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THE STATE OF THE EUROPEAN UNION
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However, the GDP per head expresses only a
part of reality. It neglects non market-related
costs and benefits (leisure, environment, house-
work, informal sector, access to public goods).
In this sense, the large distance between the
German (European) and the US (American) GDP
per head is largely attributable to more hours
worked per head, while the added value/hour
(hourly productivity) is not that different be-
tween the USA and Germany or France.
The other flaw of GDP per head lies in the
fact that it disregards distribution, which can be
calculated with inequality indicators such as the
Gini coefficient, the quintile share ratio (S80/20)
or the wage share for the functional distribution
in order to get a more complete picture. The
Gini coefficient is a value between 0 and 1
(sometimes also normalised at 0 and 100). 0
corresponds to a fully equitable distribution and
1 (or 100) to a situation in which the whole
population income would go to one single per-
son and nothing to the rest. The quintile share
ratio indicates the income ratio of the richest
fifth to the poorest fifth of the population.
Regardless of inequality, there is the poverty
rate, which indicates the percentage of popula-
tion which earns less than 60 per cent of the
median income. In order to take into account
the effect of public redistribution, we should
consider not only the distribution of the market
income but also the one of disposable income
(after tax and transfers) and the social expendi-
ture ratio.
Development of inequality between
countries
The area of the present Member States of the
European Union (EU) has gone through a rather
varied history of inequality in the past. The EU
was quite homogeneous at the moment of its
foundation as the EEC of the Six, with the ex-
ception of Southern Italy. The first enlargement
incorporated only Ireland as a poor country,
which in 1999 had already developed and be-
come the second richest country in the EU,
even though this spectacular catch-up process
really only started about 20 years after its ac-
cession. Its income per head has overcome the
EU average by far and belongs today to the
leading group of the EU. Only the southward
enlargement (Greece in 1981 and Spain and
Portugal in 1986) seriously brought up the
problem of regional inequality on the agenda.
While Greece fell behind relatively to the EU av-
erage in the first years, Portugal and Spain were
able to catch up after their accession. In the
“EFTA enlargement” in 1995, the three coun-
tries that joined were relatively rich anyhow.
Inequality grew dramatically with the east-
ward enlargement, especially in the second
round in 2007, when Bulgaria and Romania,
two large and poor countries became Member
States. Croatia (accession in 2013) already
ranged at the level of the countries of the first
eastward enlargement round regarding income
per head. In 2013, the EU-28 average GDP per
head amounted to
€
23,200 (and in the Euro
area to
€
25,400). But in the poorest EU Member
State, Bulgaria, the income per head reached
only
€
3,800 per year; in the richest (Luxembourg)
€
62,400, that is, over sixteen times higher.
Income in most new Member States in Central
and Eastern Europe (CEE) lies below
€
10,000;
in the Mediterranean periphery, between
€
14,000 and
€
20,000; in the Scandinavian
countries, UK, Ireland, Germany, Austria and
the Netherlands, over
€
30,000.
Inequality turns out to be lower when in-
come is not compared in a common currency
but in purchasing power parities (PPP). The pur-