Income inequality in Denmark

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Denmark has been noted as having one of the lowest income inequality ratings in the world and has been known to maintain relative stability in this metric throughout decades past. [1] The OECD data of 2016 gives Denmark a Gini coefficient of 0.249, below the OECD average of 0.315. [2] The OECD in 2013 ranked Denmark with having a 0.254 Gini coefficient, ranking third behind Iceland and Norway respectively as the countries with the lowest income inequality qualifications. [3] Eurostat ranked Denmark with a Gini coefficient of equivalised disposable income of 27.0 in 2022, having fallen for three straight years from a high of 27.8 in 2018. The Gini coefficients are measured using a 0–1 calibration where 0 equals complete equality and 1 equals complete inequality. "Wage-distributive outcomes" and their effect on income equality have been noted since the 1970s and 80s. [1] Denmark, along with other Nordic countries, such as Finland and Sweden, has long held a stable low wage inequality index as well. [1]

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The scope and strength of Denmark's redistributive system and the latitude of the welfare state are the reasons for Denmark's low levels of inequality.[ citation needed ] The welfare system, in particular, allows for negligible effects that market income inequality can have on "disposable income inequality (i.e. market income after taxes and transfers)". [2] The rise in income inequality all over the world,[ citation needed ] though, has not shielded Denmark and has seen its inequality increase in the same rate as all the other OECD countries, pairing Denmark with the likes of the United States and Canada with their pace in inequality intensification. [2] The global course towards rising income inequality in the rich world and in Denmark has been attributed to an increase in capital incomes, a rising gap in "earnings dispersion", and structural changes that have taken place within households; the long-term propellant of inequality, though, has been skill-biased technical change. [4] [2] Rising inequality in Denmark can be illustrated by how the boon of GDP growth has gone to households of higher incomes, though the income distribution has been relatively equitably discharged throughout the country from the mid-1980s to the mid-2000s. [2]

Intergenerational earnings elasticity

Economist Miles Corak has documented a relationship called "The Great Gatsby Curve". [5] In this measure, Corak has been able to plot the positive relationship between intergenerational mobility and inequality, and how this relates to the broader concept of equality of opportunity. [5] Corak has stated that in Nordic countries, like Denmark, there is a statistically weak tie between the economic status and earnings of the parents and their adult children, since less than one-fifth of any economic advantage or disadvantage that a father may have had is passed on to an adult son. This “weak tie” is translated to mean that there is a low intergenerational earnings elasticity in Denmark since there is a high level of social mobility and equality of opportunity. [6]

Miles Corak believes that the Great Gatsby Curve should not be treated as a blueprint or model for making economic changes. [5] Also, Corak notes that Denmark may not be the most appropriate model for comparison in analyzing economic policies since it has a small and relatively homogeneous population, which is not easily comparable to large and demographically diverse countries such as the United States. [5]

The Danish intergenerational elasticity of income is flat across the lower parts of the parental distribution, and then rises at the higher end. This means that being raised by a low-income father contributes to no earnings disadvantage, but being raised by a high-income father confers some advantage. [7] This illustrates that there is still a high and strong transmission of economic status at the top income levels, even in the relatively mobile country of Denmark. [5] Specifically, it is shown that the intergenerational transmission of earnings at the very top is associated with the intergenerational transmission of employers since sons of top-earning fathers are more likely to fall from the top strata if they do not work for the same employer that their father had worked for prior. [8] [9]

Educational assortative mating

Danish income inequality is relatively low, yet the rate of educational homogamy has declined despite increasing levels of educational attainment. [10] In research done by Richard Breen and Signe Hald Andersen, they have found that in Denmark, with a rather more regulated labor market, the education of an individual is more closely related to his or her income. These researches have found this to be particularly the case for women in Denmark. The authors develop this as a consequence of the highly developed Danish welfare state, and the subsequent high levels of participation of married women in the labour force. Approximately 87% of married women participate in the labour force, and this participation is generally uninterrupted for child-rearing since there are extremely generous parental leave policies, as well as free or highly subsidized child daycare. [10] Denmark presents a unique case since there is an illustrated causal link between the changes in educational assortative mating and earnings or income inequality. [10]

