Study shows little earnings inequality gap between North America and Europe

Sep 18, 2012

One year ago today, the Occupy Wall Street movement pushed earnings inequality to the forefront of global politics. With the protest still roaring, most studies suggest that earnings inequality is far greater in North America than in Europe, but is this really the case? 

According to new research from Western's CIBC Centre for Human Capital and Productivity, the answer depends on how earnings inequality is defined and the measures used to explore it.

In a policy brief, titled Think Inequality is Higher in North America than in Europe? Think Again, CIBC Centre Fellow Audra Bowlus and co-author Jean-Marc Robin, an economics professor at Sciences Po, Paris and University College London, present findings which show by examining a potential earner's lifetime earnings compared to evaluating a single year of his her or her earnings, the inequality between North America and Europe greatly diminishes.

More importantly, the study suggests policy changes aimed at helping unemployed workers find employment more quickly and/or reductions in employment regulation may reduce lifetime earnings inequality in .

This video is not supported by your browser at this time.
Think inequality is higher in North America than Europe? Think again.

Bowlus and Robin specifically compared lifetime versus one-year earnings for workers in Canada, the United States, the United Kingdom, France and Germany. 

"There was an that there was a lot more earnings mobility in North America than there was in Europe and this would allow for a reduction in the differences between the if one took a lifetime measure," explained Bowlus, who also serves as chair of Western's Department of Economics.

"Most cross-country studies use a current year or single-year measure of earnings inequality. We are looking at a lifetime measure, which, for our purposes, is the average of earnings for each individual over their working lifetime. This allows us to incorporate movements in earnings over the lifetime rather than just looking at one year."

Bowlus said one of the strengths of the CIBC research is the inclusion of employment risk.

"In countries like Canada and the U.S., people in all parts of the earnings distribution are subject to employment risk," said Bowlus. "Yes, they can become unemployed, but they tend to be unemployed for  short periods of time and they come back into all parts of the distribution, so once you average it out, across their lifetime, it has little effect on inequality.

"By comparison, European countries tend to have more generous unemployment insurance policies than those in North America so workers could be out of employment for up to two years. The difference is when they come back, they return to the bottom of the earnings distribution and this has a very large impact on average earnings over their drawing down those earnings in the distribution making inequality grow."

Explore further: Industrial clusters fuel economies, according to study

add to favorites email to friend print save as pdf

Related Stories

Female directors help to boost earnings quality

Aug 04, 2011

Prof. Judy Tsui, PolyU’s Vice President (International and Executive Education), Director of the Graduate School of Business and Chair Professor of Accounting, Prof. Ferdinand A. Gul, Chair Professor of Accounting and ...

How far does the apple fall from the tree?

Jan 25, 2008

Australians have a greater chance of rising up the income ladder over generations than Americans do, according to new research from The Australian National University.

Recommended for you

Industrial clusters fuel economies, according to study

3 hours ago

Experts have long theorized that having a cluster of firms within a given industry helps a region's economy grow. Now a study co-authored by an MIT professor shows empirically that clusters of almost all ...

Economic output less dependent on road transportation

3 hours ago

For the past 10 years, motorization in the U.S. has been on the decline, due mainly to more telecommuting, greater use of public transit, increased urbanization of the population and changes in the ages of drivers.

Economist outlines work on managing tasks and time

Dec 17, 2014

"When a man knows he is to be hanged in a fortnight," said Samuel Johnson, "it concentrates his mind wonderfully." Most of us, spared such an imperative, carry on in a less-concentrated state, but it holds ...

Companies do not use online HRM effectively

Dec 15, 2014

Professor Tanya Bondarouk of the University of Twente thinks it's embarrassing : many companies and organizations are still not making effective use of e-HRM systems. These online systems can be used for a wide range of HRM-related ...

User comments : 1

Adjust slider to filter visible comments by rank

Display comments: newest first

rwinners
not rated yet Sep 18, 2012
How about breaking down the numbers to specific countries.. and states in the US? I mean, NA and Europe are far to diverse to make this comparison meaningful.

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.