Klevmarken, Lupton, and Stafford 339
from Table 2, one sees the same thing 1984: 1.29; 1986: 1.29; 1993: 1.52; 1998: 1.34.
We develop a parallel assessment of the macroeconomy for the United States. From 1986 to 1999, the private savings rate fell from the low teens to essentially
zero. Much of the wealth gains were from rising equity prices and transferring assets into the equity markets in the late 1980s into the 1990s. These larger patterns and
dispersion in the underlying rates of savings gave rise to growing wealth dispersion up until 2000 in the United States. The rate of U.S. wealth dispersion may have
slowed or even decreased, at least since 2001, owing in part to the downturn in financial markets as well as to the increased exposure to higher returning assets for
many new households.
Underlying explanations for differences in the wealth distributions can be found in the major differences in public policy in the two countries. As discussed in the
introduction, the universal Swedish coverage of both basic and income-related public pensions since the beginning of the 1960s supplemented by occupational group pen-
sions of wide coverage contrast with the employer-related group and private pensions in the United States. So, too, do the differences in the magnitude of the public benefits
that in Sweden include sickness benefits, maternity benefits, unemployment compen- sation, almost free medical care, and publicly provided care for the elderly. These
benefits are universally guaranteed in Sweden not only for the poor but for the entire population. These public policy factors reduce the need for wealth in Sweden relative
to the United States and are no doubt a major explanation for the lower degree of wealth inequality across households.
In addition to differences in social welfare policies, the Swedish income tax be- comes more progressive at lower incomes than the U.S. income tax and until 1991
there was a joint progressive taxation of both labor and capital income. After 1991 in Sweden, capital income has been taxed at a flat rate roughly similar to the United
States. However, there still remains in Sweden a real estate tax and a progressive wealth tax. The result of a larger guaranteed social safety net in addition to a more
egalitarian tax policy in Sweden reduces both the need to accumulate assets for a rainy day as well as the incentives to accumulate wealth. It is this issue of accumula-
tion and the mobility of wealth over time to which we now turn.
III. The Mobility of Household Wealth Holdings in Sweden and the United States
A high level of wealth inequality or rising wealth inequality com- monly raises concerns over equity. Economists can contribute to this subjective eval-
uation of the wealth distribution by analyzing the extent to which this cross-sectional rise can be attributed to underlying factors. A key element is whether, as a first
approximation, any rising cross-sectional dispersion can be attributed to greater inter- temporal variability in wealth holdings. To stylize, is yesterday’s ‘‘dot-com’’ share-
holder millionaire today’s bill-consolidation loan applicant? Is yesterday’s negative wealth family today’s financially stable household? Further still, is declining wealth
a consequence of a spending spree or rising wealth the result of a deliberate savings
340 The Journal of Human Resources
plan? Another source of rising wealth inequality and differential mobility is long- term compositional changes in households. If a large share of the population moves
into their peak preretirement earnings years, lifecycle theory would predict that they would have rapid wealth accumulation, possibly from a substantial mid-career base.
If at the same time more newly formed young households take on debt from the older generations and have little home equity, household wealth dispersion will grow,
but not necessarily in a full, life-course context.
To no small extent, if point-in-time inequality is the ‘‘stick’’ of capitalism then mobility is the ‘‘carrot.’’ While finding oneself at the lower tail of the wealth distribu-
tion is wrought with all the discomforts of poverty, a belief in the possibility of upward mobility fills one with a certain amount of hope.
21
But the concept of mobility is elusive. While mobility is by its nature a relative construct, it is not clear to what
it must relate. For instance, consider an increase in wealth by a given proportion to all individuals. Provided that all individuals have at least some wealth a strong
assumption, this could be seen as a tremendous amount of mobility. But this is mobility related only to the individual at different points in time.
On the other hand, supposing that all individuals were the same in every respect except for their initial endowment of wealth, then quantile mobility would be nonex-
istent given a proportionate increase in all wealth. That is to say that mobility in the sense of movement among the ranking of the population would be unchanged since
an increasing monotonic transformation does not alter ordinal properties. Further- more, point-in-time absolute inequality would increase. Thus, a proportional increase
in wealth, while certainly increasing individual mobility, has no effect on quantile mobility and leads to increased point-in-time inequality.
22
Nevertheless, the belief in a rising tide that raises all boats has dominated social and economic policy in the
United States. In contrast, redistribution has been the focus of economic and social policy in some Northern European countries, particularly in the Nordic countries.
This transatlantic difference in values and policy might be a major explanation of the great differences we have observed in wealth inequality between Sweden and
the United States. However, despite these differences in cross-sectional inequality, it is not obvious how wealth mobility may differ between the two countries.
A thorough discussion of the roots of rank, or quantile, mobility is beyond the scope of this paper but some remarks are warranted. Quantile mobility in wealth is
largely a result of behavior and initial heterogeneity as well as variable returns on investments. There are differences in the desires to postpone current for future con-
sumption, the willingness to accept investment risks in exchange for higher returns, the amount of investment in human capital and hence the return to human wealth
and the levels of investment in one’s progeny. In addition, simple differences in life- cycle stages is also a fundamental cause of variation and hence mobility. While
today’s young and middle-aged households rest in the respective bottom and top of the wealth distribution, this will certainly reverse itself over the following 30 years,
21. This point is consistent with the wide political support in the United States for an elimination of the estate tax.
22. Assuming everyone holds positive wealth, the logarithmic wealth distribution would be unchanged but the absolute distribution would spread out. For example, given a 10 percent return to wealth, 10,000
increases to 11,000 while 100,000 increases to 110,000. Although rankings do not change, the distribu- tion has become more unequal.
Klevmarken, Lupton, and Stafford 341
as the young become middle-aged and middle-aged consume their wealth in retire- ment. On the other hand, variation can also be a result of phenomena exogenous to
individual choice. These range from various forms of discrimination that alter the ‘‘rules of game’’ for specific groups of people to inherent differences in ability.
Distinguishing between tastes and inherent impediments is a crucial step in monitor- ing economic inequality.
While in both countries there is a variety of interesting assessments of macroeco- nomic factors, in this paper, we instead focus on a reduced form version of quantile
mobility and examine the extent to which initial conditions affect quantile mobility without seriously ferreting out its fundamental causes. High wealth mobility in dol-
lars can contribute to a high wealth inequality, and a high mobility might make a high inequality more acceptable from an equity point of view. We thus turn to a
comparative analysis of mobility.
A. Background and Measures