How income inequality relates to happiness

Modern studies have posited a possible link between low levels of income inequality and happiness. Denmark, in terms of happiness, ranks as 1st in the World Happiness Report of 2016, with a score of 7.526. [11] The report remarks that among the factors used in the past in evaluating happiness, incomes, healthy lifestyles and social support have ranked as the highest in their importance. [11] Income inequality, in particular, across various studies have seen a direct correlation with happiness: "Individuals tend to declare lower happiness levels when inequality happens to be high...[and there is] strong negative effects of inequality on the happiness of the European poor and leftists". [12] Danish society is for the most part of a leftish orientation politically. Documented from 1980 to 1987, the level of happiness declined as inequality increased in Denmark. [12] Danish society, as well as their European counterparts, perceive high levels of inequality as more egregious than other non-Europeans countries, such as in the United States, for example. [12]

As has been remarked, low levels of inequality are aided by government redistribution, which can, in turn, lead to higher levels of happiness. In order to rein in inequality, the redistributive mechanisms of the state need to be strengthened. [13] Denmark and the Nordic countries also have the lowest levels of individual earnings inequality and this is due to the high capacity of the redistributive system. [13] The links between happiness, equality and redistribution need to be explored further, though, as many studies have appeared to contradict a strong correlation between them.[ citation needed ]

Among these studies there is a negative correlation between happiness and income inequality: "It seems rather evident that people live happier in the most egalitarian societies and that the differences in happiness will be smaller. Yet in this issue, we have seen that this does not apply to all inequalities and particularly not to income inequality. Income inequality is essentially unrelated to the average happiness of citizens and only modestly related to the dispersion of happiness among them." [14] In the World Happiness Report for Denmark, the authors fashion a new approach where they measure happiness in terms of "inequality of well-being". [11] The novelty of the approach needs to garner more consensus to add to the research between happiness and inequality. Nonetheless, using this approach, the report found that while income is an important factor, equality of well-being and life satisfaction are better indicators of happiness. [11] Denmark ranks high on life satisfaction and in how they perceive themselves and others to be happy; meaning the inequality of well-being in Denmark is low. [11]

Evidence suggests that a relationship may yet exist between income and happiness, but using metrics such as the Gallup World poll, happiness gaps among countries, and in Denmark in particular, may have deeper unknown variables at work that transcend income inequality. [15] General disparities of inequality in Danish society are low and are a part of the broader moral philosophy of egalitarianism that is characteristic of Scandinavia and holds that policymakers be morally impelled to suppress inequality as much as possible. [14] Denmark, in terms of this institutional egalitarianism, has been labelled as having a social-democratic regime of welfare. [16] The substantiality of the welfare state's reach in Denmark concerning income equality has led it to protect its citizens against the worst impact of the market and capitalism's more destabilizing effects. [16] Even amid bad economic conditions in Denmark's past, poverty has lessened and standards of living and equality have increased. [16] The preponderance of the evidence between income inequality and happiness suggests a possible link, but more research is needed for far-ranging conclusions.

Related Research Articles

<span class="mw-page-title-main">Gini coefficient</span> Measure of inequality of a distribution

In economics, the Gini coefficient, also known as the Gini index or Gini ratio, is a measure of statistical dispersion intended to represent the income inequality, the wealth inequality, or the consumption inequality within a nation or a social group. It was developed by Italian statistician and sociologist Corrado Gini.

<span class="mw-page-title-main">Progressive tax</span> Form of tax

A progressive tax is a tax in which the tax rate increases as the taxable amount increases. The term progressive refers to the way the tax rate progresses from low to high, with the result that a taxpayer's average tax rate is less than the person's marginal tax rate. The term can be applied to individual taxes or to a tax system as a whole. Progressive taxes are imposed in an attempt to reduce the tax incidence of people with a lower ability to pay, as such taxes shift the incidence increasingly to those with a higher ability-to-pay. The opposite of a progressive tax is a regressive tax, such as a sales tax, where the poor pay a larger proportion of their income compared to the rich

<span class="mw-page-title-main">Economic inequality</span> Distribution of income or wealth between different groups

Economic inequality is an umbrella term for a) income inequality or distribution of income, b) wealth inequality or distribution of wealth, and c) consumption inequality. Each of these can be measured between two or more nations, within a single nation, or between and within sub-populations.

<span class="mw-page-title-main">Social mobility</span> Mobility to move social classes

Social mobility is the movement of individuals, families, households or other categories of people within or between social strata in a society. It is a change in social status relative to one's current social location within a given society. This movement occurs between layers or tiers in an open system of social stratification. Open stratification systems are those in which at least some value is given to achieved status characteristics in a society. The movement can be in a downward or upward direction. Markers for social mobility such as education and class, are used to predict, discuss and learn more about an individual or a group's mobility in society.

