Income inequality has increased within many EU countries over the past 40 years and a lot of research has been conducted trying to understand the causes behind this increase. Many of the causes are thought to be global in nature (a demand shift favouring highly skilled workers in advanced nations, technological change and international trade patterns) but the fact that inequality has not increased in every country or to the same extent, or even during the same time periods, suggests that policy and institutions play an important role.
The aim of this review is to assess the evidence on a selected number of policy areas to provide an assessment of policy effectiveness. The review examines three key policy areas: education due to the importance of educational attainment in the determination of wages; wage setting institutions given their role in shaping the distribution of wages; and, welfare states, in particular their role in redistribution through cash transfers.