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73

Inequality in Europe has many dimensions and a

long history. People or countries differ in many

and diverse ways (power, income, wealth, life

expectancy, among many others) and show ac-

cordingly diverse forms of inequality. Politics of-

ten distinguish between equal opportunities,

equal performance and equal results. This essay

focuses mainly on income inequality. Inequality

has three main dimensions in Europe: within

Member States, between Member States and in

the European Union (EU) as a whole. But even if

we focus strictly on income inequality, caution is

required, since income and prosperity, their de-

velopment and distribution, point to many

problems and pitfalls that also appear in

Europe’s development, especially from an inter-

national point of view. Firstly, a differentiation

should be made between the dimensions taken

into consideration (market or disposable income

based on purchasing power or on the exchange

rate) and the units compared (countries, re-

gions, households, productive resources).

Indicators

The Gross Domestic Product (GDP) will be the

most important indicator in this research.

Nonetheless, an international comparison

should take into account the effect of the ex-

change rate and inflation. Accordingly, when

comparing real incomes, a measurement using

purchasing power parities (PPP) makes more

sense than a comparison at exchange rates. The

income per head in PPP is usually higher in poor-

er countries than the one measured in exchange

rates, since many things are cheaper there. The

cost of rent and services is usually lower in poor-

er countries (due to lower wages), while prices

of tradable goods don’t show such a difference.

In the context of a catch-up process, when the

development level of a poorer country comes

closer to that of the richer ones, a real revalua-

tion usually takes place, mostly combined with

a nominal currency appreciation and a higher

inflation rate, thus tending to reduce the differ-

ence between the purchasing power and the

exchange rate.

Inequality in Europe:

unequal trends

Michael Dauderstädt