GROWING INEQUALITIES AND THEIR IMPACTS IN FINLAND Jenni Blomgren, Heikki Hiilamo, Olli Kangas & Mikko Niemelä Country Report for Finland November 2012 GINI Country Report Finland GINI Country Report Finland Table of Contents Executive Summary ................................................................................................................................. 1 Introduction ............................................................................................................................................. 5 2. The Nature of Inequality and Its Development over Time ................................................................ 14 2.1 Has inequality grown? ........................................................................................................... 14 2.1.1 Household income inequality ........................................................................................ 14 2.1.2 Wealth and debt inequality ........................................................................................... 22 2.1.3 Labour market inequality .............................................................................................. 28 2.1.4 Educational inequality ................................................................................................... 34 2.2 Whom has inequality affected? ............................................................................................ 38 2.3 Interdependence between the inequality components over time ....................................... 43 2.4 Why has inequality grown? ................................................................................................... 44 2.5 Conclusion: The Finnish story of inequality drivers ........................................................... 46 3. The Social Impacts of Inequality ........................................................................................................ 48 3.1 Introduction ........................................................................................................................... 48 3.2 Material deprivation .............................................................................................................. 48 3.3 Cumulative disadvantage and multidimensional measures of poverty and social exclusion 51 3.4 Social cohesion ...................................................................................................................... 55 3.5 Changes in household composition, marriage and fertility .................................................. 57 3.6 Health inequalities................................................................................................................. 64 3.7 Housing tenure and changes in the role of housing in the wealth distribution.................... 69 3.8 Crime and punishment .......................................................................................................... 73 3.9 Subjective measures of well-being: satisfaction and happiness ........................................... 77 3.10 Intergenerational mobility ................................................................................................ 82 3.11 Conclusion: interdependence of inequality drivers and their social impacts ....................... 86 4. Political and Cultural Impacts ............................................................................................................ 90 4.1 Introduction ........................................................................................................................... 90 4.2 Political and civic participation .............................................................................................. 90 4.3 Trust in others and in institutions ......................................................................................... 94 4.4 Political values and legitimacy ............................................................................................... 97 4.5 Values about social policy and welfare state ........................................................................ 99 4.6 Conclusion: interdependence of inequality drivers and their cultural and political impacts ... 105 5. Effectiveness of Policies in Combating Inequality ....................................................................... 108 5.1 Introduction ......................................................................................................................... 108 GINI Country Report Finland 5.2 Finnish wage bargaining system .......................................................................................... 108 5.3 Taxation: debates and changes ........................................................................................... 110 5.4 Social expenditures ............................................................................................................. 112 5.5 Education policies ................................................................................................................ 115 5.6 Conclusion: Finnish policies and their success in combating inequality ............................. 117 References ........................................................................................................................................... 122 Appendix.............................................................................................................................................. 127 GINI Country Report Finland List of Figures Figure 1.1 GDP growth rate (% annual change) and unemployment rate (% unemployed among those aged 15–64, yearly average) in Finland and EU 15 in 1989–2011. .................................................... 8 Figure 2.1.1.1 Income inequality in Finland, 1966–2010. Gini coefficient of equivalised (OECD modified) income, %. ....................................................................................................................... 14 Figure 2.1.1.2 Effectiveness of income transfers1 in reducing income inequality (decrease of Gini by inclusion of transfers received and paid by households) in Finland 1966–2010, %. ....................... 16 Figure 2.1.1.3 Trends in income shares by income deciles (equivalised disposable income) in Finland 1966–2010, %. .................................................................................................................................. 16 Figure 2.1.1.4 Changes in income shares (%-points) by different time periods in Finland. .................. 17 Figure 2.1.1.5 Decomposition of gross income for total population and top 1 per cent. .................... 17 Figure 2.1.1.6 Average tax rates (transfers paid/gross income) in 1987–2007. ................................... 18 Figure 2.1.1.7 Trends in at-risk-of-poverty rate (%) of total population and children (aged under 18) and at-risk-of-poverty threshold (equivalised € in 2010 currency) in Finland 1966–2010. ............. 19 Figure 2.1.1.8 Trends in at-risk-of-poverty rate by household type in Finland 1995–2010 (%). .......... 20 Figure 2.1.1.9 Sensitivity of at-risk-of-poverty rates to the threshold chosen: at-risk-of-poverty rates at 40%, 50%, 60% and 70% of national median equivalised income in 1990–2010 (%). ................. 20 Figure 2.1.1.10 Relative median at-risk-of-poverty gap and at-risk-of-poverty rate in European countries, 2010, %. ........................................................................................................................... 21 Figure 2.1.2.1 Trends in average gross and net wealth of households in Finland, 1987–2009 (€ in 2009 currency). ......................................................................................................................................... 22 Figure 2.1.2.2 Trends in composition of gross wealth in Finland, 1987–2009 (€ in 2009 currency). ... 23 Figure 2.1.2.3 Trends in financial assets in Finland, 1988–2009 (€ in 2009 currency). ......................... 23 Figure 2.1.2.4 Households’ indebtedness rate in Finland 1975–2011 (%). ........................................... 24 Figure 2.1.2.5 Changes in average debt by disposable income decile in 1987–1994, 1994–1998 and 1998–2009. (%). ............................................................................................................................... 24 Figure 2.1.2.6 Applications for arrangement of debts in 1997–2010. .................................................. 25 Figure 2.1.2.7 Wealth inequality in Finland, 1994–2009. Gini coefficient, %. ...................................... 26 Figure 2.1.2.8 Trends in average net wealth by disposable income decile, 1987–2009 (€ in 2009 currency). ......................................................................................................................................... 27 Figure 2.1.2.9 Changes in average net wealth by disposable income decile in 1987–1994, 1994–1998 and 1998–2009. (%). ........................................................................................................................ 27 Figure 2.1.2.10 The composition of gross wealth by income decile in 1994 and 2009 (%). ................. 28 Figure 2.1.3.1 Labour force participation, employment and unemployment (% of those aged 15–64), 1989–2011........................................................................................................................................ 29 GINI Country Report Finland Figure 2.1.3.2 Unemployment rate (%) by age group, 1989–2011. ...................................................... 30 Figure