Patterns of Inequality: Income Inequality, Homogamy and Social Mobility in Finland, c. 1700–2019

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Publica tions of the F acult y of Social Scienc es

Petri Roikonen

PATTERNS OF INEQUALITY

Income Inequality, Homogamy and Social Mobility in Finland, c. 1700–2019

200 2021

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Patterns of Inequality

Income Inequality, Homogamy and Social Mobility in Finland, c. 1700–2019

Petri Roikonen

DOCTORAL DISSERTATION

Economic and Social History Faculty of Social Sciences University of Helsinki, Finland

Doctoral dissertation, to be presented for public discussion with the permission of the Faculty of Social Sciences of the University of Helsinki, in Banquet room 303, Unioninkatu 33, on the 4th of

February, 2022 at 14 o’clock.

Helsinki 2021

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Doctoral Programme in Political, Societal and Regional Change Faculty of Social Sciences

University of Helsinki

Supervisors: P. Sakari Saaritsa, Sakari Heikkinen, Markus Jäntti Pre-examiners: Jesper Roine, Jørgen Modalsli

Opponent: Daniel Waldenström

The Faculty of Social Sciences uses the Ouriginal system (plagiarism recognition) to examine all doctoral dissertations.

Valtiotieteellisen tiedekunnan julkaisuja (200) / Publications of the Faculty of Social Sciences (200) ISSN 2343-273X (painettu / printed)

ISSN 2343-2748 (verkkojulkaisu / online publication)

ISBN 978-951-51-7031-6 (pbk.) ISBN 978-951-51-7032-3 (PDF)

Unigrafia Helsinki 2021

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Abstract

This PhD thesis examines the patterns of inequality in Finland between c. 1700 and 2019. The study assesses the inequality of outcomes (income inequality), assortative mating (homogamy) and equality of opportunities (social mobility, parent-son). To reveal the long-run patterns, extensive tax and population datasets have been collected, analysed and new methodologies have been developed.

In the 18^th century, Finland was a poor, agrarian and backward region where large social divisions existed between the landless and landowners. Owning land was the principal marriage strategy, as it offered opportunities to strengthen the position of a family in society. Success in these strategies could mean a considerably higher probability of surviving turbulent shocks and crop failures. Therefore, strict marriage patterns occurred, and the interests of family and local community superseded individual preferences. Intergenerational persistence was strong, especially in the landowning class.

However, social mobility mildly increased during the first part of the 19^th century, when population growth together with the scarcity of proper land to cultivate hindered the odds that farmers’ descendants would remain in the landowning class. The diminishing odds of owning land led to increasing downward social mobility for those in the landowning groups. Gradually, as the downward mobility increased and strict marriage strategies still prevailed, a growing underclass formed during the late 18^th and 19^th centuries. At first, this increasing downward socio-economic mobility enhanced social mobility, however such a situation gradually reversed itself during the 19^th century.

From the mid-19^th century until the early 20^th century, intergenerational occupational persistence and income inequalities drastically increased. This development was mainly the result of industrialisation processes as well as structural changes, as the first steps of modern economic growth benefited more the haves than the have nots. Moreover, rising income levels gave room for greater income inequalities than previously, when the average income level had been close to subsistence level. Industrialisation and modernisation also had an impact on marriage patterns, where minor weakening trends affected prevailing traditions. However, the industrialisation and urbanisation developed relatively slowly and their effects on marriage patterns were limited in the late 19^th century.

In contrast, the 20^th century can be characterised as a century of equalisation and development.

Modernisation and changes in the social structure increased social fluidity, especially mobility from labour to white-collar occupations. Similarly, income inequalities diminished due to shocks to capital, institutional changes and the adoption of redistributive taxes and transfers. The gradual formation of

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the Nordic welfare state during the 20^th century, and especially its expansion starting from the mid- 1960s, increased social mobility and lowered income disparities. In addition, there is strong evidence that investments in public education enhanced opportunities. Although inequalities increased in the late 20^th century, they only undid a small proportion of the earlier equalisation developments. This turn was mainly due to the combination of increasing capital incomes and decreasing tax rates at the top as well as the low educational attainment for boys from the labour class.

In a comparative perspective, the trends in income inequality follow relatively closely trends in other Western economies, although little evidence exists at an international level for the 19^th century. Similarly, the patterns in social mobility show highly similar patterns in the Nordic cases (Finland and Norway) in the 19^th and 20^th centuries. In contrast, social mobility (father-son) diminished in the US and the UK during the 19^th and 20^th centuries. Overall, the 20^th century was for the most part a century of ‘equalisation’ and development, as Finland surpassed a number of Western societies in many facets of social and economic measures and likewise became a relatively equal society. Notably, this development did not seem highly probable in the early 20^th century, when the predominantly rural, poor and unequal region of Finland experienced catastrophic social divides.

