The Impact of the War in Ukraine on Income Sharing: A Comparison between the United States and the Euro Zone

By causing a rise in the prices of energy, raw materials and agricultural products, the war in Ukraine leads to a transfer of income to the benefit of countries exporting these products. It therefore influences the sharing of income whether for States, households or businesses. All Western countries are not in the same situation. United States and euro zone mark their difference.

Since 2018, the United States has had an external energy surplus that has grown since the start of the war in Ukraine. There price increase energy does not therefore cause the United States to transfer to the benefit of the rest of the world. On the contrary, they benefit from an inflow of income.

The fact remains that, since 2021, American households have suffered a loss of purchasing power due first to the rise in unemployment, then secondly to that of prices. Wages only increased by 5% in 2022 when inflation exceeded 8%. On the other hand, with the increase in the employment rate, gross disposable income improved in 2022 without returning to the increase it had seen before the health crisis.

A distortion of income sharing to the detriment of employees

From 2010 to 2021, American companies benefited from an increase in their profit margin rate. This development is attributable to a distortion of income sharing to the detriment of employees, to public aid which has increased sharply since 2020 and to the sharp increase in the profits of oil and gas companies. The latter exceeded 250 billion dollars in 2022 against a hundred during the period 2011/2017.

Has the US state increased the public deficit by increasing its spending without raising taxes accordingly? After going from 3% of GDP to 14% of GDP from 2019 to 2020, it has since returned to around 4% of GDP. Industrial support policies, energy transition and military spending explain the high level of this deficit. Income sharing is therefore essentially at the expense of households and the state in the United States.

European companies hit by rising costs

Since the beginning of the war in Ukraine, the euro zone has been subjected to a significant levy linked to the increase in the price of energy imports. Its trade balance, which was structurally in surplus, becomes in deficit. A transfer of several points of GDP is thus carried out for the benefit of oil and natural gas exporting countries. European companies are affected by their rising costs. Their profit margin rate will not return to its 2019 level until the end of 2022.

The level of production remains for many States lower than that before the health crisis. This is the case, in particular, for France. Households in the euro zone are experiencing a contraction in their purchasing power estimated at around 2%. Wages are rising less quickly than prices, at a level comparable to that of the United States, ie 4 and 8% respectively.

In the euro zone, the States are the most affected by the succession of crises.

Since 2020, States have compensated all or part of the effects of the health crisis and then of the war in Ukraine by supporting households and businesses. The public deficit thus rose from 0.5% to 7% of GDP from 2019 to 2020 before returning to 4%. In the euro zone, the States are the most affected by the succession of crises. Households suffer partially compensated purchasing losses. Companies are also supported and manage to regain acceptable margin rates by the end of 2022.

The United States is in a much more comfortable situation than the euro zone thanks to its energy independence and the strength of the dollar. American companies invest one to two points of GDP more than those in the euro zone, particularly in the areas of energy transition and digital. The euro zone is recording a trade deficit with industrial production penalized by rising costs. The leading vehicle producer, Germany, faces competition from Chinese and American manufacturers who have opted for electric motorization.

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