Coping with regional inequality in Sweden: structural change, migrations, and policy, 1860–2000

In many countries, regional income inequality has followed an inverted U-shaped curve, growing during industrialization and market integration and declining thereafter. By contrast, Sweden’s regional inequality dropped from 1860 to 1980 and did not exhibit this U-shaped pattern. Accordingly, today’s regional income inequality in Sweden is lower than in other European countries. We note that the prime mover behind the long-run reduction in regional income differentials was structural change, whereas neoclassical and technological forces played a relatively less important role. However, this process of regional income convergence can be divided into three major periods. During the first period (1860-1940), the unrestricted action of market forces, particularly the expansion of markets and high rates of internal and international migration, led to the compression of regional income differentials. During the next period (1940-80), regional convergence was even more intense. In this period, institutional arrangements favoured the reduction of productivity differentials across industries and successive governments aided the reallocation of the workforce from declining to thriving regions and economic sectors. During the last period (1980-2000), when regional incomes diverged, internal migration and structural change slowed. Furthermore, the development of knowledge-intensive service industries favoured economic growth in the main metropolitan areas.