Inclusive Growth

Inequality and Social Mobility in Europe Today

A new report offers a comprehensive snapshot of inequality and inclusiveness in Europe with a global perspective.

Inequality and Social Mobility in Europe Today

November 17, 2016

This is the first story in a series of posts highlighting the research, which was conducted with the support of the Center.

Europe is at a crossroads. The global financial crisis was a reckoning for many countries, leaving many wondering whether social mobility was still possible in some countries.  While inequality is low relative to the US, some countries now face striking inequality in education and job prospects. Youth unemployment is particularly alarming.

A new report, “An Anatomy of Inclusive Growth in Europe,” by Zsolt Darvas and Guntram Wolff of Bruegel, the Brussels-based economic policy think tank, takes stock of how Europe is positioned to withstand the seismic changes that have gripped not only Europe but much of the developed world.

Darvas and Wolff make a strong case for an economic strategy focused on inclusive growth, defined as an approach that fosters opportunities for prosperity for all groups in a society.

The report’s key highlights include:

  • Unemployment among working-age young adults is unacceptably high, particularly in countries with larger income disparities. Across the EU, youth ages 20-29 are about two times more likely to be unemployed than working-age adults in their 50s and early 60s. A sizable group is neither employed nor in school. In Sicily, for example, 42 percent of 18-24 year-olds were idle. In contrast, across the Netherlands, only 6.3 percent of youth in that age group were idle.
  • Jobs are becoming more polarized as technological advances lead to an increase in demand for workers in well-paid high-skilled jobs and service sector jobs, and a decrease for labor in middle-tier jobs that involve routine tasks.
  • The skill premium to higher education is not widespread in Europe. While the skill premium increased significantly in the US and China, and somewhat in Germany, it has declined in many other countries, including the United Kingdom, Italy, Spain, France, Sweden, and Japan.
  • An intergenerational divide is growing. In wages, income, and economic security, older Europeans are faring better than younger Europeans, on average.

Since 2008, the gap has been widening, especially in Greece, Spain, Luxembourg, and Malta. Over time, the older generation is less at risk for falling into poverty while the younger generation is more at risk.

  • Less equal societies have less social mobility, and the trend is intensifying.
  • Education is the key to social mobility.
    • Employment among those with higher education levels has risen steadily for decades, even during economic crises. Those with the least education were hit hard by the recent economic crisis while those with more education fared better, even in countries with large jumps in unemployment, like Cyprus, Italy, Ireland, Lithuania, Portugal, and Spain.
    • The financial crisis amplified disparities in wages and employment between those with more and less education.
    • Though inequality is low in Europe relative to the US, it could increase owing to education patterns.  Children tend to match their parents’ education. Children of parents with lower levels of education tend not to seek out higher education, while children of parents with higher levels of education tend to follow in the parents footsteps.

The authors call for more attention to inclusive growth policies as a path forward, with special attention to tax and growth policies and reforms to welfare schemes to make them more efficient, especially in southern Europe. Fiscal policies have cut into education and social programs for families while maintaining worker pensions, threatening to create a greater rift between young and old. The authors also call for education reforms to jumpstart employment among young adults and more “growth-friendly” economic and fiscal policies.

The Bruegel research was conducted with the support of the MasterCard Center for Inclusive Growth.

Up Next:   An interview with author Zsolt Darvas highlights the report’s key takeaways for policymakers, business leaders and the research community.

Featured Photo Credit: Getty Images