Gap Between Poor And Rich In Europe Widens, Still One Not-so-Good Brexit Vote Aftermath

October 29
6:00 AM 2016

The gap between richer and poorer regions of euro-zone countries has increased since the financial crisis. Our measure of regional inequality looks at the average income per head of a country's poorest region, expressed as a percentage of the income of that country's richest part. The weighted average for 12 countries shows that regional inequality was declining in the years leading up to the financial crisis of 2007-08, but has increased since then.

The poorest area in Slovakia, the euro zone's most geographically unequal economy, now has an income per person of just 28% of the richest, a slight fall from before the crisis. In Calabria, Italy's poorest region, income per person as a share of the country's best-off part, the province of Bolzano, was 45% in 2007 but is only 40% now. Elsewhere poor regions of the euro zone have seen income falling in both relative and absolute terms.

An exception is Germany: in its once-communist east, excluding Berlin, GDP per person reached 67% of that in former West Germany last year. (Most of the catch-up took place in the early 1990s, but continues more slowly.)

"This spatial segregation of rich and poor can become a breeding ground for misunderstanding and social unrest," said Prof. Van Ham.
This study compares the situation in 2001 to that in 2011 for thirteen European cities. It concludes that social mixing is declining in many areas. With some delay, socio-economic inequality is causing people in different income classes to live farther and farther away from each other.
"Recent riots in Paris, London and Stockholm cannot be considered separately from the concentrations of poverty in these cities," said Prof. Van Ham. "Our study demonstrates that this problem is growing."

Deindustrialisation is partly to blame. Most of the euro zone's 19 members have fewer manufacturing jobs than in 2008. Manufacturing employment is high in many of Europe's poorer countries, but they have lost international competitiveness in part because of an overvalued euro. Tight public spending also plays a role. Since 2008 the number of civil servants in the euro zone has fallen by about 6%. This has often hurt needy regions most. Cuts in welfare benefits also hit harder. A paper by Luca Agnello, Giorgio Fazio and Ricardo Sousa, three economists, found that austerity led to higher regional inequality in 13 European countries between 1980 and 2008.

The study argues that socio-economic segregation reduces the competitive power of cities. Middle-class residents who are able, tend to leave predominantly low-income neighborhoods. This accelerates the process of segregation, making cities more susceptible to social unrest and less attractive as areas for locating a business.

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