PARIS: The economic crisis exacerbated inequalities in some European countries and the effects could be felt for decades as cuts in education spending affecting a whole generation may hamper long-term growth, an OECD expert said.

Although the financial crisis of 2007-08 initially hit rich households more severely in most European countries, with welfare programmes cushioning the poorest, austerity programmes imposed from 2010 caused disparities to widen.

“You can talk about two different periods since the crisis started: when the welfare state worked, and then austerity,” Michael Forster, a senior policy analyst at the Organisation for Economic Co-operation and Development in Paris, told Reuters.

“It could be that we are now in a third phase, which is actually very country-specific,” he said, pointing to a return to more redistributive measures since 2012 in countries like France while others such as Britain continue to slash spending.

Southern European countries like Greece, Italy and Spain, which were forced to implement stringent austerity after coming under pressure from bond markets in 2010-11, saw income inequalities increase sharply between 2007 and 2012.

In Spain, real incomes of the poorest 10 per cent dropped by almost 13pc per year between 2007 and 2011, compared to only 1.5pc for the richest 10pc.

By contrast, income inequalities as measured by the Gini coefficient, the most commonly used measure of inequality, actually decreased in Germany and the Netherlands until 2012, the last year for which comparable figures are available.

And the impact of the crisis on inequality could be felt for years to come, Forster said, noting that a quarter of countries surveyed by the OECD planned to cut education spending in coming years. Lower spending on education tends to hurt poor households more than richer ones.

“But it’s very early to tell. The impact of education on a more equal distribution of earnings usually takes 10-15 years,” Forster added.

An OECD study this year showed that an increase in inequality of around 6 Gini points has no impact on the richest but lowers the probability of poorer people graduating from university by around 4 points, reducing economic potential.

GROWTH AND REDISTRIBUTION: Countering the argument that inequalities can lift growth by incentivising those at the bottom of the scale to “work harder”, the OECD said a bigger gap between rich and poor people does not help economies in the long term.

“Growth policies and redistribution policies need to go hand in hand. The big thing for me is that there is no trade-off,” Forster said.

One of the most effective ways to reduce inequalities while boosting growth is to increase women’s employment, the OECD said. Another could be to improve the quality of jobs, by ensuring people on part-time or short-term contracts can easily move to more permanent jobs.

“Germany and the UK are the countries where the stepping-stone effect of non-standard work is stronger than elsewhere,” Forster said.

Published in Dawn, October 8th , 2015

On a mobile phone? Get the Dawn Mobile App: Apple Store | Google Play