Slideshows | May 5, 2016

Was the financial crisis bad for wages? For some, earnings actually improved

Research presented at the inaugural Think Forward Initiative summit suggests the financial crisis increased inequality in parts of Europe.

The financial crisis that began in 2007 widened the gap between rich and poor in many places, but lower income groups in Europe did not fare worse than average. That's a main finding from a study for the Think Forward Initiative by ING Belgium senior economist Julien Manceaux. Manceaux writes that lower income groups in Europe have not seen incomes shrink as much as in the United States, where income inequality worsened from 2007 to 2013.

Within Europe, times were certainly tough for many – but low-earners did enjoy some growth in their disposable income in all countries outside Southern Europe. These tougher times also led to higher levels of poverty in all countries, with one exception: Germany.

Why does inequality matter?
"In advanced economies, growing inequality has been shown to be harmful for long-term economic growth," Manceaux explains.

According to an OECD report, expansion of the earnings gap between the richest and poorest members of society between 1985 and 2005 probably reduced growth between 1990 and 2010 by as much as 4.7 percentage points. A big gap between rich and poor can add to political instability or a breakdown in society, partly because people may feel resentful, Manceaux notes.

Manceaux's full study is also downloadable as a PDF below.

 

1

That shrinking feeling In Portugal, Poland, the Netherlands, Belgium and the UK, the gap between the disposable income growth of the wealthiest members of society and the poorest narrowed between 2007 and 2013. In the UK, the lowest incomes even rose.

2

Tougher times Changes in the labour market, such as new types of contracts, meant the young suffered more than the oldest – except in Poland, and in Belgium or Germany where income growth was similar in all age groups. The biggest age-related gap was in Spain.

3

Older and wiser People older than 65 did best in France and Spain, where the incomes of this age group rose 5.9%. The earnings of older people increased in all countries studied except Greece.

4

Heading south In Greece, disposable incomes fell 40% on average from 2007 to 2013. The share of the population in poverty rose 33% in Greece, 15% in Italy and 13.5% in Spain and Portugal. New types of labour contracts (more flexible part-time non-permanent) played a role.

5

C’est la vie? Eurozone earners with higher disposable incomes saw larger increases 2007 to 2013. The gap was wider than in the EU as a whole, widening most in Spain and France, where earnings of the richest rose 6.2% a year.

6

A German escape Germany saw marginal changes in inequality from low pre-crisis levels, no significant rise in poverty, nor a difference in growth of disposable incomes across old and young, though new types of labour contracts were widespread.

Click here to view the PDF.

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