A paper by the OECD in Paris has highlighted growing income inequality in European countries – with large income gains among the top 10 per cent of earners as the main cause. The paper’s author constructs an aggregate measure of EU-wide inequality that takes into account inequality both within and between countries.

Key points

• Inequality in Europe has risen ‘quite substantially’ since the mid-1980s.
• Towards the end of the 2000s the income distribution in Europe was more unequal than in the average developed (OECD) country, though notably less so than in the USA.
• It is the within-country, not the between-country, dimension that appears to be the most important factor. Although European Union enlargement has contributed to increasing inequality, it is not the only explanation: inequality has also increased within eight ‘core’ countries, including the United Kingdom.
• Large income gains among the 10 per cent top earners appear to be a main driver behind the overall trend, while the poorest 10 per cent have been losing ground.

The paper (Kaja Bonesmo Fredriksen, Income Inequality in the European Union, Economics Department Working Paper 952, Organisation for Economic Co-operation and Development) is available from the OECD website.