Catalina Espinosa
Research expert covering society, economy, and politics for Europe and the EU
Inequality in Europe - Statistics & Facts
Rising wealth and income inequality has been a common trend across all regions of the globe in the 21st century, with many countries in Europe being particularly affected. Since the 1980s, countries in Europe have become more exposed to the effects of economic globalization, the growth of international financial markets, and the growing importance of tertiary education and technical skills in the labor market, which in most cases has resulted in a growing share of national income and wealth going to the richest people in European societies. This trend has become more contentious in the period since the global financial crisis and great recession (2007-2010), as the mixture of stagnant economies and growing inequality has meant that the poorest in many European countries face falling incomes, while the wealth owned by the poorest half of people in Europe is negligible. Inequality is considered to be one of the key drivers of the populist and nationalist wave that Europe has been experiencing since the 2010s, with populist parties positioning themselves as being the leaders of a revolt against the elites and super-rich.
Some countries in Europe have demonstrated even more severe concentrations of wealth and income in the hands of the top one percent, with the Russian Federation being the most striking example. The country's haphazard transition from communism to the free market in the 1990s led to 'oligarchs' - that is, powerful and well-connected businessmen - taking control of large swathes of the Russian economy and natural resources. While the wealthiest one percent of Russians owned around one-fifth of national wealth in 1995, today their share is almost half. On the other hand, Turkey in fact experienced a significant reduction in its wealth and income inequality during the early 2000s, albeit coming from the starting point of having the highest inequality of any European country. Most of the larger western European democracies, such as Germany, France, the UK, Italy, and Spain, have experienced growth in the share of national income and wealth taken by their richest citizens, although at a much smaller rate than that of Russia.
At the same time, the structure of most European economies underwent a dramatic change, with the majority of people moving from being involved in agriculture and menial labor, to working in manufacturing or service industries, both higher value added activities. Jobs in these industries received higher compensation, particularly for the growing skilled sub-section of employees, with the result being that a growing share of income went to the 'middle 40 percent' (i.e. the group between the bottom 50 percent and the top 10 percent of earners). This group, broadly referred to as the 'middle class', thrived under a form of capitalism in mid-twentieth century Europe which fostered economic growth through partnership between enterprises, trade unions, and government. With increasing globalization since the 1980s, however, many in the middle class lost out of as formerly secure jobs were lost in industries which moved to regions with lower labor costs, notably East Asia, and the new growth industries of financial, business and IT services rewarded a smaller number of high earners at the upper end of the middle classes.
The redistributive nature of many of Europe's tax systems means that even where countries may have large pre-tax income inequality, this is corrected for by social transfers and other payments to poorer citizens. The ability of governments to redistribute income and wealth has been challenged by the rise of offshore tax havens, which allow the super-rich to avoid paying taxes on a share of their earnings. In cases where a sizable portion of the wealthiest citizens' income or wealth is hidden from tax authorities, inequality statistics which rely on tax records will substantially underreport the true extent of inequality in a country or region. While it may be easier to avoid taxes on capital income, which may be shifted from place to place to avoid detection by tax authorities, than on labor income, which in most cases is directly observable in company pay-rolls, a growing number of people earn a living from both types of income, a trend which Serbian-American economist Branko Milanović has termed homoploutia.
Some countries in Europe have demonstrated even more severe concentrations of wealth and income in the hands of the top one percent, with the Russian Federation being the most striking example. The country's haphazard transition from communism to the free market in the 1990s led to 'oligarchs' - that is, powerful and well-connected businessmen - taking control of large swathes of the Russian economy and natural resources. While the wealthiest one percent of Russians owned around one-fifth of national wealth in 1995, today their share is almost half. On the other hand, Turkey in fact experienced a significant reduction in its wealth and income inequality during the early 2000s, albeit coming from the starting point of having the highest inequality of any European country. Most of the larger western European democracies, such as Germany, France, the UK, Italy, and Spain, have experienced growth in the share of national income and wealth taken by their richest citizens, although at a much smaller rate than that of Russia.
Inequality in the long run
While income and wealth inequality has become a salient topic in many countries over the past decade - particularly since the publication of French economist Thomas Piketty's Capital in the Twenty-first Century in 2013, which documented the rise in inequality over time in detail - it is important to keep in mind the long-run trend of inequality. At the beginning of the twentieth century, for which we have data for only a few countries, wealth and income inequality both stood at much higher rates than they stand today, with the wealthiest 10 percent taking as much as 93 percent of national wealth and income in the UK. As the century progressed, both income and wealth inequality fell dramatically, partially the result of the destruction of the wealthiest people's fortunes through war and economic depression, and partially through economic policies which sought to spread wealth more equitably.At the same time, the structure of most European economies underwent a dramatic change, with the majority of people moving from being involved in agriculture and menial labor, to working in manufacturing or service industries, both higher value added activities. Jobs in these industries received higher compensation, particularly for the growing skilled sub-section of employees, with the result being that a growing share of income went to the 'middle 40 percent' (i.e. the group between the bottom 50 percent and the top 10 percent of earners). This group, broadly referred to as the 'middle class', thrived under a form of capitalism in mid-twentieth century Europe which fostered economic growth through partnership between enterprises, trade unions, and government. With increasing globalization since the 1980s, however, many in the middle class lost out of as formerly secure jobs were lost in industries which moved to regions with lower labor costs, notably East Asia, and the new growth industries of financial, business and IT services rewarded a smaller number of high earners at the upper end of the middle classes.
Key trends in income inequality in the 21st century
The most common indicator used to compare countries in income inequality is the Gini index, a measure of how much the distribution of income in a country differs from a hypothetical perfectly equal distribution (i.e. where everybody earns the same). The scale of the index ranges from 0, the perfectly equal distribution, to 100, a situation where the entire income of a country is earned by one person. The Gini Index for the European Union as a whole stands at 29.6, while there are notable differences between member states, with Bulgaria having the highest Gini score of 38.4, while Slovakia had the lowest at 21.2. Since 2014, the Gini coefficient in both the European Union as a whole and the Eurozone currency area have been on a downward trend, falling below 30 in 2022. The Gini coefficient for the EU is lower than that of the other advanced economies such as in the United States, where the coefficient was 0.47 in 2022.The redistributive nature of many of Europe's tax systems means that even where countries may have large pre-tax income inequality, this is corrected for by social transfers and other payments to poorer citizens. The ability of governments to redistribute income and wealth has been challenged by the rise of offshore tax havens, which allow the super-rich to avoid paying taxes on a share of their earnings. In cases where a sizable portion of the wealthiest citizens' income or wealth is hidden from tax authorities, inequality statistics which rely on tax records will substantially underreport the true extent of inequality in a country or region. While it may be easier to avoid taxes on capital income, which may be shifted from place to place to avoid detection by tax authorities, than on labor income, which in most cases is directly observable in company pay-rolls, a growing number of people earn a living from both types of income, a trend which Serbian-American economist Branko Milanović has termed homoploutia.
