The Nordic Poor Are Much Better Off Than the US Poor

Cato's Dan Mitchell had a misleading post today claiming that the poor in the US are better off than the poor in the Nordic countries. In his post, he cites Warren Meyer as showing that in Denmark and Sweden, the poor are actually worse off (or similarly well off) as in the United States. Meyer and Mitchell both make the same simple mistake: they use household income rather than per-capita or equivalized income.

Here are the two graphs Mitchell uses to supposedly show that the poor in Denmark and Sweden aren't better off:

The issue here is you can't use household income data this way, not if you intend to be taken seriously at least. Under this household income metric, a 10-person household with a disposable income of $20,000 per year is counted as identical to a 2-person household with a disposable income of $20,000 per year. But this is obviously nuts.

If you want to produce meaningful income comparisons, you need to adjust household income for household size. The easiest way to do that is to simply divide a household's disposable income by the number of people in the household. This is called per-capita income. Under this approach, each person in the 10-person household above would be counted as having $2,000 of income ($20,000/10) while each person in the 2-person household above would be counted as having $10,000 of income ($20,000/2).

The more typical per-capita measure for the US, Denmark, and Sweden looks like this (using the same 2004 LIS data):

As you can see, the poorest 5th percentile in Sweden has 48% more income than the poorest 5th percentile in the US. In Denmark, it's 63% more. The Nordic income advantage runs up to around the 30th percentile, at which point, under this measure, the US eclipses it.

The US eclipsing of the Nordics in the middle percentiles is deceptive, however. These income measurements only count income and income-like things (such as food stamps, housing vouchers, and the like). The middle percentiles in the Nordic countries also enjoy (as does everyone else in the country) free health care, free college, and heavily subsidized child care. If you imputed the value of those public services into the middle-class incomes (no need to pay health premiums, child care, or save for college), the Nordic advantage would probably extend at least to the 50th percentile.

Mitchell claims:

So here’s the bottom line. If you’re a poor person in America, your income is as high as the incomes of your counterparts in Scandinavia.

This simply isn't true.