A Social Model Employment Efficiency and Income Distribution Index

Labour market performance as measured by employment rates and inequality of income distribution show significant differences among EU countries. In 2014, the variation in employment rates was between 48.8% in Greece and 74.4% in Sweden; S80/S20 income quintile share ratios ranged from 3.4 in Czech Republic to 6.6 in Bulgaria, Romania and Greece in 2013. To some extent, labour market and social institutions may account for these differences. Implemented social models in Europe differ from each other by different combinations of policies and institutions.

In the newly released IOS Working No. 349, IOS economist Michael Knogler and Fidelis Lankes from University of applied sciences Munich develop two indices which assess the relevance of these institutional combinations for employment and income distribution. Based on socio-economic indicators reflecting the main tasks of social models, a set of institutional variables that are weighted and combined into two indices of institutional quality for European Union Member countries is identified. The Social Model Employment Efficiency Index (SMEE-Index) shows, how labour market and social institutions impact on employment. The Social Model Income Distribution Index (SMID-Index) explains the impact of different institutional combinations on the inequality of income distribution. Both indices can be used to rank and compare the institutional quality of social models across EU countries.

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