Poverty and Low Income in the Nordic Countries

Björn Gustafsson, Peder J. Pedersen

• Publisher: Taylor & Francis
• Year: 2018
• eBook ISBN: 9781351787949
• Edition: 1
• Topic: Social Sciences
• Subtopic: Sociology
• Index: Social Sciences

This title was first published in 2000: The Nordic Council and the Nordic Council of Ministers decided in 1994 to initiate and finance a comparative study to understand better the structure and development of poverty in five Nordic countries, (Denmark, Finland, Iceland, Norway and Sweden). The main question posed is how the number of people living with low incomes has changed over time and what characterizes such households.? Since no official poverty line has been defined in the Nordic countries, the comparative study examines a set of different definitions of poverty and analyzes the change in poverty rates and poverty composition in light of those different definitions.

1 Introduction

BJÖRN GUSTAFSSON AND PEDER J. PEDERSEN

1.1 The Subject and Outline of the Book

Poverty is a long-standing social issue in Denmark, Finland, Norway, Iceland and Sweden. For centuries, large parts of the population in the Nordic countries had to struggle hard for survival as, until the last hundred years, the general standard of living was low in these predominantly agrarian economies. The public provision of income support was only rudimentary and consisted of stringently means-tested poor relief to the destitute who could not work.

However, industrialisation, in the second half of the last century, brought widespread change and rapid economic growth. At the turn of the century, GNP per capita in the Nordic countries was significantly lower that the average among the OECD countries. During this century, GNP per capita rose more rapidly in the Nordic countries than the average for the OECD area (cf. Maddison 1991, pp. 6–7). One of the results of this rapid growth was a reduction of poverty in the absolute sense of the word.

During this century, other forces reduced the importance of the issue of poverty in the Nordic countries. Unemployment was very high in the Nordic countries in the inter-war years, but became a much smaller social and political problem after World War II. Unemployment remained low in the Nordic countries, except Denmark, until around 1990, in contrast to most other Western European countries, which experienced a growing problem of unemployment from the mid-1970s.

Ever more ambitious social security programmes materialised during the long period of full employment. The public sector grew rapidly, especially during the 1960s and 1970s. As a consequence of these changes, poverty moved down on the agenda of social policy in the Nordic countries. The discontinuity with the past was also marked by the renaming of programmes for poor relief

Not only from a historical perspective but also from an outsider’s point of view, poverty in the absolute sense of the word in the contemporary Nordic countries can be considered as a not very serious subject. When the World Bank counts the poor in the world in its World Development Report their figures do not include inhabitants of the Nordic countries. However, when the frame of reference is narrowed from a global perspective to that of the industrialised countries, poverty or low income also exists in the Nordic countries.

Recently, the statistical authority of the European Union, Eurostat, published estimates of poverty in EU 12, excluding the three fairly new member states: Austria, Finland and Sweden. (Eurostat, 1997). According to the criteria employed by Eurostat, poverty is reported to exist in Denmark, the only Nordic country covered. However, at the same time, the Danish poverty rate is lower than for any other country reported. Another study of the EU covering all the Nordic countries except Iceland presents further evidence (Vogel, 1997). This study too finds that the population in Denmark is less poverty prone than in all other non-Nordic EU countries. However, the findings for Finland, Norway and Sweden are actually very similar to those from Denmark. Thus, from an EU perspective, poverty in the Nordic countries exists, but appears to be relatively small.

The starting point for this book, therefore, is that there is a low level of poverty in this group of countries. But even in the prosperous Nordic countries with their large and comprehensive social programmes, some people are less well off than others. The purpose of this book is to study how poverty has developed.

There are several reasons why the problems of the less fortunate have once again become of interest to policy makers and the general public in the Nordic countries and thus provided a motivation for our book. Starting first and gradually in Denmark during the 1970s and abruptly at the beginning of the 1990s in Finland and Sweden, unemployment has increased to much higher levels than previously. The wide expansion of the welfare state came to an end during the 1980s (at least temporarily). Finland and Sweden have even experienced sizeable cuts in welfare programmes during the 1990s. Average income has mainly been increasing during the last 15–20 years, the period covered in the present study. However, not everyone has benefited from increasing economic growth. The proportion of people living on means-tested social assistance has expanded in the various Nordic countries, at the same time as average income has increased to an all time high (Eardley et al., 1996).

