Regional inequality and the impact of EU integration processes Martin Heidenreich
Table of Contents 1. Income inequality in the EU between and within nations 2. Patterns of regional inequality and its explanation 3. Conclusion
1. Income inequalities a crucial challenge for the EU Thesis: The process of European integration contributed effectively to the reduction of European-wide income inequality thus buffering the postsocialist transition processes in Eastern Europe and the previous democratic transformation in Southern Europe Regional and national patterns of income patterns are on the one hand bargaining arenas in a European-national-regional multilevel game. On the other hand they are also the result of economic and labour market structures which cannot be easily shaped by European policies
National income inequalities in the EU (Gini, 2000 and 2010) Strong increase in 8 countries (Latvia, Austria, Italy, Romania, Germany, Denmark, Lithuania, Bulgaria), decrease in 4 countries (Estonia, Netherlands, Belgium, Portugal).
Distribution of disposable income (PPS; EU-27 without Malta, 2009; basis: EU-SILC) Population ('000) 0 2500 5000 7500 10000 12500 15000 European Union (27) Gini EU27 (without Malta): 0.339 0 10000 20000 30000 40000 50000 60000 Disposable Income 2009 (in PPP) EU RO PL UK DE Eurostat calculates income inequality for the EU27 as the weighted mean of national income inequality (gini 2009=0.30) thus ignoring between-state inequality. In a politically and to some extent also socially integrated Europe, this is hard to defend
Income inequality and poverty in Europe (2009) and the U.S. 2009; PPS EU 15 EU 25 EU 27 USA Income inequality, based on a 0.286 0.284 0.287 weighted national indicator (Gini) Income inequality (Gini) 0.293 0.319 0.339 0.372 (2004; LIS); 0.381 (2004; OECD) Income inequality (decile ratio) 3.920 4.680 5.570 4.372 Poverty (60%; national thresholds) 15.9% 15.7% 16.1% Poverty (continental threshold) 12.0% 19.2% 23.3% 19.3% Source: EU-SILC 2009; OECD 2008: Growing Unequal?; http://www.lisdatacenter.org; own calculations. The usual figure for the inequality of Household Income in the USA - 0.467 (2009) provided by the U.S. Census Bureau does not take into account taxes and contributions, the different composition of households and different purchase powers. Income inequality in the USA is only slightly higher than in the EU; poverty rates in the EU-27 are higher. The idea of an egalitarian Europe and an unequal USA is to some extent also a statistical artifact. Traditionally, the relationship of within-state and between-state inequalities has been different: In the United States, inequality is a matter of individuals; in the European Union, it is a matter of countries. (Milanovic 2011: 178) Due to lower between-nation inequality (and sometimes higher within-nation inequality), this seems to change in the EU
Within- and between-nation inequality in the EU-15 (MLD, PPP; 1995-2009) The between-state income inequality has decreased from 1995 (11 %) to 5 % now: A rapid homogenization of the European space due to the process of European integration (Source: ECHP and EU-SILC)
The homogeneisation of the European space: Within- and between-nation inequality in the EU-25 (MLD, 2005-09) Even in the enlarged EU, the between-state income inequality is rapidly decreasing. The points to a surprisingly quick homogenization of the enlarged European space. The EU has been a major actor in the postsocialist transition and reunification process of Eastern and Western Europe (Source: EU-SILC).
Regional convergence (absolute and conditional beta-convergence) of the regional disposable income in the European NUTS2-regions (1995-2007) Disposible Income (1) (2) (3) (4) of households (per inhabitant, PPCS) EU27 EU15 EU27 EU15 Country dummies No No Yes Yes Observations 254 200 254 200 R-squared 0.59 0.35 0.91 0.82 Speed of 0.024 0.029 0.006 0.009 convergence Half-life period 28.5 23.9 119.9 73.5 For the average regional disposable income, a convergence rate of 2.4 % (EU27) respective 2.9 % (EU15) can be calculated. The convergence between the former member states (which are already quite homogeneous) has been surprisingly quicker that the convergence in the enlarged EU-27. A result of the monetary integration?
Context factors dermining the level of equivalent household income in 26 member states of the EU (PPP, 2005-09) Regional labour market and economic structures Employment rate 116.7** Female employment 166.3** Medium education 15.5** Industrial employment -59.1** Trade, restaurants, transport 281.2** Financial and business services 1.9 Public and personal services 168.3** National institutions Social benefits 44.7** Market integration and European regulation Migration 29.7** Imports -37.1** Exports -64.2** EU-share of foreign trade -196.3** Member Euro area -613.2** Structural and cohesion policies 0.01+ No. of households 982613 Pseudo-R 2 0.530 Household-related factors highly significant, not mentioned here: age, highest level of education attained, number of children, single parents, retired persons, foreigner, males, employees in household Labor market and economic structures have a strong impact on the level of disposable income: A higher (female) employment rate, a higher proportion of services, a higher educational level and public employment and welfare are associated with a higher disposable income. Structural and cohesion policies have some positive effect.
Result 1. The European harmonisation of the European goods, services, capital and labor markets by the acquis communautaire, the (partially common) currency, and the structural and cohesion policies of the EU contribute to the decrease of betweennation inequality in Europe. 2. Since the European integration did not only liberalise the European markets, but also increased the integration of the European countries in the global markets, an increase of within-nation income inequality in Europe can be expected. 3. In many countries (Portugal, Hungary, Ireland, Greece, UK ), this did not take place: Political influence on levels and patterns of income
2. National Variation of regional income inequalities (2009) Income inequalities between the regions within one state are sometimes than the international variations of income inequalities. In the Czech Republic, the between-region inequality is 6.3 % of the national inequality; in Spain 5 %, in France 3.2 % and in Romania 2.2. %.
