UNITED NATIONS ECONOMIC COMMISSION FOR EUROPE

Growth with Equity: Trends and Challenges in the ECE Region

Ján KubišUNECE EXECUTIVE SECRETARY

New York3 November 2010

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Long-run Trends in Inequality

• Over the last two decades inequality has been increasing throughout much of the world

• This has been true in the three regions of the ECE – North America, Western Europe and the European Emerging Economies of East, Central, and Southeast Europe, the Caucasus, and Central Asia

• This has been due to changes in technology, globalization and government policy

• Inequality has several dimensions including: the overall income distribution, by gender, ethnic groups, by geographical regions, and intergenerational

• Although inequality has increased, in the ECE the poorest have been generally protected

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Inequality in the ECE Region

• Despite the trend towards higher inequality, the ECE region still has less inequality than most other regions of the world

• Inequality in the US is generally higher than in Western Europe

• Inequality in the UK and continental Europe is higher than in the Nordic economies

• The Nordic economies are generally considered as being the most successful economies in the world in terms of achieving equity with growth

• Inequality in the European Emerging economies varies considerably

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Government Policy and Equity

• There are two competing social models in the ECE• A “free market or American” model which emphasizes

equality of opportunity, market provision of services, limited labor market regulation, and a safety net limited to the poorest

• A “European or social” model which emphasizes social cohesion, equality of outcomes, universal provision of health, education and other public services, labor market regulation, and generous social transfers

• Over the last two decades there has been a move from the European model to the American model under the belief that this will promote faster economic growth

• How successful this transition has been in terms of increasing growth is debatable, but it has resulted in a general increase in inequality

Relative poverty in America and Europe, mid-2000sShare of population with less than 60% of median disposable income

0

5

10

15

20

25

30

35

United States European Union

Pe

r c

en

t

Before transfers After transfers

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Markets are not enough

Social transfers and poverty, mid-2000s

5

10

15

20

25

30

12 14 16 18 20 22 24 26 28

Social transfers (% of GDP)

Sh

are

of

po

pu

lati

on

wit

h le

ss

th

an

6

0%

of

me

dia

n in

co

me

HUNGARY

F

GERMANY

POLAND

I

UNITED STATES

CZECH REPUBLIC

TURKEY

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Inequality in the Transition Economies

• With the economic collapse in the transition economies in the early 1990s, inequality increased significantly and social and health indicators declined significantly

• The initial increases in inequality were largest in the most negatively impacted economies of the CIS with more moderate increases in the new EU member states

• Since the late 1990s until 2008 sustained economic growth allowed the increases in inequality in the CIS to be partially reversed

• Nevertheless large disparities continue to persist in many of the transition economies and many health and social indicators are inadequate

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Gini Index in the European Emerging Economies

A larger index number means higher inequality

High inequality declines somewhat in CIS economies

0

10

20

30

40

50

60

Estonia

Bulgar

ia

Hungary

Latvi

a

Poland

Roman

ia

Slove

nia

Armen

ia

Azerb

aija

n

Belar

us

Georg

ia

Kazak

hstan

Kyrgyz

stan

Mold

ova

Russia

Ukrai

ne

Uzbek

ista

n

Alban

ia

Croat

ia

Mac

edonia

, FYR

Turkey

Gin

i co

effi

cien

t (%

)

mid-1990s mid-2000s

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Major Challenges in Improving Equity in the Transition Economies

• Promoting equity requires a strong, efficient government while governmental institutions in many of the transition economies are weak and inefficient

• It is difficult to provide social protection to those working in the informal sector and living in informal settlements and these groups are often quite large

• Natural resource economies often do not have a production structure which provides large numbers of stable well-paid jobs– However, resource-rich economies do provide governments with

revenues that can be used to finance public services and social transfers; the sustainability of this depends on high oil price

• Migrant populations are often poor and receive limited social protections and benefits

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The Importance of Perceived Fairness in Assessing Equity

• How a society views the inequities within it can be as important as the actual level of the inequities

• For example, although income inequality is higher in the US than Western Europe, it is generally viewed by the US population as less of a problem than in Europe

• Although income inequality is not particularly high in many of the transition economies compared to other emerging economies, because of cultural beliefs developed under Communism, the sense of unfairness is quite high in the transition economies

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The Impact of the Financial Crisis on Equity

• The ECE region was the hardest hit region in the world; most economies other than those in Central Asia experienced negative growth in 2009

• It will be 2011 before most economies return to their 2008 levels of GDP; unemployment may not fall to 2008 levels until 2013 or beyond

• As a result poverty has increased in most economies and social and health indicators have declined

• Achieving a number of the MDGs now appears problematic

• The need for fiscal retrenchment throughout the region means that social programs will have to be cut back for years to come

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Improving Gender Equality• Progress in most ECE countries has been achieved in:

– Women’s participation in the labour market– Women’s political participation at local levels– New and strengthened legislation for gender equality – Institutional mechanisms on gender equality and women’s

empowerment

• Key challenges for gender equality remain in the following areas:– The gap between legislation and implementation– Decent work for women and measures to counteract labour market

segregation – The gender pay gap – The situation of migrant women and women belonging to minority

groups– The persistence of gender stereotypes, especially in media and

education– Insufficient availability of sex-disaggregated data and gender-

sensitive indicators

Gender discrimination in the labour marketGender pay gap by subregion, 2008 or latest available year (per cent)

05

101520253035404550

GEO AZE

TJK

ARM

RUS

KAZ

KGZ

BLR

UKR

MDA

ALB

MKD

HRV SRB

TUR

EST

CZE

SVK

LTU

POL

BGR

LVA

ROM

HUN

SVN

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Ethnic and Geographical Inequality• Minority groups in many of the ECE economies

often have significantly higher levels of poverty and face other forms of social exclusion– Dicrimination often exists even when there is no

government policy against minorities – Differences between ethnic groups have often led to

conflict– Affirmative action for minorities may be effective if

properly implemented – Active labor market policies and targeted educational

programs have been effective

• Income differences across geographical sub-regions within countries are often quite large – Poverty is usually much higher in rural areas– Regional development strategies have often been

successful in addressing regional disparities

Inequitable access to educationProportion of young women (25-34) with at least upper

secondary education

0102030405060708090

100

Bulgaria Hungary Romania

Per

cen

t

Majority Roma

Social exclusion in the labour marketEmployment rate of young women (25-34)

0

10

20

30

40

50

60

70

Bulgaria Hungary Romania

Per

cen

t

Majority Roma

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Intergenerational Equity

• Intergenerational equity is often considered to be a major defect of democratic societies since future generations do not have a vote

• There are a number of intergenerational issues of major importance for the ECE region

• Provision and financing of age-related pensions and health care

• All of the ECE economies except for those in Central Asia face a demographic aging problem

• Although provision of pensions is well-developed their financing has not been adequately addressed

• Excessive carbon emissions and the resulting climate change may be the result of an excessive discounting of the interests of future generations

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Policy Directions for Growth with Equity

• Integrated policy framework– Balance between macroeconomic, structural and

social policies– Synergies between growth, employment, improved

education and healthcare, and environmental sustainability

• Gender equality policies – Cross-cutting effects on all social sectors

• Review of fiscal policies– Income redistribution and fiscal space for social

protection

• Better data on disadvantaged population groups– Essential for monitoring the impact of pro-poor

policies

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THANK YOU