Income Inequality and Structural Transformation: Evidence from Swedish Micro Data, 1870-1970

We study the relationship between the structural transformation of the economy and the income distribution, focusing on the case of Sweden from 1870 to 1970, with extra attention paid to the 1870–1950 period, for which we produce extensive new data. Average income increased fivefold between 1870 and 1950, and the share employed in agriculture declined from 72 to 23 per cent. To study the evolution of the income distribution, we collected new data, including 232,000 individual income tax returns, 13,000 property tax returns, and a rich set of complementary sources. Using these micro data, we calculate Gini coefficients, top income shares, capital shares, skill premia, and occupation- and gender-specific income levels and ratios, providing new evidence on the long-run evolution of income and inequality. Our income data and decomposition analyses demonstrate that the shift of labour out of agriculture, which was a severely unequal sector in Sweden in the late nineteenth and early twentieth centuries, accounts for much of the decline in income inequality, together with the expansion of more productive jobs in manufacturing and offices. This process was aided by labour mobility, as well as by educational and other policies that facilitated structural transformation. Focusing on structural transformation can help explain two paradoxes in the literature on twentieth century income inequality: that much equalisation occurred before the growth of the welfare state, and that non-belligerents in the World Wars, like Sweden, saw similar levels of equalisation as belligerent countries.