Inequality in the Western Balkans and former Yugoslavia

Will Bartlett

Visiting Fellow, LSEE & International Inequalities Institute

International Inequalities Institute project: Specific research questions

Together with Gorana Krstic, Jelena Zarkovic Rakisand Nermin Oruc – research questions:

1. What is the extent of income inequality in four Yugoslav successor states, and how much has it changed over the last three decades?

2. What factors determine the level of labour income inequality?

3. What has been the role of different welfare policies in determining the pattern of earnings inequalities?

Welfare system before breakup

• Yugoslav market socialism aimed to reconcile efficiency and equity through “self-management” (workplace democracy) and social ownership

• Adopted an inclusive welfare system based upon mixed principles of contribution and solidarity– combining Bismarckian and Universal systems– major benefits provided on contributory basis (pensions,

health care, unemployment and maternity benefits)– Non-contributory cash benefits (social assistance, child

allowance, war veterans’ benefits)

• All this led to low levels of inequality – In 1968, standardised household income Gini = 0.24

Varieties of capitalism (VoC) in Yugoslav successor states

• Successor states emerged from common institutional background– Path dependency, but:

• Different effects of wars and conflicts• Differences in pace and pattern of privatisation

– Speed of reforms• Early reformers: Croatia and Macedonia• Late reformers: Slovenia and Serbia

• Impact of neo-liberal agenda on welfare reform varied between countries– Primary influence of World Bank and IMF (Bosnia, Serbia), EU

(Slovenia, Macedonia), mixed influences (Croatia)

• Quite different outcomes in terms of inequality• Can VoC paradigm explain this outcome?

– Coordinated market economies versus Liberal market economies

European Values Survey: % of respondents with much confidence in trade unions

12

18

34

53

0

10

20

30

40

50

60

Serbia Croatia Macedonia Slovenia

Gini coefficient of equivalised disposable income before pensions and social transfers

40.443.944.444.9

46.147.447.647.948.048.148.648.749.149.149.349.950.250.851.151.551.651.751.8

53.253.7

55.456.456.7

60.762.4

64.1

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0

SlovakiaSlovenia

MaltaCzech

NetherlandsFinlandAustriaPoland

BelgiumLuxembourg

ItalyMacedonia

EstoniaLatvia

CroatiaCyprusFrance

SpainIreland

HungaryBulgaria

DenmarkEU-28

RomaniaLithuania

UKGermany

SwedenGreeceSerbia

Portugal

Quantity of employment

• In Serbia, Krstić (2014) using SILC survey data concluded that inequality of incomes of employees is related to:– Quantity and quality of employment

• In Serbia, 18.2% of persons live in households with very low work intensity (10.5% in EU)– Almost 50% of persons in lowest income quintile live

in households with very low work intensity– Related to low participation rate of working age

population due to unemployment and retirement and other reasons

People living in households with very low work intensity (aged 0 to 59 years)

5.76.66.86.97.1

7.47.87.9

8.28.68.7

9.29.29.4

9.810.2

10.710.810.910.9

11.611.611.711.9

14.414.9

15.416.8

17.419.2

21.2

0 5 10 15 20 25

Estonia Czech

Poland Slovakia Slovenia

Latvia Romania

Austria France

Sweden Malta

Lithuania Hungary

Germany Netherlands

EU-28 Finland

Portugal Cyprus

Denmark Bulgaria

Italy UK

Croatia Belgium

Spain Greece

Macedonia Ireland Serbia

Low work intensity and Gini inequality

Croatia

Macedonia

Serbia

Sloveniay = 0.3663x + 26.773

R² = 0.1128

20

22

24

26

28

30

32

34

36

38

40

5 7 9 11 13 15 17 19 21 23

Gin

i co

effi

cie

nt

% of people living in households with very low work intensity

Quality of employment

• In Serbia, three quarters of employed poor do not live in households with low work intensity (Krstić, 2014)– So, low quality of employment contributes to poverty and inequality

• In 2014, 12.9% of employed were part-time workers, 24.1% were self-employed, and 18.2% were temporary workers– Self employed and part-time workers are most exposed to poverty

risk

• Many of the self-employed are informal workers who are outside the social protection system– 22% of employees are informal workers, earning 22% less than formal

workers (Krstić & Sanfey 2011)

• One third of part-time workers are poor, compared to 13% of full time workers– Many part-time workers are in the informal sector, as working part-

time in the formal sector faces very high marginal tax rates due to low progressivity of the Serbian tax system

– In contrast, Slovenia has a progressive system of personal income tax

Own account workers % of total employment

8.5 8.9

13.9

22.2

0

5

10

15

20

25

Croatia Slovenia Macedonia Serbia

Redistributive impact of pensions and social assistance on Gini inequality

24.5

30.4

31.0

33.7

38.2

0 10 20 30 40 50 60 70

SlovakiaSlovenia

CzechFinland

BelgiumNetherlands

SwedenAustria

DenmarkMalta

HungaryLuxembourg

FranceIreland

GermanyCroatiaPolandEU-28

ItalyUK

CyprusMacedonia

PortugalGreece

SpainEstonia

LatviaBulgaria

RomaniaLithuania

Serbia

Gini before SA + P Gini before SA Gini EDI

Linear (Gini EDI) Linear (Gini before SA) Linear (Gini before SA + P)

