Unemployment Shocks and Income Distribution: How did the Nordic Countries Fare during their Crises?

Abstract

Abstract:We analyse how inequality of disposable income evolved in Denmark, Finland, Norway and Sweden during the late 1980s and early 1990s when unemployment rose dramatically in all four countries. We find that a standard measure of inequality -the Gini coefficient -was surprisingly stable in all countries over this period. By decomposing the Gini coefficient into a number of income components, we can test hypotheses about the reasons for the stable income distribution. Our most straightforward hypothesis, that rising unemployment benefits have counteracted the impact of more unequally distributed earnings, gets only limited support. More complex mechanisms seems to have been at work in the Nordic countries.

Made in China, sold in Norway: Local labor market effects of an import shock

“…In general, Norway has the institutional characteristics of the so-called 'Nordic model'. One important feature of this model is a centralized wage bargaining system that has produced a relatively compressed wage structure that has not changed much over time (Aaberge, Bjorklund and Smith (2000), Haegeland, Klette and Salvanes (1999), and Kahn (1998)). …”

Income Distribution and Poverty in Selected OECD Countries

“…Aaberge et al (1996) and Gottschalk and Smeeding (1997) reported a rather steep increase in the Gini coefficient of annual disposable incomes among individuals between 1986 and 1990; Aaberge et al (1997) reported a somewhat smoother increase in the Gini coefficient for the adult working-age population between 1987 and 1990. Estimates for the Gini coefficient for the population aged 18 and over indicate broad stability in the 1980s, and a slight decrease in the early 1990s (Danish Ministry of Finance, 1997).…”

“…Estimates for the Gini coefficient for the population aged 18 and over indicate broad stability in the 1980s, and a slight decrease in the early 1990s (Danish Ministry of Finance, 1997). According to Aaberge et al (1997), the contribution of earnings to income inequality increased between 1986 and 1990.…”

“…Restricting their analysis to the adult working-age population, Aaberge et al (1997) described Finnish inequality as stable over the period 1989 to 1993. Jäntti et al (1996) found that the average income of the elderly doubled in real terms during the period from 1966 to 1990, resulting in the near eradication of poverty among the elderly, and a narrowing in the distribution of income within this group.…”

“…While data from 1989 are not fully comparable with preceding years 11 , they point to a further significant widening in the distribution. This increase may have been exaggerated in 1994, reflecting tax incentives to realise capital gains (Aaberge et al, 1997). Gustaffson and Palmer (1996) concluded that the change in the distribution of disposable 11.…”