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Why US Inequality Is Higher Than Europe’s

Since 1980, income inequality has exploded in the United States, while remaining much less extreme in Europe. Yet each side of the Atlantic could learn from the other in tackling the problem, which is as much about predistribution policies as it is about redistribution.

PARIS – Europe’s political forces are divided between those who regard the European Union as promoting unfair, inefficient neoliberal economic policies, and those who see the bloc as key to preserving the relatively equitable and inclusive “European social model.” Yet the recent European Parliament election featured little debate about this model, and generated few ideas for what policymakers should do to tackle income inequality across the continent.

That is a pity. Comparisons of income growth and inequality in Europe and the United States over the past four decades have yielded important new insights into why incomes are far more evenly distributed in Europe than in America, and about what each side of the Atlantic could learn from the other.

Overall, US incomes have grown faster than those in Europe over the past 40 years. Between 1980 and 2017, average national income per adult grew by 65% in the US, compared to 51% in Europe. The difference largely (though not entirely) reflects the EU’s failure to coordinate a continent-wide economic stimulus following the 2007-2008 financial crisis. Compared to Western Europe, which subsequently suffered a lost decade (2007-2017) in which average national income per adult grew by less than 5%, the US grew five times faster.