The first question we address in this book is how the extent of poverty or low income has changed over time in the Nordic countries. To answer this question, we work with micro data sets for each of the countries. This makes it possible to report time series on the extent of poverty in Denmark 1980 – 1995, Finland 1971 – 1995, Iceland 1986 – 1997, Norway 1979 – 1995 and Sweden 1975 – 1995. We define a person as poor if the disposable income of the household in which he or she lives is below a given poverty line, specified either as an absolute or a relative measure. The development according to the time series can be compared across the countries since central concepts have been harmonised. Even though we have attempted to construct the variables in the same way in all the countries, the collection of data and the concepts used differ between the countries to an extent that prevents perfect comparability.

The second question we address in this book is who the poor are in the various Nordic countries. We report on the poverty profile for each of the five countries. We do this not only for one point in time, but for longest period for which data is available in each of the countries. Knowledge of the poverty profile and changes within it is very useful when discussing social policy measures. Have the Nordic countries been particularly successful in reducing poverty for some particular categories? Which categories in the Nordic countries are poverty prone during the 1990s? The answers to these questions define the challenges for contemporary welfare policy.

Most poverty studies are based on the situation of the household as it appears during a period of, usually, no more than one year. However, the economic situation of households is not static. In some households members change from not working to taking up a work and in others the reverse happens. Often household members change their hours of work from one year to the next. Wages and salaries increase for many people from one year to the next, while the reverse can also happen. Further causes of change in poverty status are changes in the receipt of transfer payments and altered household composition.

The third and final question we address in this book is how poverty at the individual level appears when the observation period is enlarged to cover a larger number of years. This leads to several subsequent questions, such as to what extent poverty is chronic or transitory; for which categories poverty-mobility is high or low; and what events make people move into or out of poverty.

Answering questions about poverty-mobility places a high demand on data. This explains why poverty profiles have been reported for many countries, whereas knowledge about poverty-mobility and the duration of poverty is concentrated in fewer countries. There is no official panel survey designed to monitor poverty dynamics for a Nordic country. Based on the data sets developed for the present book, we are, however, able to report results on poverty dynamics for Denmark, Norway and Sweden.

Before proceeding any further, some words about the limitations of the present book should be offered. Due to the problems of comparability, in spite of our attempts to harmonise as much as possible, it is not a central issue to compare poverty or low income shares across the Nordic countries at a specific point in time in order to investigate whether the extent of poverty is larger or smaller in one country than in another. One reason for this is that studies addressing such questions in a broader frame had already been begun elsewhere when we planned the present project and we saw no point in duplicating the work of others. The Luxembourg Income Study (LIS) has been successful in bringing together data sets from many countries including the four large Nordic countries and in harmonising definitions to some degree. A limitation of this approach is that data is collected differently in different countries. An important step in overcoming that problem was taken by the launching of the European Household Panel by Eurostat. Today, data for Denmark and Finland have been collected in this unified system which also covers other EU-countries. There are also data sources (the Surveys on Living Conditions) which are similar for Norway and Sweden.

Another characteristic of the present study which should be emphasised at the outset is that we work only with an economic definition of poverty based on the disposable income of a household. We think there are good reasons to limit the concept “Poverty” to the economic sphere and separate the concept from a wider concept of “Level of living”. This means that policy implications from our study are clearest for those policies which affect the disposable income of households. Examples of such policies are found in the field of social security and income taxes. There is much evidence of poor people being worse off also in other spheres of life. Often they are reported to be disadvantaged regarding housing and on average to have more health problems than others However, we have chosen – partly dictated by data availability – not to focus on these matters in this book.

