The Nordics Have Low Inequality Mostly Because of Welfare
The Nordic countries have far less economic inequality than the United States. Most of the difference is due to the Nordics’ welfare states.
If you really want to reduce inequality, you need to ensure nonworkers have money. That means you need a strong welfare state. (Andrey Rudakov / Bloomberg via Getty Images)
In one part of a rather ambitious article in the Journal of Economic Literature’s September issue, Norwegian economists Magne Mogstad, Kjell Salvanes, and Gaute Torsvik attempt to identify the causes of the relative income equality enjoyed by Nordic countries compared to other developed economies. Sadly, over the couple of months since the article was published, this bit of their research has been taken up by advocates of predistribution over redistribution as proof welfare programs are less effective weapons in the fight against income inequality.
The authors aren’t totally blameless of course. One of their paper’s key findings, they wrote, is “that a more equal predistribution of earnings, rather than income redistribution, is the main reason for the lower income inequality in the Nordic countries compared to the United States and the United Kingdom.” This is wrong.
Without getting too into the weeds, Mogstad, Salvanes, and Torsvik tried to draw out the effects of redistribution by looking at OECD data on countries’ Gini coefficients — a common measure of income inequality — before and after accounting for taxes and transfers.
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