Income inequality is declining in Spain

The world economy has had a rather bumpy ride in recent years. In the space of just five years, there have been five consecutive and significant shocks: the pandemic, the crisis in global supply chains, the energy crisis, the inflationary shock and the rise in interest rates. Each of these shocks, in addition to the impact on economic activity at the aggregate level, could have very severe consequences for the most vulnerable groups of the population. We know that inequality increased significantly during the pandemic, but what has happened since then? For developed countries, we have data up until 2022, and in most of them income inequality continues to show a long-term upward trend. For Spain, however, we have data up until October 2024 and the message, fortunately, is quite different.

During the pandemic, CaixaBank Research developed a tracker for following the evolution of wage inequality in real time. Since then, we have continued to update it monthly on our website. Specifically, every month we analyse the evolution of the millions of payrolls that are deposited into CaixaBank accounts, duly anonymised, as well as the public-sector transfers for unemployment or furlough benefits. We process all this information using big data techniques to build the main inequality indicators.1

During the pandemic, we were able to observe the sharp increase in wage inequality. We also noted that the increase would have been even greater if the various support programmes had not been implemented. The Gini index calculated without taking into account public-sector benefits surged by more than 10 points between February and May 2020. On the other hand, when we do take into account public-sector benefits, we observe that the increase was much lower, of 2.3 points for Spain as a whole in those months. Another of the virtues of the tracker is its highly granular nature, which allows us to analyse inequality patterns by age group, place of origin and even region. This allowed us to demonstrate the differential impact that the pandemic had in all these areas. For example, we observed that the groups hardest hit were younger people and those born outside Spain. At the geographical level, we saw how the autonomous community regions that rely more heavily on the leisure and catering sectors, such as the Balearic Islands and the Canary Islands, were the hardest hit. In all these cases, however, the buffer effect of public-sector benefits was very significant.

Since then, inequality has reduced significantly. By 2022, the various indicators that track income inequality had already returned to their pre-pandemic levels.2 The CaixaBank Research indicator already anticipated this milestone back then, and the data now published have corroborated it, raising the degree of confidence in the indicator developed by CaixaBank Research.

Since 2022, the CaixaBank Research real-time indicator has shown that inequality has maintained this downward trend, both for Spain as a whole and among the different groups and geographical areas. Specifically, in Spain as a whole, in November the Gini index stood 2.9 points below its pre-pandemic level. While the downward trend is similar across the different age groups, there has been a notable reduction in inequality among the population born abroad, for whom the index now lies 3,8 points below the pre-pandemic records. At the geographical level, the regions where tourism plays an important role show an encouraging trend, with the inequality index declining by more than 4 points in the Balearic Islands and the Canary Islands.

The decline in inequality that has occurred in recent years is significant. This is evident when we analyse the evolution of the Gini index from a historical perspective or when we compare the index between different countries. In general, the Gini index tends to be quite stable over time. For instance, in Spain, between 1990 and 2019 it fell by 1.9 points. In the US, one of the countries where inequality has increased the most, between these two years the Gini index increased by 3.5 points. In view of Spain’s improvement in recent years, it is likely that, once the data for Germany and France are published, we will see that the gap relative to these countries has been significantly reduced (in 2019, their Gini index scores were 2.5 and 2.9 points below that of Spain, respectively).

The main factor that is enabling this reduction in inequality is the strength of the labour market and, in particular, the reduction of the unemployment rate. As can be seen in the third chart, the relationship between these two variables is very close. To the extent that the difference between being out of work or earning employment income is significant, reducing the unemployment rate becomes the key variable for reducing inequality. Specifically, during the pandemic, 90% of the changes in the Gini index are explained by movements in the unemployment rate.3 As long as the Spanish economy continues to grow in the coming years and the unemployment rate continues to decline, as is currently anticipated, we should continue to see a reduction in inequality.