5. Conclusions and policy implications

Using official data on income statistics by quantile provided by the NSIs, we explored the distribution and development of income inequalities in the Nordic countries and self-governing territories between 2005 and 2022. Our results are limited by the availability of comparable income data at the municipal level, particularly due to the different presentations of income statistics by various NSIs. The data harmonisation strategy adopted has certainly improved the cross-country comparability of those data, but the results are not perfect, calling for a judicious interpretation of the findings presented in this report.

Our analyses confirm the trajectory towards a widening income gap between Nordic households in different income deciles. According to evidence from previous research, that process started about 30 years ago, in the early 1990s and has various manifestations and implications. Our analysis of the equivalised household income data shows that income dispersion has grown moderately in most regions in recent years. That pattern was not structurally altered by periods of economic expansion or downturn.

Showing some specific features, the development of household income gaps at the Nordic level is a consequence of the development of income inequalities between income groups within all of the municipalities in the Nordic countries and self-governing territories (social inequality) and between households in different municipalities (spatial inequality).

In general, our analysis for the 2005-2022 period shows that differentials between income groups (social inequality) have been increasing in all Nordic territories. Inequalities are growing faster in the largest economies, namely Denmark, Sweden, Finland, Norway and, to a lesser extent, Iceland, particularly in the aftermath of the 2007-2008 financial crisis.

Development of the income gap between households in different municipalities (spatial inequality) is more nuanced. Income inequalities calculated on the basis of the average equivalised household income at the municipal level have increased in Denmark, Sweden, Iceland and Åland, but declined in Norway and to a lesser extent in Finland and the Faroe Islands.

Such dissonant trends in income inequalities within and between municipalities was further studied using decomposition techniques. That analysis confirms that while between-group inequalities are still the predominant factor explaining socio-economic inequalities in the Nordic Region, the spatial expression of income inequalities is becoming increasingly relevant, particularly in Finland and the Faroe Islands.

Another perspective addressed in this paper is the link between average household income at the municipal level and how it correlates with inequality levels within the municipalities. Our analysis shows a generally positive association between household income and income inequality. However, the relationship between both variables differs in intensity between and within countries, according to the territorial level and spatial conditions. At all territorial levels, the relationship seems to be governed by a variety of spatial regimes. Specifically, at the municipal level, the association between average income and income inequality levels tends to be stronger in cities and intermediate areas and weakens as the degree of rurality increases.

The exception to that general state of affairs is Norway. Measured in Purchasing Power Parity terms, Norway shows the highest levels of disposable household income during the analysed period. At the same time, while income inequalities are also increasing in that country, the distribution of household income at the municipal level is generally more equal in Norway than elsewhere in the Nordic Region. Moreover, in stark contrast to other Nordic territories, the differences in average municipal household income levels have been declining over time. That has resulted in a more socially and spatially cohesive society in Norway in terms of household income, compared to other Nordic countries and regions.

The relatively successful example of regional and rural development and welfare policies implemented in Norway can be a source of inspiration for equivalent policies in the other countries and self-governing territories of the Nordic Region. Further research should be conducted to understand the particular features of those policies, their design elements, implementation processes and the contextual factors that have led them to perform better than elsewhere in the Nordic Region.