Economic inequality and discontent in European cities

Why do people exhibit different levels of discontent with life? Contrary to mainstream economics, economic prosperity is poorly associated with people wellbeing, mainly in cities where job opportunities and amenities are the highest. Resolving this paradox is useful for improving societal wellbeing.
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Does inequality matter in explaining individual discontent?

This study contributes to this aim. More specifically, it is based on the assumption that individual discontent does not depend just on the overall income growth of a certain community but, more substantially, on the heterogeneity in the distribution of this economic payoff among the community members. In societies with high income inequality, economic growth is likely to generate benefits for a relatively smaller share of the population compared with more egalitarian communities.

This reasoning is also strictly and perversely related to urbanization, since greater per capita income in the largest cities comes together with greater economic inequality.

Stemming from these considerations, the empirical analysis focuses on the relationship between the individual dissatisfaction with different aspects of life and the level of income inequality across 83 European cities. Data come from the survey study “Perception survey on the quality of life in European cities”, conducted in 2019 on behalf of the European Commission in 35 countries.

As reported in Figure 1, we observe a high variance of perceptions both between and within countries. The figure reports, for all cities in the sample, the ratio between the number of discontent individuals (i.e. not very/ not at all satisfied) and those satisfied (very/ fairly satisfied) with life in general. The highest levels of dissatisfaction are observed particularly in southern and eastern Europe. On the other hand, within country variation concerns also relatively small nations like Belgium and Switzerland.

Figure 1. Ratio between discontent (not very satisfied & not at all satisfied with life) and satisfied (very satisfied & fairly satisfied with life) respondents in the European cities included in the survey.

The results of the analysis point to a strong and statistically significant positive association between economic inequality and discontent. Figure 2 reports the predicted level of discontent perceived by individuals (defined on the 1-4 scale) with/without personal economic difficulties (i.e. they declared to have difficulties in paying their bills) living in regions with different levels of economic inequality (measured by the Gini index).

The figure shows that in contexts with low economic inequality (regions in the 10th percentile of the Gini index), subjects with economic difficulties are significantly more dissatisfied than those without. Increasing economic inequality raises the predicted discontent of both categories and, in particular, is widening their gap.

Less egalitarian communities are therefore associated to both higher overall discontent and higher disparities in wellbeing between people in conditions of relative disadvantage and the others. The paper discusses more in depth these mechanisms, focusing on the dissatisfaction perceived by the individuals in different domains of their life.

 Figure 2. Predicted values of individual discontent (1-4 scale) for people in conditions of relative disadvantage and at different levels of income inequality.

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