Inequality and Unemployment Patterns in Europe: Does Integration Lead to (Real) Convergence?
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The economic convergence criteria adopted in the Maastricht Treaty and the fiscal discipline of the Stability and Growth Pact enforced nominal convergence, leaving aside real convergence indicators. In this paper, we use cluster analysis to examine the convergence patterns of income inequality, absolute redistribution (a measure of governments’ effectiveness in correcting for inequality) and unemployment. The expected outcome after years of economic integration was, ex-ante, convergence to a single cluster. Our results, however, uncover a variety of groups, implying that economic integration has not led to real economic convergence. Moreover, the existence of different patterns suggests: (i) that traditional classifications (Anglo-Saxon, Continental European, European Periphery, and Nordic models) remain broadly valid; (ii) that there is no unemployment-inequality trade-off to be exploited in terms of economic policy; and (iii) that the redistributive capacity of governments plays a pivotal role in coping with inequality without negative effects in terms of unemployment.
KeywordsEurope Convergence Clusters Unemployment Inequality Redistribution
JEL classificationC33 D63 F15
We acknowledge constructive comments received from an anonymous referee. Javier Ordóñez is member of the INTECO research Group and gratefully acknowledges the support from the Generalitat Valenciana Project PROMETEOII/201/053 and AICO/2016/38, Spanish Ministry of Economy, Industry and Competitiveness project ECO2017-83255-C3-3-P and the UJI project UJI-B2017-33. Hector Sala is grateful to the Spanish Ministry of Economy and Competitiveness for financial support through grant ECO2016-75623-R.
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