Searching for Optimal Inequality/Incentives

38 Pages Posted: 26 May 2008 Last revised: 17 Oct 2022

See all articles by Anders Bjorklund

Anders Bjorklund

Stockholm University; IZA Institute of Labor Economics

Richard B. Freeman

National Bureau of Economic Research (NBER); University of Edinburgh - School of Social and Political Studies; Harvard University; London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)

Date Written: May 2008

Abstract

This paper examines the evolution of economic inequality in Sweden before, during and after the major macro-economic recession in the early 1990s. Earnings and income inequality increased after the downturn, but government safety net programs buttressed disposable income for those with low income, and despite the rise in inequality, Sweden remained one of the most egalitarian economies in the world. The rise in inequality raised the return to observable skills, but the returns are still too low to explain that Sweden moved to the top of the league tables in knowledge intensive activities. Our analysis of attitudes to inequality shows that more Swedes expressed more concern over the inequity in inequality after the rise in inequality in the 1990s than in the past. Further, more Swedes expressed greater dissatisfaction with wages and working conditions. On the other hand, the rise in unemployment did not reduce overall subjective well being, probably because individuals adapted to higher levels of unemployment.

Suggested Citation

Bjorklund, Anders and Freeman, Richard B., Searching for Optimal Inequality/Incentives (May 2008). NBER Working Paper No. w14014, Available at SSRN: https://ssrn.com/abstract=1137107

Anders Bjorklund

Stockholm University ( email )

Swedish Institute for Social Research (SOFI)
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IZA Institute of Labor Economics

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Richard B. Freeman (Contact Author)

National Bureau of Economic Research (NBER) ( email )

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