Inequality is on a rising trend within as well as between EU Member States and poses important challenges to the realisation of smart, sustainable and inclusive growth. There is increasing understanding that high and rising inequalities and the concentration of wealth have negative effects on economic growth as well as on social cohesion. In his political guidelines President Juncker called for greater social fairness and explained that the acceptance and legitimacy of the EU integration process depend to a large extent on its capacity to ensure that economic and social progress go hand in hand. On the occasion of the orientation debate on social policy, the President called for an ambitious social agenda, for reasons of social justice, and because it is in the logic of the EU's main priorities. Indeed, beyond their expected economic impact, the investment plan and "initiatives such as the internal market, energy union, or the digital agenda also aim at increasing social well-being and reducing growing inequalities in the redistribution of wealth". This note explores how EU action can be enhanced to better address high and rising inequalities. It starts with a brief discussion of the conceptual framework underpinning the lively (political) debate on inequality, making the important distinction between inequalities of opportunities, and inequalities of outcomes, both market and disposable income inequality. Section 3 describes recent developments in inequality of opportunities and income, recalls the main related drivers, and discussed how inequality affects growth and labour market outcomes via its impact on, inter alia, skill formation, productivity, competitiveness, macro-economic and social stability. The fourth section reflects on the specific role the EU already plays and what else could be done to strengthen or broaden EU action. Annexes provide a short overview of some recent important literature on inequality, including OECD and IMF reports, and influential books by Piketty, Stiglitz and Atkinson.
