Wealth and Income Inequalities in the Netherlands

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Wealth and Income Inequalities inthe Netherlands

Table of Contents

Introduction 2

The Recession Effect on the Netherlands 3

Income Inequality instances 3

Taxes 3

Income Distribution 4

Measure of Income Inequality 4

Inconsistency of the Disposable Income 5

Age Inequality 6

Unequal Wealth Distribution 7

Education and Experience 7

Effect of the Housing Bubble 8

Household Debts in the Netherlands 9

Household Assets in the Netherlands 10

The Education Class Gap 11

Conclusion 11

Works Cited 13

Introduction

The Netherlands is among the economies struggling to balanceinequality through various policy packages. The nation recordsrelatively low figures of income inequality. The country’s growingtrend of wage inequality since the 1980s makes it an exception fromother OECD countries. The inequality debate largely factors in thewealth and income distribution but also considers the grand dynamicsthat make the new meritocratic society class that divides between thelower and the highly educated. In spite of this nation recordingrelatively low figures of inequality as compared to other countries,the increasing unemployment rates, the onset of rising poverty levelsand the social security cuts create a challenging economic path. Inthis regards, the discourse addresses the inequality issues in theNetherlands on wealth and income distributions based on an economicinsight and analysis but focused on international connections andcomparisons.

TheRecession Effect on the Netherlands

The intensification of the recession in 2008 led to several Dutchbanks seeking for financial help from the Netherlands government. Thesum of the amount guaranteed for the debt relief reached an estimateof 30% of the Netherlands Gross Domestic Product. By the year 2012,80 billion Euros remained on the verge of repayment uncertainties(Oxfam 1). In the beginning, the Netherlands governing authoritypermitted its budget to absorb the shock of the economy arising fromthe financial rescue measures and the falling exports and profits.The budget deficit rose beyond 5% in the year’s 2009 and 2010(Oxfam 1). The government responded with the cautious implementationof the austerity measures powered by the states agenda encompassingcuts on spending. The Netherlands stood firm during this period tofight inequality in all possible means at their disposal.

IncomeInequality instances Taxes

Presently the income tax bracket begins at 52% for 56,532 Euros and42% for 33,364 Euros. As it is, the tax breaks favour the wealthyonly, and there are no capital gains for the taxes but 1.2% fixed taxon the financial assets worth over €21,139 (Piketty and Goldhammer1). In fact, the establishment progressive system of wealth taxesassists in the distribution of riches in a manner that reducesinequality controlling the majority wealth over the tiny minority.Moreover, cash benefits and income taxes have a role in reducinginequality among the working group. The increase of taxes was ameasure to tackle the government’s budget deficit as well.Therefore, the country has attempted to maintain comparatively lowlevels of inequality due to the safeguarding measures it undertookduring the financial crisis.

IncomeDistribution

There is a fair distribution of the income in the Netherlands asequated to the other countries either in Europe or outside Europe.The level of inequality in the Netherlands is relatively low.According to the Kremer et al., the Netherlands takes the middleposition in Europe, and it compares comparatively to the U.K and theU.S (1). Nonetheless, the country is relatively unequal as comparedto countries such as Belgium and Denmark that regard it as its equal.Apparently, Netherlands held the seventh position among the Europeannations with the lowest disparities in income (TheGlobal Competitiveness Report 1). The income differentials inthe Netherlands widened from the 1980s before it stabilised for awhile then continued the trend from the year 1985 to 2011. However,despite these comparisons, the country has experienced a risingincome and wealth disparity since the 1990s (Kremer et al. 2).

