all new MS.

0.20

0.30

0.40

0.50

0.60

0.25

0.35

0.45

0.55

SISEPTPLNLLU UKITIEHUFRFIESELEEDKDEBEAT

Original income Original income and public pensionsGross income Disposable income
http://www.lavoro.gov.it/NR/rdonlyres/4502C661-F4FC-4B1D-AC80-A581DAF05E07/0/Lisbon_TF_Final_report.pdfhttp://www.lavoro.gov.it/NR/rdonlyres/4502C661-F4FC-4B1D-AC80-A581DAF05E07/0/Lisbon_TF_Final_report.pdf


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` Table 3.2 Income growth by income quintile

Average annual changemid-1980s to mid-1990s

Average annual changemid-1990s to mid-2000s

Bottomquintile

Middlethree

quintiles

Topquintile Median Mean

Bottomquintile

Middlethree

quintiles

Topquintile Median Mean

Austria 1 2.5 2.7 2.8 2.8 2.7 -2.1 -0.5 -0.4 -0.6 -0.6Belgium 1 1.2 0.5 1.2 0.4 0.8 1.4 1.3 1.7 1.2 1.5

CzechRepublic 1

.. .. .. .. .. 0.4 0.6 0.7 0.5 0.6

Denmark 1.3 0.9 0.8 0.9 0.9 0.6 0.9 1.5 0.9 1.1Finland 0.9 0.9 1.0 0.8 1.2 1.6 2.5 4.6 2.5 2.9

France 1.0 0.5 -0.1 0.5 0.3 0.9 0.7 1.0 0.8 0.8Germany 0.4 1.4 1.6 1.2 1.4 -0.3 0.5 1.3 0.6 0.7

Greece 0.3 0.1 0.1 0.3 0.1 3.6 3.0 2.7 2.9 2.9Hungary .. .. .. .. .. 0.9 1.2 1.0 1.1 1.1Ireland 1 4.0 3.0 2.9 3.2 3.1 5.2 7.7 5.4 8.2 6.6

Italy -1.3 0.5 1.5 0.6 0.8 2.2 1.0 1.6 1.0 1.3Luxembourg 2.3 2.5 3.0 2.4 2.7 1.5 1.5 1.7 1.5 1.6Netherlands 1.1 2.7 3.9 2.8 3.0 1.8 2.0 1.4 2.0 1.8

Norway -0.3 0.3 1.0 0.4 0.5 4.4 3.9 5.1 3.8 4.3Portugal 1 5.7 6.5 8.7 6.2 7.3 5.0 4.1 4.4 4.2 4.3

Spain1 4.4 3.2 2.4 3.2 3.0 5.2 5.1 5.0 5.5 5.1Sweden 0.5 0.9 1.2 0.9 0.9 1.4 2.2 2.8 2.2 2.3

UnitedKingdom 0.7 2.0 4.3 1.9 2.8 2.4 2.1 1.5 2.1 1.9

UnitedStates 1.2 1.0 1.9 1.0 1.4 -0.2 0.5 1.1 0.4 0.7

1. Changes over the period mid-1990s to around 2000 for Austria, Belgium, the Czech Republic, Ireland, Portugaland Spain (where 2005 data, based on EU-SILC , are not deemed to be comparable with those for earlier years).

Source: Adapted from OECD (2008) op.cit.

The projects show that a combination offactors (including economic restructuringassociated with the move towards a knowl-edge economy, labour market change andredistributive policies of welfare states)account for these increases in inequality inthe last two to three decades. In addition,AIM-AP finds that non-cash benefits are pro-poor, but they vary across populations andcountries, and therefore are an importantcomponent in understanding socio-economic

well-being in different European states.

Variations in inequality between MS show thatinequality is not inevitable and that policiescan redress undesirable outcomes . Inequal-ity matters because it impacts negatively onsocial welfare and undermines social cohe-sion. EUREQUAL finds that in Central andEastern Europe equality goes hand in handwith economic and political advantages andthat more egalitarian states display highereconomic growth and are more democraticthan less egalitarian countries. More surpris-

ingly, both INEQ and EQUALSOC find that therelationship between inequality and growth is


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K E Y T H E M A T I C R E S E A R C H F I N D I N G S24

complex, and most likely, that one is notdirectly related with the other. The projectsfind no evidence that redistributive policiesadversely affects growth or that growth leadsto lower levels of inequality as trickle downeffects have been shown to be too weak .Drawing on evidence from Brazil, declines ineconomic inequality have occurred alongsideeconomic growth as a consequence of a com-bination of macro-economic stability, eco-nomic growth and strong redistributivegovernment programmes ( 47). INEQ, EQUAL-

SOC and Klasen (2009) (48) report widespreadevidence that high levels of initial inequalitytend to reduce growth. Taking this evidencealongside the discussion below in Sections 3.2and 3.3, relating to the knowledge economyand new forms of work, suggests that the formof growth or the model of the economy are crit-ical, and in this respect the projects do not findany evidence that suggests that securing theEuropean values for greater equality, reflected

to some degree in the European Social Model,would undermine economic growth ( 49).

3.1.3 Key Messages andPolicy Implications The relationship between inequality and

growth is complex . The projects find no evi-dence that redistributive policies adverselyaffects growth or that growth leads to lowerlevels of inequality as trickle down effectshave been shown to be too weak. Theprojects report robust evidence that highlevels of initial inequality tend to reducegrowth .

The economic and social mechanisms pro-ducing polarisation and inequality are gen-erally dealt with separately; much attentionis devoted to the effects of inequality suchas poverty, discrimination and lack of social

47 EQUALSOC Klasen, S. (2009) Inequality in Emerging Countries: trends, interpretations, and implications for developmentand poverty reduction, Intereconomics , Nov/Dec: 360-363.

