Monetary policy and inequality - Isabel Schnabel, Member of the ECB's Executive Board Virtual conference on "Diversity and Inclusion in Economics ...
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Monetary policy and inequality Isabel Schnabel, Member of the ECB’s Executive Board Virtual conference on “Diversity and Inclusion in Economics, Finance, and Central Banking”, Frankfurt am Main, 9 November 2021
Pre-tax
Rubric income inequality has risen measurably in advanced economies
Pre-tax national income share of richest households
(Top 10% share)
FR ES
DE UK
IT US
0.50
0.45
0.40
0.35
0.30
0.25
0.20
1980 1984 1988 1992 1996 2000 2004 2008 2012 2016
Source: WID.
Latest observation: 2019.
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2Wealth
Rubric of households is highly concentrated
Wealth shares of most and least wealthy households
(% share of total assets)
Bottom 40%
Top 10%
IT
ES
FR
EA
DE
US
0 10 20 30 40 50 60 70 80
Source: The Household Finance and Consumption Survey (EA), World Inequality Database (US).
Notes: Data for the US refer to net personal wealth.
Latest observation: 2017 (EA), 2019 (US).
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3Skill premium has increased, while workers’ bargaining power has declined
Rubric
United States: skill premium Trade union membership
(ratio) (% of employees)
Germany Spain
Financial Activities relative to Leisure and Hospitality
Italy United States
1.2
60
1.0 50
40
0.8
30
0.6
20
0.4
10
0.2 0
1980 1985 1990 1995 2000 2005 2010 2015 2020 1980 1985 1990 1995 2000 2005 2010 2015 2020
Source: Bureau of Labor Statistics and ECB calculations. Source: OECD.
Notes: The skill premium is approximated by the difference between the hourly earnings of a
worker in the financial service industry and a worker in the leisure and hospitality sector,
divided by the hourly earnings of the latter.
Latest observation: September 2021. www.ecb.europa.eu ©
4Redistributive
Rubric policies effectively reduce pre-tax income inequality
Inequality in disposable and market income
(Gini coefficients)
Market income
Disposable income
60
50
40
30
20
10
0
US IT UK ES FR DE
Sources: Eurostat, Standardized World Income Inequality Database and ECB staff calculations.
Notes: Based on Dossche, Slacalek and Wolswijk (2021). US: Standardized World Income Inequality
Database version 8 and 9; Euro area: latest available EU-SILC reference year, which is between 2013
and 2018.
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5Fiscal
Rubricpolicy protected the most vulnerable parts of society during the pandemic
Exposure to lockdown measures Workers in job retention schemes
by income quintile (millions; percentage of the labour force)
(percentages)
Labour income DE FR IT ES % of LF (rhs)
45 25 20
40
20 16
35
15 12
30
10 8
25
20 5 4
15 0 0
0-20 20-40 40-60 60-80 80-100 Mar-20 Jul-20 Nov-20 Mar-21 Jul-21
Sources: EU-SILC, Eurostat Household Budget Survey and ECB staff calculations. Sources: ECB calculations based on data from Eurostat, Institute for Employment Research
Notes: Based on Dossche, Kolndrekaj and Slacalek (2021). Percentage of total income (Institut für Arbeitsmarkt- und Berufsforschung – IAB), ifo Institute, Ministère du Travail, de
exposed to lockdown measures by income quintile. l’Emploi et de l’Insertion, Instituto Nazionale Previdenza Sociale (INPS), and Ministerio de
Inclusión, Seguridad Social y Migraciones.
Latest observations: August 2021 for Germany, France and Spain, June 2021 for Italy.
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6Monetary
Rubric policy easing predominantly affects labour income, not interest rate income
Effect of a policy rate rate cut on savers and borrowers
(percent of household income)
Labour income
Interest rate income
1.5
1.42
1.34
1.2
0.9
0.6
0.3
0.01
0.0
-0.13
-0.3
Net borrower Net saver
Source: Household Finance and Consumption Survey (wave 2017) and ECB staff calculations.
Notes: Based on Slacalek et al. (2020). Effects of 100 basis point cut in monetary policy rate in
Germany, France, Italy and Spain.
