7.1. Income inequality
The thesis has explored the existing theories and literature to identify the central factors affecting inequality in the long run. The five ‘great’ forces driving income inequalities in the long run are development, institutions, shocks, globalisation and wealth (DISG-W). Articles I and II, which characterised the long-run patterns of income inequality, supported the findings presented in previous studies, however at some points we discovered controversies and new openings for expanding on established theories and previous findings.
According to our papers, Finland experienced the first part of the Kuznets curve in the latter part of the 19th century. Moreover, the inequality possibility frontier constrained income inequality at certain levels before the country into the phase of modern economic growth and industrialisation during the late 19th century. As noted previously, the findings presented in the existing literature are mixed regarding the role of development factors as a significant determinant of income inequality (Rossi, Toniolo, and Vecchi 2001; Milanovic, Lindert, and Williamson 2011; Morrisson 2000).
However, our papers illustrated the importance of economic growth and development in a pre-industrial, poor and agrarian country.
Our articles present findings, though, that contradict the declining part of the Kuznets curve, since income inequality declined rapidly in Finland in a way that cannot be explained by gradual economic processes. The decline was instead due to significant shocks (WWI, the civil war, WWII) and rising taxation rates, which heavily affected wealth and capital incomes. Previous studies considering the effect of such shocks on capital have highlighted its importance for declining income and wealth inequalities, and our paper brings to this discussion new findings from Finland (Piketty 2014; Scheidel 2017; Alfani and Gráda 2017). However, as noted by Morelli and Atkinson (2015), the crises differ from each other significantly, and therefore their implications for income inequalities are not well established. Article I suggests that high inflation could lower income inequality levels, as occurred in Finland in the early 1920s. Moreover, crises have both short- and long-run effects, which can be seen in, for example, rising unemployment levels after the 1990s crisis in Finland (Article II).
Wealth is a crucial factor when investigating income inequality patterns and changes. Capital shares, wealth concentration and capital incomes are essential to understanding and observing the changes in income disparities. Articles I and II tested and ultimately supported these theories and
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previous empirical findings (see Piketty 2014; Bengtsson and Waldenström 2018; Piketty and Zucman 2014). Interestingly, the R-G theory proposed by Piketty (2014) has received much criticism (e.g. Mankiw 2015; Góes 2016), even though empirically it seems to fit quite well the patterns identified for the top income shares. Moreover, we found support for the hypothesis in the Finnish case, too. In fact, as highlighted by Jordà et al. (2019), r has always been greater than g, with the gap being roughly 4–5%, except for the years around the two world wars.
Today, public-sector redistribution policies are perhaps the most important determinant of disposable income inequalities, since in the most developed countries disposable income inequalities are roughly 40 per cent lower compared with market income inequalities due taxes and transfers paid and received by measuring the Gini coefficient (Morelli, Thompson, and Smeeding 2015). Articles I and II proved that income taxes played a role already in the 1920s, but especially in aftermath of WWI and WWII, when major war reparations were paid and society was in the reconstruction phase.
Redistribution rates through taxes and transfers rose significantly when greatly expanding the Nordic welfare state in Finland after the mid-1960s. In contrast, the redistribution rate through taxing the top income earners already began to diminish in the late 1970s.
Scholars have argued that globalisation and technological change benefit the skilled labourers more than unskilled labourers. In practice, these processes strengthen the demand for skilled workers, which increase disparities in the labour market (e.g. Acemoglu 2002; Roine, Vlachos, and Waldenström 2009). Indications exist that these forces pushed inequality higher in the late 19th century as well as the late 20th and early 21st centuries in Finland. Despite the similar forces pushing the nation towards open market capitalism, the two periods differ greatly: labour income inequalities increased during the first period, whereas they remained at relatively modest levels during the latter period. Therefore, globalisation and skill-biased technological change are connected to the adopted policies and prevailed institutions within a society. Among other factors, these periods differ greatly based on the role played by the government or unions in society. For example, article II evaluates the role of the public sector in offering skilled labour to the labour markets through education, since, in theory, expanding the pool of skilled labour lowers the skill premium. Indeed, these periods differ greatly by the scale of education. Similarly, in the latter half of the 20th century unions put pressure on employers to keep wage disparities at low levels, which strikingly contrasts with a labour market lacking unions, as was the case in the late 19th century. We do not have causal models to prove these arguments, but existing theory and the limited amount of empirical evidence support these findings (see also the 'race' between technology/globalisation and education in Atkinson and Bourguignon 2015).
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The above-mentioned examples highlight the extent to which institutions and their characteristics help establish the rules for market forces and influence their outcomes. Notably, the results and discussions presented in articles I and II highlight the complexity of income distribution and its determinants. The forces driving income inequality do not depend only on individual choices and the development phases of an economy, but also on what types of policies and institutions are adopted.