48 INEQ and Franzini, M. (2009) Why Europe Needs a Policy on Inequality, Intereconomics , Nov/Dec: 328-331.49 EQUALSOC Klasen, S. (2009) Inequality in Emerging Countries: trends, interpretations, and implications for development

and poverty reduction, Intereconomics , Nov/Dec: 360-363.50 INEQ: Annex I Description of Work, 14.10.2005: 2.

cohesion without a proper link to themechanisms that are at their source . Policydiscussion tends to focus on narrow redis-tributive actions, drawing from an everreducing base of public expenditure andwelfare services, with little attention tothe broader economic and social policytools that may reverse the increase ininequality ( 50).

Inequality in earnings has risen in themajority of member states in recent dec-ades . In particular labours share of value

added has fallen especially among the lowpaid. This means that employment nolonger provides a guarantee against pov-erty and exclusion. One third of workingadults are in poverty, implying the need tostrengthen policies aimed at working poor.

European workers, especially the lowerpaid, have not benefited from increases inproductivity in recent decades. The inabil-ity of labour to capture an adequate share

of productivity gains constitutes a majorproblem in Europe . MS respond to inequality and poverty

largely through social transfers to thebenefit of the low income householdsbut these policies do not meet the samesuccess . Hungary and the Nordic Statesredress market inequalities to the greatestextent, pointing to the importance of insti-tutional environments in different WelfareState contexts.

States rarely address the processes lead-ing to market inequalities or earnings ine-qualities directly . Given employmentchanges, discussed in more detail below,states should consider ways of increasinglabours share of value added so that itbetter reflects their contribution to produc-tivity increases.


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by equipping people to work in the knowledgeintensive industries but sectors with a largeproportion of highly educated workers areassociated with wider disparities in earningsas shown by INEQ.

A number of explanations have been advancedto account for widening inequalities, includ-ing: differential opportunities for capturingproductivity gains associated with differentforms of innovation as shown by INEQ; differ-ential barriers to education and training relat-

ing to educational systems and styles, shownby KATARSIS and INCLUD-ED and the extentto which education and skills can be upgradedover the lifecourse, shown by LLL2010. Inaddition throughout the contemporary eco-nomy, working patterns have become lesssecure as shown by LoWER3 and EQUALSOC,and discussed in more detail in Section 3.3.

3.2.1 Innovation and Inequality

Innovation is critical to establishing a morecompetitive economy but, as shown by INEQ,DYNREG and RESIST, new technologies canbe associated with increasing inequalities atall levels: between the EU and other worldregions, between different regions in the EUand between different groups of workers.

INEQ found that high level workers and man-agers were able to appropriate gains fromproduct innovation but not from process inno-vation (see Box 3.1). This finding shows thatone of the reasons underlying widening ine-qualities is linked to the inability of low paidworkers to share in the benefits of economicgrowth. INEQ recommend strengtheninglabour market institutions to address thisproblem .


3.2 The Knowledge Economy,Education and Inequality

Moving towards a knowledge intensive soci-ety in the global economy is associated withincreasing economic growth, economic inte-gration and major economic restructuring. Inmature European economies there has beena shift from manufacturing, which providedrelatively well paid and regular employmentfor people with medium levels of skills, toservices, where employment is more polar-

ised between highly paid professional andmanagerial work and more routine manualservice work.

Findings from INEQ and PROFIT show that thepolarisation of the employment compositionimpedes career progression and increasesthe difficulty of redressing the intergenera-tional transmission of inequality (see Section3.5 below). These trends in Europe are simi-

lar to those in the US and in both cases are insharp contrast to the era of income compres-sion between the 1930s and mid 1970s ( 51).

Economic restructuring, innovation and ahighly educated and well trained workforceare critical to the development of a competi-tive, smart, knowledge economy (Europe2020) but these economic, employment andeducational changes are associated withwage polarisation, primarily due to the expan-sion of earnings at the top of the distributionrelative to those lower down and the inability of labour (especially lower paid labour) tocapture an adequate share of productivity gains ( 52 ) as findings from INEQ, RESIST,LoWER3 and EQUALSOC show. Similarly edu-cation is critical to promote social inclusion

51 See Piketty T. and Saez E. (2006) The Evolution of Top Incomes: A Historical and International Perspective,American Economic Review , Papers and Proceedings 96(2): 200-205.

52 ILO (2008) op.cit. Research finds that labours share of output fell in 51 out of 73 countries for which there is data.


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K E Y T H E M A T I C R E S E A R C H F I N D I N G S

RESIST, focusing more on spatial rather thansocial inequalities, identifies ways of promot-ing growth without exacerbating inequalitiesby bringing economic and social objectivestogether rather than relying on redistributivepolicies to moderate the outcomes of unequalgrowth and by widening the understanding ofgrowth beyond GDP to include social objec-

tives (see Box 3.2 ).

26

Box 3.1 Innovation and Inequality

INEQ research provides some advance overconventional explanations linking technologicalchange to wage polarisation by using bettermeasures of polarisation and by distinguishingbetween different types of innovation (processand product) and finally by considering theimplications for different types of occupations.

The research shows industries associated

with greater skill intensity tend to have higherlevels of wage inequality, especially where productinnovation is frequent. Managers and highlyskilled workers are able to gain from the highreturns associated with new products becausetechnology and product markets are moreconcentrated than industries with processinnovations. Process technologies are linkedwith a diffusion of knowledge across a wide rangeof sectors and while they raise productivity,

the impact is more difficult to identify and gainsless easy to capture and appropriate by managersand highly skilled workers.

To redress these market tendencies towardsincreasing inequality INEQ 53 recommends thatlabour market institutions be supported as theyplay a critical role promoting a greater sharing ofproductivity gains and opportunities for workersto raise their skills in the workplace.