<span class="mw-page-title-main">Income distribution</span> How a countrys total GDP is distributed amongst its population

In economics, income distribution covers how a country's total GDP is distributed amongst its population. Economic theory and economic policy have long seen income and its distribution as a central concern. Unequal distribution of income causes economic inequality which is a concern in almost all countries around the world.

Income inequality metrics or income distribution metrics are used by social scientists to measure the distribution of income and economic inequality among the participants in a particular economy, such as that of a specific country or of the world in general. While different theories may try to explain how income inequality comes about, income inequality metrics simply provide a system of measurement used to determine the dispersion of incomes. The concept of inequality is distinct from poverty and fairness.

<span class="mw-page-title-main">Economic mobility</span> Ability to improve ones economic status

Economic mobility is the ability of an individual, family or some other group to improve their economic status—usually measured in income. Economic mobility is often measured by movement between income quintiles. Economic mobility may be considered a type of social mobility, which is often measured in change in income.

In economics, personal income refers to the total earnings of an individual from various sources such as wages, investment ventures, and other sources of income. It encompasses all the products and money received by an individual.

<span class="mw-page-title-main">Nordic model</span> Social and economic model in Nordic countries

The Nordic model comprises the economic and social policies as well as typical cultural practices common in the Nordic countries. This includes a comprehensive welfare state and multi-level collective bargaining based on the economic foundations of social corporatism, and a commitment to private ownership within a market-based mixed economy—with Norway being a partial exception due to a large number of state-owned enterprises and state ownership in publicly listed firms.

<span class="mw-page-title-main">Income inequality in the United States</span>

Income inequality has fluctuated considerably in the United States since measurements began around 1915, moving in an arc between peaks in the 1920s and 2000s, with a 30-year period of relatively lower inequality between 1950 and 1980.

<span class="mw-page-title-main">Social inequality</span> Uneven distribution of resources in a society

Social inequality occurs when resources within a society are distributed unevenly, often as a result of inequitable allocation practices that create distinct unequal patterns based on socially defined categories of people. Differences in accessing social goods within society are influenced by factors like power, religion, kinship, prestige, race, ethnicity, gender, age, sexual orientation, and class. Social inequality usually implies the lack of equality of outcome, but may alternatively be conceptualized as a lack of equality in access to opportunity.

Redistribution of income and wealth is the transfer of income and wealth from some individuals to others through a social mechanism such as taxation, welfare, public services, land reform, monetary policies, confiscation, divorce or tort law. The term typically refers to redistribution on an economy-wide basis rather than between selected individuals.

<span class="mw-page-title-main">Welfare's effect on poverty</span>

The effects of social welfare on poverty have been the subject of various studies.

<span class="mw-page-title-main">Socioeconomic mobility in the United States</span> Social and economic class mobility

Socioeconomic mobility in the United States refers to the upward or downward movement of Americans from one social class or economic level to another, through job changes, inheritance, marriage, connections, tax changes, innovation, illegal activities, hard work, lobbying, luck, health changes or other factors.

<span class="mw-page-title-main">Great Gatsby Curve</span> Relates income inequality and income mobility

The "Great Gatsby Curve" is the term given to the positive empirical relationship between cross-sectional income inequality and persistence of income across generations. The scatter plot shows the relationship between income inequality in a country and intergenerational income mobility.

Sweden enjoys a relatively low income inequality and a high standard of living. Unemployment as of 2017 was estimated to be 6.6% by the CIA World Fact Book, lower than in other European Union countries. The Nordic model of a social welfare society exemplified by Sweden and its near neighbours has often been considered a European success story compared internationally with the socioeconomic structures of other developed industrial nations. This model of state provided social welfare includes many unemployment benefits for the poor, and amply funded health, housing and social security provision. within essentially corruption free nations subscribing to principles of a measure of openness of information about government activity. The Income inequality in Sweden ranks low in the Gini coefficient, being 25.2 as of 2015 which is one of the lowest in the world, and ranking similarly to the other Nordic countries; although inequality has recently been on the rise and several central European countries now have a lower Gini coefficient than Sweden.

<span class="mw-page-title-main">Effects of economic inequality</span>

Effects of income inequality, researchers have found, include higher rates of health and social problems, and lower rates of social goods, a lower population-wide satisfaction and happiness and even a lower level of economic growth when human capital is neglected for high-end consumption. For the top 21 industrialised countries, counting each person equally, life expectancy is lower in more unequal countries. A similar relationship exists among US states.

