Nordic Economic Policy Review 2018: Increasing income inequality

The first issue of the new Nordregio Magazine focuses on income disparities in the Nordic countries. Inequality has increased more here than in most OECD countries and women still earn far less than men – read more in our two feature articles below.

The latest issue of the Nordic Economic Policy Review, published in April 2018, brings together five contributions dealing with various aspects of income inequality in the four countries of Denmark, Finland, Norway and Sweden. In this issue of the new Nordregio Magazine you can get an overview of how the Nordic countries are doing in an international context and take a closer look at the differences between the incomes of men and women.

The Nordic Economic Policy Review was launched by the Nordic Ministers of Finance back in 2009, and Nordregio has acted as communications and project coordinator since 2015. One issue per year is released, each with a different economic theme that is high on the political agenda. The review is unique in that it gives a Nordic perspective and an opportunity to compare the countries and their different (or similar) policies on different topics. The review is produced and published in collaboration with the secretariat for the Nordic Council of Ministers in Copenhagen, the Ministries of Finance in all the Nordic countries and Nordregio. Editor since 2017 is Professor Lars Calmfors.

Excerpt from “Increasing Income inequality – Nordic Economic Policy Review 2018”:

Income inequality has increased more in the Nordic countries than in most OECD countries since the early 1990’s. The starting point, however, was exceptionally low, and inequality in the region remains well below the OECD average. Capital income has become a more significant factor of inequality, partly because two-thirds of all dividends go to the top one per cent, and redistribution has weakened, thus contributing to the trend.

Throughout the Review, 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 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 relative poverty rates using the same income measures. Another finding is that, while there are many similarities in general inequality trends as well as in levels among the Nordic countries, there are also often important differences, highlighting the importance of individual country studies.

The first article by Jon Pareliussen, Mikkel Hermansen, Christophe André and Orsetta Causa gives an international perspective on the inequality developments in the Nordic countries. The authors show how inequality, as measured by equivalised disposable incomes, has indeed increased substantially in the Nordic countries since the early 1990s, especially in Sweden and Finland. But it also points out that inequality levels were historically very low in the 1980s and that the levels remain below the OECD average.

One of the reasons for the increased inequality identified by Pareliussen and his co-authors, the increased income share going to top earners, is the topic of the paper by Jacob Søgaard. The development of top incomes has received a lot of interest in recent years, especially after the publication of Thomas Piketty’s (2014) Capital in the Twenty-First Century. Søgaard surveys the strand of research – the so called top income literature – that underlies much of this debate. Søgaard shows that higher capital incomes for the top one per cent are an important reason for the increase in the share of total incomes going to this group in Finland and Sweden, whereas this is not the case in Denmark and Norway.

Anne Boschini and Kristin Gunnarsson study another dimension of inequality that has also received much attention in recent years: that between men and women. This is an aspect where the Nordic countries are also often seen as global leaders, typically coming out on top in various rankings. Conventional analysis of income distribution assumes that incomes are split equally among the members of a household. However, to the extent that this is not true (and consumption levels of individual household members are instead linked to who earned the income), it is also relevant to measure inequality at the individual instead of at the household level.

The study of gender and the potential changes in inequality that may result from differences in how men and women sort into different households illustrates a more general point: the composition of the population matters for income distribution. There are many dimensions of this: how large a share of the population belongs to different age groups, how many are students, how many are immigrants, etc. The impact of such compositional changes on measures of inequality is the topic of the contribution by Jon Pareliussen and Per Olof Robling.

An important feature (some would say the most important feature) of the Nordic welfare model is the generous provision of welfare services at low or zero cost to the individual. This obviously has an impact on the link between individual disposable income and individual well-being. How does the picture of inequality and poverty change if we include (the value of) these government-provided services in the measures used? This is the question posed in the article by Rolf Aaberge, Audun Langørgen and Petter Lindgren.

The review is available as a fulltext pdf here and more information about the review as well as previous issues can be found at

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