Searching for Optimal Inequality/Incentives

Anders Bjorklund and Richard Freeman

No 14014, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: J0 J01 J08 J24 J3 (search for similar items in EconPapers)
Date: 2008-05
New Economics Papers: this item is included in nep-lab
Note: LS
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Published as Searching for Optimal Inequality/Incentives , Anders Björklund, Richard B. Freeman. in Reforming the Welfare State: Recovery and Beyond in Sweden , Freeman, Swedenborg, and Topel. 2010

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