Part I - Situation and trends
2 Social Cohesion
There has been growing concern about the issue of social cohesion over
the past few years. Disparities between social groups and the overall
dispersion of income seem to have widened in the 1980s and early 1990s,
and this is often attributed to economic developments, in particular,
globalisation, increasing competition on world markets, the information
revolution and the resultant restructuring of the economy, as well as
demographic trends and changes in society. The trend seems to have slowed
down or even reversed itself since the mid-1990s, but disparities between
social groups remain unacceptably high.
Social cohesion is not only an important goal in its own right, but it
is also a key factor contributing to economic success. Regions which are
unable to mobilise the economic potential of large sections of their population
are handicapped in the increasingly competitive global market place, while
disparities can breed social unrest which itself can damage economic performance.
Poverty: high, especially in the cohesion countries
There are various definitions of poverty. The UN millennium summit,
for example, defined an absolute measure of poverty as a state in which
someone has less than $1 a day to live on. Few people if any in the EU
are in this position, though given price levels and the nature of the
economy and society in the Union, a sum of significantly more than this
would be necessary to prevent someone living in absolute poverty here.
What this sum should be is very difficult to define. Partly because of
this, it has long been decided that a relative measure is more relevant
for assessing poverty in the Union, in the sense that this is more indicative
of deprivation in relation to the living standards of people generally.
Accordingly, the focus tends to be on the proportion of the population
with incomes below a certain level relative to the average, though again
there is scope for disagreement about the appropriate level to take1.
In practice, the main measure of poverty used in the EU at present is
the Eurostat definition: the percentage of people with an income of 60%
or less of the median income in the country in which they live2.
Although this means that the poverty line, in terms of absolute values,
differs between countries, it is indicative of relative deprivation in
the country concerned.
Using this measure, 18%, or more than one in six, of people in the EU
had an income below the poverty level in 1996. This proportion does not
seem to have changed much in recent years, though the figures which exist
on a comparable basis are only for the period 1994 to 1996, which is too
short to determine much about changes. While early indications are that
the proportion might have declined since 1996, this remains to be confirmed.
The countries in which the proportion of people with poverty levels
of income is lowest are Denmark, Luxembourg, the Netherlands and Austria
(and probably Finland and Sweden as well, though they did not participate
in the 1996 European Community Household Panel survey on which the figures
are based). Not only are the poverty rates in these four countries only
around 11-12%, but this is relative to a national income which is higher
than the EU average (see Graph 6 : percentage
of the population living below the poverty line).
At the other extreme, the countries where the poverty rate is highest
are Portugal and Greece, in which 21-22% of the population have income
below the poverty line. This understates the scale of the problem in an
EU context, since these two countries have the lowest level of median
income in the Union. A further point of interest is the persistence of
poverty, as indicated by the proportion of people with income below the
poverty line in each of the three years for which comparable data are
available. This is clearly more important than the figure for a single
year, which may reflect only a temporary state of affairs for some of
those concerned. Persistent poverty in the EU is slightly less than half
the figure for a single year, 7% of the people covered between 1994 and
1996 having an income below 60% of the median in each of these three years,
as opposed to 17% in 1996 (the figure being lower than that quoted earlier
because not all the people were surveyed every year).
There is some tendency for the persistence of poverty to be disproportionately
higher in countries with high poverty rates in 1996. In Denmark and the
Netherlands, persistent poverty affected only 3% of the population, only
a quarter of the proportion in 1996, which means that not only is poverty
low in these two countries, but for most, it is a temporary state of affairs.
Conversely, in Portugal, which had the highest level of poverty in 1996,
more than half (12% of the population) were affected by persistent poverty,
while in Greece, the figure was only slightly less (10% of the population).
The main exception to the general relationship is the UK, where the proportion
with income below the poverty line in 1996 was relatively high (19%),
but where only 7% of people had income below this level in each of the
For the candidate countries in Central Europe, there are no comparable
data available. The studies which have been undertaken, however, suggest
that the figures might be higher than in the EU as income dispersion has
widened over the 1990s due to the reduction in employment and a decline
in real wages of the less skilled. They also show that poverty in rural
areas, on which research has been carried out, is a serious problem (see
Box 'Rural income and poverty in the candidate countries').
Factors linked to poverty: unemployment, low education and one parent
The causes of poverty are numerous, but here are a few factors which
are strongly associated with low income, particularly on a persistent
basis (See table A.5 , in annex).In the EU,
six categories of people are at particular risk of having a poverty level
of income: the unemployed, lone parent families, those with low education,
those in retirement, families with many children and those of working-age
not in employment (because of disability, for example).
