The extent of poverty and the degree of inequality is shaped by a wide range of factors, including the level of economic development, structural factors (employ- ment levels) and social policy factors like the scale of social expenditure and the way that this is spent in any given country. European countries are different in those aspects related to inequality, and also there is a great deal of variation between them in terms of the mix of institutional factors (and not solely in terms of those factors that are capable of being captured in the analysis). The specifi c circumstances prevailing in any country suggest a need for caution in interpreting the results, especially when drawing policy conclusions. The same policy measures may lead to different results in different countries because of differences in the national context. In general, higher levels of GDP per head may help to alleviate poverty, but lower levels of relative poverty do not necessarily result from higher GDP.
Table 6.1: Magnitude and direction of change in the variables examined between 2000 and 2005
Gini coeffi cient
Poverty
rate GDP PPS
Total employ- ment rate
— employed persons aged
15–64
Total employ- ment rate of older workers
— employed persons aged
55–64
Social protection benefi ts in the
% of GDP
Country 00/05 00/05 00/05 00/05 00/05 00/05
AT 0 + 0 0 ++ 0
BE 0 ++ 0 0 +++ ++
BG – – – +++ .. .. ..
CY .. .. 0 .. .. ..
CZ 0 +++ ++ 0 +++ 0
DE + ++ 0 0 +++ 0
DK + ++ 0 0 + 0
EE – 0 +++ + +++ ..
ES – + + ++ ++ 0
FI 0 ++ 0 0 +++ +
FR 0 0 0 0 +++ +
GR 0 0 ++ + + 0
HU ++ ++ ++ 0 +++ ++
IE ++ – – + 0 ++ +++
IT ++ + – – + ++ +
LT ++ ++ +++ + +++ – –
LU 0 ++ + 0 ++ ++
LV ++ +++ +++ ++ +++ – – –
MT .. .. – .. .. ++
NL 0 – 0 0 +++ +
PL + ++ + 0 0 ..
PT 0 – 0 0 0 ++
RO + ++ +++ – – – – ..
SE 0 +++ 0 0 + 0
SI + + ++ + +++ 0
SK .. .. +++ 0 +++ – –
UK – + 0 0 ++ 0
Notes: 0: no change; +/–: magnitude of change: 5–10%; ++/– –: magnitude of change: 10–15%; +++/– – –: magnitude of change: 15%<;
.. : lack of data.
The change in Gini and poverty rate: Hungary: 2000–04, Latvia: 1999–2005.
At this level, it is hard to make many general statements on the basis of the data presented. Between 2000 and 2005, a marked increase (++) in income inequalities and relative poverty is evident in Hungary, Italy, Ireland, Latvia and Lithuania. For the other countries, the change was negligible or marginal. In the majority of those countries that recorded an increase in inequality, GDP (relative to the overall EU average) showed a signifi cant increase (at least 10–15% over the fi ve-year period).
Italy and Ireland are exceptions: in those countries income inequality rose despite slower or no relative GDP growth).
As for the relationship between employment growth and the change in inequality, the picture is also mixed. A reduction of more than 5% in the employment rate
(employed persons aged 15–64) occurred in Romania, where the overall employ- ment rate was already quite low at the beginning of the period. The other countries showed either no change or some rise in the employment rate (especially Spain and Latvia, but also Estonia, Greece, Lithuania and Slovenia). In Spain and Estonia, an increase in the employment rate was associated with decreasing inequality, but in other cases (e.g. Italy, Latvia and Lithuania) inequality increased during a period of an increasing employment rate. Romania, the only country with a decreasing employment rate, showed an increase in inequality.
Viewing the data from another perspective — and using a graphic method — we plotted the combined changes in inequality and relative poverty in a two dimen- sional space (Figures 6.6 to 6.9). Inequality indicators (Gini and poverty rate) are regarded here as dependent variables, while the explanatory variables are relative GDP change and overall employment rate change, respectively. From the various patterns of arrows (which represent the changes) the conclusion strengthens the results demonstrated in Table 6.1: there is no clear pattern of interaction and no path dependencies are observable, in the sense that the level of inequality at the beginning of the period does not seem to infl uence the direction and the magni- tude of the change in inequality.
Figure 6.6: The change in the Gini coeffi cient and the change in GDP PPS per capita, 2000–05
Source: Eurostat New Cronos database (downloaded 1 June 2008)
Variables: GDP PPS (EU27=100), data refer to 2000–05; Gini coeffi cient, data refer to 2000–05. In case of Gini: Hungary: 2000–04, Latvia: 1999–2005.
Sample: EU27, but Cyprus, Malta, Slovakia and Luxembourg are not included in the analysis.
Figure 6.7: The change in the poverty rate and the change in GDP PPS per capita, 2000–05
Source: Eurostat New Cronos database (downloaded 1June 2008)
Variables: GDP PPS (EU27=100), data refer to 2000–05; at-risk-of-poverty rate (after social transfers), data refer to 2000–05.
In case of poverty rate: Hungary: 2000–04, Latvia: 1999–2005.
Sample: EU27, but Cyprus, Malta, Slovakia and Luxembourg are not included in the analysis.
Figure 6.8: The change in the Gini coeffi cient and the change in the employment rate, 2000–05
Source: Eurostat New Cronos database (downloaded 1June 2008)
Variables: Employment rate (employed person: 15–64), data refer to 2000–05; Gini coeffi cient, data refer to 2000–05.
In case of Gini coeffi cient: Hungary: 2000–04, Latvia: 1999–2005.
Sample: EU27, but Cyprus, Malta and Slovakia are not included in the analysis.
Figure 6.9: The change in the poverty rate and the change in the employment rate, 2000–05
Source: Eurostat New Cronos database (downloaded 1June 2008)
Variables: Employment rate (employed person: 15–64), data refer to 2000–05; at-risk-of-poverty rate (after social transfers), data refer to 2000–05. In case of poverty rate: Hungary: 2000–04, Latvia: 1999–2005.
Sample: EU27, but, Cyprus, Malta and Slovakia are not included in the analysis.
From the analysis, therefore, it follows that the distributional effects of growth may vary greatly, depending on the nature of growth itself (which sectors drive it, how it affects employment, etc.) and the nature of the social welfare system (the extent and structure of social expenditure, as well as, perhaps, the social and labour market legislation in place). This accords with the results of recent studies, which suggest that the performance of various European social models differs in terms of effi ciency and equity (Boeri 2002; Sapir 2005).
The next step of the analysis is to examine the correlation of employment and inequalities in a more sophisticated manner.