Income Inequality and Structural Transformation: Evidence from Swedish Micro Data,1870–1970

Why did income inequality decline so dramatically during the twentieth century? Existing explanations often emphasise progressive taxation, welfare state expansion, or the economic disruptions caused by war. Yet these explanations leave important questions unanswered, particularly in countries such as Sweden, which remained neutral during both World Wars but nevertheless experienced a major reduction in inequality.

In this paper, Erik Bengtsson, Jakob Molinder, and Svante Prado examine how structural transformation shaped the evolution of income inequality in Sweden between 1870 and 1970. Combining newly collected historical microdata with tax records, census sources, and administrative data, the authors analyse how the shift from an agrarian economy to one based on industry and services transformed the income distribution over the course of a century.

KEY FINDINGS

• Income inequality declined substantially. The top 10% income share fell from 54% in 1870 to 37% in 1950, while the Gini coefficient declined from 66.9% to 58.4%.
• Structural transformation was crucial to Sweden’s equalisation. Agricultural employment fell from 72% of the workforce in 1870 to 23% in 1950, and the shift of labour out of agriculture accounted for much of the decline in inequality.
• Manufacturing and service-sector expansion created better-paid jobs for workers leaving agriculture, contributing to a fivefold increase in average incomes between 1870 and 1950.
• Mechanisation and labour mobility compressed incomes by enabling low-paid agricultural workers and unpaid family assistants to move into better-paid industrial and service-sector occupations.
• Structural transformation helps explain a key paradox in inequality research: much of Sweden’s income equalisation occurred before the growth of the welfare state and progressive taxation.
• Sweden’s experience challenges explanations centred on war. Despite remaining neutral during both World Wars, Sweden experienced equalisation comparable to that observed in many belligerent countries.
• Capital income remained highly concentrated and its declining share contributed to equalisation, but structural transformation remained influential even after accounting for changes in capital income and education.
• The findings suggest that the mechanisms observed in Sweden may also have contributed to the decline of inequality in other developed economies undergoing industrialisation.

AUTHORS

• Erik Bengtsson, Lund University
• Jakob Molinder, Uppsala University
• Svante Prado, University of Gothenburg