Box 3.2 The knowledge economy paradigmshould not focus only on economic growthbut should include social cohesion goals

RESIST identifies ways in which regulatoryregimes and policies on science, technology andinnovation (STIs) could be redesigned so thatscientific advance would more likely counter thanreinforce existing economic and social inequalitieswithin and between member states. RESISTshows how existing policy frameworks are

implicitly based on a Knowledge Economy PolicyParadigm with the primary focus on growth,productivity and competitiveness. Within thisframework knowledge generators are assumed tobe private firms and benefits assumed to trickledown to a wider population. RESIST shows thatSTIs are more likely to contribute to redressingglobal inequalities and inequalities betweenEU regions if a Social Cohesion Policy Paradigm(SCoPP) is adopted. SCoPP takes equality and

accountability as core objectives and values lowtechnology and traditional indigenous knowledgesin addition to economic goals. This way STIs aremore likely to contribute to the combined goals ofcompetitiveness and cohesion rather than just theknowledge economy pillar.

In a similar vein, but relating to social ine-qualities, CAPRIGHT explores the possibilitiesfor designing new measures of social well-being. As it can no longer be assumed thatsocial cohesion follows from economicgrowth, CAPRIGHT proposes a broader set ofmeasures drawing on the capabilities frame-work, similar to the United Nations in theirHuman Development Index, to encompass thecombined goals of growth with cohesion. Thisframework would also better accommodatethe social and environmental objectives within

Europe 2020.

53 INEQ- Angelini, E., Farina, F. and Pianta, M. (2009) Innovation and Wage Polarisation in Europe, International Review of Applied Economics 23 (3):309-325.


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In post-socialist states, the potential of edu-cation and life long learning programmes toreduce inequalities is related to the widercontext of the political economy. The social-ist goal of broadening participation in educa-tion and reducing inequality was abandonedand the introduction of market forces intoeducation appears to exacerbate inequality.While inequality in access to education hasincreased, it is persons with higher educationwho are better able to adapt to changing mar-ket conditions (LLL2010). The polarisation of

the employment composition also impedescareer progression and increases the diffi-culty of redressing the intergenerationaltransmission of inequality as shown byPROFIT and INEQ and discussed further inSection 3.4 below.

Access to lifelong learning is differentiated bysuch social divisions as gender, age, ethnic-ity, and region. Generally, women are more

likely to participate in formal education andlifelong learning, but this advantage does nottranslate well into labour market success andwithin vocational training programmes thereare greater numbers of men. Younger peopleare more likely to participate in education andtraining than older age groups. Ethnic minor-ities are often deprived due to linguistic orother culturally-based forms of exclusion.Despite this recognition and a range of poli-cies for ethnic minorities, reliable quantita-tive data about learning provisions for thesegroups and about take-up is lacking. Finally,there is regional variation in access to educa-tion between urban and rural areas (LLL2010).

3.2.4 Key Messages andPolicy Implications Research shows that existing policy

frameworks are implicitly based on aKnowledge Economy Policy Paradigm with

the primary focus on growth, productivity


and competitiveness. Within this frame-work knowledge generators are assumedto be private firms and benefits assumedto trickle down to a wider population. Poli-cies on science, technology and innovationare more likely to contribute to redressinginequalities if they integrate social mech-anisms or help value other inputs such aslow technology and traditional indigenousknowledges in addition to economic goals .

Current innovation policies in industrialsectors where product innovation is high

may actually reinforce socio-economicinequalities and thus weaken the innova-tion potential of Europe . Effective labourmarket institutions in these industrialsectors would make possible an improvedtrade-off between economic growth andeconomic and technological innovationon the one hand and socio-economic equal-ity and improvement of skills on the otherhand.

If we look at inequalities spatially, inequal-ity between MS has generally decreasedbut inequality between EU regions hasincreased . Even more worrying, inequal-ity within EU regions has greatly increased .Socio-economic inequalities between peo-ple are thus much more visible now and puta strain on the socio-economic and politi-cal coherence of entire regions or cities ofEurope.

Education, including lifelong learning, isessential to innovation. However, theFramework Programme research showsthat education is more often likely to rein-force socio-economic inequalities thanfight them because the European educa-tional systems often participate actively tovarious forms of social segregation . Edu-cation and lifelong learning should provideimproved guarantees for adequate and fairreturns in the labour market and personal

development.


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3.3 Labour Market Change, EarningsInequalities and In-Work Poverty

3.3.1 New Forms of Workand Earnings InequalitiesEarnings inequalities can be attributed topolarisation in employment composition,between highly skilled and well paid jobs andto employment deregulation and changes inworking contracts. In particular, atypical workwith shorter hours, intermittent and tempo-rary working has expanded and these jobs

have lower relative rates of remuneration,especially at the lower end of the distributionas demonstrated by INEQ, EQUALSOC,LoWER3, WELLCHI and PROFIT. INEQ alsoshows that earnings inequalities are higherin industries with greater labour marketdynamics or turnover and where labourregulations and the power of trade unions arelower.

56 EUROSTAT (2010) op.cit.

` Figure 3.3 Wage Gaps Between Workers with Temporary and Permanent Contracts (%)

Source: INEQ Policy Brief 2009

Across the EU-27 temporary, part-time andseasonal workers were at notably higher risksof poverty than permanent and fulltime work-ers( 56). Figure 3.3 from the INEQ projectshows how the gap in wages between work-ers with permanent and temporary contractsvaries between MS, with particularly highgaps in Sweden, though here the proportionof temporary workers is relatively small. Moregenerally, INEQ and EQUALSOC show this gapis higher in countries characterised by moreregulated labour markets, suggesting some-

thing of an insider/outsider differentiationwithin these countries with trade unionsbeing able to protect the interests of perma-nent workers but less so for those on tempo-rary contracts.

