Increased levels of income inequality are associated with increased material deprivation, according to a new study of European countries. Researchers used data from the EU Statistics on Income and Living Conditions (EU-SILC) to investigate the key drivers of material deprivation across countries and over time. They focused on the role of growth (or decline) in average income, and the relationship between material deprivation and income inequality.

Key findings

• Over the period 2004–2007, when economic growth was generally strong, many new EU member countries saw quite significant decreases in their material deprivation rates. During 2007–2010, in the wake of the economic crisis, the picture was much more mixed: a considerable number of countries saw their material deprivation rate increase.
• Median income has a substantial role to play in explaining variation in the rate of material deprivation, as might be expected. But income inequality is also found to be statistically significant and positively associated with material deprivation.
• There is evidence from the model used by the researchers that the impact of inequality on deprivation decreases as median income increases.

The study concludes by saying that – with some evidence inequality may affect deprivation even over such a short period, with a limited number of observations – further investigation is needed of the relationship and the channels of influence through which it might work, on a country-by-country basis.

Source: Emma Calvert and Brian Nolan, Material Deprivation in Europe, Discussion Paper 68, GINI Project (European Commission)
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