Economists and sociologists have often adopted different approaches to measuring inequality. Drawing on a new study, Nicolas Duvoux, Adrien Papuchon and Senmiao Yang attempt to bridge this gap by analysing wealth and income distributions among occupational groups in five European countries

Duvoux, Nicolas

Papuchon, Adrien

Yang, Senmiao

English

LSE Research Online

Measuring	the	link	between	class	and	wealth	inEuropeEconomists	and	sociologists	have	often	adopted	different	approaches	to	measuring	inequality.	Drawing	on	a	newstudy,	Nicolas	Duvoux,	Adrien	Papuchon	and	Senmiao	Yang	attempt	to	bridge	this	gap	by	analysing	wealth	andincome	distributions	among	occupational	groups	in	five	European	countries.As	European	societies	attempt	to	recover	from	the	Covid-19	pandemic	and	endure	the	economic	shock	fromRussia’s	invasion	of	Ukraine,	socioeconomic	inequalities	have	never	been	more	relevant.	Yet	there	is	littleconsensus	on	how	best	to	measure	economic	inequality	in	the	realm	of	economics	and	sociology.Two	factors	that	have	traditionally	formed	the	focus	of	analyses	of	inequality	are	people’s	incomes	and	theiroccupations.	John	Goldthorpe’s	class	schema,	where	employment	relations	play	an	essential	role	in	socialcategorisation,	has	become	prevalent	in	sociological	reasoning	and	comparative	analysis	in	different	social,political,	and	cultural	settings.However,	since	its	publication	in	2014,	discussions	on	how	best	to	measure	economic	inequality	have	been	heavilyinfluenced	by	Thomas	Piketty’s	Capital	in	the	21st	Century.	Piketty	argues	that	wealth,	including	property,valuables,	and	other	financial	assets,	is	another	form	of	capital	that	is	far	more	unequally	distributed	than	income.From	this	starting	point,	he	aims	to	measure	the	share	not	only	of	income	but	also	of	wealth	held	by	the	top	10%and	1%	of	the	world’s	population.These	measures	allow	him	to	move	the	study	of	inequality	beyond	abstract	measures	such	as	the	Gini	coefficient.He	also	introduces	the	wealth-to-income	ratio	as	an	efficient	measurement	of	economic	inequality	in	differentcountries	over	the	long	term.	Wealth-inequality	dynamics	enable	him	to	put	forward	a	multidimensional	concept	ofclass,	where	various	dimensions,	such	as	education	and	occupation,	play	a	role	in	the	evolution	of	wealthinequality.Echoing	Piketty’s	reflections,	work	by	Mike	Savage	and	his	co-authors	has	used	UK	national	survey	data	to	provideimportant	methodological	improvements	for	wealth	inequality	analysis.	This	work	criticises	the	almost	exclusiveinterest	of	sociologists	in	occupations	and	further	broadens	our	understanding	of	how	economic	inequality	shouldbe	measured.Inequality	and	occupational	groupsIn	a	new	study,	we	seek	to	build	on	these	theoretical	and	methodological	legacies	to	bridge	the	gap	between	theconceptions	of	economists	and	sociologists	about	class	inequalities	in	Europe.	To	do	so,	we	use	cross-nationalsurvey	data	collected	by	the	European	Central	Bank	in	2014	as	part	of	its	Household	Finance	and	ConsumptionSurvey	(HFCS).One	of	the	key	questions	we	address	relates	to	occupational	groups	and	class.	Piketty	identifies	the	rise	of	a‘patrimonial’	middle-class	as	the	main	transformation	that	occurred	in	the	structure	of	European	societies	during	thetwentieth	century.	This	refers	to	those	in	the	50th	to	90th	percentiles	of	the	wealth	distribution.	Yet,	it	is	still	unclearwhich	occupational	groups	belong	to	this	class	and	which	do	not.Although	the	ECB’s	Household	Finance	and	Consumption	Survey	contains	data	from	20	European	countries,	wefocus	on	five	countries	that	are	representative	of	distinct	social	welfare	regimes:	Finland,	France,	Germany,	Ireland,and	Spain.Figure	1	below	illustrates	how	the	wealth-to-income	ratio	differs	in	these	countries	across	seven	occupationalgroups	(the	European	socioeconomic	groups	–	ESeG).	The	results	are	striking,	with	clear	divisions	existingbetween	small	entrepreneurs,	managers	and	professionals,	skilled	white	and	blue-collar	workers,	and	low-statusworkers	and	the	unemployed.Figure	1:	Median	total	net	wealth-to-income	ratio	by	European	socioeconomic	groupLSE European Politics and Policy (EUROPP) Blog: Measuring the link between class and wealth in Europe Page 1 of 4		Date originally posted: 2022-07-13Permalink: https://blogs.lse.ac.uk/europpblog/2022/07/13/measuring-the-link-between-class-and-wealth-in-europe/Blog homepage: https://blogs.lse.ac.uk/europpblog/Note:	The	figure	shows	household	net	wealth	expressed	in	number	of	years	of	household	current	gross	income.	The	vertical	lines	specify	the	95%	confidenceintervals.	The	figure	is	based	on	people	in	the	labour	force	aged	18	years	or	older	living	in	Finland,	Germany,	Ireland,	Metropolitan	France,	and	Spain.	Source:Household	Finance	and	Consumption	Survey,	wave	II.Small	entrepreneurs	possess	net	wealth	equivalent	to	5.5	years	of	accumulated	income,	while	the	figure	drops	toless	than	a	year	for	the	unemployed.	The	gap	between	small	entrepreneurs	and	top	wage	earners	is	also	large,with	the	latter	holding	net	wealth	equivalent	to	only	three	years	of	accumulated	income.	White-collar	workers	hold	arelatively	large	amount	of	net	wealth,	while	low-status	workers	and	the	unemployed	clearly	struggle	to	accumulatewealth	that	can	act	as	a	buffer	against	economic	uncertainty.Resilience	to	economic	shocksFrom	both	an	occupational	and	an	age	perspective,	which	groups	hold	a	sufficient	safety	net	of	accumulated	wealthto	protect	them	during	economic	shocks?	We	tried	to	evaluate	the	life-cycle’s	effect	on	wealth	accumulation	tosimulate	such	circumstances.	Our	results	are	shown	in	Table	1	below.Table	1:	Median	gross	disposable	wealth-to-income	ratio	during	economic	shocksNote:	The	figure	shows	how	accumulated	wealth	would	change	for	each	group	during	a	simulated	economic	shock.	Groups	with	a	median	gross	disposable	wealth-to-income	ratio	of	six	months	or	less	are	located	below	the	grey	cells;	groups	with	a	median	gross	disposable	wealth-to-income	ratio	higher	than	one	year	arelocated	above	the	grey	cells.	The	figure	is	based	on	people	in	the	labour	force	aged	18	years	or	older	living	in	Finland,	Germany,	Ireland,	Metropolitan	France,	andSpain.	Source:	Household	Finance	and	Consumption	Survey,	wave	II.It	turns	out	that	only	small	entrepreneurs,	as	well	as	elder	managers	and	professionals,	are	capable	of	sustainingeconomic	security	during	an	economic	shock	without	relying	on	public	safety	nets,	formal	or	informal	employmentsecurity,	and/or	familial	transfers.LSE European Politics and Policy (EUROPP) Blog: Measuring the link between class and wealth in Europe Page 2 of 4		Date originally posted: 2022-07-13Permalink: https://blogs.lse.ac.uk/europpblog/2022/07/13/measuring-the-link-between-class-and-wealth-in-europe/Blog homepage: https://blogs.lse.ac.uk/europpblog/Similar	to	Figure	1,	there	is	a	clear	divide	between	the	groups	shown	in	the	table.	Our	findings	indicate	that	acrossthe	five	different	countries	we	studied,	class	inequalities	represented	in	wealth	accumulation	gaps	might	increaseone’s	exposure	to	economic	precarity,	especially	for	younger	generations	and	those	with	a	vulnerable	or	unstableemployment	status.Differences	between	countriesMost	countries	in	the	sample	followed	the	structure	identified	above	but	there	were	three	distinct	patterns	when	thecountries	were	compared	with	each	other.	As	shown	in	Figure	2	below,	Finland,	France,	and	Germany	wereconsistent	with	the	structure	identified	above;	Ireland	showed	a	relatively	lower	median	wealth-to-income	ratio	thanthe	rest;	and	Spain	had	a	median	wealth-to-income	ratio	that	was	far	higher	than	the	other	countries,	as	well	aslower	intergroup	inequality.Figure	2:	Total	net	wealth-to-income	ratio	by	European	socioeconomic	group	and	countryNote:	Household	net	wealth	expressed	in	number	of	years	of	household	current	gross	income.	The	vertical	lines	specify	the	95%	confidence	intervals.	The	figure	isbased	on	people	in	the	labour	force	aged	18	years	or	older	living	in	Finland,	Germany,	Ireland,	Metropolitan	France,	and	Spain.	Source:	Household	Finance	andConsumption	Survey,	wave	II.Levels	of	disposable	wealth	and	home	ownership	help	explain	these	differences.	In	Ireland,	there	is	a	high	rate	ofhome	ownership,	defined	as	ownership	of	a	‘household’s	main	residence’	(or	HMR),	yet	the	country	also	has	a	lownet	wealth-to-income	ratio.	This	does	not	result	from	Ireland	having	relatively	high	household	incomes	incomparison	to	the	other	four	countries,	but	rather	from	high	debt	levels.On	the	contrary,	Spain,	which	has	a	much	lower	household	income	but	a	higher	net	wealth-to-income	ratio,	hasextensive	home	ownership	across	all	social	classes.	Spain	also	has	high	levels	of	private	debt.	The	debt-to-incomeratio	is	substantially	higher	for	blue-collar	workers,	low-status	workers	and	the	unemployed	than	it	is	for	top	wageearners.	This	could	put	these	groups	in	a	vulnerable	position	if	a	future	economic	crisis	rocks	the	real	estate	market.An	uncertain	futureThe	future	that	emerges	from	Thomas	Piketty’s	work	is	one	of	a	class-structured,	neo-Victorian	society	that	isdominated	by	the	unearned	wealth	of	a	hereditary	elite	and	a	patrimonial	middle	class.	Our	findings	appearconsistent	with	this	as	we	identify	three	distinct	class	clusters,	each	following	highly	unequal	wealth	accumulationpaths.Our	analysis	suggests	European	societies	are	currently	divided	between	those	who	have	substantial	wealth,	thosewho	aspire	to	have	wealth	(the	middle	and	working	classes),	and	those	who	lack	wealth	entirely.	Wealth	is	not	onlya	criterion	of	privilege	but	also	acts	as	a	buffer	against	insecurity.	The	destabilisation	of	labour	markets	caused	bythe	rise	of	the	gig	economy	is	a	further	source	of	precarity,	particularly	among	younger	generations.LSE European Politics and Policy (EUROPP) Blog: Measuring the link between class and wealth in Europe Page 3 of 4		Date originally posted: 2022-07-13Permalink: https://blogs.lse.ac.uk/europpblog/2022/07/13/measuring-the-link-between-class-and-wealth-in-europe/Blog homepage: https://blogs.lse.ac.uk/europpblog/For	all	these	reasons,	wealth	inequality	clearly	matters	for	European	societies.	The	great	mystery	is	not	whether	thepersistent	widening	of	interclass	wealth	gaps	will	have	an	impact	on	our	future,	but	why	there	is	such	a	lack	ofinterest	among	policymakers	in	establishing	a	strategic,	systemic,	and	structural	response	to	it.For	more	information,	see	the	authors’	accompanying	paper	in	the	European	Journal	of	SociologyNote:	This	article	gives	the	views	of	the	authors,	not	the	position	of	EUROPP	–	European	Politics	and	Policy	or	theLondon	School	of	Economics.	Featured	image	credit:	Anthony	Tyrrell	on	Unsplash		LSE European Politics and Policy (EUROPP) Blog: Measuring the link between class and wealth in Europe Page 4 of 4		Date originally posted: 2022-07-13Permalink: https://blogs.lse.ac.uk/europpblog/2022/07/13/measuring-the-link-between-class-and-wealth-in-europe/Blog homepage: https://blogs.lse.ac.uk/europpblog/

Measuring the link between class and wealth in Europe

http://eprints.lse.ac.uk/115820/1/europpblog_2022_07_13_measuring_the_link_between_class_and_wealth_in.pdf

Measuring the link between class and wealth in Europe

Abstract

Similar works

Full text

Available Versions

LSE Research Online