-40%

-45%

-50%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

- 3 7

. 6 %

SE FR EL AT BE PT PL IT ES LU IE SI LT CZ UK EE LV

- 2 8 %

- 2 6

. 4 %

- 2 3

. 4 %

- 2 2

. 5 %

- 2 1

. 6 %

- 2 1 %

- 1 8 . 8 %

- 1 6

. 7 %

- 1 6

. 3 %

- 1 6 % -

1 0

. 8 % - 8

% - 7 . 4

% - 4 . 5

% - 1 . 9

% - 1

%


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There is also a connection between the sta-tus of the employment contract and risk ofpoverty that is found in MS with very differentlabour market structures and overall wealth.For example, the risk of poverty was betweentwo to five times higher between non stand-ard and full time employees in Romania, Fin-land and the United Kingdom in 2007 ( 59). Thisfinding, together with the research fromLoWER3, EQUALSOC, PROFIT and INEQ whichshows that education and training are not suf-ficient to redress low pay, suggests that the

broader processes shaping labour marketsneed to be reviewed thoroughly if the MS donot want to see socio-economic inequalitiesincrease further and undermine social cohe-sion and economic development.

3.3.3 Key Messages andPolicy Implications Non standard forms of work have been

increasing in all MS . They provide more

flexibility for employers and to some degreefor employees but they are associated withwidening earnings inequality and theexpansion of in-work poverty.

The labour market is not functioning cor-rectly as equivalently qualified non stand-ard workers are paid less for equivalentwork. The inability of labour to capture anadequate share of productivity gains con-stitutes a major problem in Europe . It isimportant to combat low pay directly aswell as finding ways of allowing productiv-ity gains to be shared more equally betweencapital and labour and between high andlow paid workers. To redress marketimperfections, the EU and the MS shouldsupport labour market institutions as theyplay a critical role in wage negotiation and

59 EUROSTAT (2010) op.cit.60 Employment, Social Affairs and Equal Opportunities Website accessed on March 31, 2010 at:

http://ec.europa.eu/social/main.jsp?catId=41861 Eurostat LFS data, Population and Social Conditions Database.

can ensure a fairer and ultimately moreeffective distribution of productivity gains.

Lower levels of wage inequality are foundin the Nordic and Western European stateswhere trade unions play a greater role inwage determination, in comparison to theUK and Ireland and countries in Easternand Southern Europe. These MS show thatit is possible to combine economic growthand modernisation with lower degrees oflabour market inequality and so betterreflect European values of growth with

cohesion that other states might follow. These findings also suggest that it is

important to find ways of ensuring securityalongside flexibility. Ways of securing fairremuneration, reflecting skills and pro-ductivity are required . Genuine flexicuritypolicies with an equal focus on flexibilityAND security are necessary.

3.4 Persistent Gender Inequality

As declared by the European Commission,equality between women and men is a funda-mental right, a common value of the EU anda necessary condition for the achievement ofthe EU objectives of growth, employment andsocial cohesion ( 60). Progress has been madethrough equal treatment legislation, gendermainstreaming and specific measures for theadvancement of women.

On average, the EU has approached theLisbon 60 % target employment rate, risingfrom 53.7 % in 2000 to 58.6 % in 2009 in EU-27countries ( 61). Increasing female employment,including growing participation by mothers,reflects one of the defining economic andsocial developments of recent decades
http://ec.europa.eu/social/main.jsp?catId=418http://ec.europa.eu/social/main.jsp?catId=418


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(LoWER3) (62). However, inequalities remainand are of increasing significance. More andmore women are dependent on their individ-ual earnings owing to changes in family com-position and an increasing proportion ofchildren spend at least part of their childhoodin a single-parent family headed primarily bywomen (WELLCHI).

3.4.1 Gender, Parenting and PayFlexible working enables people, primarilymothers, to balance paid work with caring

responsibilities but it is not sufficient toredress gender inequality in employment asthese forms of working are not available in alloccupations (see Box 3.5 ).

Womens over representation in low paid sec-tors and occupations and non standard workcan partly be attributed to the continuing une-ven responsibility between women and menfor childcare and domestic work. In particu-

lar, parenthood affects women and mendifferently, the extent of difference varyingbetween MS (see Figure 3.5 ).

Box 3.5 Flexible Work, Precarityand Low Pay

Flexible, part-time and non-standard formsof employment have contributed to raisingwomens employment rates, in line with securingLisbon goals.

However, flexible jobs are more often found in lowpaid work and bring higher risks of subsequentunemployment excluding individuals from secure

and stable labour market positions with futurerisks of social exclusion ( 63). People workingnon-standard hours are also more likely to bepaid less even when in the same form of work(See Section 3.3.2). Women are over representedin flexible and non-standard work so the part-timepenalty is equivalent to a gender pay gap. In theUK, for example, 25 % of women in high skill jobsdowngrade occupationally when they switch topart-time work and for those who change

employer to do so, this figure rises to 43 %.A woman who downgrades and changes employersimultaneously will experience on average 32 %drop in earnings. Reversing these changes leadsto less than 50 % recovery of the losses. Both theextent of flexible working and the scale of the paypenalty vary among MS, and are lower in theNordic countries ( 64).

62 LoWER3: Gregory, M., Beblo, M. Salverda, W. and Theodossiou,I. (2009) Introduction, Oxford Economic Papers 61:1-10.63 EQUALSOC: Barbieri, P. (2009) Flexible Employment and Inequality in Europe, European Sociological Review , 25 (6): 621-628.64 LoWER3: Gregory, M., Beblo,M. Salverda, W. and Theodossiou,I. (2009) Introduction, Oxford Economic Papers 61:1-10.


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Although work pressures, such as long, unso-cial and unpredictable hours, affect womenand men equally, gender differences exist inwork-life conflict. EQUALSOC finds that, forall the 23 Member States studied, caringresponsibilities increase time based conflictsonly for women while job insecurity affectsstrain-based conflicts for men. These find-ings indicate the deeply entrenched charac-ter of gender divisions between caring andbread winning ( 65).

