Inequality of incomes on both sides of the Odra: The contribution of the regional dimension

The latest enlargement of the European Union has had the effect that people showing considerable differences in their standard of living have been united into a common social unit. The aim of this paper is to gain some insight about the extent to which social inequality in the EU has increased as a consequence of this enlargement. The empirical analysis focuses on the distribution of personal incomes in Germany and Poland. These countries constitute the largest representatives of the EU15 and the accession countries, respectively, in terms of population size. The relative welfare gap between them is quite similar to the welfare gap between the Eastern and the Western part of the EU after the enlargement. An additive decomposition of the Theil index and the mean logarithmic deviation allows to quantify the contribution of the cross-country difference in average incomes on the inequality of personal incomes as a whole. The analysis will reveal that this contribution is dramatically large although it has decreased since the middle of the 1990s. The next section discusses why it is important to study income inequality in the EU from a cross-country perspective. In section 3, some theoretical assumptions and results from previous studies about the development of inequality in the EU15 and in Central Eastern Europe in the course of the 1990s will be presented. Section 4 describes the proceeding and the results of an empirical analysis of German and Polish household survey data. Section 5 concludes.