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The Journal of Economic Inequality

, Volume 17, Issue 3, pp 337–357 | Cite as

Demographic change and the European income distribution

  • Mathias Dolls
  • Karina DoorleyEmail author
  • Alari Paulus
  • Hilmar Schneider
  • Eric Sommer
Open Access
Article

Abstract

This paper assesses the effect of key demographic changes (population ageing and increasing educational attainment) that are expected by 2030 on the income distribution in the EU-27 and examines the potential of tax-benefit systems to counterbalance negative developments. Theory predicts that population ageing should increase income inequality, while the effect of upskilling is more ambiguous. Tax-benefit systems may stabilize these expected changes though this is largely an empirical question given their typically complex nature. We use a decomposition technique to isolate the effect of projected demographic change on income inequality and poverty from the reaction of the labor market to this demographic change through wage adjustments. Our results show that demographic change is likely to lead to increasing inequality while related wage adjustments work mainly in the opposite direction. Changes to projected relative poverty are minimal for most countries. With a few exceptions, EU tax-benefit systems are able to absorb most of projected increase in market income inequality.

Keywords

Income distribution Demography Labor market Decomposition 

Notes

Acknowledgements

This paper is funded by the EU FP7 project ‘Employment 2025: How will multiple transitions affect the European labour market (NEUJOBS)’ (under grant agreement 266833) and Economic and Social Research Council (ESRC) through the Research Centre on Micro-Social Change (MiSoC) at the University of Essex, grant number ES/L009153/1. The process of extending and updating EUROMOD is financially supported by the European Commission [Progress grant no. VS/2011/0445] and we would like to thank all past and current members of the EUROMOD consortium. We use microdata from the EU Statistics on Incomes and Living Conditions (EU-SILC) made available by Eurostat under contract EU-SILC/2011/55 and (for the UK) the Family Resources Survey data made available by the Department of Work and Pensions via the UK Data Archive. The authors alone are responsible for the analysis and interpretation of the data reported here.

Supplementary material

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© The Author(s) 2019

Open Access This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made.

Authors and Affiliations

  1. 1.Ifo InstituteMunichGermany
  2. 2.IZA BonnBonnGermany
  3. 3.ESRI DublinDublinIreland
  4. 4.ISERUniversity of EssexColchesterEngland

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