The explanation of income and income inequalities a multilevel game The patterns of income inequalities in Europe have to be explained taking into account (at least) four different levels: (Household-related factors (relevant only for income levels): age 2, highest level of education attained, number of children, single parents, retired persons, foreigner, males, employees in household) (Regional) labour market and economic structures National patterns of solidarity and redistribution European-wide coordination and harmonization Global markets
Explanation of national and regional patterns of inequality in the EU-26 (without Malta, 2005-09) Decile ratio (d9_d1) Inequality (gini) Decile ratio (d5_d1) Female employment -0.030** -0.106** -0.011** Industrial employment -7.724** -23.607** -2.489** Trade, restaurants -3.255** -2.231-0.441 Financial and business -1.500-1.405-1.201* services Social protection -0.050** -0.216** -0.018** Union density -0.012* -0.037-0.003 Structural and cohesion 0.0001 0.0001 0.0001 policies Preliminary ruling (Art. -0.014** -0.069** -0.004** 267 TFEU) Intraclass correlation 0.332 0.732 0.240 between nations Intraclass correlation 0.839 0.883 0.824 within nations Pseudo-R 2 0.673 0.708 0.707 The patterns of regional and national income inequalities can be explained mostly by the industrial and labour market characteristics of a region, but also by national union and welfare policies and European legal integration. Structural policies does not seem to have a significant effect
3. Conclusion: Income inequality in a multilevel system 1. European level: Strong decrease of between-nation income inequalities in Europe and convergence of regional disposable income => Economic and social cohesion of Europe => Europe as an increasingly integrated economic and social field 2. National level: Discrepancy between European and global market integration and the political protection of national "spaces of inequality 3. Regional level: Disposable income depends strongly on regional employment and industrial structure => Europe as a relatively homogeneous socio-economic field (mostly the result of economic and legal integration)
Answers 1. What is the link between policies aimed at reducing income inequalities and those aimed at reducing regional inequalities? Is it possible to reduce social inequalities across the EU without reducing regional disparities? In short: No, richer regions are only slightly more equal as less wealthy ones. In 2007, disposable income of households (per inhabitant, PPCS) was not significantly correlated with regional income inequality (gini); in 2005 and 2006 the relationship was very weak (r=0.21 and r=0,27) 2. How have intra and inter-regional inequalities changed since 1990 and during the crisis, what are the main reasons and social consequences of these changes? Inter-regional inequalities in the EU (15-25-27) have strongly declined since 1995 due to the economic, monetary and political integration of the EU. Due to frequent breaks in time series and missing data, the development of intra-regional inequalities can hardly be determined. 3. What changes in Europe's socio-economic geography will the crisis bring about? The stability or decline of inequality in some countries will be reversed and the overall European inequality will rise. 4. How can territorial policies be best targeted to help mitigate social inequalities? Are such measures also likely to reduce social inequalities both within regions and between regions across the EU? The most important way for the reduction of inequalities between regions are policies which focus on competitiveness and a high employment level. This is also (as far as I know) the policy of the EU. I am not so sure whether it is politically feasible and desirable that income inequalities within regions which are strongly shaped by the employment and industrial structure of a region should be reduced. I think that the prevention of deprivation, (labour market) exclusion and poverty reduction is sufficient also for social cohesion
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Country Region with highest Region with lowest inequality inequality Belgium Brussels (0.32) Vlaams Gewest (0.23) Germany Brunswig (0.34) Sachsen-Anhalt (0.20) Spain Ceuta (0.41) Navarra (0.26) France Midi-Pyrénées (0.30) Haute-Normandie (0.24) Portugal Lisbon (0.39) Madeira (0.28) UK London (0.35) East Yorkshire (0.23) Czech Prague (0.26) Jihozápad (0.21) Rep. Poland Warsaw (0.33) Poludniowy (0.28) Romania RO2 (0.36) RO1 (0.30) Italy Isole (0.32) Nord Est (0.27) Income inequalities between the regions within one state sometimes higher than the international variations of income inequalities
Income inequalities within and between nations in the EU (1995-2009, PPP, MLD) Within nations EU 15 EU 25 (without Malta) EU 27 (without Malta) Between Total Total Total nations Within nations Between nations Within nations Between nations 1995 0.168 0.016 0.184 1996 0.152 0.015 0.167 1997 0.142 0.017 0.159 1998 0.140 0.015 0.155 1999 0.141 0.012 0.153 2000 0.135 0.014 0.149 2001 0.133 0.014 0.147 2005 0.141 0.010 0.150 0.146 0.126 0.271 2006 0.139 0.009 0.148 0.143 0.095 0.237 2007 0,144 0,011 0,155 0,144 0,092 0,236 0,149 0,131 0,280 2008 0,142 0,011 0,153 0,141 0,048 0,189 0,145 0,085 0,231 2009 0,145 0,008 0,153 0,143 0,039 0,182 0,146 0,071 0,218 Source: ECHP; EU-SILC, own calculations. Only 5 % of the income inequalities in the EU-15 are between-country inequalities in contrast to a fifth in the EU-25 and a third in the EU-27 (2009). In all groups, the between-country inequality is strongly decreasing. In the former Member States, also the within-nation inequality declined.
2. Two different concepts of income inequality 1. Average regional income (or GDP) compared with other regions and countries Assumption: Everybody in the region has the same income 2. Regional distribution of available income Assumption: In poor regions live also rich people and vice versa Problem: In EU-SILC, regional income data are available only a few countries
The homogeneisation of the European space: Within- and between-nation inequality in the EU-27 (MLD, 2007-09) Even in the EU-27, the between-state income inequality is rapidly decreasing. (Source: EU-SILC).