Sweden's Equality Death March Continues

A recent update to the OECD distribution data shows that Sweden continues to lose ground on important inequality indicators, as they have steadily done since liberalization. In particular, Sweden's child poverty rate, generally the most impressively low statistic in the Nordic social democracies, has jumped dramatically:

Relative child poverty is at least slightly up in all four of the major Nordics, but Sweden's child poverty rate is up nearly four-fold from 2.5% to 9.4%. It is getting to be so high that even the Anglo liberal market economy of the United Kingdom may move ahead of Sweden soon. In 2011, the UK's child poverty rate was only one tick higher than Sweden's at 9.5%, thanks in significant part to the UK's child allowance program.

When I mentioned this on Twitter, some suggested this may not be because of liberalization, but because of immigration. Perhaps it's not that Sweden has become substantially more stingy, but that immigration into Sweden has inflated the ranks of those with low market incomes, which has also helped to inflate the rank of those who are in poverty (even when measured after transfers).

I don't have access to microdata that would allow a fully dispositive analysis of this theory, but the data we do have on market income distribution strongly suggests otherwise. In particular, the major problem with this theory is that Sweden's market income poverty rate actually declined over the period. All of the increase in disposable income poverty (aka post-tax, post-transfer poverty) appears to be coming from tax and transfer changes:

If you make the same graph with Gini (an overall inequality metric), you get the same result as well. Since 1995, Sweden's market income Gini has declined (meaning lower market income inequality) while the disposable income Gini has increased. It seems, then, that it really is a weakening welfare state that's to blame.

Some might accept this higher level of inequality as a necessary trade off for growth. However, cross-country analyses do not show such a trade off to exist, as high-inequality liberal market economies have not grown faster than the Nordics or the continental market economies over the past few decades. The biggest cross-country analysis to date on the topic, done by the IMF, showed that reducing inequality through transfers actually tended to increase growth. Even among the Nordics, Sweden has not grown the fastest since the mid-1990s. According to the World Bank, Sweden's per capita GDP grew faster over that period than Norway's and Denmark's, but slower than Finland's, the most Nordic-y of them all.

That weakening egalitarian distributive institutions weakens egalitarianism should come as no surprise, of course. It is helpful to point it out when it happens though just to drive home the point: institutions do matter, and when you opt for inegalitarian ones (as we have in this country), you get inegalitarian outcomes. Although I criticize Sweden's child poverty rising to 9.4%, in our great hyper-inegalitarian U.S., it's at 20.5%. So it's all relative.

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