Measureof Income Inequality

The Gini coefficient that is a test of the degree of inequality inincome distribution varies widely from a nation to another. Accordingto the Organization for Economic Co-operation andDevelopment, the income inequality has rarely changed betweenthe years 2008 and 2012 (1). On a scale of 0 to 10 representing totalincome inequality and 1 representing total inequality, theNetherlands income inequality stands at 0.28 in 2013 and projectionsshow that it maintains a general constant over the past few years upto date. The growing wage inequalitycontinues because of the relative increase in demand for the skilledlabor force that has shifted to technological advance andglobalisation. This situation leaves many individuals unemployed andleading low life standards. The micro detail data on the Netherlandswage distribution between the years 2000 and 2008 reveals anaggregate flatness of wage inequality distribution and hidden changesbetween various regions and groups (Groot and Groot 5). Thestatistics report the figures before and after correlating thedifferences in human capital. By 2013, 48% of the women in theNetherlands became economically independent and earned a minimum of70 percent of the aggregate minimum wage payable per work (StatisticsNetherlands 1).

The income inequality in the Netherlands remains stable with a normaldisposable household income of 33.2 thousand Euros in the year 2012.Households in the higher income class accounted for the 36% of thesum income. High incomes gave a total of82.5 billion Euros in the form of the national contributions and theincome tax rates in 2011. The highest ten percent class contributed97.9 % while lowest 10% class of gross income contributed to 0.6%.The 0.6% providers recorded negative incomes because they weretypically self-employed and suffered incredible loss. Figures revealthat just over 0.3% of the households earn more than 100,000Euros,and many of them were large shareholders or directors. Even thoughthere was an insignificant increase in 2007, the income inequalityfor the Netherlands has been constant since 2014 as it has been forthe previous years (Statistics Netherlands 1).

Inconsistencyof the Disposable Income

The disparity of disposable income is relatively low in theNetherlands in an international perspective. The redistributioneffect weakened in 1985 but increased in the beginning of the year2007 increasing some benefits such as child benefits in addition tosocial security contributions and reducing the taxes for the lowerwages (Organization for Economic Co-operation andDevelopment 1).The income inequality arose from the mid-1980sto mid-1990s but later declined due to the recent crisis. The ratioof the bottom and top 10% is moderate at 6.6 as compared to 9.6averages across OECD nations. The poverty levels related to themedian income that is, relative and anchored poverty, collectivelyincreased from the year 2007 to 2011 with figures of 7% and 7.9%respectively as they remain below the OECD average (Organizationfor Economic Co-operation and Development 1).AccordingtoOrganization for Economic Co-operation andDevelopment, the Netherlands was among the few OECD nationswith decreased inequality of before and after taxes between the years2007 and 2011. As the redistribution increased, the inequality aftertransfers and taxes reduced further to approximately two Gini points.

AgeInequality

Piketty and Goldhammer are of the opinion that the present economymakes people rich through capital but not through labor (1). Thereturn rates on capital are bigger than the economic growth in aspread of long durations. The differences in ages feature to largewealth disproportion in Netherlands. People under the age of 35 yearspossess as little as 10% riches in comparison to the riches of theolder workers who possess 22% of the riches (Organizationfor Economic Co-operation and Development 1). The unequalallocation of wealth causes instabilities in inequalities. The olderpopulation, therefore, forms the wealthier class of the Netherlandsentire population. The gap between the net wealth of the medianhousehold and the top 5% as median wealth share is above the OECDaverage. The gross median applied for household incomes stagnatesespecially with the onset of the new vulnerable groups. Technologicaladvancements, globalisation and developments in the market labormarket result into new pay differentials which play a role in thestagnation of the gap between the rich and the poor (Kremer et al.2). Additionally, the technology take-overs create a new existingcategory of the labor force including the single earners and a largerpercentage of the 800,000 self-employed workers at a greater risk offinancial constraints. In 2013, the purchasing power of the Dutchfell by 1.1%, but the average spendable household income in theNetherlands stood at 336,000 Euros (StatisticsNetherlands 1).

