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11 July 2018

EU: income distribution, risk of poverty and stalled social mobility – why reform is needed

There is mounting evidence that intergenerational earnings mobility is usually lower in countries with high income inequality and a higher risk of poverty. This is because in more unequal societies low-income households invest less in education and health. The large differences in income have led to stalled social mobility. The OECD states that more attention should be given to reforms that protect households from adverse income shocks.

The interactive Eurostat publication The European economy since the start of the millennium – a statistical portrait aims to show how the main features of the economy of the European Union and its Member States have evolved since 2000 through a large range of statistical data giving both a micro- and a macro-economic perspective. Throughout the publication, brief descriptions of the main findings are complemented with interactive visualisations that make it possible to compare one country with other countries.

The statistical data reveal that, in real terms, the disposable income of households grew in the EU by 16% between 2000 and 2009. Following the financial crisis, it decreased by around 3% from 2009 to 2013 and then rose by 5% between 2013 and 2016. In total, the disposable income of households increased by around 18% between 2000 and 2016, meaning an average growth rate of 1% per year. The share of the population being at risk of poverty or severely materially deprived or living in a household with very low work intensity increased from 23.8% in 2010 to 24.8% in 2012, and decreased to 23.5% in 2016, with large differences among Member States. The highest rates in 2016 were observed in Bulgaria (40.4% of the population), Romania (38.8%), Greece (35.6%) and Lithuania (30.1%), the lowest were found in the Czech Republic (13.3%), Finland (16.6%), Denmark and the Netherlands (both 16.7%). The implications of the risk of poverty data are also confirmed in the Eurofound Yearbook 2017 Living and working in Europe. Depressed wages, cuts in working hours and job losses among earners in a household all exacerbate financial hardship.

The OECD published similar data, but over a longer period. According to the OECD-study, income inequality has increased, and social mobility stalled across the world’s richest countries since the 1990s. The organisation states that barriers to social mobility are harming economic progress by shutting out vital workers and undermining political stability as people become cynical about their prospects. The report says that, in absolute terms, almost everyone in OECD countries has seen an improvement in their living standards and life chances than previous generations, with greater access to higher levels of education, healthcare and better paid employment.

However, while income mobility was a reality for many people born between 1955 and 1975 from low-educated parents, it has stagnated for those born after the mid-1970s. Given current levels of inequality and intergenerational earnings mobility, it could take at least five generations or 150 years for the child of a poor family to reach the income average across OECD countries. The organisation formulates a plea for reforms to give everyone the chance to succeed. These could include increased investment in education, particularly at an early age, and health and family policies that create a more level playing field for disadvantaged children and mitigate the impact of financial hardship on their future.

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