Focus on Europe London Office October 2010 Europe’s Hidden Inequality i Income distribution in the European Union(EU) is much more unequal than the EU itself avows: indeed, it is more unequal than in, for example, India. Although measuring inequalities is difficult, realistic estimates point to considerable ine­quality. This has decreased since 2005, despite the fact that in most member states it is growing. The fall is due to catch-up processes in the poorer EU countries, although this came to an abrupt end as a result of the financial crisis. Michael Dauderstädt* The European Union(EU), in its founding trea­ties, set itself the aim of economic, social and territorial cohesion. ii This aim is generally inter­preted to mean that the EU will strive to reduce income inequality within its area of integration. Reducing inequality is, as recent studies con­tinue to show, an important and just goal since inequality blights the lives and prospects of those affected. iii Unequal Income Distribution in Europe As a result of a number of enlargement rounds since 1972 the EU consists of member states at widely varying stages of development and di­vergent income levels: besides small, rich coun­tries, such as Luxembourg(annual per capita income: around 60,000 euros), there are also large, poor countries, such as Romania(annual per capita income: around 2,900 euros). iv A *Michael Dauderstädt is the head of the Economic and Social Policy Divsion of the Friedrich-Ebert­Stiftung in Bonn. comparison of Europe’s regions reveals even more egregious differences between the richest region(again Luxembourg) and the poorest: annual per capita income in the poorest regions of Bulgaria(Severozapaden and Yuzhen Tsen­tralen) and Romania(Nord-Est of Macroregi­unea doi) is even lower than the national aver­age. v Data up to 2007 show that regional in­come differences are increasing. Functional income distribution between wages and profits has long been deteriorating in the EU, except in a few countries. vi The wage share has fallen, for example, in the countries of the Eurozone, from 68 per cent in the 1970s to 57 per cent in 2006. vii This deterioration in func­tional distribution, as well as more marked wage dispersion also partly explain the deterioration in personal income distribution in most member states. This is shown by Table 1, which pre­sents the relationship between the income Friedrich-Ebert-Stiftung London Office 66 Great Russell Street London WC1B 3BN Phone:+44(0)20 7025 0990 Fax:+44(0)20 7242 9973 e-mail: info@feslondon.net website: www.feslondon.org.uk