Norway and income distribution

In Norway, people right across the income distribution have high living standards. In the UK, US and Germany, the rich fare well but the poorest rank low vs other countries. From the graph below Norway does very well in equal distribution of income. The top 10% rank second for living standards as do the median (50%). The poorest 5% in Norway are the most affluent compared to other countries. Therefore in looking at all the percentiles Norway is a good place to live no matter what your income is.

Source: FT Britain and the US are poor societies with some very rich people – 16-9-22

Gini Coefficient
The Gini coefficient is the best known measure to convey an impression of the overall level of inequality in a country. It ranges from 0 where everyone is equal to 1 where one person owns the whole income of a country. However there are two shortcomings:

There is no intuitive understanding of what a Gini coefficient implies. Although it might say that one country is has more equal distribution how big are the differences really?
It gives a single figure for an entire country but it tells us nothing about which parts of society are causing the inequality. Is it the higher incomes being much greater than the rest of the population or is it the middle income group pulling away from the lower income group.

Comparing the very rich to the very poor does not tell us all that much about the everyday experience of ordinary people and societies they live in. Therefore by calculating ratios based on the income of the 10th, 50th and 90th percentiles we get a clearer picture of inequality. These two rations of 90:50 and 50:10 enable us to see the distance between the lowest-ranked wage earners and middle-class, and between the middle class and upper middle class.

Nordic countries – most equal in disposable income
The graph below shows the two ratios for disposable income in Denmark, Norway, USA and Italy for 2018. Nordic countries Gini coefficient are characterised by the short distance from the middle class to the upper class, and from middle class to bottom. Although they still have inequality it is evident that affluence is largely shared compared to other countries.

Source: Equality in the Nordic World -2021

Noridic countries – disposable income
90th percentile make 1.5 times more than 50th percentile
50th percentile make 1.8 times more than 10th percentile

USA
90th percentile make 2.3 times more than 50th percentile
50th percentile make 2.7 times more than 10th percentile

Universal Welfare State.
There are three elements to this definition:
1. Rights and unconditional benefits: if you are unemployed, sick or old you receive benefits to compensate for income loss. You also have access to free education, medical treatment and care homes for the elderly.
2. Benefits are paid for via general taxes therefore individuals don’t have job-based insurance or health programmes. All citizens are members of the same health coverage programme which is run by the government.
3. Universalism – no matter what your income because you belong to the same job-based insurance programme all citizens will be treated the same from a manual worker to a business manager/doctor. This means the number of deeply impoverished people is very small in the Nordic countries.

Nordic countries – equality kicks in before welfare support.
The welfare state and government taxation are important mechanisms for redistributing money from the higher incomes to the lower incomes. Below are figures for the rations of gross income – people’s income before taxation and welfare payments. Therefore at a gross income level Nordic countries have a more equal pay before government intervention.

Source: Equality in the Nordic World -2021

Noridic countries – gross income
90th percentile make 1.5 times more than 50th percentile
50th percentile make 1.8 times more than 10th percentile

USA
90th percentile make 2.3 times more than 50th percentile
50th percentile make 2.7 times more than 10th percentile

This equality comes about mainly due to centralised wage negotiations. In Nordics countries collective bargaining normally takes place for entire sectors between unions representing employees and the employer associations representing businesses. The deals struck by the two parties then apply to all non union members. By 2015 the percentage of workers covered by collective bargaining were as follows:
Sweden – 90%
Denmark – 84%
Norway – 67%
US – 12%

Although this compress may compress wages people in the same occupation generally make the same although there has been an allowance for individual top-ups based on performance and qualifications.

Source: Equality in the Nordic World by Carsten Jensen – 2021

The topic inequality and gini coefficient on elearneconomics has fully integrated flash (cue) cards linked back to the key notes that assist students to understand economic vocabulary, improve their skills, develop knowledge and build their confidence.

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