Klevmarken, Lupton, and Stafford 323
ation between Sweden and the United States plays very little role in ex- plaining wealth mobility beyond that explained by the initial wealth distri-
bution. Despite the higher quintile mobility in Sweden, dollar mobility is still higher in the United States.
I. Introduction
The extent of the dispersion of income and wealth and the reasons for such dispersion has always attracted the interest of social scientists as well as
the larger public. For example, why is there such a highly dispersed income dis- tribution in Brazil Lam 1999? What are the long-term consequences? How much
economic mobility is there through time and across generations Loury 1981; Solon 1992? This paper addresses the question of comparative wealth mobility during the
life course in Sweden and the United States during the 1980s and 1990s. This com- parison is possible because of shared measures and design features in the two data
sets available for our use. One reason the comparison is of interest is because the two countries differ so much with regard to private and public savings behavior and
hence in the dispersion and dynamics of household wealth.
Differences in the economic environment between Sweden and the United States are both large and diverse. While both countries can in some sense be considered
welfare states, Sweden provides a form of welfare that is both institutional and redis- tributive, offering higher and universal minima to all citizens. Social welfare pro-
grams such as health care, public pensions, and education provide guaranteed rights to the population as a whole, not just the poor. In contrast, the United States provides
a form of welfare that is liberal and residual in that it represents individualism with programs meant to provide a safety net only to those unable to manage on their
own.
l
The effect that each of these differences has on individual behavior and hence on the creation of wealth and well-being is unclear. The marginal effect of each of
several differences between Sweden and the United States on saving behavior and the accumulation of wealth is important from the perspective of optimal public policy
implementation. Yet, with only two countries and numerous policy differences, it is beyond the scope of this paper to identify the specific policy and institutional
differences. Suppose the country differences, net of observable household character- istics, were small. This may be the result of offsetting effects, for example, a more
savings-minded population in Sweden but reduced savings incentives from various public programs.
2
Nevertheless, differences in the wealth distribution and dynamics, conditioned on observable household characteristics, are of interest to a broader per-
spective. To answer the question of differences in wealth dynamics net of personal
1. As example of the differences between the two countries, consider the respective governments’ coverage of healthcare costs. While the Swedish government provides universal coverage to all individuals, the U.S.
government covered only 32 percent of its population in 1995 via such programs as Medicare, Medicaid, and veterans’ benefits. Most households in the United States have private coverage. In 1996, however, 16
percent of U.S. households had no healthcare coverage OECD 1998 Health Data. 2. Indeed, one could argue from a political economy framework that the higher levels of welfare provision
in Sweden are a direct consequence of some behavioral desire for greater savings.
324 The Journal of Human Resources
and other micro-level characteristics, we examine the changing wealth distributions in Sweden and the United States and, using a panel of households, track the degree of
wealth mobility in each country by way of nonparametric sample matching methods. We examine the basic cross-sectional wealth distribution in each country and how
it has changed in the last 10–15 years after conversion to a common purchasing power parity currency. Despite the rapid rise in the high-profile billionaires, the
‘‘dot-com’’ affluent, and the precipitous rise in broader indices of equity prices in the United States, there is considerable controversy over whether and the extent to
which the U.S. wealth distribution has become more unequal in the last 15 years. In Sweden inequality estimates suggest that the wealth distribution has become more
unequal since the late 1970s, but the exact path and the timing of peaks depend on data and inequality measures used. Some estimates indicate that most of the increase
in Swedish and U.S. inequality originates from a more rapid wealth increase in the very top of the distribution, reflecting changes in the stock market, while there was
less action further down the distribution. We first address the question of changing inequality using cross-sectional household wealth measures from the Panel Study
of Income Dynamics PSID and the Household Market and Nonmarket Activities Survey HUS for Sweden.
We present the successive cross-sectional wealth percentile distribution, up to the 98
th
percentile point, for both Sweden and then the United States for the years during the 1980s and 1990s in which the HUS and PSID measured household wealth.
3
We examine whether the basic cross-sectional distributions of the two countries, save
the very rich, have changed dramatically over time. We offer brief remarks on wealth holdings of the very wealthy and of African American households in the United
States. As expected, we find household wealth distribution far more dispersed in the United States. Furthermore, we found that household wealth became more dispersed
between 1984 and 1999 in the United States than in a similar period in Sweden 1984–98.
To complete the overview we examine quintile transitions for both countries. Ini- tially these are unadjusted wealth transition tables. Prior work with such tables has
found greater decile wealth mobility in Sweden than in the United States Bager- Sjo¨gren and Klevmarken 1998; Hurst, Luoh, and Stafford 1998. Is this also true
for the most recent time periods? One reason for greater relative mobility in Sweden is that the wealth distribution is more compressed; absolute changes carry the family
further in relative position.
Along with basic cross-sectional dispersion differences, compositional differences in the family and other characteristics can also create relative mobility differences
between the two countries. To motivate the topic we disaggregate the larger United States sample to create wealth transition tables for a few broad age groups. There
are age-group differences, as one might expect from lifecycle or other theories of savings and wealth accumulation. Of course, variables other than age are likely to
matter and operate jointly to shape wealth transitions. To explore the question of mobility differences net of a set of standardizing micro-level variables, we apply
matching methods as suggested by Rubin 1979.
3. We focus on the distribution of wealth up to the 98th percentile only because beyond this point there is a large discrepancy between the data and the true distribution. This issue is addressed later in the article.
Klevmarken, Lupton, and Stafford 325
To initiate work with the matching approach we start by matching solely on the Swedish initial period cross-sectional wealth distribution. That is, we simply match
on cross-sectional wealth for Sweden in 1993 and for the United States in 1994. Then for these initially matched cross-sectional samples, we examine wealth dynamics as
measured by quintile transitions over five-year intervals. We find that standardization on initial wealth is an important component in explaining quintile wealth mobility
differences between the two countries. The process of standardizing through matched sampling compresses the U.S. wealth distribution—that is, decreases the initial cross-
section dispersion—thereby making movements across quintiles more likely.
Given the relationship between lifecycle stages, that is, age and mobility, we ex- tend the initial exercise in standardization for a single wealth variable and create
multivariate matched samples. We match on not only initial wealth and age, but also on other possible characteristic differences: family composition, marital status, and
income. Somewhat surprisingly, this multivariate matching does little to change the results from the univariate matched sample on initial wealth. It is probable that initial
wealth is a sufficient statistic, capturing many of the other differences between Swe- den and the United States. Nevertheless, certain variables do seem more critical than
others and we examine these independently. For instance, in the United States many African American families do not participate significantly in the financial world of
stocks, financial accounts, or mortgages Chiteji and Stafford 2000; Charles and Hurst 2000. Does the absence of this group in the Swedish sample ‘‘explain’’ some
of the intercountry wealth mobility differences? Do other demographic and economic characteristics explain the country differences in mobility?
II. Cross-National Wealth Distributions Mid-1980s to Late 1990s