Mothers, more than fathers, interrupt theircareers through leave and move to jobs withshorter hours. As womens qualifications

match those of men, under-utilising theirhuman capital is socially inefficient (LoWER3).Additionally, Framework Programme 6 re-search EQUALSOC; INEQ; LoWER3 confirmsthat motherhood related career breaks carrysubstantial and lasting wage penalties, withthe size of the penalty rising with the dura-tion of the employment interruption . Institu-tional environments play an important role asin countries where working motherhood is notsupported the wage penalties are higher.These unequal patterns throughout the life-course result in a higher at-risk of povertyrates among older women than older men(see Figure 3.6 ).

34

` Figure 3.5 Employment Impact of Parenthood for Women and Men 25-49, 2008 (%)

Source: EC (2010) Statistical Annex to the Report on Equal Opportunities between Women and Men

NB The graph plots difference in % points in employment rates with presence of a child under 12 and withoutthe presence of children. No data available for SE.

65 EQUALSOC: Steiber, N. (2009) Reported Levels of Time-based and Strain-based Conflict between Work and Family Rolesin Europe: A Multilevel Approach, Social Indicators Research , 93: 469-488.

35%

30%

25%

20%

15%

10%

-5%

0%

5%

10%

15%

AT BE BG CY CZ DE DK EE ELEU27ES FR HU IE IT LT LU LV MT NL PL PT RO SI SK UK

Women Men

+ 8

. 5 %

- 1 1 . 4 3 %

FI


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The increase in female participation has alsobeen associated with a decline in fertility,owing to the difficulties of combining mother-hood with a career. In the Nordic countriesand in France by contrast, the increase infemale work force participation is associatedwith an increase in fertility, indicating howstate support for working parents and espe-cially working mothers can facilitate bothroles. This finding is especially importantgiven the Europe 2020 objective of raisingthe overall employment rate to 75 % which islikely to require a higher rate for women thanthe current 60 %. More importantly for policymakers this positive association betweenemployment participation and fertility isonly found where part-time jobs are of highquality.

Policy makers can be reluctant to addresswhat might seem to be private choices withrespect to household gender decisionsregarding how best to meet their require-ments for income with their desire to securethe best care for their children. However,these private choices take place in a con-text that is shaped by social decisions withrespect to parental leave entitlements, labourmarket regulations and the gender imbalancein pay. The role of women in child-care isassociated with life-long disparities in eco-nomic status. Rebalancing responsibilities forcaring towards fathers may help in address-ing the unequal and gendered labour marketoutcomes.


` Figure 3.6 At-risk-of-poverty Rate After Social Transfers for Older People(Women and Men Aged 65 Years Plus), 2008 (%)

Source: EC (2010) Statistical Annex to the Report on Equal Opportunities between Women and Men

Women Men

2 2 %

1 6 %

0%

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20%

30%

40%

50%

60%

UKSKSISEROPTPLNLMTLVLULTITIEHUEL FRFIEU27

ESEEDKDECZCYBGBEAT


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3.4.2 Key Messages andPolicy Implications Owing to gender inequalities within employ-

ment and womens over representation innon standard work, women and theirdependent children are at a greater risk ofpoverty than men .

Available, accessible and affordable child-care, together with high quality part-timework are key in allowing the female labourmarket participation rate to rise withoutreducing fertility .

The right to request flexible workingneeds to be strengthened to become aright to work flexibly to ensure thatshorter working hours are available ina wider range of occupations and that theright has some practical outcome.

Removing the association between non-standard hours and low pay would contrib-ute to redressing wage inequality and thegender pay gap . Potentially this would also

contribute to narrowing the gender divisionin domestic work and child care by increas-ing the likelihood of fathers workingflexibly.

Measures for fathers to play a greater rolein childcare and school activities throughpaid paternity and parental leaves shouldbe supported . Policies such as Nordicdaddy leaves can be instrumental inchanging attitudes and practices.

These measures are necessary in order toprevent motherhood imposing large andlasting earnings penalties on women, aswell as to better combine both goals oflarger female employment rates andhigher fertility rates.

3.5 Persistent Child Poverty andIntergenerational Transmissionof Inequality

Socio-economic changes in European socie-ties, outlined above, are associated withpersistent, and in some cases growing,patterns of child poverty and an interrelatedprocess of intergenerational transmission ofsocio-economic inequalities. These patternsimply that existing policies to tackle povertyand inequality are inadequate and point to the

need for more effective measures thatnot only respond to unequal outcomes,but also address processes leading to them.Child poverty is a major social and policyproblem because children growing up in pov-erty face a high risk of exclusion and can besubjected to intergenerational transmissionof poverty (66). PROFIT, for example, finds thateducation alone cannot overcome familydisadvantage as returns from education

tend to be lower for people from low incomebackgrounds.

3.5.1 Child Poverty and Inequality

36

66 Based on Eurostat (2010) Combating poverty and social exclusion 2010 edition. A statistical portrait of the European Union 2010,Luxembourg: OOPEC.

67 Based on Eurostat (2010) Combating poverty and social exclusion 2010 edition. A statistical portrait of the European Union 2010,Luxembourg: OOPEC.

According to EUROSTAT data, child poverty andexclusion entails inequality of access to resourcesand opportunities, and is often linked todiscrimination. It may restrain children fromachieving their full potential, adversely affectingtheir health, inhibiting their personal development,education and general well-being ( 67).


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Over the last two decades child poverty hasrisen in 17 out of 24 OECD countries for whichdata are available (WELLCHI). The prevalenceof child poverty, however, varies among Euro-pean countries, and variation tends to followthe classification of welfare state regimes ( 68).

AsFigure 3.7 shows, in 2008 the Nordic stateshad the lowest at-risk-of-poverty rates (withDenmark leading the group at 9 %), whileMediterranean and some Central and East-ern European countries had the highest (withRomania reaching 33 %).


