GINI Country Report: Growing Inequalities and their Impacts in Luxembourg

Luxembourg experienced remarkable economic performance and employment growth since the middle of the 1980s. Based on the development of the financial sector, this growth benefited massively from the contribution of immigrants and cross-border workers to the domestic labour force. High economic growth led to a rapid improvement of the overall living standard of the resident population. During the same period, income inequality increased too, albeit modestly. Even if the country can still be considered a low inequality country by international standards, this trend is a potential source of concern. Several factors may explain the increase in income inequality. Income source decomposition analysis reveals that the relative contribution of paid employment income to total inequality increased over time. This reflects major labour market evolutions: (i) the expansion of the high-wage financial sector, (ii) an increase in the female employment rate, mainly married women, as well as (iii) an increase in earnings inequality. The recent upward trend in the unemployment rate also coincided with a period of increasing inequality. Finally, the analysis of education inequalities shows that for both men and women the share of highly educated increased while the share of low educated remained stable. This changing educational inequalities and the change in skills required by the structural change from a heavy industry based society to a high value-added service society also influenced income inequality.