UnequalWealth Distribution

The wealth in the Netherlands seems to be unequally distributed ascompared to the income. At the global level, the wealth inequality inthe Netherlands is on the higher side. The 2% of the top richindividuals in the Netherlands hold a minimum third of the totalwealth while the rest of the lower 60% of the populace hold a‘rounded off’ figure of 1% of the total wealth (Kremer et al. 2).The sum of the total personal assets amounts to 1,166 billion Euros,which translates to an average of 157,000 Euros per household in theyear 2012. During the same year, 20% of the rich householdsconstituted the 80% of the personal assets in the Netherlands(Statistics Netherlands 1). Economists andanalysts are of the opinion that the comparison is deceptive as itrelates the wealthy levels to the age only. Considering the agecategory leaves an even wealth distribution because personal wealthand age go hand in hand.

Educationand Experience

The introduction of a work-study assistance programme in 2009 nolonger applies to all the youths under the age of 27 unless they areentitled to youth disability benefits (Organizationfor Economic Co-operation and Development1). As a result, manyyouths struggle to get significant levels of education that wouldposition them for competency in the labor market. One will agree thatyoung people have relatively low incomes at the beginning of thecareers, therefore, cannot afford much savings or investments. It iseven worse when they take a mortgage and perhaps begin a familybecause that is the period when financial recourses tighten.Financial positions improve, as they grow older as their income fromthe job market increase. The accumulation of more experiences exposesthe young ones to better opportunities with better financial rewardsthat improve their financial situations. Averagely, the personalassets stood at 250,000 Euros in the year 2012 (StatisticsNetherlands 1).

Effectof the Housing Bubble

The difference between the house value and the mortgage value givesthe personal asset worth. The less wealthy felt the dramatic loss ofthe house value because the well-off group substitute the debts fromtheir savings. As a result, these variances in the wealth amonghouseholds have continued to propagate. The growth of the wealth gap,therefore, has grown if the house market value and the balance homeequity debt are taken into account as originating from the housingmarket deterioration at the onset of the recession. The year 2013promised signs of recovery in the housing market sector that isprojected to reduce the wealth gap to desirable levels (ABN AMRO 1).The interest deductible mortgage is a great advantage for the higherearners with bigger houses. The situation of this generous mortgageseem to benefit the wealthiest households largely and not themiddle-class.

Even though the income gaps remain relatively small and stable overthe period 2008 onwards, the advances on the housing market seem tocreate a marginal increase in income gaps (Oxfam 2). Statisticsreveals that the wealth gap between the households grew marginallyowing to the slump in the housing market. Some economists observethat the housing bubble contributed to the widening of the gap owingto the interest deductions experienced by the middle-class.Nevertheless, the house prices went down from the year 2008 creatingnegative or low net wealth levels (Piketty and Goldhammer2). Thisdrop in housing prices aggravates the wealth inequalities by age asthe wealth declines for the young ones who see the drop in value fortheir houses as compared to the older ones who already own homes. TheNetherlands experienced inequality growth from 2009 because of thegrowing mortgage debt and the depreciation in house values of theprivate owners (Salverda et al. 56-57).

HouseholdDebts in the Netherlands

The Netherlands holds a large fraction of households in debts therebydemonstrating a high rate of indebtedness. The aggregate householddebt about total assets constitutes a higher rate in Netherlands thanother OECD countries. The largest share of household debt representsmore than 30% total assets value (Reitano 16). Thebottom of the wealth distribution has a total sum of theirliabilities exceeding the top class combined assets. Some householdshave debts three times larger than their incomes. With the drop inhousing prices in the year 2008, 40% of the households havingmortgage debts record negative or almost nothing as home equity. Over50% of the mortgage portfolio is on interest basis only implying thatrepayments of capital only take place after the loan matures(Organization for Economic Co-operation andDevelopment 2). This scenario represents risks associated withinabilities to repay the full principal amounts once they fall due.These cumulative high rates of debts on the population in theNetherlands create a strain on the investment possibilitiesespecially for ones in huge debts.

