73 / 145
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