A number of people fall into more than one of these groups. For example,
a large proportion of the unemployed have low education. The first three
characteristics, however, are the most noteworthy. In the EU as a whole
- though not necessarily in individual Member States - the unemployed
and lone parents are three times more likely than people generally to
fall below the poverty line, reflecting in both cases the loss of income
from employment (a disproportionate number of lone parents are not in
work). Many of these and others with low incomes have low educational
attainment. Moreover, the information revolution is likely to mean that
poor education will become a more important determinant of poverty in
The main characteristics of those with poverty levels of income differ
between Member States, reflecting variations in both social policy and
social structure. For example, the unemployed are at particular risk in
the UK, where they are four times more likely to have low incomes than
people generally, while in Denmark, they are only slightly more at risk
than average. This reflects the more comprehensive and generous unemployment
benefit system in the latter than the former. Nearly half (46%) of lone
parents and their children have poverty levels of income, largely because
they are not in paid employment, though the situation varies markedly
from one country to another, reflecting, in particular, levels of childcare
provision and support. The families concerned are most at risk in the
UK and Ireland, where they are 5 or 6 times more likely than average to
have income below 60% of the median. Conversely, they are at relatively
low risk in Portugal, Spain, France Belgium and Italy - indeed, in Italy
(where the risk of poverty is highest for large families), they are at
no more risk than other households.
Links between education and earnings: the implications of a single
market for graduates for cohesion countries
The link between education and income levels is of particular interest
(See graph A.3 on earnings by level of education,
in annex). While in all Member States, income increases significantly
with educational attainment levels, people with university education or
the equivalent tend to have similar income levels (adjusted for cost of
living) across the EU, which suggests perhaps the emergence of a single
market for graduates. Although many obstacles remain, such as a lack of
transferability of qualifications or language difficulties, there are
signs of increased international mobility among young graduates, in particular.
A possible effect of this is a trend towards equalisation of graduate
pay across countries, while earnings of those with lower qualifications
continue to vary . The widening income gap which results in the less prosperous
countries may put increasing pressure on social cohesion.
An uncertain long term trend
The factors underlying poverty levels of income give mixed messages
for long term trends in social cohesion. On the one hand, continued economic
growth and higher levels of employment may reduce the proportion of people
with low income, insofar as the relative numbers without earnings from
work are reduced. On the other, social trends mean that the number of
lone parent families may continue to increase. Moreover, while education
levels are rising across the EU, especially in the lagging regions, the
growing dependency on information technology, and the high level of general
education which is a precondition for being able to use this effectively,
threatens to put those with low education levels at an increasing disadvantage.
Transfers : an important weapon in the fight against social exclusion
Social transfers (other than pensions), which account for 9% of total
household income in the EU, make a significant contribution to maintaining
social cohesion. Over half go to the poorest 20% of the population and
make up over half their final income.
The effect of social transfers is evident if the proportion of people
below the poverty line is compared with what it would be in the absence
of transfers (See Graph 7, Population with income
below the poverty line before and after transfers and Graph
A.4 on Poverty and social protection transfers, in Annex). In most
Member States, transfers (in this case including pensions, some of which
are from private sources) reduce the poverty rate by 30-40%.3.
In Denmark, the figure is higher, while in Italy and Greece, and to a
lesser extent Portugal, social benefits have much smaller effects on the
distribution of income, reflecting both their smaller scale and less targeting
on those with the lowest incomes.
In the UK and Ireland, in both of which social transfers reduce poverty
rates substantially, the high proportion of people with low income is
to a large extent due to a wide dispersion of income before transfers,
which in turn reflects the wide dispersion of wages (as revealed, for
example, by the Eurostat, Structure of Earnings Survey for 1995).
Despite the contribution of social transfers to maintaining social cohesion,
it should be emphasised that, retirement pensions apart, they tend to
tackle the symptoms rather than the underlying causes of poverty. As such,
they do not in themselves provide a long-term solution to the problem.
It is therefore important for them to be accompanied by structural measures
aimed at tackling the root causes, in particular, unemployment, low education
and inadequate skills, a lack of childcare support facilities and so on,
which will also help to increase the growth potential of the economy.
(see Box:Rural income and poverty in candidate
- There is scope for debate about whether the level
of income taken should be in relation to average income in the EU or
individual Member States or even regions. In practice, there are various
problems with comparisons based on an EU-wide average income level,
since the measure tends to be dominated by the large differences in
average income between Member States rather than reflecting differences
in the dispersion of income within these. In other words, a measure
of poverty calculated in relation to average income in the EU largely
indicates differences in national rather than individual levels of income.
At the same time, irrespective of the merits or otherwise of measuring
poverty on a regional basis, the data are simply not available to do
- In the First Cohesion Report, the previous definition
used by Eurostat was used to determine the poverty line, ie an income
per head of 50% or less than the mean. In practice, for most countries
the two measures give similar results. However, the new definition is
preferable, especially for making comparisons over time, because the
median is a more stable measure of average income than the mean in that,
since it relates to someone in the middle of the income distribution,
it is not affected by extreme values. The figures reported in the text
are derived from the European Community Household Panel. It should be
noted that data for Belgium are at present being revised.
- It is interesting to compare this with the reduction
in regional disparities due to transfers. The First Cohesion Report
found that total government expenditure, including social spending,
reduced interregional disparities in Member States by 10-30%, ie by
less than the reduction achieved in interpersonal disparities, which
are generally more of a focus of national policy.