The present economy has created a concentration of wealth for ownersof capital rather than workers, which mean that wealth disparity willcontinue to proliferate. In addition, the country has larger pensionfunds than most European countries but despite economists opiningthat large pensions to the middle-class equalize the wealthdistribution, the case has not applied in the Netherlands (Pressman1). However, pensions by definition are not part of wealth, but theycontribute to income as they are not part of personal assets thus,they may not narrow the wealth gap. On the other hand, theNetherlands is one of the few European countries with a significantlylarge population consisting of the young people and is the case, mostyoung people create wealth through labor rather than through capitalaccumulation thus, the high wealth disparity. The introduction of awork-study assistance programme in 2009 no longer applies to all theyouths under the age of 27 unless they are entitled to youthdisability benefits (Organization for EconomicCo-operation and Development 2). The large wealthdisproportion in the Netherlands is attributed to age. It isimportant to note that the distribution of the population is adefining factor on the wealth disparity since investments and capitalaccumulation are the most significant sources of wealth. In fact, theredistribution of wealth in the country is not enough to narrow thewealth gap.

HouseholdAssets in the Netherlands

At the beginning of the year 2013, 2% of the Netherlands householdshad accumulated assets valued at one million Euros and over. Themedian household capital was 19,000Euros for the month of January2013. 57% of the households possessed their homes with an averagevalue of 207,000 Euros (Statistics Netherlands 1). As pointedearlier, the pension funds are relatively larger in the Netherlandsthan in other states in OECD. When measured regarding householdwealth such as private pension, property value or savings, it isnoted that inequality records high values in Netherlands. Forinstance, the top 1% of the citizens own 24% of the entire net wealthnet while 10% own 60% of the net wealth net leaving the bottom threedeciles with almost nothing (Kremer et al. 5). The official advisorof Netherlands referred to as the Scientific Council of Governmentfinds that 10% of the Dutch households possess 61% of the nation’swealth. In comparison to the Americans figure, the Netherlands standsat 75% and hardly egalitarian. The Netherlands has a relativelyunequal distribution of wealth just after Poland (Piketty andGoldhammer 1).

TheEducation Class Gap

The Netherlands faces uncertainties of becoming a more polarisedsociety in view of the society situation existing between the peoplewith low and high education levels. The two extreme groups ofeducation live separately. According to the Dutch Daily News,themajority of the citizens are highly educated while the rest havelow levels of education (1). The situation gives rise to mutualavoidance. For instance, these two groups have minimal interactionsat common meeting places like charities, churches and army losingrelevance. As the highly educated tend to lock themselves in aspecific biotope from which they look down upon the lower educateddisdainfully, the gap remains to exist for long on holding contemptfor their taste, humour, public opinions and political convictions.Cuperus accords the highly educated, as universalistic andcosmopolitan while it describes the lower educated as theparticularistic and nationalistic evidently displaying a diametricopposition between the groups (1). The groups clash on politicalmatters such as decisions on immigration the nation`s open bordersand the integration procedure in Europe. The more educated group hasmore financial capital, cultural capital and political loyalty ascompared to the less educated. The less educated have a deficit inpower to cope with the rapid changes in the world (Cuperus 1).

Conclusion

All in all the political and economic records support the barelychanging trend of the inequality in the Netherlands. The incomeinequality gap virtually remains unchanged since the year 2002 to2012.TheNetherlands wealth and income inequality were not affected bythe recession and has overall stagnated over the past decade.Nonetheless, the developments on the housing sector broughtdevastation and marginal growth in of the income gap. The slumpinghousing sector seems to drive the growth of the income inequality.The wage inequality struggles to balance in spite of the demand forhighly skilled labor and challenges of the globalization andtechnological advancements. It is challenging to the youth to securean entry job level position after taking the time to study in theNetherland. Many will concur with the explanation that the relativelylarge gap between the older rich and the young in poverty isattributed to many financial responsibilities and lack of aggregateexperience for better jobs that enable good savings and investments.The older will be wealthier because of the increases pays,investments and accumulation of wage as they continue getting older.Like in any other nation, this scenario seems normal therefore, thewealth inequality is considerably low as it should be between theolder and the younger. Income and wealth disparity is a commonphenomenon from an economic perspective thus, the level of the gapdetermines the magnitude of the inequality. In this regards, it isessential to compare the country’s income inequality against othercountries as well as economic trends. Eventually, overall statisticssupports that the wealth and income inequities experienced in theNetherland remain at stable levels with its stable economicstructure.