7.2. Homogamy
Article III investigates marriage homogamy in Finland from approximately 1700 to 1910. Its findings are more or less similar with those presented in previous studies and are likewise aligned with the theories described previously in section 5.2. We characterised strict and relatively stagnant marriage patterns, especially of those in the landowning class, although some prevailing traditions gradually weakened due to forces of industrialisation and modernisation during the latter half of the 19th century. Third-party influence, parental influence and the influence of local community on marriage were strong in agrarian Finland. As modernisation theory suggests, our models show that homogamy was weaker in the more industrialised and urbanised regions, but such a finding did not affect the overall estimates much due to weak development overall in Finland (see e.g. Moring 1999; van Leeuwen and Maas 2010, 2019). It is also possible that modernisation started to diminish homogamous marriage patterns, but its effect was countered by the increase in income inequalities and an increasing social divide.
Our models explained roughly two-thirds of the variance in marriage patterns, which suggests that individual preferences were more limited, despite the romantic love hypothesis positing that industrialisation and modernisation gradually began to fracture prevailing traditions in more industrialised and urbanised regions. Remarkably, the strength of families, communities and other institutions over individual preferences weakened considerably when spouses migrated to other regions, which is in line with findings presented in previous studies (Marco and Ineke 2002). We found that the age difference between spouses increased the odds for heterogamous marriages, especially for those from the labouring classes. In addition, being an illegitimate child or single mother were greatly stigmatised and increased the odds for heterogamous marriages. Arguably, the social norms in agrarian Finland were quite strict.
Finland is a very large country with difficult terrain and low population density. Before industrialisation, travelling in Finland was quite difficult and the pool of possible spouses was limited.
Often people met their future spouses in the local village or in nearby regions. Farmers made up a
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large part of the population, which ensured that proper spouses were available in nearby regions. This did not prevent members of the nobility, though, from seeking out spouses in distant locations.
However, it may well have hampered the landless classes from entering into homogamous marriages.
In other words, the small pool of candidates did not necessarily offer proper spouses with a similar background, which enforced heterogamous marriages. Therefore, the problems in transportation and communication might well have led to a relatively modest amount of homogamy in the smaller social groups. This observation is interesting since it contradicts prior studies suggesting that a smaller pool of candidates increases homogamy (van Leeuwen and Maas 2019). Although this argument is supported by the fact that spouses were often from nearby regions, meaning spouses could interact with each other before marriage (such as at dances or evening plays), it is too early to say for certain that the challenges in communication and travelling greater distances hampered families in terms of their marriage preferences (see further details in Moring 1999, pp. 175; Häkkinen 2018).
Finally, higher rates of emigration, number of poor relief recipients and number of Finnish speakers were associated with more heterogamous marriages in such regions. All these variables capture disadvantaged regions quite well, which might indicate cross-cutting circles or ‘hierarchies’
between aspects of language, desire for emigration and social background.
7.3. Social mobility
According to the scarce amount of literature on the topic, social mobility has remained at relatively similar levels throughout history, despite minor differences between time and space (e.g. Erikson and Goldthorpe 1992; van Leeuwen and Maas 2010; Xie and Killewald 2013; Maas and van Leeuwen 2002; Clark and Cummins 2015). Moreover, rather inconclusive findings have been presented that the processes of industrialisation and modernisation served as a determinant for social mobility (Kaelble 1981; Wiebke, Ineke, and Marco 2015; Maas and van Leeuwen 2002; Dribe, Helgertz, and van de Putte 2015; Leknes and Modalsli 2020). Studies suggest that with market capitalism, the opportunities are relatively equal between individuals due to market competition and efficiency (Lipset and Zetterberg 1959; Featherman, Jones, and Hauser 1975; Friedman 1962). Constant social mobility is largely explained in the literature by the development phase, the cultural capital of families and even genetic inheritance (Georg 2004; Clark, Leigh, and Pottenger 2020; Clark et al. 2015). In addition, scholars have also suggested other types of path dependencies like the region in which one lives (e.g. Chetty, Hendren, Kline, and Saez 2014).
In contrast to the findings presented in prior studies, article IV shows great changes in social mobility over the centuries (see highly similar patterns found in Norway (1865–2011) in Modalsli
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2017). First, it identified a relatively strong persistence in agrarian societies, where farmers made up most of the population. Then, it found that a phase of increasing social mobility occurred due to the downward social mobility of many from the farming class into the labour class, which was impacted by high population growth and a scarcity of properly cultivatable land. Industrialisation also affected social mobility since it expanded the social divide between classes, especially between white-collar workers versus those in the labour class. On the other hand, the modernisation period opened new possibilities for social mobility for those in the labour class aspiring to work in white-collar occupations during the 20th century.
Article IV provides strong evidence in support of the argument that expanding public education significantly contributes to higher levels of social mobility. This finding is also aligned with the theoretical model presented by Solon (2004). Interestingly, intergenerational persistence quite strongly matched income inequality patterns, which supports the Great Gatsby curve (see also Corak 2013). In fact, these findings suggest that intergenerational occupational persistence as well as income persistence can be explained by largely the same factors. Moreover, these findings show that social mobility patterns in the long run cannot be explained by one theory or universal law alone.
Arguably, the patterns contributing to more equal opportunities depend on a complex of the joint forces prevailing in a society; however, it seems that especially the phase of development, the level of income inequality and the amount of public-sector investment in education are crucial determinants.
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