Cohesion funds increase inequality within EU regions, study finds

The EU’s cohesion policy, which aims at reducing regional disparities, benefits high-skilled, richer households more than low-income households and exacerbates inequality within EU regions, according to a recent study.

While it is successful in its aim to reduce cross-regional inequality, cohesion policy – the EU’s place-based regional policy worth one-third of the total EU budget – fails to reach the most “left-behind people” and actually increases inequality within European regions, according to a study conducted by researchers from the University of Mannheim, the Jacques Delors Centre in Berlin and Aarhus University.

Based on a survey of 2.4 million respondents in the EU, the report looks at how cohesion policy affected income inequality between 1989 and 2017 in 231 European regions.

The researchers looked in particular at two types of EU funds, the European Regional Development Fund (ERDF) and the European Social Fund (ESF), which eligible organisations can apply for by submitting project applications under specific ‘operational programmes’.

Increasing inequality

According to the researchers, cohesion policy is effective from a cross-regional perspective and contributes to the average economic growth of the regions it supports.

“If you spend one euro you get one euro back,” said Valentin Lang, one of the authors of the study and assistant professor at the University of Mannheim, arguing that cohesion money successfully stimulates the economy. However, he added that “the euro you spend does not reach the rich and the poor in the same way.”

“Cohesion policy is quite effective in promoting average income growth in the left-behind regions, but if you look inside the region, these income gains go primarily to the richest, not to the poorest,” Lang explained.

In particular, the study found that cohesion policy helps increase labour income for the highly educated and richest income groups in eligible regions, while effects on poorer households are close to zero.

“Cohesion policy doesn’t reach the poorest in European regions,” Lang said.

Benefitting the high-skilled

The researchers did not investigate the reasons behind the different distribution of funds. However, in Lang’s view, it is “very plausible that people with higher skills have the necessary skills or are more likely to work for firms with the capacity and resources to apply for these funds”.

As a result, high-skilled workers – often in better-paid positions and generally more affluent – benefit more from cohesion funds than low-skilled workers and poorer households.

Overall, the researchers also found that the intra-regional inequality, which cohesion funds exacerbate, contributes more than cross-regional inequality to overall inequality in Europe and warned that it could lead to more political discontent among the “left-behind”.

People-based policies?

“Increasing awareness is the easiest first step,” Lang said when asked about recommendations for policymakers.

At the same time, cohesion policy should be “coupled with rules that ensure a more egalitarian distribution of place-based support”, the study suggests.

Moreover, Lang said the EU could modify the eligibility criteria to make sure more people, especially the poorest, can benefit from cohesion funds.

The researcher also suggested a “more radical reform,” moving from place-based policies to more people-based policies at the EU level, so that funds reach the most vulnerable people.

“If you want to get to the poorest in Europe then place-based policies will not suffice,” he said, adding that complementing the two policies could help reduce overall inequalities in the long term.

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