Leveling the Playing Field: A Comparative View of U.S. and European Responses to Inequality

Rising inequality in the U.S. presents challenges that affect families across the country. As we seek effective responses to this national issue, a global perspective that takes into account how other countries limit social inequality and promote mobility may provide promising examples to light the way forward.

European nations, in particular, have less inequality than the U.S.—and many have far less. What can U.S. policymakers and researchers learn from these countries about how to reduce social inequality and improve social mobility? In what ways are European policies less likely to generate inequality and more likely to respond to inequality than those in the U.S.?

The distribution of opportunities and outcomes differs significantly in Europe and the United States, a point illustrated vividly by the nature of investments in youth and families by way of social spending. While poorer Americans benefit from refundable tax credits like the Earned Income Tax Credit and limited subsidies for early-childhood education, these pale in comparison with other subsidies that are administered to upper-income households through the tax system. According to the Congressional Budget Office and the OECD, these mainly benefit families who ostensibly need the least help. Indeed, tax credits for college savings such as 529 plans and the American Opportunity Tax Credit, mortgage interest deductibility, and pre-tax set-asides for child care and health care costs primarily benefit those at the top of the income scale. Compared to policies that are more universal, providing benefits to children across the income scale, these tax subsidies suggest that the U.S. does in fact invest in its children, but often in ways that limit opportunity to the wealthy—hoarding it at the top.

European institutions, by contrast, are more inclusive, helping to meet the costs of raising children for those of modest and lower incomes, thus leavening opportunity and encouraging mobility. Instead of income tax deductions, payroll, income, and value added taxes pay for direct public government provision of services through social institutions. France, Sweden, and the Netherlands, for instance, ensure equality of access to publicly funded, subsidized child care and universal early-childhood education, as well as income-related college tuition and greater access to higher education, resulting in a more equal and unified education system. And England finances higher education by making students an income-related tuition loan, which they pay off only if their future earnings increase by some level after graduation. Universal refundable family and child allowances and social assistance also support all families with children and prevent dire poverty in northern and central Europe and Scandinavia.

The European approach to social welfare differs from that of the U.S. in quality, scope, and size.

The distribution of opportunities extends to labor markets and earned incomes as well. European labor market institutions set wages and some, such as Germany, avoid layoffs through job sharing, thereby generating greater uniformity in workers’ wage and income growth than in the U.S. Active labor market training programs in countries like Belgium and the Netherlands also increase productivity among blue collar workers and link them directly to employment opportunities, promoting efficiency and offering “second chance” professional training to those whose human capital skills are insufficient for the changing labor market.

The European approach to social welfare differs from that of the U.S. in quality, scope, and size. In the U.S., access to health care, education, good neighborhoods, and even labor market opportunities varies enormously with family income, wealth, and social status. And most of these opportunities are effectively subsidized for high income families through the tax system. Moreover, high income individuals in the U.S. often do not support direct public provision for all children, because they can do more and better for their own children using the tax system and private alternatives for child care, tutoring, education, and health care. The lack of strong public support to ease costs and guarantee more equality of opportunity for the lower and middle classes may explain why social mobility across generations is so low in the U.S. compared to most European nations.

Of course, we cannot and should not simply import policies from Europe to the U.S. Instead, we need to adapt policies to fit the U.S. context, and experiment in ways that will help us learn what might work better here. Reform of the U.S. income tax code may represent the biggest step forward in limiting inefficient and regressive child-related subsidies that benefit those who are already advantaged. Responses of this magnitude at the federal level, however, are not likely to be forthcoming in the near future. But states may act as laboratories for policy experimentation, exercising the lessons of a system of direct support for children and families in the form of health and education systems that distribute opportunities for mobility more equitably, benefiting not only those who have already made it, but those who may be on their way.