68 Esping-Andersen, G. (1990) The three worlds of welfare capitalism . Princeton: Princeton University Press; Ferrera, M. (1996)The southern model of welfare in social Europe. Journal of European Social Policy , 6 (1): 17-37.

69 Population and Social Conditions Social database, accessed on 30.03.2010 athttp://epp.eurostat.ec.europa.eu/portal/page/portal/statistics/themes

` Figure 3.7 At-risk-of-poverty Rate of Children in EU Member States, 2008 (%)

Source: Eurostat (2010) ( 69)

(p) = provisional value

As WELLCHI research points out, child pov-erty has many causes. In addition to old classinequalities, new social risks increase itscomplexity. Social change in general, andfamily change in particular, have been linkedto the growth and persistence of child poverty,but its re-emergence in recent years is con-nected mainly with: the shift from industrial societies to service

and knowledge-based economies associ-ated with polarisation of employment, the

expansion of pay penalty attached to atyp-ical working in which women are overrepresented (see Sections 3.2 and 3.3).

the decline of the male breadwinner modellargely through increased participation ofwomen in employment, as well as theemergence of new household forms, par-ticularly single-person households andsingle-parent households.

0%

5%

10%

15%

20%

25%

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DKSIFINLSECZCYATDESKEEBEFR(p)

IEHULUMTEU27

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ESLVITBGRO

2 0

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These changes lead to increased reliance onindividual earnings, and, as shown in Section3.4, women are more likely than men to havesole responsibility for their children and,partly as a consequence, to have lower earn-ings, so that they and their children are morelikely to be at-risk-of-poverty. The risk of pov-erty among children from single parenthouseholds was nearly double the averagerisk of poverty for all households with depend-ent children in 2007 (34 % compared with18 %)(70). This relationship is particularly

disconcerting as there is a growth in thenumber of children spending at least somepart of their life in a single parent family(WELLCHI). The other group most at risk islarge family households with two parents andthree or more children. As WELLCHI researchnotes, in population size terms most poorchildren in the EU live in two-parent house-holds, thus the increase in child poverty can-not be solely attributed to the growth ofsingle-parent families although in countrieslike the UK this is significant .

38

` Figure 3.8 At-risk-of-poverty Rate of All Children and of Children Livingin Households Most At Risk, 2007 (%)

Source: Eurostat (2010: 46) ( 71)

Note: The income reference period concerns the year preceding the survey year for the majority of countries.

70 Ibid.71 Combating poverty and social exclusion 2010 edition. A statistical portrait of the European Union 2010, Luxembourg: OOPEC.72 Lehmann, P. and Wirtz, C. (2004) Household formation in the EU Lone Parents. Statistics in Focus . Theme 3 5 / 2004.

Policies modify the effects of changingfamily forms on children. The lower at-risk-of-poverty rates can be achieved despite hav-ing countervailing pressures from highproportions of lone-parent households. Forexample, in Sweden high rates of lone par-enthood (22 % of all households with children

in 2001) are less of a factor in aggregate childpoverty outcomes than high rates of lone par-enthood in the UK (17 %) (72). Clearly countriesthat devote more public resources to familyand children tend to experience lower levelsof child poverty. Thus countries spendingmore on Family/Child Benefits (e.g. DK, SE,

0%

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73 Eurostat (2010) Population and Social Conditions Social database, accessed on 30.03.2010 athttp://epp.eurostat.ec.europa.eu/portal/page/portal/statistics/themes

74 WELLCHI: Bradshaw, J. and Richardson, D. (2009) An index of child well-being in Europe,Child Indicators Research , 2, 3, 319.

FI) display lower rates of child poverty thanlow spenders (e.g. UK, ES, BG) ( 73).

Considering inequality among children inEuropean countries more broadly, WELLCHIhas devised an index of child well-being using43 indicators and 7 clusters material situa-tion, housing and environment, health, sub- jective well-being, education, children'srelationships, risk and safety , resulting in

a ranking of 27 EU Member States as well asIsrael and Norway with the Netherlands andthe Nordic States at the top of the league tableof child well-being, while Malta, Romania,Bulgaria, Latvia and Lithuania are at the bot-tom (See Figure 3.9 ). WELLCHI finds that"child well-being is associated with inequal-ity; generally more unequal countries havelower child well-being".

` Figure 3.9 Child Well-being Index and Ranking in the EU

Source: WELLCHI (74)

Note: Data from various years based on sample surveys and indicators collected by international organisations.

3.5.2 Intergenerational Transmissionof InequalitiesUnderstanding the processes driving povertyand inequality among children is key to under-standing patterns of social mobility andinter-generational transmission of inequality a task supported by several FP6 projects(EQUALSOC, INEQ, KATARSIS, LOWER3,PROFIT). For example, PROFIT constructs

a model (see Figure 3.10 ) which identifies theconnections between the processes occurringin family, state, and economic contexts andhow they are mediated through policies relat-ing to education, labour market and socialwelfare affecting childrens status. Whetherpoverty and inequalities are transmittedinter-generationally depends on how theseelements intersect for specific children.

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Income inequality exhibits a strong tendencyacross generations and is regularly trans-mitted from parents to children. A disadvan-taged family background negatively affectschildrens opportunities with respect to botheducational attainment and wage earn-ings (INEQ). For example, when childrenare selected into different schools based onability and merit (often linked to their socio-economic status), and there is no mobilitybetween these schools, family backgroundbecomes crucially important. As discussed inSection 3.2.2, exclusion in education can man-ifest itself in access, process, and outcome,

and can have a cumulative effect of lastingnegative consequences. Education systemswhich segregate students in such a way rein-force thus existing inequalities, rather thanchallenge them (KATARSIS, INCLUD-ED).

