INCREASING INCOME INEQUALITY in the Nordics Nordic Economic Policy Review 2018 Increasing Income Inequality in the Nordics Nordic Economic Policy Review 2018 Rolf Aaberge, Christophe André, Anne Boschini, Lars Calmfors, Kristin Gunnarsson, Mikkel Hermansen, Audun Langørgen, Petter Lindgren, Causa Orsetta, Jon Pareliussen, P-O Robling, Jesper Roine, Jakob Egholt Søgaard TemaNord 2018:519 Increasing Income Inequality in the Nordics Nordic Economic Policy Review 2018 Rolf Aaberge, Christophe André, Anne Boschini, Lars Calmfors, Kristin Gunnarsson, Mikkel Hermansen, Audun Langørgen, Petter Lindgren, Causa Orsetta, Jon Pareliussen, P-O Robling, Jesper Roine, Jakob Egholt Søgaard ISBN 978-92-893-5511-7 (PRINT) ISBN 978-92-893-5512-4 (PDF) ISBN 978-92-893-5513-1 (EPUB) http://dx.doi.org/10.6027/TN2018-519 TemaNord 2018:519 ISSN 0908-6692 Standard: PDF/UA-1 ISO 14289-1 © Nordic Council of Ministers 2018 Disclaimer This publication was funded by the Nordic Council of Ministers. 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The Nordic Council of Ministers Nordens Hus Ved Stranden 18 DK-1061 Copenhagen K, Denmark Tel.: +45 3396 0200 www.norden.org Download Nordic publications at www.norden.org/nordpub Contents Introduction Lars Calmfors and Jesper Roine ............................................................................................ 6 Income Inequality in the Nordics from an OECD Perspective Jon Kristian Pareliussen, Mikkel Hermansen, Christophe André and Orsetta Causa ................ 17 Comment by Jørgen Elmeskov ................................................................................................. 58 Comment by John Hassler .......................................................................................................6 2 Top Incomes in Scandinavia – Recent Developments and the Role of Capital Income Jakob Egholt Søgaard ........................................................................................................ 66 Comment by David Domeij ...................................................................................................... 95 Comment by Niels Ploug .........................................................................................................98 Gendered Trends in Income Inequality Anne Boschini and Kristin Gunnarsson .............................................................................. 100 Comment by Karin Hederos and Anna Sandberg ..................................................................... 128 Comment by Lars Haagen Petersen ....................................................................................... 133 Demographic Change and Inequality Trends in the Nordic Countries Jon Kristian Pareliussen and Per Olof Robling .................................................................... 136 Comment by Arent Skjæveland .............................................................................................. 167 Comment by Thorvaldur Gylfason .......................................................................................... 172 Accounting for Public In-Kind Transfers in Comparisons of Income Inequality between the Nordic Countries Rolf Aaberge, Audun Langørgen and Petter Y. Lindgren ..................................................... 175 Comment by Tuulia Hakola .................................................................................................... 206 Comment by Jukka Pirttilä ..................................................................................................... 210 Nordic Economic Policy Review 5 Introduction Lars Calmfors1 and Jesper Roine2 In recent years income distribution issues have received increased attention in most economically advanced countries both in the public debate and in academic circles. This reflects an international trend towards increased income inequality, a trend which has also affected the Nordic countries long associated with far-reaching egalitarian ambitions. As the inequality increases in the Nordics have been among the largest in the OECD area over the past decades, developments here have received particular attention internationally (see, e.g., OECD 2011, OECD 2015 and Morelli et al. 2015). This, in turn, has led to an on-going debate between those who see the rising income disparities as a threat to the Nordic welfare model and those who emphasise that inequality has increased from historically low levels and that the Nordics still remain among the countries with the most even income distribution. The inequality debate is sometimes difficult to follow for a very simple reason: it is not always specified what kind of inequality is referred to. Typically it is even less clear exactly which mechanisms that are thought to be at work when statements about negative (or positive) consequences of inequality are made. Inequality is a genuinely complex and multidimensional concept. There is no one obvious measure that would capture the “true inequality” in society. Should we, for example, care more about inequality in income or in wealth or in consumption, or perhaps in some other dimension? Should we consider inequality between households or individuals or perhaps some other division of the population? Does it matter if inequality is driven by the poor falling behind or the rich becoming even richer? Should we measure income inequality at a fixed point in time or consider lifetime incomes? To further complicate matters, consequences of income inequality 1 Research Institute of Industrial Economics and Institute for International Economics, Stockholm University. 2 Stockholm Institute of Transition Economics, Stockholm School of Economics. 6 Increasing Income Inequality in the Nordics take on many forms, over different time spans and, importantly, they also interact with how society is organised. In particular, depending on the role of government in providing different goods and services, the link between disposable income and well- being may be very different. This issue of the Nordic Economic Policy Review brings together a number of contributions dealing with various aspects of inequality in the four countries of Denmark, Finland, Norway and Sweden. Throughout, the articles focus on cross- sectional yearly data on income inequality between individuals. The income concept, however, varies both between and within the different papers. The analysis sometimes focuses on earnings or total market incomes before taxes and transfers, sometimes on equivalised disposable incomes (incomes after taxes and transfers taking household size into account) and sometimes even on extended income also considering public in-kind transfers. Recurring themes in the papers are how inequality may differ across these dimensions, how such differences may give important information about what causes changes in inequality, but also – somewhat paradoxically – how trends in inequality often look similar regardless of what measures are used: individual top income shares before taxes and transfers, Gini coefficients for (conventional or extended) equivalised disposable incomes or