Working Paper: NBER ID: w14014
Authors: Anders Björklund; Richard Freeman
Abstract: This paper examines the evolution of economic inequality in Sweden before, during and after the major macro-economic recession in the early 1990s. Earnings and income inequality increased after the downturn, but government safety net programs buttressed disposable income for those with low income, and despite the rise in inequality, Sweden remained one of the most egalitarian economies in the world. The rise in inequality raised the return to observable skills, but the returns are still too low to explain that Sweden moved to the top of the league tables in knowledge intensive activities. Our analysis of attitudes to inequality shows that more Swedes expressed more concern over the inequity in inequality after the rise in inequality in the 1990s than in the past. Further, more Swedes expressed greater dissatisfaction with wages and working conditions. On the other hand, the rise in unemployment did not reduce overall subjective well being, probably because individuals adapted to higher levels of unemployment.
Keywords: economic inequality; incentives; Sweden; welfare state; labor market
JEL Codes: J0; J01; J08; J24; J3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| rise in economic inequality in Sweden after the recession of the early 1990s (F61) | increase in the return to observable skills (J24) |
| increased inequality in earnings and hours worked (J31) | rise in disposable income among higher income families (D31) |
| increased inequality in earnings and hours worked (J31) | no significant income losses for lower-income families (H31) |
| strong welfare state (P16) | buffered low-income households against economic shocks (G59) |
| changes in attitudes toward inequality (I24) | shift in public sentiment (P27) |