WorksCited

ABN AMRO. &quotDutch Economy in Focus.&quotInsights.abnamro.nl.2013. Web. 30 Dec. 2015.&lthttps://insights.abnamro.nl/app/uploads/2013/06/130607-Dutch-Economy-in-Focus.pdf&gt.

Cuperus, Rene. &quot`Pikettymania` andMeritocratic Darwinism: The Inequality Debate in the Netherlands.&quotPolicy Network –.7 Nov. 2014. Web. 30 Dec. 2015.&lthttp://www.policy-network.net/pno_detail.aspx?ID=4771&amp&gt.

Dutch Daily News.&quotMoreDutch People Are Highly Educated Says OECD.&quot14 Sept. 2012. Web. 30 Dec. 2015.&lthttp://www.dutchdailynews.com/more-dutch-people-are-highly-educated-says-oecd/&gt.

Groot, Stefan, and Henri De Groot. &quotWageInequality in the Netherlands: Evidence, Trends and Explanations.&quot(2011). Print.

Kremer, M., M. Bovens, R. Went, and E. Schrijvers.&quotEconomic Inequality in the Netherlands in 8 Figures.&quot WRR.Netherlands Scientific Council for Government Policy, 2014. Web. 23Dec. 2015 1-9.&lthttp://www.wrr.nl/fileadmin/en/publicaties/PDF-Overige_uitgaven/2014-08-18_WRR-factsheet_ec_ong_EN-web.pdf&gt.

Organization for Economic Co-operation andDevelopment. &quotIn It Together Why Less Inequality Benefits All inThe Netherlands.&quot OECD.21 May 2015. Web. 23 Dec. 2015,pp.1-2.&lthttp://www.oecd.org/netherlands/OECD2015-In-It-Together-Highlights-Netherlands.pdf&gt.

Oxfam. &quotThe True Cost Of Austerity AndInequality: The Netherlands Case Study.&quot 1 Sept. 2013. Web. 30Dec. 2015.&lthttps://www.oxfam.org/sites/www.oxfam.org/files/cs-true-cost-austerity-inequality-netherlands-120913-en.pdf&gt.

Piketty, Thomas, and Arthur Goldhammer. &quotACapital Issue.&quot The Economist.The Economist Newspaper, 28 June 2014. Web. 23 Dec. 2015.&lthttp://www.economist.com/news/europe/21605955-how-large-differences-wealth-have-begun-new-tax-debate-capital-issue&gt.

Pressman, Leen. &quotNetherlands` Biggest PensionFunds Report Funding Shortfalls.&quot IPE.2015. Web. 30 Dec. 2015.&lthttp://www.ipe.com/countries/netherlands/netherlands-biggest-pension-funds-report-funding-shortfalls/10006484.fullarticle&gt.

Reitano, Elena. &quotMacroeconomic ImbalancesNetherlands 2013.&quot European Economy(2013). Print.

Salverda, Wiemer, Christina Haas, Marloes De Graaf- Zijl, Bram Lancee Natascha Notten, and Tahnee Ooms. &quotGrowingInequalities and Their Impacts in the Netherlands.&quot CountryReport for the Netherlands (2013):2-199. Print.

&quotStatistics Netherlands.&quot CBS.23 June 2014. Web. 23 Dec. 2015.&lthttp://www.cbs.nl/en-GB/menu/themas/inkomen-bestedingen/publicaties/artikelen/archief/2014/2014-036-pb.htm&gt.

&quotThe Global Competitiveness Report 2011 -2012: Country Profile Highlights.&quot Weforum.org.2012. Web. 30 Dec. 2015.&lthttp://www3.weforum.org/docs/WEF_GCR_CountryProfilHighlights_2011-12.pdf&gt.

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