GINI DP 60: Income Inequality and Poverty during Economic Recession and Growth: Sweden 1991-2007

Jan Jonsson, C. Mood and E. Bihagen
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Jan Jonsson: Swedish Institute for Social research

GINI Discussion Papers from AIAS, Amsterdam Institute for Advanced Labour Studies

Abstract: Does increasing income inequality also imply increased poverty? The answer to this question would intuitively appear to be “yes”, but the issue is more involved than that. Especially, because both inequality and poverty are likely to be related to business cycles, studying the relation between them means that we need to uncover the dynamics of economic growth and decline, and how these changes relate to income differences and poverty risks. This is what we do in this paper. We illuminate the relation between inequality and poverty by studying the case of Sweden 1991- 2007, a period of great macro-economic changes, from boom to bust to boom again. It is not our intention to address the issue of causality; if possible at all, answering such a question would require very long time periods and/or many countries. But we are able to show that for a modern Western economy, a deep recession reduced income inequality but increased poverty, measured as the risk of falling below the (“absolute”) poverty line. Income inequality, during this period, was pro-cyclical, increasing as the economy improved. Poverty, on the other hand, was anti-cyclical – while increasing during the recession, it decreased during growth.

Date: 2013-08
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