Article by Elena Simidzioski
Inequality is a prevalent issue even in the 21st century where policy-makers and central banks try to produce effective policy that will address the issue to its core. This article focuses specifically on income inequality which broadly can be defined as uneven amounts of income and properties among different individuals, or groups (Oxford Reference).
Income inequality in the EU and its causes
Over the past decade income inequality has been on the rise in the EU. Research suggests that there is an increase in the Gini coefficient from 30.5 to 31 over a 6 year period covering the years 2010-2016 (European Commission, 2017). Others refer to more practical matters as a reference for income inequality. Not being able to afford a holiday once a year is a difficulty 35 million EU citizens encounter (Associated Press, 2021). Reduced income growth among the poorer echelons of society is considered to be one of the main drivers behind such results, often accompanied with high unemployment rates (European Commission, 2017). In fact, it is crucial to point out that technological advances have also contributed to rising inequality of income as they tend to over pay highly skilled jobs, and replace or underpay employees in less skill-demanding jobs (European Commission, 2017).
What can be done by the EU to tackle the problem?
Since the EU is not a federation, a large part of its effort to reduce income inequality within the EU depends on the effort of individual member-states (European Commission, 2017). To address the matter, states often turn to policies that directly deal with the key drivers of the problem, such as reducing unemployment rates. Likewise, diversifying the economy and establishing a beneficial tax and welfare system are often opted for as well (European Commission, 2017). In other words, research shows that by having a utilitarian fiscal system states lessen income inequalities as a result of pensions, better education and improved health care systems (Bubbico & Freytag, 2018).
Covid-19 and income inequality
Economic crises are temporary drivers of income inequality, however, they have severe implications. One such economic crisis was triggered by the ongoing Covid-19 pandemic (Statista, 2020). Researchers argue that the pandemic has led to larger economic-slowdown, among rich states compared to poorer states (Ferreira, 2021). Additionally, while income inequality among all european states may be declining, the opposite holds for income inequality within states. In other words, the pandemic has accelerated rising income inequality within individual member states (Ferreira, 2021).
It is evident that income inequality is a complex issue that likewise requires a multifaceted approach that will address all the different drivers of the issue. More importantly, in times of economic crises governments and central banks ought to be additionally prepared to help out sectors of the economy and regions of the states that suffer most from the crisis, as those are the areas where income inequality tends to rise the fastest.
Associated Press. No summer break: 35 million can’t pay for holiday in the EU. Retrieved 2 August 2021, from https://apnews.com/article/lifestyle-europe-business-d71ab18fbd726ba502dbb3ab05f52e2e
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University Press. Retrieved 2 Aug. 2021, from https://www.oxfordreference.com/view/10.1093/acref/9780199533008.001.0001/acref-9780199533008-e-1106.
Statista (2020, December). COVID-19 Economic downturn and recovery. Retrieved August 2 2021, from https://www.statista.com/study/72052/covid-19-economic-downturn-and-recovery/