European households' incomes since the crisis

Abstract

We explore the link between personal and functional income distribution at the micro level. We focus on the European experience over the crisis, comparing European households’ incomes in 2007, 2012 and 2014. Throughout the period, most households earned income from more than one source, and a positive relation exists between both the capital and labour shares of incomes and total household incomes. We find that functional distribution, i.e. what kind of income a household earns, significantly affects both its position in the income distribution and its chances of mobility within it, and such impact is magnified by the crisis. However, the geography of European households’ incomes is much more complex than frequently suggested. In general, the more households depend on labour incomes the more likely they were to move downwards in the income distribution. However, this does not imply that capital incomes made households more likely to move upwards.