Eirik Berger Abel, NHH Norwegian School of Economics

"The Making of Equality: How the Second World War Shaped the Norwegian Income Distribution"

Abstract

Wars and episodes of violent disruption have often been associated with reductions in economic inequality, but the underlying dynamics and mechanisms are less understood. This paper explores World War II's effect on the income distribution in Norway. We use a newly digitized individual-level panel of tax records and document a large decline in income inequality in Norway that occurred during and after World War II and persisted until the 1980s, when it started to increase, albeit to lower levels than in the 1930s. We descriptively show that the decline is driven by large increases in the incomes of the bottom 50 percent of the income distribution and, to a smaller degree, reductions among the very rich. Using a shift-share design, we show that more than half the decline in inequality during the war is caused by large increases in the prices of agricultural products and fish. We further identify the effect of massive investments in fortifications, airports, and war-related manufacturing on local labor markets. While the total effects vary by investment type, the investments disproportionally increased incomes for workers with low skills or low incomes before the war. Our analysis provides an alternative narrative by centering on the bottom 50 percent of income earners, contrasting with studies focusing primarily on the top income shares and capital destruction during wartime.

Coauthored with Kjell Gunner Salvanes and Ran Abramitzky.

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Contact person: Casper Worm Hansen