WELLCHI research points out that early andsustained investment in children and familiescan help. Early childhood education, care andhealth, financial transfers and in-kind serv-ices are key mechanisms. A child investmentstrategy is seen as capable of breaking thecycle of inter-generational disadvantages,thus lessening socio-economic inequalities .

40

` Figure 3.10 Analytical Model of Inter-generational Inheritance of Inequalities

Source: PROFIT (2007) (75)

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76 Esping-Andersen, G. (1990) The three worlds of welfare capitalism . Princeton: Princeton University Press; Ferrera,M. (1996) The southern model of welfare in social Europe. Journal of European Social Policy , 6 (1): 17-37.

Box 3.6 Intergenerational Transmissionof Poverty and Social Mobility

EQUALSOC supplements survey data, withdetailed qualitative research across 8 cities instates representing different welfare traditions Anglo-Saxon (UK); Continental (DE), Nordic (FI),Mediterranean (IT) and cities in the new MS withmore hybrid models (BG, EE, LV, PL). The researchshows that 53 % of young people (aged 25-29)growing up in poverty remain in poverty. The

intersection between family context, state welfareregime and community policies plays a key rolein social mobility of young people. Educational,labour market and welfare policies and the waysin which these act in synergy are particularlyinfluential (see Figure 3.10 ).

INEQ analyses EU-SILC (Statistics on Incomeand Living Conditions) panel survey data from13 countries: Anglo-Saxon (IE, UK); Continental

(AT, BE, LU, FR, NE); Mediterranean (ES, IT); andNordic (DK, FI, NO, SE). In all countries familycomposition (living with both parents and numberof siblings), parents educational attainment, andfinancial situation matter for intergenerationaltransmission of poverty with a separate effect oneducation and on earned wages, for example: In Continental countries there is a 73 % proba-

bility that a child of a parent with universitydegree will attend university, while havingparents with lower education decreases thisprobability to a 20 % chance. The effect ofeducational attainment is compoundedby financial distress, particularly in theMediterranean countries.

Wages are influenced by parental education, owneducation and by parental earnings. In general

education leads to higher earnings. Howevereducation has a less positive effect on earningsof people coming from low income households.An income family poor background reducesearnings by as much as 6 % in all countries,except the Nordic States and the Netherlands

EQUALSOC and INEQ research points to theimportance of institutional and policy arrange-

ments. Low intergenerational earningsmobility tends to occur in countries with highlevels of income inequality measured ata point in time, and vice versa . Nordic coun-tries fall at one end of the spectrum wherewages and educational degrees are notrelated to family background and living stand-ards. In contrast, Mediterranean states fall atthe other end where all background variablesaffect both wages earned and educational

levels. Continental and Anglo-Saxon systemsfall in between the two extremes with variedinfluence of family background on either edu-cational or wage outcomes. These conclu-sions support the established classificationof welfare state regimes ( 76).

PROFIT and INEQ direct our attention to pol-icy making and implementation and identifykey barriers to social mobility (see Box 3.7 ).The extent to which the transmission of ine-quality and poverty is perceived by policymakers as an issue for public concern andsocial policy vary . In the UK and Germany thereduction of child poverty was specified asa government priority but not in the 6 othercountries studied. Indeed, top level officialsconsidered the problem to be a purely privatefamily matter (PROFIT).


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3.5.3 Key Messages andPolicy Implications

The EU Framework Programme projectsfind that poverty and intergenerationaltransmission of inequality is considerablein all countries studied , but its levels varyamong EU Member States, pointing to thesignificant role of the welfare state.

Family change and labour market changerepresent a key dimension in the well-being of children across the EU, but social

and economic policies do not adapt quicklyand effectively enough to reflect thissocio-economic change . Family composi-tion and employment status are closelyrelated to child poverty. As mens andwomens contribution in care and financialsupport to families takes place within spe-cific institutional environments, policiesmust address the problems of unequalparticipation in these spheres.

Policies must respond more effectivelyto changing family and labour market pat-

terns . Policy choices must combine strat-egies facilitating employment amongparents in jobs that are of good quality andare well rewarded, strategies effectivelyredistributing resources to the poor,and strategies aimed at different groupsof children with respect to educationand care.

Education and learning policies can con-tribute to overcoming intergenerational

transmission of inequality in addition topolicies combating poverty. However, edu-cation and learning should be viewed inconnection with other social factorsrelated to exclusion (employment, econ-omy, youth, healthcare, justice, housingand social services), include practical andcontextual knowledge and address socialas well as human capital.

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Box 3.7 Persistence of income inequality[INEQ, PROFIT] 77

Inadequate awareness of the issue Tolerance of or limited aversion to inequality Insufficient political and institutional opposition

to inequality Changes in commitment to inequality due

to changes in political leadership Scarce funding Limited or lack of policy coordination Inability to address both causes and outcomes

of inequality Lack of coordination among decision centres

at various levels of government

77 INEQ European Policy Brief 2009: 5; PROFIT, final report.


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Conclusion:Supporting Strategies

for Sustainable andInclusive Development

` 4


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C O N C L U S I O N : S U P P O R T I N G S T R A T E G I E S46

The Framework Programme research insocial sciences and humanities convincinglyshows that less unequal societies providemore economic and social advantages. Thisis why the European Union needs to putpolicies against socio-economic inequalitiesat the heart of its action, for the benefit ofall citizens.

- consider ways to modernise and reinforcethe long standing values contained in theEuropean Social Model especially as theperceived advantages of the Anglo-USmodel for economic growth have dimin-ished with the recession and have beenassociated with rising inequality and lesscohesion.


