The effect of employment growth on distribution of labour income among house- holds might be different from the distribution among individuals. Employment growth might have an inequality-decreasing effect if it is concentrated in workless or low-income households, and an inequality-increasing effect if it is concen- trated in work-rich and/or higher-income households.
The proportion of people aged 15–64 living in workless households increased most in Portugal (from 7% to 8%), the Netherlands (from 12% to 13%) and France (from 16% to 17%). The largest decline in the proportion was detected in the Baltic states: in Estonia and Latvia the proportion decreased from 14% to 10%, and in Lithuania from 12% to 10%. The proportion also decreased (albeit to a lesser extent) in Finland, Austria, Belgium, Germany, Hungary, Poland and Slovenia. As the following chart shows, the employment rate is negatively correlated with change in the proportion of those living in workless households. In countries where the employment rate is on the rise, the proportion of those living in jobless house- holds is declining. The rate of decline is less than proportionate, however: a one percentage point increase in the employment rate is associated with just over half a percentage point decline in the proportion of those living in jobless households.
It can also be seen that countries differ in the extent to which the proportion of those living in jobless households respond to changes in the employment rate.
For example, in Finland, Austria, Hungary, Latvia and Estonia, the decline in the proportion of those living in workless households has been more pronounced than
might have been expected on the basis of the increase in the employment rates in those countries. By contrast, in Greece and Spain the proportion of those living in workless households has declined only modestly compared to the signifi cant increase in the employment rate.
Figure 6.11: Change in employment rate and in the proportion living in workless households, 2002–06
Source: Labour Force Survey
Note: Data refer in the case of France, Malta, Poland, Slovakia and Finland to 2003–06; and in the case of Italy and Austria to 2004–06.
Concluding remarks
In this chapter, we have investigated the relationship between economic growth and income inequality in EU countries during the fi rst half of this decade. The countries with the most rapid growth were the Baltic states, but Ireland, Slovakia, Hungary and Greece also recorded above-average growth rates. In transition countries, the main engine of growth was the increase in productivity, while countries such as Ireland, Spain, Luxembourg and Cyprus showed considerable employment growth.
It proved diffi cult to fi nd consistent patterns of a growth–inequality relationship.
We found increasing aggregate income inequality in countries with a relatively high growth rate and in countries with a low growth rate. In the second part of the chapter, we investigated the growth–inequality relationship in more detail. We focused on the effect of growth on inequality of labour income among full-time workers, in order to abstract from the effects of government redistribution. We decomposed the change in inequality, looking at the effects of changes in within- group inequality, changes in population structure and changes in group mean incomes. Inequality changes were most often related to changes in within-group inequality, but in some cases changing population structure and changing group mean incomes proved important as well. We were able to demonstrate the direct inequality-decreasing effect of employment growth. In countries where economic
growth brings about an increase in the employment rate (or a decrease in unem- ployment), inequality of earnings among those of working age tends to decline.
Increasing employment tends also to reduce the proportion of those living in jobless households, thus contributing to a more equitable distribution of employ- ment and labour income between households.
Appendix
Table A6.1: Decomposition of change in labour income inequality (MLD) according to gender
Country Change
in MLD index
The role of different components in explaining inequality change (%)
Term A Term B1 Term B2 Term C
AT 0.040 108 0 0 –8
DE 0.034 114 0 0 –14
DK 0.024 92 1 0 7
ES –0.081 103 0 0 –3
FI –0.081 100 0 0 0
GR –0.065 95 1 0 4
IE –0.004 (–86) (11) (–2) (178)
IT 0.011 129 1 0 –30
LU 0.016 145 1 –1 –45
PT –0.008 (87) (1) (0) (12)
UK 0.024 110 –2 1 –9
Note: Based on the ECHP 1998 and the EU-SILC 2005. First column shows the absolute change in the MLD index. Second to fi fth columns show the results of the decomposition. Component A is inequality change due to change in within-group inequalities. Component B1 denotes inequality change caused by the changing population share of sectors with different levels of within-group inequality. Component B2 is the change in inequality due to changing population share of sectors with different mean incomes. Component C denotes inequality change due to changes in group mean incomes.
Table A6.2: Decomposition of change in labour income inequality (MLD) according to age groups
Country
Change in MLD index
The role of different components in explaining inequality change (%)
Term A Term B1 Term B2 Term C
DE 0.034 2 5 40 53
DK 0.024 84 5 6 6
ES –0.081 85 –2 1 16
FI –0.081 105 –3 –1 0
GR –0.065 95 –3 4 5
IE –0.004 303 –98 15 –121
IT 0.011 59 17 –1 25
LU 0.016 22 43 4 30
PT –0.008 224 –161 108 –71
UK 0.024 109 15 –12 –12
Note: See note for Table A6.1.
Table A6.3: Decomposition of change in labour income inequality (MLD) according to education
Country Change
in MLD index
The role of different components in explaining inequality change
Term A Term B1 Term B2 Term C
AT 0.041 75 9 17 –1
DE 0.034 68 –16 –21 69
DK 0.022 72 6 7 15
ES –0.081 68 –4 2 34
FI –0.081 104 2 0 –7
GR –0.065 84 2 1 14
IE –0.004 204 –74 –117 87
IT 0.011 47 28 20 5
LU 0.016 68 0 0 32
PT –0.008 50 –52 –77 179
UK 0.024 75 24 –27 27
Note: See note for Table A6.1.
Table A6.4: Proportion of people aged 15–64 living in workless households in 2002 and 2006
Country 2002 2006
AT 14.5 12.4
BE 19.4 18.4
CY 8.0 7.8
CZ 11.6 12.1
DE 16.5 14.9
EE 13.9 9.5
ES 9.3 8.2
FI 16.2 14.0
FR 15.8 16.6
GR 13.4 13.0
HU 18.3 16.7
IT 12.8 13.1
LT 12.0 9.9
LU 11.2 11.3
LV 14.3 9.5
MT 10.6 10.6
NL 11.6 12.9
PL 17.8 16.4
PT 6.6 7.9
RO 14.1 12.8
SI 12.5 11.3
SK 13.7 13.1
UK 14.4 13.7
Source: Labour Force Survey
Note: Workless household: a household in which all persons aged 15 and over are either unemployed or inactive. Years are 2003–06 in case of France, Malta, Poland, Slovakia, Finland and 2004–06 for Austria and Italy.