Inequality Map European Countries: The regional economic divergence has become a threat to economic progress, social cohesion, and political stability in Europe.
“Regional inequality is proving too politically dangerous to ignore”
– The Economist,
Inequality among cities and regions in the developed world – after falling in the 1990s from high levels in 1980 – has turned sharply up again since the beginning of the millennium. Many small and medium-sized manufacturing cities and regions have suffered relative employment and income declines. Their surrounding suburban or rural areas have also stagnated. In contrast, many large metropolitan areas, including their suburbs, which had generally witnessed a decline in the 1960s to 1980s, are now among the most dynamic places in terms of incomes and employment creation.
In Europe, in particular, the panorama is complex. On the one hand, the increasingly familiar dichotomy persists between dynamic large urban agglomerations and decaying industrialized and remote regions. Many industrial and/or peripheral regions have undergone a steady long-term decline in employment and competitiveness, whereas the inner areas of some large metropolitan regions have gained greater shares of high-wage jobs.
On the other hand, a number of capital metro regions have been hard hit by the crisis, while some rural and intermediate regions have displayed more resilience (Dijkstra et al. 2015). The result is a finely grained, multi-scale territorial patchwork of diverging real incomes and rates of labor force participation: between states and regions; within regions, between core areas and peripheral areas; and between prosperous metropolitan regions and less prosperous ones.
The Inequality Map European Countries
Increasing inter-regional inequality is the outcome of two forces. The first is related to the long-cycle of development in the economic structure. The major wave of technological innovation that began in the 1970s has stimulated the concentration of high-technology and knowledge-intensive sectors in large metropolitan areas, favoring the mobility of highly-skilled, non-routine and creative jobs towards economic cores.
The increasing automation of previously dominant manufacturing industries has revolutionised trade costs and resulted in the substitution of routinised medium- and low-skilled jobs in most of the former industrial hubs of Europe. Manufacturing activity has become more geographically dispersed – and increasingly outsourced to third countries – leading to the demise of the more routine industry jobs across most of Europe. The second type of force is the long-cycle of regional evolutionary features, consisting of place-specific endowments of people and skills, firms and industries, formal and informal institutions, capabilities for innovation, and their reaction to change (Storper 2018).
The rise in inequality has put Europe in a territorial conundrum. On the one hand, Europe must continue to sustain the prosperity of its most dynamic regions in order to assert its economic stand in the world. On the other, persistent territorial inequality is economically inefficient and, in the words of The Economist, has become too politically [and socially] dangerous to ignore. In a recent paper, we look at how to address this conundrum (Iammarino et al. 2018).
Evidence: Economic ‘clubs’ of Europe’s regions
The interaction of economy-wide forces and regional characteristics creates a geography made up of countries, regions, and city-regions that are at different structural positions in the wider economy’s ladder of roles and functions (Scott and Storper 2003) and form different development ‘clubs’.
Club theory addresses the uneven pattern of development and the core questions of sustaining prosperity in leading regions while enhancing it in other regions. It is a way of generating powerful insights into development and a distinctive perspective on policy.
European regions can be allocated into different economic clubs, depending on their level of development: regions with very high per capita personal income (PCPI) (very high); regions with high PCPI (high); regions with medium PCPI (medium); and those with low PCPI (low) (Figure 1).
Figure 1 The economic development clubs of European regions
The very-high (VH) income club is dominated by large metropolitan and capital city-regions and includes several additional areas, generally highly urbanised in the form of a network of cities (e.g. Randstad in Holland), specialised in high-quality goods and services. Many of these regions are attracting population and have high productivity growth.
Regions in this club tend to be ‘overperformers’ – over the long-term they outperform their national average – generating more than their share of European wealth (Figure 2).
Figure 2 Over-performers and underperformers, 2001-2013
The high-income (H) club shares many, but not all, characteristics with the VH group. These regions are less metropolitan or city-centred and somewhat less dynamic demographically. Their employment rates are high and many have satisfactory productivity growth.
The medium-income (M) club is vast and comprises most parts of northwestern Europe that remain outside the VH and H clubs. There are two broad sub-groups within this category. The largest covers regions that have lost manufacturing jobs, which is reflected in stagnant or declining employment rates.
Population growth is low or even negative in some of these regions, so unemployment rates vary. Education levels – attainment of secondary and tertiary education – are below those of the H and VH clubs. Overall, these are economically fragile regions, displaying a combination of declining manufacturing, unsatisfactory attainment of education and skills, and inadequate labor-force participation. The second sub-group stands out because it is experiencing population growth.
In-migration brings income (via people-based fiscal transfers in the form of pensions and health benefits), and spending has a local multiplier effect, mainly in the demand for services. Labor-force participation, however, remains low. More importantly, the types of employment stimulated, in mostly non-tradeable local services, involve limited skill development, innovation potential, and exportability.
The low-income (L) club consists of large swathes of eastern and southern Europe. These regions share some common characteristics in terms of low employment rates and poor quality of government, low investment in R&D and a relative lack of accessibility. They have also experienced divergent economic trajectories in recent years. This has led the European Commission (2017) in its Lagging Regions report to distinguish between ‘low-income’ and ‘low-growth’ regions.