IDEAS home Printed from https://ideas.repec.org/p/hhs/hastef/0720.html
   My bibliography  Save this paper

Inequality Trends in Sweden 1978-2004

Author

Listed:

Abstract

We document a clear increase in Swedish earnings inequality in the early 1990s. Inequality in disposable income and earnings net of taxes and transfers also increased, but much less than the increased inequality in pre-government earnings. These different developments are most likely explained by the generous Swedish welfare system. Consistent with these observations, we see no clear trend in consumption inequality. We also estimate stochastic processes for household earnings. A simple random-walk process captures much of the life-cycle dynamics. But we find clear evidence that the true earnings process is not a random walk. We demonstrate that some estimation methods result in severe upward bias in the estimated volatility of permanent shocks if serial correlation in temporary shocks is ignored. Our estimation results show that the increase in earnings inequality is almost entirely driven by an increase in residual earnings inequality. Moreover, this increase was mostly generated by an increased volatility of persistent shocks.

Suggested Citation

  • Domeij, David & Floden, Martin, 2009. "Inequality Trends in Sweden 1978-2004," SSE/EFI Working Paper Series in Economics and Finance 720, Stockholm School of Economics.
  • Handle: RePEc:hhs:hastef:0720
    as

    Download full text from publisher

    File URL: http://swopec.hhs.se/hastef/papers/hastef0720.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Oskar Nordström Skans & Per-Anders Edin & Bertil Holmlund, 2009. "Wage Dispersion Between and Within Plants: Sweden 1985-2000," NBER Chapters, in: The Structure of Wages: An International Comparison, pages 217-260, National Bureau of Economic Research, Inc.
    2. Fatih Guvenen, 2009. "An Empirical Investigation of Labor Income Processes," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 58-79, January.
    3. Anders Bohlmark & Matthew J. Lindquist, 2006. "Life-Cycle Variations in the Association between Current and Lifetime Income: Replication and Extension for Sweden," Journal of Labor Economics, University of Chicago Press, vol. 24(4), pages 879-900, October.
    4. David Domeij & Paul Klein, 2002. "Private Pensions: To What Extent Do They Account for Swedish Wealth Inequality?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(3), pages 503-534, July.
    5. Skedinger, Per, 2007. "The Design and Effects of Collectively Agreed Minimum Wages: Evidence from Sweden," Working Paper Series 700, Research Institute of Industrial Economics.
    6. David Domeij, 2008. "Rising Earnings Inequality in Sweden: The Role of Composition and Prices," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(3), pages 609-634, September.
    7. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2010. "The Macroeconomic Implications of Rising Wage Inequality in the United States," Journal of Political Economy, University of Chicago Press, vol. 118(4), pages 681-722, August.
    8. Per-Anders Edin & Bertil Holmlund, 1995. "The Swedish Wage Structure: The Rise and Fall of Solidarity Wage Policy?," NBER Chapters, in: Differences and Changes in Wage Structures, pages 307-344, National Bureau of Economic Research, Inc.
    9. Heathcote, Jonathan & Storesletten, Kjetil & Violante, Giovanni L, 2004. "The Cross-Sectional Implications of Rising Wage Inequality in the United States," CEPR Discussion Papers 4296, C.E.P.R. Discussion Papers.
    10. Johansson, Mats, 2006. "Inkomst och ojämlikhet i Sverige 1951-2002," Arbetsrapport 2006:3, Institute for Futures Studies.
    11. Edin, P.-A. & Fredriksson, P., 2000. "LINDA - Longitudinal INdividual DAta for Sweden," Papers 2000:19, Uppsala - Working Paper Series.
    12. Assar Lindbeck, 1997. "The Swedish Experiment," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1273-1319, September.
    13. Agell, Jonas & Englund, Peter & Sodersten, Jan, 1996. "Tax Reform of the Century -- the Swedish Experiment," National Tax Journal, National Tax Association;National Tax Journal, vol. 49(4), pages 643-664, December.
    14. Richard B. Freeman & Lawrence F. Katz, 1995. "Differences and Changes in Wage Structures," NBER Books, National Bureau of Economic Research, Inc, number free95-1, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gustavsson, Magnus, 2002. "Earnings Dynamics and Inequality during Macroeconomic Turbulence: Sweden 1991-1999," Working Paper Series 2002:20, Uppsala University, Department of Economics.
