Abstract
The cohesiveness of constituent nations in a confederation such as the Eurozone depends on their equally shared experiences. In terms of household incomes, commonality of distribution across those constituent nations with that of the Eurozone as an entity in itself is of the essence. Generally, income classification has proceeded by employing “hard”, somewhat arbitrary and contentious boundaries. Here, in an analysis of Eurozone household income distributions over the period 2006–2015, mixture distribution techniques are used to determine the number and size of groups or classes endogenously without resort to such hard boundaries. In so doing, some new indices of polarization, segmentation and commonality of distribution are developed in the context of a decomposition of the Gini coefficient and the roles of, and relationships between, these groups in societal income inequality, poverty, polarization and societal segmentation are examined. What emerges for the Eurozone as an entity is a four-class, increasingly unequal polarizing structure with income growth in all four classes. With regard to individual constituent nation class membership, some advanced, some fell back, with most exhibiting significant polarizing behaviour. However, in the face of increasing overall Eurozone inequality, constituent nations were becoming increasingly similar in distribution, which can be construed as characteristic of a more cohesive society.
Highlights
As Milanovic (2011) observes, growing inequalities between states in federations such as the Eurozone can be seen as a catalyst for the deterioration of social cohesion and support for the Union’s institutions amongst its citizens
Measurements of aspects of wellbeing of the Eurozone as an entity in itself and of its constituent nations are regarded as basic information for evaluating the progress of the Eurozone toward greater social cohesion within and between its various constituencies (Brandolini 2007) and such measurements have become important in core European institutional documents and debates (Filauro 2017)
By employing mixture distribution techniques in a general euro area distribution, the number and size of groups or classes is determined by the commonalities in their income patterns and processes without resort to such hard boundaries
Summary
As Milanovic (2011) observes, growing inequalities between states in federations such as the Eurozone can be seen as a catalyst for the deterioration of social cohesion and support for the Union’s institutions amongst its citizens. By employing mixture distribution techniques in a general euro area distribution, the number and size of groups or classes is determined by the commonalities in their income patterns and processes without resort to such hard boundaries.2 This facilitates analysis of individual nation membership of income groupings and the progress of those nations through the overarching. Since it may be prudent to work with a simple ordinal classification that does not impute cardinal measure to wellbeing, a measure, the Utopia Index, that provides a complete cardinal ordering of wellbeing, the basis of comparison (class membership) is only an ordinal classification, has been developed and implemented These ideas are applied to an analysis of the Eurozone income distribution over the decade spanning 2006–2015. On the usefulness of mixture models for distributional analysis, see Cowell and Flachaire (2015)
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