SNS Welfare Policy Council 2011. The income distribution in Sweden

Anders Björklund Markus Jäntti

The SNS Welfare Report 2011 provides a broad picture of the income differences in Sweden as compared to other countries. When and in what way has Sweden had an even income distribution? Is Sweden in the process of losing this position?

vr-2011_inlaga_0.pdf 3.1 MB PDF

The authors of this year’s welfare report, ANDERS BJÖRKLUND and MARKUS JÄNTTI, are both Professors of Economics and work at The Swedish Institute for Social Research, SOFI, at Stockholm University

A short summary of the report
INCREASED INCOME DIFFERENCES. Since 1980, there has been an increase in the income differences in Sweden over the whole income scale. Both between median income earners and high income earners and between median income earners and low income earners. There has also been an increase in relative poverty (measured as individuals with an income of less than 50% of the median income), in particular in the last ten years. But the share of poor people in Sweden is low in an international perspective.

THE REASON IS CAPITAL INCOME. The main reason for the increase in the income distribution is increased differences in capital income, rather than changes in wages, taxes and transfers.

EVEN DISTRIBUTION IN THE NORDIC COUNTRIES. In a strictly distributional sense, the Nordic countries appear to be successful, notwithstanding if the objective is formulated in terms of annual income, long-term income or equal possibilities.

SWEDEN IS GOOD AT SOCIAL MOBILITY. Family background is an important explanatory factor for income differences. But this factor is of less importance in Sweden. Here, 6 percent of the income differences are explained by the father’s income, which is to be compared to 20 percent in the US. Another way of measuring the importance of family background for income differences is the relationship between siblings’ incomes. In the US, 49 percent of the income differences can be explained by factors that are shared by siblings, in Sweden it is only 14 percent.

THE LIFE-TIME INCOME PERSPECTIVE PROVIDES THE SAME PICTURE. It is often claimed that it is more relevant to study differences in individuals’ life-time incomes than the traditional measure of annual income. But an analysis of the income for longer time periods creates the same picture as the annual income measure. There has been an increase in the income differences in Sweden and Sweden also has an even income distribution in an international perspective. The ranking among countries remains the same notwithstanding if one studies annual income or life-time income.

THE INCOME FLUCTUATIONS ARE LARGER AMONG INDIVIDUALS WITH A LOW LONG-TERM INCOME. The largest fluctuations in the income level during an individual’s life time tend to affect individuals with low life-time incomes.

THE INCOME DISTRIBUTION AFFECTS PEOPLE’S POSSIBILITIES IN LIFE. In countries with an even income distribution, family background is of less importance for the individual’s income than in countries with larger income differences. Thus, there seems to be a positive relationship between an even income distribution and fairness in the sense of equal possibilities of obtaining a good life-time income.

CHILD ALLOWANCE IS AN EFFICIENT INSTRUMENT. The child allowance is an efficient instrument for counteracting income differences, in particular the supplement for several children. An advantage of the child allowance is that it leads to a more even income distribution without deteriorating the incentives to work. A policy that evens out productivity and the strength when negotiating on the labour market is also important, as well as increased support for equalizing institutions.

Director of Research
STEFAN SANDSTRÖM,, Director of Research, SNS.

ANDERS BJÖRKLUND and MARKUS JÄNTTI, both Professors of Economics who work at the Swedish Institute for Social Research (SOFI) at Stockholm University.