    2. Fatih Guvenen & Burhanettin Kuruscu, 2010. "A Quantitative Analysis of the Evolution of the US Wage Distribution, 1970–2000," NBER Chapters, in: NBER Macroeconomics Annual 2009, Volume 24, pages 227-276, National Bureau of Economic Research, Inc.
    3. Domeij, David & Ljungqvist, Lars, 2006. "Wage Structure and Public Sector Employment: Sweden versus the United States 1970-2002," SSE/EFI Working Paper Series in Economics and Finance 638, Stockholm School of Economics.
    4. Edin, P.-A. & Fredriksson, P., 2000. "LINDA - Longitudinal INdividual DAta for Sweden," Papers 2000:19, Uppsala - Working Paper Series.
    5. Fatih Guvenen, 2007. "Learning Your Earning: Are Labor Income Shocks Really Very Persistent?," American Economic Review, American Economic Association, vol. 97(3), pages 687-712, June.
    6. Björklund, Anders & Jäntti, Markus & Lindquist, Matthew J., 2009. "Family background and income during the rise of the welfare state: Brother correlations in income for Swedish men born 1932-1968," Journal of Public Economics, Elsevier, vol. 93(5-6), pages 671-680, June.
    7. Davis, Steven J. & Henrekson, Magnus, 2005. "Wage-setting institutions as industrial policy," Labour Economics, Elsevier, vol. 12(3), pages 345-377, June.
    8. Oskar Nordström Skans & Per-Anders Edin & Bertil Holmlund, 2009. "Wage Dispersion Between and Within Plants: Sweden 1985-2000," NBER Chapters, in: The Structure of Wages: An International Comparison, pages 217-260, National Bureau of Economic Research, Inc.
    9. Håkan Selin, 2009. "The Rise in Female Employment and the Role of Tax Incentives - An Empirical Analysis of the Swedish Individual Tax Reform of 1971," CESifo Working Paper Series 2629, CESifo.
    10. Erixon, Lennart, 2000. "A Swedish Economic Policy - The Theory, Application and Validity of the Rehn-Meidner Model," Research Papers in Economics 2000:13, Stockholm University, Department of Economics.
    11. Gustavsson, Magnus, 2004. "Trends in the Transitory Variance of Earnings: Evidence from Sweden 1960-1990 and a Comparison with the United States," Working Paper Series 2004:11, Uppsala University, Department of Economics.
    12. Adermon, Adrian & Gustavsson, Magnus, 2011. "Job Polarization and Task-Biased Technological Change: Sweden, 1975–2005," Working Paper Series 2011:15, Uppsala University, Department of Economics.
    13. Chatterjee, Srikanta & Dalziel, Paul & Daunfeldt, Sven-Olov & Podder, Nripesh, 2008. "Income Inequality and Transformation of the Welfare State: A Comparative Study of the Reforms in New Zealand and Sweden," HUI Working Papers 20, HUI Research.
    14. Freeman, Richard B., 1998. "War of the models: Which labour market institutions for the 21st century?1," Labour Economics, Elsevier, vol. 5(1), pages 1-24, March.
    15. David Domeij, 2008. "Rising Earnings Inequality in Sweden: The Role of Composition and Prices," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(3), pages 609-634, September.
    16. Nilsson, Anna, 2004. "Income inequality and crime: The case of Sweden," Working Paper Series 2004:6, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    17. Gustavsson, Magnus, 2004. "Changes in Educational Wage Premiums in Sweden: 1992-2001," Working Paper Series 2004:10, Uppsala University, Department of Economics.
    18. Matteo Iacoviello, 2008. "Household Debt and Income Inequality, 1963–2003," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(5), pages 929-965, August.
    19. Hibbs, Douglas A, Jr, 2000. "Bread and Peace Voting in U.S. Presidential Elections," Public Choice, Springer, vol. 104(1-2), pages 149-180, July.
    20. Pär Hansson, 2000. "Relative Demand for Skills in Swedish Manufacturing: Technology or Trade?," Review of International Economics, Wiley Blackwell, vol. 8(3), pages 533-555, August.

    More about this item

    Keywords

    income inequality; consumption inequality; stochastic earnings process;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:hastef:0720. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/erhhsse.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Helena Lundin (email available below). General contact details of provider: https://edirc.repec.org/data/erhhsse.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.