Incidence and Distribution of Earnings Shocks: Southern Europe in Comparative Perspective

Large earnings losses are likely to cause financial hardship, lower consumption, and trigger poverty and material deprivation. While the phenomenon has received significant attention in the US, it remains relatively under-researched in Europe. Our study aims to fill this gap. We examine the incidence and the distribution of earnings shocks, defined as year-on-year losses of at least 20% of gross individual earnings, in four South European countries (Greece, Italy, Spain, and Portugal) and in four comparator countries (France, Germany, the Netherlands, and Denmark), in 2006–2017, using longitudinal EU-SILC data. The paper proceeds to identifying the relative weight of economic conditions (proxied by GDP growth), and labour market characteristics (employment status, occupational class, and earnings quintile prior to the shock), and goes some way towards clarifying the nature of the effect of each explanatory variable on the incidence of earnings shocks in the eight countries, ceteris paribus. Our results confirm the hypothesis that the reason Southern Europe was more susceptible to earnings shocks during the Great Recession and the Euro crisis was the interplay of more unfavourable economic conditions with higher share of non-standard work (especially self-employment and fixed-term contracts), which left a higher share of the workforce exposed.