Rising inequalities [Ten issues to watch in 2018]

Written by Etienne Bassot,

Inequalities are a deep-rooted and persistent problem in the EU and globally. While across the EU the Gini-co-efficient of equivalised disposable income has been somewhat stagnant both for individual Member States and for the EU-28 as a whole, there are major territorial and developmental differences. In addition, new, more comprehensive forms of data collection that go beyond GDP and also take environmental and social factors into account, show an even more nuanced picture. The latest results of the OECD well-being index, for example, show that the scars left by the financial and economic crises have not yet healed and that the benefits of globalisation, including greater openness, do not reach all in an equal manner. The data show clear divisions between societies and individuals according to education level, income, wealth, age and birthplace. For instance, despite having higher educational attainment than previous generations, people under the age of 25 are particularly hard-hit and are 60 % more likely to be unemployed than those aged 25-54. Overall, this situation erodes trust in government, both national and EU, and thus leads to political tensions.

What is the issue?

Inequality not only means inequality of income, but can also refer to inequality of outcomes, such as educational attainment, health, and social mobility. Moreover, there can be inequalities between generations, genders and regions, and between people with different social or cultural backgrounds. Therefore, the issue is also dependent on the basic structures in our societies. In turn, the remedies have to address those basic structures, there being no ‘one-size-fits-all’ formula. Existing approaches include, for instance, combating inequality of opportunity or promoting inclusive growth. The main rationale behind the latter has been that there is no trade-off between economic growth and equality, which also implies that high levels of inequality erode social cohesion. Some point out that the evidence provided by the literature on how inequality impacts growth is inconclusive, thus provoking lively debates on the best policies and strategies to adopt.

Policies to combat inequalities in the EU in 2018

Currently, the broader context of addressing inequalities is marked by the reflection process on the future of the EU, which was prompted by the European Commission’s white paper on the subject in March 2017. Two of the additional specific reflection papers – on the social dimension of the EU and on harnessing globalisation, respectively – directly address the core issue of inequality and new types of inequality stemming from economic and technological change, and possible ways of dealing with them. The social dimension paper refers to income inequalities and how a well-functioning welfare state can counterbalance this phenomenon. The globalisation paper explains how wealth in the EU is concentrated in the hands of the few, albeit to a much lesser degree than in the rest of the world, and how Member States that are more integrated within the global supply chain experience less inequality. The basic dilemma behind all decisions concerning the social and economic dimension of the future of the EU is rooted in the need to concurrently address expectations relating to both ‘responsibility and competitiveness’ and ‘solidarity and caring’. While the first implies stricter implementation of rules, reiteration of the ‘no bail-out’ principle, reduction of risks, a stronger market principle and implementation of structural reforms, the second requires more flexible rules, introduction of common risk-sharing instruments, more European support for national reforms, more fiscal room for public investment, reduction of macro-economic imbalances and a narrowing of the gap between the countries that use the euro and those that do not. To reach these very diverse, sometimes even contradictory objectives, and to move towards convergence instead of divergence, pro-environmental economic policy mixes are required. This also implies closer coordination of economic and social policies.

In the EU, measures directly addressing some of the root causes of inequalities will be related in 2018 to the implementation of the European Pillar of Social Rights and associated initiatives. The Social Pillar contains 20 principles and rights to support the renewal of current labour market and welfare systems while promoting intergenerational fairness. It addresses three main topics: equal opportunities and access to the labour market; fair working conditions; and social protection and inclusion. The interinstitutional proclamation on the Social Pillar was signed by the presidents of the European Commission, the European Parliament and the Council of the EU at the Social Summit held in Gothenburg in November 2017, thereby attesting to their shared political commitment to the issue.

The Social Pillar was conceived for the euro area, but according to the proclamation, is addressed to all Member States. However, the major remaining challenge is how best to implement the Social Pillar and related EU policies to respond to the specific socio-economic situations in the different Member States. As reiterated in several European Parliament resolutions, implementation strategies should involve initiatives with a life-cycle approach as well as measures on governance and funding. According to the joint proclamation, implementation should mainly remain with the Member States, with involvement from the social partners. For the purpose of monitoring and supporting the implementation process, the Commission 2018 work programme envisages the integration of the Social Scoreboard accompanying the Social Pillar, into the European Semester (the framework for coordinating economic policies at European level).

As part of the implementation of some of the Social Pillar principles, the measures built into the social fairness package, due for adoption in 2018, are meant to support Member States in their efforts to update their national welfare systems. These measures include establishing a European Labour Authority, granting atypical self-employed workers access to social protection, introducing a European social security number that could be used across policy sectors, and revising the Written Statement Directive that obliges employers to inform their employees about their working conditions. In addition, the work-life balance package, containing legislative and non-legislative measures, might help to reconceptualise the area of care, so that it becomes seen more broadly as an integral part of society. In relation to the Social Pillar principles on ensuring access to quality education and reducing skills mismatches, particular attention will be given to the 10 actions put forward in the New Skills Agenda in 2016. Priority will be assigned to implementing the recommendation on upskilling pathways for adults struggling with low levels of basic skills and qualifications.

‘Hard’ economic governance and the future of EU finances will greatly impact on efforts to overcome inequalities within the EU. Forthcoming initiatives on completing economic and monetary union include the introduction of an EU budget line dedicated to structural reform assistance and to developing a convergence instrument for pre-accession assistance. The debate on the post-2020 Multiannual Financial Framework, starting with the Commission’s proposal expected in May 2018, will also be influential. It will need to reconcile the need for flexibility and rapid reaction on the part of the executive, on the one hand, and for stronger democratic legitimacy and unity of the budget, on the other.

Read the complete in-depth analysis on ‘Ten issues to watch in 2018‘ on the Think Tank pages of the European Parliament.