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A N N E X

5.1 Further Reading

Angelini, E., Farina, F. and Pianta, M. (2009) Innovation and Wage Polarisation in Europe,International Review of Applied Economics 23 (3):309-325

Franzini, M. and Pianta, M. (2009) Mechanisms of Inequality, International Review of Applied Economics , 23 (3):233-237

Gregory, M., Beblo, M. Salverda, W. and Theodossiou,I. (2009) Introduction,Oxford Economic Papers 61:1-10

ILO (2008) World of Work Report 2008: Income Inequalities in the Age of FinancialGlobalisation, Geneva, International Labour Office

Klasen, S. (2009) Inequality in Emerging Countries: Trends, Interpretations,And Implications for Development and Poverty Reduction, Intereconomics ,

Nov- Dec: 360-363 OECD (2008)Growing Unequal . Income Distribution and Poverty in OECD Countries ,

Paris: OECD Wilkinson, R. and Pickett, K. (2009) The Spirit Level . Why More Equal Societies

Almost Always Do Better , London: Allen Lane

5.2 List of European Project Titles and Websites Relevant to Inequality6th Framework Programme

AIMP-AP - Accurate Income Measurement for the Assessment of Public Policieshttp://www.iser.essex.ac.uk/research/euromod/research-and-policy-analysis-using-euromod/aim-ap

CAPRIGHT Resources, rights and capabilities; in search of social foundationsfor Europe http://www.capright.eu

DYNREG Dynamic regions in a knowledge-driven global economy:lessons and policy implications for the EUhttp://www.esri.ie/research/research_areas/international_economics/dynreg

EQUALSOC Economic Change, Quality of Life and Social Cohesionhttp://www.equalsoc.org

EUREQUAL Social Inequality and Why It Matters for the Economic and DemocraticDevelopment of Europe and Its Citizens. Post-Communist Central and Eastern Europein Comparative Perspective http://eurequal.politics.ox.ac.uk

INCLUD-ED Strategies for inclusion and social cohesion in Europe from educationhttp://www.ub.es/includ-ed

INEQ Inequality: Mechanisms, Effects and Policies http://www.criss-ineq.org KATARSIS Growing Inequality and Social Innovation: Alternative Knowledge and

Practice in Overcoming Social Exclusion in Europe http://katarsis.ncl.ac.uk LLL2010 Towards a Lifelong Learning Society in Europe: The Contribution

of the Education System http://lll2010.tlu.ee LoWER3 The Insecure Perspectives of the Low Skilled in the Knowledge Society

http://www.uva-aias.net/lower PROFIT Policy responses Overcoming Factors in the Intergenerational Transmission

of Inequalities http://www.profit.uni.lodz.pl ResIST Researching Inequality through Science and Technology

http://www.resist-research.net/home.aspx

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http://www.iser.essex.ac.uk/research/euromod/research-and-policy-analysis-using-euromod/aim-aphttp://www.iser.essex.ac.uk/research/euromod/research-and-policy-analysis-using-euromod/aim-aphttp://www.capright.eu/http://www.esri.ie/research/research_areas/international_economics/dynreghttp://www.equalsoc.org/http://eurequal.politics.ox.ac.uk/http://www.ub.es/includ-edhttp://www.criss-ineq.org/http://katarsis.ncl.ac.uk/http://lll2010.tlu.ee/http://www.uva-aias.net/lowerhttp://www.profit.uni.lodz.pl/http://www.resist-research.net/home.aspxhttp://www.resist-research.net/home.aspxhttp://www.profit.uni.lodz.pl/http://www.uva-aias.net/lowerhttp://lll2010.tlu.ee/http://katarsis.ncl.ac.uk/http://www.criss-ineq.org/http://www.ub.es/includ-edhttp://eurequal.politics.ox.ac.uk/http://www.equalsoc.org/http://www.esri.ie/research/research_areas/international_economics/dynreghttp://www.capright.eu/http://www.iser.essex.ac.uk/research/euromod/research-and-policy-analysis-using-euromod/aim-aphttp://www.iser.essex.ac.uk/research/euromod/research-and-policy-analysis-using-euromod/aim-aphttp://www.iser.essex.ac.uk/research/euromod/research-and-policy-analysis-using-euromod/aim-ap


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Other related projects financed by the Commission

WELLCHI The Wellbeing of Childrenhttp://www.socialsciences.manchester.ac.uk/morgancentre/research/wellchi/index.html

5th Framework Programme

CHANGEQUAL Economic Change, Unequal Life-Chances and Quality of Lifehttp://www.nuffield.ox.ac.uk/projects/changequal/

DEMPATEM Demand Patterns and Employment Growth: Consumption and Services inFrance, Germany, Ireland, the Netherlands, the United Kingdom and the United States

(Website not available) ECPS Rseau thmatique sur Emploi, Chmage et Protection Sociale: cohsion sociale

au dfi de la mondialisation et des NTIC (Website not available) EDWIN Education and Wage Inequality in Europe http://www.etla.fi/edwin EPICURUS Societal and Economic Policies to Promote Quality of Life and Well Being:

Discrete Preference Identification and Priority Setting in Response to Changes in LabourMarket Status http://www.abdn.ac.uk/epicurus/index.hti

EthnoGeneration The Chances of the Second Generation in Families of EthnicEntrepreneurs: Intergenerational and Gender Aspects of Quality of Life Processeshttp://www.ethnogeneration.org/index.htm

MAGEEQ Policy Frames and Implementation Problems: The Case of GenderMainstreaming http://www.mageeq.net MICRESA Micro-level analysis of the European Social Agenda: combating poverty

and social exclusion through changes in social and fiscal policyhttp://www.iser.essex.ac.uk/research/euromod/research-and-policy-analysis-using-euromod/micresa

PIEP Pay inequalities and Economic Performance http://cep.lse.ac.uk/piep RegulEducnetwork Changes in regulation modes and social production

of inequalities in education systems: a European comparison(Website not available)

SOCOHO The Importance of Housing Systems in Safeguarding Social Cohesion in Europehttp://www.srz-gmbh.

englishpolicy review inequalities en

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