What Happened to the Incomes of the Rich during the Great Levelling? Evidence from Swedish Individual-level Data, 1909–1950

Much of the income equalization that took place during the first half of the twentieth century was driven by shifts in the shares of the incomes of the rich, such as the top 1 percent. But the available studies using tabulated data have not been wholly able to account for the relative decline in top earners’ incomes. In this paper, we present the first evidence on the composition of the top groups from the Belle Epoque to the early post-WW2 period. Using information on 21,055 individual tax-payers in two elite areas in greater Stockholm, we show that the absolute top stratum (the richest 0.1 percent) was dominated by an economic elite of CEOs and bankers, while a remarkably large fraction of the top 1 percent consisted of professionals such as medical doctors and engineers. There was a distinction within the elite between capital-rich “rentiers” and those affluent whose income came from wages and business. The incomes of the top stratum were built on the ownership or leadership of companies producing mass consumption goods, machinery, or banking and insurance. We relate the peak of income inequality in the first quarter of the twentieth century to the historical circumstances of a globalized economy with growing mass markets in all the industrializing countries. These circumstances, jointly with an economic policy that was still relatively laissez faire allowed great fortunes to be accumulated. In the 1920s and 1930s policy turned away from globalization and to stronger regulation, at the same time as steeper competition and growing unionization undermined the super profits of the previous quarter- century. Increased state interventionism in the economy and an expansive education policy also undermined the high relative incomes of professionals; we document the declining advantages of professions such as medical doctors, pharmacists, and lawyers when compared with the average income throughout the period.