Integration and Inequality: Lessons from the Accessions of Portugal and Spain to the EU

This paper provides some evidence on the distributive consequences of economic integration by analyzing the Portuguese and Spanish experiences with EU accession. Despite the coincidence in the moment of accession to EU and other institutional similarities, inequality trends have been different in the two countries in the last two decades. Some studies using microeconomic household data have documented a substantial reduction of household income inequality both in Portugal and Spain throughout the 1980s. However, during the first half of the 1990s, household income inequality has risen in Portugal, while it has remained more or less constant in Spain. As for wage inequality, there are also interesting differences both in the wage structure and recent trends in both countries. The paper is in two parts: the first part (sections 2 and 3) describes the most relevant facts regarding macroeconomic evolutions and inequality trends in both countries. In Section 2 we briefly describe the macroeconomic performance of Portugal and Spain before and after accession to the EU by documenting the differences between the two countries in relevant variables for the subsequent analysis, such as the level of productivity, the employment structure, the degree of openness, trade patterns, FDI inflows, and the transfers received by means of the EU Structural Funds. In section 3 we report trends in income and wage inequality during the 1980-95 period and discuss the main factors behind these trends. The second part of the report (sections 4 and 5) analyzes the microeconomic evidence on wage and employment adjustments after accession to the EU in both Portugal and Spain. In section 4 we look at how individual and jobs characteristics are remunerated in both countries by estimating wage regressions with microeconomic data. In Portugal, where microeconomic data are available for different years, we also look at the changes in the remuneration of those characteristics between 1985 and 1995. In Section 5 we focus on the changes in employment and wage shares of different types of workers (classified by educational attaintments and occupations) in different industries. First, we document the sectoral distribution of these changes and, secondly, we relate within-firm changes to some firms' characteristics like foreign and domestic ownership and the proportion of sales and inputs which are exported and imported. Finally, Section 6 concludes.