The results suggest that inequality patterns are explained by multiple factors and the trends are hardly explained by any sole determinant. This PhD thesis shows that the inequality of outcomes (incomes) is closely connected with the inequality of opportunities (social mobility). Lastly, new research is needed to study the impact of the complex institutions as well as the mechanisms that transmit economic and social advantages and disadvantages through generations.

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Tiivistelmä

Väitöskirja tarkastelee eriarvoisuuden kehittymistä Suomessa 1700-luvun alusta vuoteen 2019 saakka. Eriarvoisuutta käsitellään toteutuneiden eriarvoisuuksien (tuloerot), valikoivan avioitumisen (homogamia) sekä mahdollisuuksien tasa-arvon (sosiaalinen liikkuvuus) kautta. Aineistoina toimivat erityisesti vero- ja väestötilastot, joiden analysointiin on kehitetty erinäisiä metodeja ja näkökulmia.

Suomi oli vielä 1700-luvulla köyhä, maatalousvaltainen ja takapajuinen alue, jossa vallitsivat suuret luokkaerot maata omistaneiden ja maattomien välillä. Maan omistaminen oli yksi tärkeimmistä avioliittostrategioista, sillä avioliitto saattoi parantaa tai heikentää perheen ja suvun asemaa yhteiskunnassa. Strategian onnistuminen saattoi merkittävästi parantaa mahdollisuuksia selvitä hengissä tulevista kadoista tai muista kriiseistä. Tämän vuoksi valikoiva avioituminen oli erittäin yleistä, ja suvun ja perheen intressit menivät usein aviopuolisoiden henkilökohtaisten mieltymysten edelle. Lisäksi ylisukupolvinen ammatin periytyminen oli erittäin voimakasta erityisesti maata omistaneissa luokissa.

Sosiaalinen liikkuvuus lisääntyi vähitellen 1800-luvun ensimmäisen puoliskon aikana. Tämä johtui ennen kaikkea voimakkaammasta väestönkasvusta ja heikentyneistä mahdollisuuksista saada riittävän hedelmällistä viljelysmaata, mikä heikensi maata omistaneiden jälkeläisten mahdollisuuksia pysyä maata omistavana luokkana. Maata omistaneiden lapset joutuivat siis kohtaamaan yhä enenevissä määrin alenevaa säätykiertoa. Koska avioliittostrategiat olivat edelleen erittäin jäykkiä ja sosiaalinen liikkuvuus kohdistui alaspäin, maattomien luokka kasvoi vähitellen yhä suuremmaksi 1700-luvun lopun ja 1800-luvun aikana. Aluksi aleneva säätykierto lisäsi sosiaalista liikkuvuutta, mutta vähitellen 1800-luvun kuluessa sosiaalinen liikkuvuus heikentyi.

Ammatin ylisukupolvinen pysyvyys vahvistui ja tuloerot kasvoivat voimakkaasti noin 1800- luvun keskivaiheilta aina 1900-luvun alkuun saakka. Vähittäinen teollistuminen, rakennemuutos ja siirtyminen kohti modernia talouskasvua lisäsivät eriarvoisuuksia väestöryhmien kesken. Erityisesti yhteiskunnan ääripäät erkaantuivat toisistaan. Lisäksi talouskasvu mahdollisti yhä suuremmat tuloerot, sillä aiemmin keskimääräinen tulotaso oli ollut hyvin lähellä toimeentulominimiä.

Vähittäinen teollistuminen, kaupungistuminen ja modernisaatio näyttivät myös heikentävän jäykkiä avioliittostrategioita, mutta vaikutukset olivat vielä melko rajallisia 1800-luvun lopulla.

1900-luku oli puolestaan pääasiassa voimakkaan tasa-arvoistumisen ja kehityksen vuosisata.

Modernisaatio ja muutokset elinkeinorakenteessa kasvattivat merkittävästi sosiaalista liikkuvuutta – erityisesti työväenluokkaisista ammateista siirryttiin valkokaulusammatteihin. Samanaikaisesti tuloerot kaventuivat voimakkaasti pääomaan kohdistuneiden shokkien, institutionaalisten muutosten

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sekä uusien verojen ja tulonsiirtojen vuoksi. Pohjoismaista hyvinvointivaltiota rakennettiin Suomessa vähitellen 1900-luvun aikana, mutta erityisesti 1960-luvun puolestavälistä lähtien sen rooli vahvistui, mikä edisti sosiaalista liikkuvuutta ja kavensi tuloeroja. Erityisesti investoinnit julkiseen koulutukseen avasivat laajemmin mahdollisuuksia yhteiskuntaryhmille. