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Economic

inequality
in the Netherlands
in 8 figures
1 Compared with other countries, income
inequality is relatively low in the Netherlands

Economic inequality is high on the The degree of inequality in the income distribution – measured using the Gini-
coefficient – varies widely from country to country, as figure 1 illustrates. If we look
international political and academic
at the oecd statistics, the Netherlands occupies a middling position in Europe. It is
agenda. How does the Netherlands not so unequal as the us or the uk, but is more unequal than countries which the
perform in terms of economic Netherlands often regards as its ‘equals’, such as Denmark or Belgium. If we look
inequality and its consequences? at the most recent figures from the leading cross-national data centre Luxembourg
Income Study (lis), income inequality in the Netherlands is relatively low.
And what might be done to improve
that performance? These questions
are addressed in this factsheet in
8 figures. Figure 1: Income inequality in different countries: disposable household incomes,
measured using the Gini-coefficient, 2010

Gini-coefficient oecd Gini-coefficient lis


0.40

0.35

0.30

0.25
This factsheet is based on the wrr publication ‘Hoe ongelijk is Nederland? Een verkenning van
de ontwikkeling en gevolgen van economische ongelijkheid’ (‘How unequal is the Netherlands?
An exploration of the development and consequences of economic inequality’), M. Kremer, 0.20
M. Bovens, E. Schrijvers and R. Went (eds.). Amsterdam: aup, 2014.
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Translation factsheet: Julian Ross, Carlisle, uk.


N

The Netherlands Scientific Council for Government Policy (wrr) serves as an independent
advisory body for the Dutch government. Its task is to provide sound information on © wrr 2014 | Source: oecd 2013, lis (www.lisdatacenter.org)
developments that may affect society in the long term, to identify obstacles and problems
and to provide new perspectives and policy alternatives.
2 But the gap between the top and 3 Gross median household income is
bottom 10 percent is widening stagnating; new vulnerable groups

Measured using the Gini-coefficient, income differentials in the Netherlands widened The growth in this income inequality is due in part to increasing
in the 1980s, after which they stabilised. One limitation of this measure of inequality is pay differentials (De Beer 2014). Developments on the labour
its heavy emphasis on changes around the middle. Consequently, income inequality is market, such as increasing use of technology and globalisation,
increasingly compared using other measures, such as the gap between the average income play a role here. These developments mean that, as in the us, gross
of the highest and lowest 10 percent of the income pyramid. According to calculations by median household income in the Netherlands, i.e. the income
Salverda (2014), this gap has widened in the Netherlands since 1985. of most households before deduction of tax and social security
contributions, is stagnating. In addition, there are new and existing
categories of workers in the Netherlands who are at greater risk
of ending up at the bottom of the income ladder, such as single
earners and a proportion of the 800,000 self-employed workers
Figure 2: Standardised income inequality: S10-S1 ratio versus Gini-coefficient,
(Salverda 2014, De Beer 2014).
The Netherlands, 1977=100, 1977-2011

160 Figure 3: Median gross household income in the Netherlands and the us, 1977-2012

120
140

110

120

100

100
90

S10 : S1 Gini-coefficient us Netherlands

80 80
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
1977
1981
1985
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011

© wrr 2014 | Source: Salverda 2014, cbs © wrr 2014 | Source: Salverda 2014, us Census and cbs
4 Redistribution through tax and social Figure 4: Income inequality and redistribution via tax and social security in
security system largely compensates different countries, early to mid-2000s
for (gross) income differentials
Gini-coefficient after tax and social security
Gini-coefficient before tax and social security

Figure 4 shows that, without government intervention, us 0.42 0.57


Canada 0.38 0.55
the Gini-coefficient in the Netherlands (in the middle of
uk 0.41 0.63
the 2000s) would have been 0.57, just as high as in the us Ireland 0.35 0.63
at that time. However, thanks to the welfare state, the Australia 0.38 0.55
secondary income distribution (the distribution of net Norway 0.37 0.57
incomes) is a good deal less unequal in the Netherlands: Sweden 0.33 0.57
the redistributive mechanisms of tax and social security Finland 0.35 0.58
take the Gini-coefficient in the Netherlands down to Denmark 0.33 0.56
Netherlands 0.33 0.57
0.33 compared with 0.42 in the us.
Germany 0.36 0.60
Switzerland 0.31 0.47
Austria 0.33 0.55
Spain 0.38 0.57
Japan 0.33 0.49
Korea 0.37 0.44
Taiwan 0.36 0.42
0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70
© wrr 2014 | Source: Cassidy 2013, Gornick, based on most recent lis datasets

There has been a marked increase in this redistribution in the


Netherlands in recent decades (Caminada et al. 2014). In 2012,
redistribution through the tax and social security system reduced the
primary income inequality by 49 percent, compared with 45 and 41
percent, respectively, in 2001 and 1990. This increase in redistribution
is accounted for largely by redistribution of income among the
growing group of older persons, aged over 65; the redistributive
effect of the state pension system (aow) is very strong in the
Netherlands. For those of working age (15-65 years), redistribution
by the government has not increased in recent decades.
5 Wealth in the Netherlands: much more
unequally distributed than income

E co n o m i c i n e q u a l i t y concerns According to this figure, the wealthiest 10 percent of the


not just income, but also wealth. population own more than half (61 percent) of the total
As in other countries, wealth in wealth in the Netherlands. The top 2 percent within this
the Netherlands (the value of group actually hold no less than a third of that wealth,
people’s assets) is more unequally while the lowest 60 percent of the Dutch population
distributed than income. This is together hold 1 percent (rounded off) of the total wealth.
illustrated in figure 5. The middle groups in Dutch society have relatively little
wealth, partly due to the extensive welfare state, and it is
primarily the lowest decile who have debts. In international
perspective, wealth inequality in the Netherlands is on the
high side (Van Bavel 2014).

Figure 5: Distribution of net household wealth across


ten deciles (based on wealth), The Netherlands,
1 January 2012

70
61
60

50

40
percentage (%) of total wealth

30

19
20
12

10 7
3
-4 0 0 0 1
0
1 2 3 4 5 6 7 8 9 10

© wrr 2014 | Source: Van Bavel 2014, cbs


6 Social consequences of economic inequality:
less social and political trust

According to the now famous book The Spirit Level by


Wilkinson and Pickett (2009), a high level of income
inequality has negative effects for everyone, not just
for the lower income groups. This is because income
inequality has psychosocial effects as well as material
effects. When there is pronounced inequality, people
constantly compare themselves with others, giving
rise to ‘social evaluation anxiety’ (see interview with
Wilkinson, Kremer and Schrijvers 2014).

Figure 6 shows that not all the social consequences found by Wilkinson and Pickett remain intact after
extensive (European comparative) research: high income inequality does not have an immediate
Figure 6: Social and political consequences of income inequality
adverse impact on criminality or social participation, for example. High income inequality does
however lead to reduced upward social mobility and less social trust: greater economic distance
High income inequality also implies greater social distance. Moreover, trust in political and other institutions declines
across the whole population, and especially trust in constitutional democracy and parliament. It is
Resources distributed more Psychosocial effects: trust, striking to note that this process is more pronounced at the upper end of society than in the lower
unequally among members stress, interpersonal echelons (Van de Werfhorst 2014).
of society comparison
No robust effects: subjective
health, criminality, family

Views on democracy,
Political participation
Personal subjective
Physical complaints
Quality of housing

institutional trust
formation, social

Euroscepticism
Social mobility

Status anxiety
Mental health
participation

well-being

Social and

© wrr 2014 | Source: Van de Werfhorst 2014


7 Economic consequences
of inequality: less growth?

There are indications that high economic inequality Not every mechanism necessarily has the same effect
also has a negative impact on economic growth. everywhere and at all times (or in the same degree), and
Several mechanisms have been identified which the first two mechanisms in the figure (underconsumption
could plausibly cause income inequality to hold back and private debt) can also (temporarily) work against each
economic growth, though there is as yet no consensus other. There are also indications that lower economic
on this among economists. Figure 7 contains a growth is not conducive to stabilising or reducing income
schematic representation of four mechanisms which inequality, and can therefore exacerbate the effects of
are cited in the international literature as means the four mechanisms; the dotted line in the figure refers
by which high income inequality could impede to this process (Went 2014).
economic growth.

Figure 7: How income inequality could hold back economic growth

Underinvestment
Underconsumption Private debt Political lobbies
in human capital

More income to the Consumption Increase in share in Fewer resources for


top; less propensity sustained despite income of 10%, 1% investments in
to consume; more stagnating or falling (or 0.1%) education, own
luxury goods income by borrowing business, health
or addressing savings

Less effective Less consumption More resources for Reduced increase in


demand (and when debts are lobbies/donations human capital
innovation); greater repaid or inability to to sustain existing
instability borrow further and situation
save more

Less economic growth

© wrr 2014 | Source: Went 2014


8 Economic inequality can also be Figure 8: Predistribution and redistribution
reduced through more predistribution

Predistribution
€ €
Whether economic inequality is too high or too low is a political judgement. Those € €
wishing to reduce economic inequality generally look at redistributive instruments. · Pay agreements €
€ €
· Consumer pressure
According to De Beer (2014) and Salverda (2014), for example, existing policy could · Profit-sharing at companies €€
focus more on the needs of workers at the bottom end of the labour market, such as
single earners and (some) self-employed persons, for example via an earned income

Income inequality
tax credit. Another example is the suggestion to tax income from wealth more and
income from employment less (Van Bavel 2014).
However, more attention could also be devoted to ‘predistribution’: an attempt to Redistribution

reduce pay differentials on the labour market, rather than ‘repairing’ them afterwards
· Income tax
through the tax and social security system. Particularly in countries with a strongly · Wealth tax €

redistributive income policy, such as the Netherlands, there are grounds for asking · Tax credits €
€€ €€
whether it is desirable and effective to compensate even further for a skewed · Social security €€

distribution of gross pay through the tax and social security system. Figure 4 above
shows that the secondary income differentials (the amount of money people have in
their wallets) are the same in Japan as in the Netherlands (both countries have a Gini
coefficient of 0.33). However, the differentials in gross pay are less marked in Japan than
in the Netherlands (0.49 compared with 0.57), so that less redistribution is needed. © wrr 2014 | Source: Kremer, Bovens, Schrijvers, Went 2014

In practical terms, predistribution could be achieved


through statutory pay regulations (minimum
wages and capped top rates of pay) and collective
bargaining negotiations (in which representatives
of employers and employees play a crucial role),
or by reforming companies (for example to create
associations and co-operatives), or through consumer
pressure (consumers could for example deliberately
choose products made by companies with low pay
differentials). Economic inequality is thus not only a
matter for the government.
References

Bavel, B. van (2014) ’Vermogensongelijkheid in Nederland. De vergeten dimensie’, in M. Kremer,


M. Bovens, E. Schrijvers and R. Went (eds.) Hoe ongelijk is Nederland? Een verkenning
van de ontwikkeling en gevolgen van economische ongelijkheid, Amsterdam: aup.
Beer, P. de (2014) ‘Groeiende beloningsverschillen in Nederland’, in M. Kremer, M. Bovens,
E. Schrijvers and R. Went (eds.) Hoe ongelijk is Nederland? Een verkenning van de
ontwikkeling en gevolgen van economische ongelijkheid, Amsterdam: aup.
Caminada, K., J. Been, K. Goudswaard and M. de Graaf-Zijl (2014) De ontwikkeling van
inkomensherverdeling in Nederland 1990- 2012. Department of Economics Research
Memorandum 2014.02, Leiden : Leiden University.
Cassidy, J. (2013) ‘American inequality in six charts’, The New Yorker. 18 November. Available on:
www.newyorker.com/online/blogs/johncassidy/2013/11/inequality-and-growth-what-do-
we-know.html.
Kremer, M., M. Bovens, E. Schrijvers and R. Went (eds.) (2014) Hoe ongelijk is Nederland? Een
verkenning van de ontwikkeling en gevolgen van economische ongelijkheid, Amsterdam: aup.
Kremer, M. and E. Schrijvers (2014) ‘Waarom inkomensongelijkheid nadelig uitpakt voor
iedereen. Een gesprek met Richard Wilkinson’, in M. Kremer, M. Bovens, E. Schrijvers
and R. Went (eds.) Hoe ongelijk is Nederland? Een verkenning van de ontwikkeling en
gevolgen van economische ongelijkheid, Amsterdam: aup.
oecd (2013) Crisis squeezes income and puts pressure on inequality and poverty. New Results from
the oecd Income Distribution Database. Paris: oecd.
Salverda, W. (2014) ‘De tektoniek van de inkomensongelijkheid in Nederland’, in M. Kremer,
M. Bovens, E. Schrijvers and R. Went (eds.) Hoe ongelijk is Nederland? Een verkenning
van de ontwikkeling en gevolgen van economische ongelijkheid, Amsterdam: aup.
Went, R. (2014) ‘Inkomensongelijkheid en groei’, in M. Kremer, M. Bovens, E. Schrijvers
and R. Went (eds.) Hoe ongelijk is Nederland? Een verkenning van de ontwikkeling en
gevolgen van economische ongelijkheid, Amsterdam: aup.
Werfhorst, H. van de (2014) ‘Politieke en sociale gevolgen van inkomensongelijkheid’, in M.
Kremer, M. Bovens, E. Schrijvers and R. Went (eds.) Hoe ongelijk is Nederland? Een
verkenning van de ontwikkeling en gevolgen van economische ongelijkheid, Amsterdam: aup.
Wilkinson, R. and K. Pickett (2009) The Spirit Level. Why Equality is Better for Everyone. London:
Pinguin Books.

wrr | Buitenhof 34 | P.O. Box 20004 | 2500 EA The Hague | The Netherlands | Tel. +31 70 356 46 00 | www.wrr.nl

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