Inequality is a complex and multidimensional phenomenon. While evaluating it, we can look at its outcome, such as income, education, or health. Inequality can also be assessed as a function of characteristics of a person, such as age, gender or place of residence.
It is also possible to evaluate the inequality of opportunity (principle 3 of European Pillar of Social Rights) and its effect on the social mobility, i.e. the persistence of (dis)advantage from parents to children in terms of income, education or health.
Finally, we can evaluate inclusiveness of growth, i.e. the extent to which the products are distributed equally in the population in terms of higher disposable income and/or higher quality of life.
Inequality in EU countries
Inequality has become one of the main concerns for EU citizens. The 2017 Eurobarometer survey, before the Covid-19 crisis, showed that overall 84 % of people in Europe thought that income inequality in their country was too high, with 81 % saying that their governments should take measures to reduce it.
In the spring 2021 Eurobarometer survey equality of opportunities was deemed the most important issue for the EU’s economic and social development.
This highlights public perceptions of unfairness about the impact of public policies on inequalities, which may feed discontent and mistrust towards institutions and governments.
Overall income inequality slightly decreased over the years just before the COVID-19 pandemic, but it increased among poorer people over the last decade, raising concerns about the inclusiveness of economic growth.
While the COVID-19 crisis was expected to disproportionally hit households in vulnerable situations, automatic stabilisers and emergency measures contributed to preventing a surge in income inequality.
Policy response
The objective to reduce inequalities is reflected in the third principle of the European Pillar of Social Rights, which sets out the right to equal opportunities for all.
The European Pillar of Social Rights Action Plan includes various initiatives aimed, among others at reducing inequality such as the Minimum Wage Directive, the Recommendation on Minimum Income, guidance on increasing the use of ex ante distributional impact assessments in budgetary processes and planning of reforms.
Policy monitoring and coordination
Work on further measuring and addressing inequalities is regularly undertaken by the Social Protection Committee.
The Commission also works with Member States on ways to address and better monitor inequality through the European Semester.
Funding
In their efforts aimed at reducing inequality Member States can also rely on financial support at EU level, in particular the European Social Fund Plus and Recovery and Resilience Facility.
Measurement of income inequality
Inequality of income, and in particular of disposable income, is the most prominent dimension in the policy debate. This is what people think of most frequently when they refer to inequality.
Income inequality can be measured through different indicators, which summarise information from a distribution of income point of view. In turn, a distribution of income can be understood as a way of sorting a population by income, from the poorest to richest.
The main indicators used at EU level to monitor income inequalities are:
The S80/S20 income quintile share ratio measures the ratio between the share in total national income of the incomes of the richest 20% (the top quintile) as against the share in total national income of the incomes of the poorest 20% (the bottom quintile). This is one of the headline indicators of the Social Scoreboard.
The S40 is the share in total national income of the incomes of the poorest 40%. It aligns well with the United Nations Agenda 2030 and the Sustainable Development Goal 10 target on inequality, which states that nations should “progressively achieve and sustain income growth of the bottom 40 per cent of the population at a rate higher than the national average.”
The Gini coefficient, which is the most widely used measure of inequality captures what percentage of the domestic income of a country each cumulative percentile of the population owns and converts it into an index. The Gini of 0 means that income is equally distributed among individuals. The Gini of 1 describes a situation, where all income is given to one individual.