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7Monetary
Rubric policy reduces income inequality as low-income households benefit most
Change in labour income Employment by education and age
in response to higher GDP growth during the 2008/09 global financial crisis
(labour income elasticity) (index: 2008Q1=100)
95% confidence interval
Euro area average 15-24 25-54 55-74 Total
175
3.0
150
2.5
125
2.0
100
1.5
75
1.0
50
2008…
2010
2012
2014
2008…
2010
2012
2014
2008…
2010
2012
2014
0.5
0.0 Medium-upper
Lower secondary
1. Quintile 2. Quintile 3. Quintile 4. Quintile 5. Quintile secondary Teritiary education
education
education
Source: EU-SILC, GSOEP and ECB staff calculations. Source: ECB calculations based on Eurostat data.
Notes: Based on Dossche and Hartwig (2019). Euro area refers to Germany, France, Italy Latest observation: 2014 Q4.
and Spain. Individuals grouped by household income quintiles. The diamond indicates the
estimated elasticity of labour income w.r.t. changes in GDP growth.
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8Assets
Rubricpurchased by central banks are typically held by wealthiest households
APP and PEPP holdings of the Eurosystem Share of households owning bonds,
(EUR bn) mutual funds and shares
(% of households)
Bonds
PSPP CSPP CBPP3 ABSPP PEPP Mutual funds
5,000 Shares
COVID-19 %
4,500
outbreak 35
4,000
30
3,500
3,000 25
2,500 20
2,000 15
1,500
10
1,000
5
500
0 0
Oct-14 Sep-15 Aug-16 Jul-17 Jun-18 May-19 Apr-20 Mar-21 All EA households Top net wealth Bottom net wealth
decile quintile
Source: ECB website, ECB calculations. Source: The Household Finance and Consumption Survey, wave 2017.
Latest observation: 31 October 2021.
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9Portfolio
Rubric rebalancing by institutional investors may have spurred house price increases
Assets of national real estate investment Changes in euro area disposable income
trusts (REIT) as a share of GDP and residential property prices
(percentage) (nominal; cumulative change since 2015 in percent)
BE FR
DE NL 40
ES
10%
35
9%
8% 30
7% 25
6%
20
5%
4% 15
3% 10
2%
5
1%
0% 0
2000 2004 2008 2012 2016 2020 Disposable income Residential property prices
Source: Eurostat and ECB staff calculations
Source: Bloomberg.
Latest observation: 2021Q2
Latest observation: 2020.
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10Asset purchases have a larger impact on house prices than policy rate changes
Rubric
Effects of unconventional and conventional Owner-occupied housing,
monetary policy easing on house prices residential property prices and HICP rents
(impact on annual growth, pp) (annual percentage change)
Owner-occupied housing price index (OOHPI)
Unconventional monetary policy
Residential property prices
Conventional monetary policy HICP rents
1.0
8
0.8 7
6
0.6
5
0.4 4
3
0.2
2
0.0 1
0
0.2
-1
0 1 2 3 4 5
Years 2021Q3
2014 2015 2016 2017 2018 2019 2020 2021
Source: Battistini, Falagiarda, Hackmann and Roma, 2021, “Navigating the housing channel of
monetary policy across euro area regions”. Source: Eurostat and ECB calculations
Notes: Response to a 10 basis point accommodative monetary policy shock. A conventional Latest observation: 2021Q3 for HICP rents, 2021Q2 for the others.
monetary policy shock is defined as the average of the short-term (1 week to 1 year) OIS rate
changes around a monetary policy event. An unconventional monetary policy shock is defined
as the average of the long-term (4 to 20 years) OIS rate changes around a monetary policy
event. www.ecb.europa.eu ©
11House
Rubricprices are increasingly overvalued while lending remains buoyant
Overvaluation of euro area house prices Loans to households for house purchase
(percentage) (annual percentage changes)
EA DE FR
Average overvaluation
Range of valuation estimates
20 20
20
15 15 15
10
10 10
5
0 5 5
-5
0 0
-10
-15 -5 -5
2000 2005 2010 2015 2020 2005 2007 2009 2011 2013 2015 2017 2019 2021
Source: ECB and ECB calculations. Sources: ECB and ECB calculations.
Notes: The valuation estimate is the simple average of the price-to-income ratio and an Notes: Country data includes lending to all euro area households. The adjustment for
estimated Bayesian vector autoregression model. For details of the methodology, see Box sales and securitisation for the total loans to households is allocated to loans to
3 in Financial Stability Review, ECB, June 2011, and Box 3 in Financial Stability Review, households for house purchase according to their weigh on the former type of loans. For
ECB, November 2015 France, data for May 2014 is adjusted to reflect a large securitisation operation. The euro
area figure for that month has been also adjusted.
Latest observation: September 2021. www.ecb.europa.eu ©
12Rubric
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