GINI Policy Paper 1: The inequality content of some of the Europe 2020 flagships

The European Commission put forwards the strategy for the 2010-2020 period in the Europe 2020 Communication, an ambitious and modern programme of policies aimed at achieving smart, sustainable and inclusive growth. Inequality should be seen as a cornerstone of both sustainable and inclusive growth. In fact, unequal societies are also more unstable societies (i.e. unsustainable) and more polarized (i.e. exclusive). The analysis of available data and the established consensus in the literature shows that: 1. Labour market effects of innovation are complex, but there is a consensus that technology increases inequality in labour market outcomes; 2. Technological output shows a high degree of persistence; organizational capabilities and accumulated knowledge are good predictors of innovativeness; 3. Financing of innovation is a bottleneck. However, innovativeness is not a good predictor of SMEs growth in terms of employees; although they play an important role in sustaining innovation, financial institutions may be driven and biased by stock market performances; 4. Although the single market is a strong asset, structural imbalances internal to the Euro Area are a serious problem that has not been solved yet. Four main recommendations came out from this analysis: 1. The focus on the educational system is necessary to accomplish equity in the labour market. At the same time, it is not sufficient, since despite the recent massive reduction of educational inequality, wage inequality and the steepness of educational gradient of access to employment increased. 2. Smart specialization does not solve the problem of persistence of income differences across regions and countries, because there is a hierarchy of sectors in terms of productivity growth due to the difference in maturity across technological trajectories. At the moment, it is difficult to obtain results in terms of cohesion indicators unless strong public involvement in basic science is envisaged, with fully open and appropriable results; 3. Solving the problem of access to financing by innovative companies should go hand in hand with a careful implementation of regulatory checks to avoid the excesses which occurred in the US in the last twenty years, where new corporate governance based on short term targets have contributed to the increase of top income shares and the worsening of inequality; 4. Finally, structural imbalances inside the Euro Area are a serious fault line that should be taken into account. Cumulative external deficits drove massive inflows of capital, increase in asset prices that did not reflect fundamentals and financial crises. Although further scrutiny on causality is needed, this has been associated with increase in top income share.