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15 March 2018

EU: income convergence and inequality

Research on economic integration and convergence reveals that the financial and economic crisis has had a huge impact on the existing EU-wide inequality. Growth in household incomes and convergence up until 2008 was followed by years of stagnation. As a consequence, the wage gap between western Europe and the new EU Central and Eastern European Member States persisted. The ETUC stated that it is necessary to keep the EU economic policy-making moving in a more progressive direction.

Recent publications of a wide range of institutions focus on the stagnating economic integration and convergence in the European Union. The authors of a series of World Bank reports dedicated to the occurrence of inequality in Europe concluded that economic integration and convergence in the EU has slowed over the past decade, giving rise to concerns over income inequality and social exclusion. According to the reports, the global financial and economic crisis took a toll on economic growth and led to a halt of convergence and growth in household incomes (after 2008).

The EU has been a unique convergence machine that has delivered to its citizens some of the highest living standards in the world over the past 60 years. The main World Bank report documents with facts and figures how this period was followed by years of crisis and stagnation. Signs of growing divides are emerging across the EU, with EU-wide inequality still at relatively high levels. Regional levels of inequality have increased in many EU countries, particularly in Central and Eastern European countries. The impact of recession has been visible in communities, but the hardship has not fallen equally on all shoulders.

The European trade union research institute ETUI comes up with its Benchmarking Working Europe 2018 that has a focus ‘on the path towards convergence?’ This year’s edition assesses and analyses the state of working Europe with the aid of a multi-level and multi-dimensional set of indicators. The authors conclude that more upward convergence – particularly wage convergence between poorer and richer Member States – is necessary for a more balanced pattern of intra-EU labour mobility.

The ETUI also investigated in a working paper the persistent wage gap between western Europe and the new EU Member States of eastern and central Europe. The paper seeks an answer to questions like why is it still the case that after 27 years of transition from state socialism and 14 years of EU membership the closing of the gap in living standards between western Europe and eastern and central Europe remains as elusive as ever, with little likelihood of any meaningful convergence happening any time soon. In a video story, the institute reports about the ETUI Conference "Narrowing the gaps - where are we on convergence?"

The European Commission seems to realise that the persistent inequality will have an effect of disintegration and increased political tensions in Europe. Its Annual Growth Survey 2018 is dominated by an optimistic view, with economic growth in almost all Member States. Also the EU economic policy ‘semester’ winter package and country reports have an optimistic tone. However, the Commission admits that, with almost 19 million unemployed, low wage growth and persistent inequality, it is necessary to work towards more sustained economic and social convergence. Growth in real wages, combined with policies of social inclusion and protection, is needed to tackle inequality and the risks of poverty. The ETUC commented that it is necessary to keep the EU economic policy-making moving in a more progressive direction. The test of the Commission’s intentions comes with the publication of its recommendations on access to social protection and the country specific recommendations.

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