Following the present introductory chapter, the book consists of five country chapters and a concluding chapter. Chapter 2 by Peder J. Pedersen and Nina Smith reports on poverty in Denmark while poverty in Finland is addressed by Markus Jäntti and Veli-Matti Ritakallio in Chapter 3. Stefan Olafsson and Karl Sigurdsson report on poverty in Iceland in Chapter 4 while Rolf Aaberge, Arne S. Andersen and Tom Wennemo address poverty in Norway in Chapter 5 and Björn Gustafsson poverty in Sweden in Chapter 6. We draw together the findings in the various chapters in the concluding Chapter 7. We use the rest of this introductory chapter to set the stage for the various country chapters. In the next section we outline characteristics of the Nordic countries which seem to be important for understanding the poverty situation and how it has changed in the Nordic countries. In Section 3 we shift to the literature on conceptualising and measuring poverty in order to put our study of Nordic poverty in a larger perspective of poverty studies and to discuss the central concepts.

1.2 The Nordic Countries – Some Characteristics and Patterns of Change

The Nordic countries differ in area and in the size of their populations. By area, Sweden at one end, is one of the biggest countries in Europe, and Denmark, at the other end, one of the smaller European countries. The Nordic countries have a population of around 23 million, with a big variation from 8.5 million in Sweden to 0.3 million in Iceland. Though different by area and population, the Nordic countries share a number of similar characteristics that tend to make the problem of poverty or low income relatively small. In this subsection, we shall briefly summarise a number of these characteristics and their possible importance to low income problems.

The populations in the Nordic countries have until the most recent decades been fairly homogeneous, including in language, where the national languages are understood in the other Nordic countries, with the exception of Finnish. During the most recent 30–35 years, the countries have been exposed to immigration in very different degrees. At one extreme, Sweden has received many immigrants during these years and the proportion of the population bom abroad is currently about 10 per cent. This proportion is significantly smaller in Denmark and Norway, and Finland and Iceland at the other extreme have had very few immigrants.

Since 1954 there has been free mobility between the Nordic labour markets. The major intra-Nordic migration flow was from Finland to Sweden in the 1960s and the 1970s. When the income gap between the two countries narrowed in the 1980s, it was followed by a major return migration to Finland.

Immigration of non-Nordic citizens was, back in the 1960s, dominated by people moving to take up a job. Many have remained and have been joined by their families. In the 1980s and 1990s, immigration came to be dominated by refugees, many coming from overseas countries, and by family reunions. This latter wave of immigrants have found large problems in entering the labour market.

Although the countries share many similarities, there have until recently been differences in their level of industrial and economic development and in their natural resource base. Industrialisation began at different times in the countries. Finland was the late-comer in this respect. Now, Finland has caught up with the other three Nordic neighbours, and – with Norway on top – GNP per capita is at approximately the same level in the Nordic countries. The ‘catch up’ in Finland occurred during the 1980s, i.e. the period covered by the present study.

The natural or resource bases differ considerably between the Nordic countries. Traditionally, the Danish economy was based on agriculture and food processing industries, the Norwegian on shipping, fishing and timber, the Swedish on metal and wood-processing industries, the Finnish on timber and pulp, and that of Iceland on fishery. All this has changed in recent decades. It has changed least in Iceland, where fishery is still the dominant activity, implying that changes in catch and in prices have very great macroeconomic repercussions. In the other Nordic countries, the industrial base has been very much broadened in the recent decades.

The biggest changes have occurred in Finland and Norway. Finland was not hit economically like the other OECD countries after the first oil price shock in 1974, as it had at that t...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Preface
• 1. Introduction
• 2. Low Incomes in Denmark 1980–1995
• 3. Income Poverty in Finland 1971–1995
• 4. Poverty in Iceland
• 5. Extent, Level and Distribution of Low Income in Norway 1979–1995
• 6. Poverty in Sweden: Changes 1975–1995, Profile and Dynamics
• 7. Conclusions
• Presentation of the Authors
• Presentation of Nordiska Ministerrådet