Occupational Social Class and Earnings Inequality in Europe: A Comparative Assessment

Abstract

While there is renewed interest in earnings differentials between social classes, the contribution of social class to overall earnings inequality across countries and net of compositional effects remains largely uncharted territory. This paper uses data from the European Union Statistics on Income and Living Conditions to assess earnings differentials between social classes (as measured by ESeC) and the role of between-class inequality in overall earnings inequality across 30 European countries. We find that there is substantial variation in earnings differences between social classes across countries. Countries with higher levels of between-class inequality tend to display higher levels of overall earnings inequality, but this relationship is far from perfect. Even with highly aggregated class measures, between-class inequality accounts for a non-negligible share of total earnings inequality (between 15 and 25% in most countries). Controlling for observed between-class differences in composition shows that these account for much of the observed between-class earnings inequality, while in most countries between-class differences in returns to observed compositional variables do not play a major role. In all these respects we find considerable variation across countries, implying that both the size of between-class differences in earnings and the primary mechanisms that produce these class differences vary substantially between European countries.