Inequality in Europe - Statistics & Facts

Some countries in Europe have demonstrated even more severe concentrations of wealth and income in the hands of the top one percent, with the Russian Federation being the most striking example. The country's haphazard transition from communism to the free market in the 1990s led to 'oligarchs' - that is, powerful and well-connected businessmen - taking control of large swathes of the Russian economy and natural resources. While the wealthiest one percent of Russians owned around one-fifth of national wealth in 1995, today their share is almost half. On the other hand, Turkey in fact experienced a significant reduction in its wealth and income inequality during the early 2000s, albeit coming from the starting point of having the highest inequality of any European country. Most of the larger western European democracies, such as Germany, France, the UK, Italy, and Spain, have experienced growth in the share of national income and wealth taken by their richest citizens, although at a much smaller rate than that of Russia.

Inequality in the long run

While income and wealth inequality has become a salient topic in many countries over the past decade - particularly since the publication of French economist Thomas Piketty's Capital in the Twenty-first Century in 2013, which documented the rise in inequality over time in detail - it is important to keep in mind the long-run trend of inequality. At the beginning of the twentieth century, for which we have data for only a few countries, wealth and income inequality both stood at much higher rates than they stand today, with the wealthiest 10 percent taking as much as 93 percent of national wealth and income in the UK. As the century progressed, both income and wealth inequality fell dramatically, partially the result of the destruction of the wealthiest people's fortunes through war and economic depression, and partially through economic policies which sought to spread wealth more equitably.

At the same time, the structure of most European economies underwent a dramatic change, with the majority of people moving from being involved in agriculture and menial labor, to working in manufacturing or service industries, both higher value added activities. Jobs in these industries received higher compensation, particularly for the growing skilled sub-section of employees, with the result being that a growing share of income went to the 'middle 40 percent' (i.e. the group between the bottom 50 percent and the top 10 percent of earners). This group, broadly referred to as the 'middle class', thrived under a form of capitalism in mid-twentieth century Europe which fostered economic growth through partnership between enterprises, trade unions, and government. With increasing globalization since the 1980s, however, many in the middle class lost out of as formerly secure jobs were lost in industries which moved to regions with lower labor costs, notably East Asia, and the new growth industries of financial, business and IT services rewarded a smaller number of high earners at the upper end of the middle classes.

Key trends in income inequality in the 21st century

The most common indicator used to compare countries in income inequality is the Gini index, a measure of how much the distribution of income in a country differs from a hypothetical perfectly equal distribution (i.e. where everybody earns the same). The scale of the index ranges from 0, the perfectly equal distribution, to 100, a situation where the entire income of a country is earned by one person. The Gini Index for the European Union as a whole stands at 29.6, while there are notable differences between member states, with Bulgaria having the highest Gini score of 38.4, while Slovakia had the lowest at 21.2. Since 2014, the Gini coefficient in both the European Union as a whole and the Eurozone currency area have been on a downward trend, falling below 30 in 2022. The Gini coefficient for the EU is lower than that of the other advanced economies such as in the United States, where the coefficient was 0.47 in 2022.

The redistributive nature of many of Europe's tax systems means that even where countries may have large pre-tax income inequality, this is corrected for by social transfers and other payments to poorer citizens. The ability of governments to redistribute income and wealth has been challenged by the rise of offshore tax havens, which allow the super-rich to avoid paying taxes on a share of their earnings. In cases where a sizable portion of the wealthiest citizens' income or wealth is hidden from tax authorities, inequality statistics which rely on tax records will substantially underreport the true extent of inequality in a country or region. While it may be easier to avoid taxes on capital income, which may be shifted from place to place to avoid detection by tax authorities, than on labor income, which in most cases is directly observable in company pay-rolls, a growing number of people earn a living from both types of income, a trend which Serbian-American economist Branko Milanović has termed homoploutia.

Other forms of inequality

While most often inequality is considered from the perspective of the distribution of income and wealth amongst the entire population of a country, there are many other ways to consider inequalities of wealth and power in a region. For instance, growing attention has been paid to the gender pay gap in Europe, as women earn on average almost 13 percent less than men for equivalent work. Nevertheless, the share of total labor income in Europe which is earned by women has increase consistently for the past thirty years, rising from around one-third, to almost 39 percent in 2019. Educational inequalities can also be a key mechanism for the transmission of disadvantages from one generation to another, as the lack of educational resources and opportunities may stunt the future career growth and advancement of children. In many countries, children in rural areas, socio-economically disadvantaged children, or the children of immigrants are those most affected by educational inequality. An emerging form of inequality is related to climate change and the burden of mitigating its impacts, as while the challenge of combatting Europe's changing climate must be faced by entire societies, in many European countries the top 10 percent of polluters emit more carbon than the bottom 50 percent.