Poverty in Norway had been declining from World War II until the Global Financial Crisis. It is now increasing slowly, and is significantly higher among immigrants from the Middle East and Africa. Before an analysis of poverty can be undertaken, the definition of poverty must first be established, because it is a subjective term. The measurement of poverty in Norway deviates from the measurement used by the OECD. Norway traditionally has been a global model and leader in maintaining low levels on poverty and providing a basic standard of living for even its poorest citizens. Norway combines a free market economy with the welfare model to ensure both high levels of income and wealth creation and equal distribution of this wealth. It has achieved unprecedented levels of economic development, equality and prosperity.

References

  1. 1 2 3 Rueda, David; Pontusson, Jonas (2000-04-01). "Wage Inequality and Varieties of Capitalism". World Politics. 52 (3): 350–383. doi:10.1017/S0043887100016579. ISSN   1086-3338.
  2. 1 2 3 4 5 Smidova, Zuzana; Klein, Caroline; Ruiz, Nicolas; Hermansen, Mikkel; Causa, Orsetta (2016). "Inequality in Denmark through the Looking Glass" (PDF). OECD Economics Department Working Papers. doi:10.1787/5jln041vm6tg-en.{{cite journal}}: Cite journal requires |journal= (help)
  3. ↑ "Income Inequality". Archived from the original on 2019-09-18.
  4. ↑ "skill-biased technical change" (PDF). NYU.edu. Retrieved 3 July 2017.
  5. 1 2 3 4 5 Corak, Miles (2013). "Income Inequality, Equality of Opportunity, and Intergenerational Mobility". The Journal of Economic Perspectives. 27 (3): 79–102. doi: 10.1257/jep.27.3.79 . hdl: 10419/80702 . JSTOR   41955546.
  6. ↑ "This Chart Makes A Joke Out Of The American Dream". Business Insider.
  7. ↑ Bratsberg, Bernt; Røed, Knut; Raaum, Oddbjørn; Naylor, Robin; Ja¨ntti, Markus; Eriksson, Tor; O¨sterbacka, Eva (1 March 2007). "Nonlinearities in Intergenerational Earnings Mobility: Consequences for Cross-Country Comparisons*". The Economic Journal. 117 (519): C72–C92. CiteSeerX   10.1.1.545.9052 . doi:10.1111/j.1468-0297.2007.02036.x. ISSN   1468-0297. S2CID   16653479.
  8. ↑ Corak, Miles; Piraino, Patrizio (19 April 2010). "Intergenerational Earnings Mobility and the Inheritance of Employers". Social Science Research Network. SSRN   1591703.{{cite journal}}: Cite journal requires |journal= (help)
  9. ↑ Corak, Miles; Piraino, Patrizio (2011). "The Intergenerational Transmission of Employers". Journal of Labor Economics. 29 (1): 37–68. doi:10.1086/656371. hdl: 10419/36086 . S2CID   14049279.
  10. 1 2 3 Breen, Richard; Andersen, Signe Hald (2012). "Educational Assortative Mating and Income Inequality in Denmark". Demography. 49 (3): 867–887. doi: 10.1007/s13524-012-0111-2 . JSTOR   23252675. PMID   22639010.
  11. 1 2 3 4 5 "World Happiness Report 2016" (PDF). Archived from the original (PDF) on 2016-03-22.
  12. 1 2 3 Alesina, Alberto; Di Tella, Rafael; MacCulloch, Robert (2004-08-01). "Inequality and happiness: are Europeans and Americans different?". Journal of Public Economics. 88 (9–10): 2009–2042. CiteSeerX   10.1.1.203.664 . doi:10.1016/j.jpubeco.2003.07.006.
  13. 1 2 Kenworthy, Lane (2008). Jobs with Equality. Oxford University Press. pp. 82–83. ISBN   978-0-19-955059-3.
  14. 1 2 Veenhoven, Ruut; Kalmijn, Wim (2005). "Inequality-Adjusted Happiness in Nations Egalitarianism and Utilitarianism Married in a New Index of Societal Performance". Journal of Happiness Studies. 6 (4): 421–455. doi:10.1007/s10902-005-8857-5. hdl: 1765/7204 . ISSN   1389-4978. S2CID   53500428.
  15. ↑ "I dream of Gini". The Economist. 2011-10-12.
  16. 1 2 3 Esping-Andersen, Gøsta (1990). The Three Worlds of Welfare Capitalism. Princeton, New Jersey: Princeton University Press. ISBN   9780069028573.
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