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Friday, August 31, 2007

"Cross-Country Comparisons of Inequality in Market and Disposable Income: Policy Matters"

Stephen Gordon looks at the relationship between inequality and government policy:

Cross-country comparisons of inequality in market and disposable income: Policy matters, Worthwhile Canadian Initiative: This graph is taken from a recent Luxembourg Income Study (LIS) working paper (45-page pdf):

Wci
Click on graph to enlarge

The countries are arranged in ascending order of inequality in disposable income, and  the Nordic countries take four of the top five positions. What strikes me is the extent to which this is due to government policy: the Gini coefficient for market income in Canada is the same as Denmark's, and is quite a bit lower than in Sweden. Indeed, Sweden is closer to the US than it is to any of the other Nordic countries.

A recurrent theme in discussions of the Nordic model takes the form of "That's all very well, but those policies won't work here without [insert some feature of Nordic countries here]." Libertarian types who would otherwise approve of the free market dynamism of the Nordics assert that the Nordic model can only work in small, homogeneous countries. As a general argument, I'm not convinced - but I can see why it would be hard to export the Nordic model to the US.

At the other end of the spectrum - those who would otherwise approve of Nordic levels of spending on social programs - some (eg: this commenter) point to the role of trade unions. But it's hard to conclude from this chart that union density matters much when it comes to reducing inequality. For example, look at Germany (where unions play a crucial role in setting wages) and the US (where they are decidedly less important): both have identical levels of inequality of market income. The distribution of disposable income is lower in Germany because of its redistributive policies, not because unions are more powerful.

That's not to say that cross-country institutional/cultural idiosyncrasies aren't important; they are. But there's little reason to believe that these factors have to be  changed before the Nordic model can work.

    Posted by on Friday, August 31, 2007 at 12:24 AM in Economics, Income Distribution, Social Insurance | Permalink  TrackBack (2)  Comments (17)

          

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    » Why Unions Matter from Political Animal

    WHY UNIONS MATTER....Mark Thoma hosts a conversation over at Economist's View today. First, Stephen Gordon writes about the effect of unions on income inequality:It's hard to conclude from this chart that union density matters much when it comes to red... [Read More]

    Tracked on Friday, August 31, 2007 at 10:43 AM

    » Why Unions Matter from Political Animal

    WHY UNIONS MATTER....Mark Thoma hosts a conversation over at Economist's View today. First, Stephen Gordon writes about the effect of unions on income inequality:It's hard to conclude from this chart that union density matters much when it comes to red... [Read More]

    Tracked on Thursday, July 02, 2009 at 12:27 PM


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