Searching for Optimal Inequality/Incentives

Anders Björklund and Richard B. Freeman

in Reforming the Welfare State

Published by University of Chicago Press

Published in print April 2010 | ISBN: 9780226261928
Published online February 2013 | e-ISBN: 9780226261911 | DOI:
Searching for Optimal Inequality/Incentives

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This chapter examines the extent to which the economic crisis and recovery in Sweden affected the egalitarian goal of the welfare state. It shows that while inequality increased in the 1990s, Sweden maintained its position as one of the most egalitarian economies in the world and continued its successful conquest of poverty. Rising inequality in Sweden took the form of faster income growth for higher-income families rather than of lower real income for poorer families. The welfare state buttressed the incomes of those at the bottom. The area in which inequality increased most dramatically was in the distribution of hours worked because of a higher rate of unemployment and lower labor force participation among low-wage individuals, reflecting Sweden's failure to recover its full employment status after the crisis. The chapter highlights the fact that Sweden's narrow income distribution reflected not only a compressed wage structure, welfare state tax, and spending policy, but also reflected narrow dispersion in hours worked, as most adults had jobs and worked comparable hours.

Keywords: Sweden; welfare state; financial crisis; economic crisis; labor force; income distribution

Chapter.  12523 words.  Illustrated.

Subjects: Public Economics

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