Gini coefficients in ex-Yugoslavia & EU (%)

52

44

49 49

62

37

30

37 36

46

31

25

3034

38

0

10

20

30

40

50

60

70

EU-28 Slovenia Croatia Macedonia Serbia

Gini before SA + P Gini before SA Gini EDI

Redistributive impact of pensions and social transfers

20.8

19.418.9

15.0

24.2

15.3

13.612.5 12.5

16.6

5.5 5.86.4

2.5

7.6

0

5

10

15

20

25

EU-28 Slovenia Croatia Macedonia Serbia

Effect of social transfers and pensions Effect of pensions Effect of social transfers

Rank order of redistributive effort from pensions and social assistance

2

1213

15

28

30

3

15

24

19

14

31

2

22

26

16

7

31

0

5

10

15

20

25

30

35

Slovenia Macedonia Estonia Croatia Sweden Serbia

Before pensions or social transfers After pensions before social transfers After pensions and social transfers

S80/S20 equivalised disposable income share ratio, 2015

3.53.53.63.6

3.83.8

4.04.14.14.24.34.34.3

4.54.84.9

5.25.25.25.2

5.86.0

6.26.56.56.6

6.97.1

7.58.3

9.0

0 1 2 3 4 5 6 7 8 9 10

CzechSlovakiaSloveniaFinland

BelgiumNetherlands

AustriaDenmark

SwedenMalta

FranceLuxembourg

HungaryIreland

GermanyPolandEU-28

CroatiaCyprus

UKItaly

PortugalEstoniaGreece

LatviaMacedonia

SpainBulgaria

LithuaniaRomania

Serbia

Share of equivalised disposable income by each decile income group, 2015

20.2

22.6

23.9

27.2

0

5

10

15

20

25

30

1 2 3 4 5 6 7 8 9 10

Slovenia

Croatia

Macedonia

Serbia

Income shares of upper, middle and lower class after pensions and social transfers (% of national equivalised disposable income)

33.833.233.132.832.732.131.931.731.7

30.830.730.630.6

29.729.629.329.128.928.228.027.627.226.826.526.326.125.725.524.724.624.0

47.046.6

45.046.247.3

45.547.4

46.045.646.846.746.8

44.846.847.1

46.946.948.5

46.648.0

45.246.747.949.6

48.948.4

48.046.348.2

46.748.8

19.320.2

21.721.020.1

22.320.8

22.322.622.422.722.5

24.623.623.323.924.122.6

25.224.1

27.226.125.323.9

24.825.626.3

28.427.1

28.827.2

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

SlovakiaSlovenia

Czech RepublicFinland

SwedenNetherlands

BelgiumAustria

DenmarkHungary

LuxembourgMalta

FranceGermany

IrelandPoland

EUCroatia

UKItaly

CyprusPortugal

GreeceMacedonia

SpainEstonia

LatviaBulgaria

RomaniaLithuania

Serbia

Lower class (bottom 50%) Middle class (40%) Upper class (top 10%)

Variation of income shares• Income shares of the

middle class are much less variable than of the lower or upper classes

• Middle classes are protected by their “sharp elbows” or “voice”

• Upper classes in predatory societies extract surplus from the lower classes

• Easier to do where political power is concentrated in economic-political elite

S.D Mean C.V

Lower

class2.836 29.145 0.097

Middle

class1.157 47.006 0.025

Upper

class2.420 23.871 0.101

S.D.= Standard deviation

CV = Coefficient of variation

Shares of disposable income gained by top 1% (% of national equivalised income), 2015

3.33.4

3.83.9

4.04.04.0

4.14.2

4.34.3

4.44.54.5

4.74.7

4.84.8

4.95.25.25.2

5.55.6

5.86.0

6.46.5

7.17.5

8.3

0 1 2 3 4 5 6 7 8 9

SlovakiaSlovenia

CroatiaMacedonia

BelgiumMalta

FinlandCzech

SwedenEstonia

HungaryPolandIreland

SpainItaly

AustriaLatvia

NetherlandsLuxembourg

EU-28GermanyPortugal

FranceGreece

DenmarkUK

BulgariaSerbia

LithuaniaCyprus

Romania

Why does inequality differ between countries of former Yugoslavia?

• Explanation 1: Varieties of capitalism and paths of transition– The gradual corporatist Slovenian transition was egalitarian, while the

delayed shock therapy neoliberal Serbian transition was more extractive of the surplus from lower class workers generating relatively high levels of poverty

• Explanation 3: Labour market institutions– Differences in the quantity and quality of jobs may contribute to an

explanation of the differences in inequality between these countries– Linked to degree of resistance to labour market reforms– And to progressivity or regressivity of tax system and consequent

extent of informality

• Explanation 2: Elite composition and forms of political capitalism– The Slovenian elite was formed of ex-nomenklatura elements who

resisted reforms, while the Croatian elite was reconstituted by members of the HDZ party and the diaspora who supported rapid but incomplete privatisation

Thank you for your attention !!!