Thema 4: Income Inequality Within and Between European Countries European User Conference for EU-LFS and EU-SILC Mannheim, 6 th March 2009 Judith Niehues GK SOCLIFE, University of Cologne
Introduction Development of income inequality in the EU-15 as a whole as well as in the different member states throughout the time period 1993-2005 Effects of inclusion of new EU member states in 2004 and 2005 Identification of the current state of social cohesion in the EU area Around 1/4 of the EU Budget are spent on redistributive policies with the special aim of greater economic and social convergence among EU member states Huge literature compares macro aggregates to analyse convergence process across countries, neglecting the distribution of income (e.g. Kaitila 2004, Hein & Truger 2005, Welsch & Bonn 2007) 2
Data and Concepts Comparable micro data for EU member states European Community Household Panel (ECHP), 1993-2000 EUROMOD, 2001 [2003: GE, NL, UK] European Union Statistics on Income and Living Conditions (EU-SILC), 2003-2005; since 2004 also new EU member states (except Malta) National monetary amounts are adjusted by current multilateral PPPs provided by Eurostat Equivalised disposable household incomes per individual Inequality measures: Gini Coefficient and Theil Index 3
Results Influence Development of Business of EU Cycles? Distribution of Income.29.3.31.32.33 93 94 95 96 97 98 99 00 01 02 03 04 05 EU area growth rate in % 4 2 0 2 Gini Disposable Income Gini Modified Disposable Income (EU-Silc) 95% Confidence Interval Gini EUROMOD Data Gini Coefficient of equivalised disposable income EU-15 as a single economic unit 4
Results Inclusion of new EU member states.28.3.32.34.36 EU-24 Gini coefficients 93 94 95 96 97 98 99 00 01 02 03 04 05 Gini Disp Inc 95% Conf. Interval Gini Modified Disp Inc Gini EUROMOD Data EU-27 What are the reasons for the significant increase in overall inequality? 5
Results Income Inequality in the different EU member states 0.40 EU-15 New EU member states 0.35 0.30 Gini Coefficient 0.25 0.20 0.15 1993-1995 0.10 1996-1998 1999-2001 0.05 0.00 AT BE DK FI FR GE GR IR IT LU NE PT SP SW UK EU-15 CY CZ EE HU LV LT PL SK SI EU 25 2003-2005* *2004-2005 for new EU member states 6
Results Theil Inequality Decomposition by Countries Inclusion of new EU member states Theil Index 0.25 0.20 0.15 0.10 0.05 0.00 EU-15 93 94 95 96 97 98 99 00 01 02 03 04 05 04* 05* Eastern EU* Aus tria Belgium Denmark Finland France Germany Greece Ireland Italy Luxembourg Netherlands Portugal Spain Sweden UK Between 7
Effects of Inclusion of new EU member states Discrimination of four effects (Beblo & Knaus, 2001) + + I 0 II <> 0? + Concretely: III 0 IV <> 0? 2004: 0.219 0.183 = 0.015 0.058-0.013 + 0.092 Theil difference I II III IV 2005: 0.202 0.170 = 0.016 0.056-0.013 + 0.086 8
Explanation of effects Differences between EU-15 and group of new member states EU - 15 New EU member states 2004 2005 2004 2005 Within Inequality T(1) 0.174 0.162 0.206 0.201 Income Share 92.7% 92.3% 7.3% 7.8% Mean Income 17,622 17,665 7,227 7,799 9
Conclusion U-shaped trend of income inequality in the EU-15 as a whole New EU member countries significantly increase inequality Overall trend in EU-15 driven by changing within-country inequality - No significant reduction of the inequality between countries Importance of distribution of incomes within countries Contradiction of convergence process of mean incomes across EU-15 member states Lower mean incomes of new member countries are responsible for substantial increase in overall EU income inequality 10
Thank you for your attention. 11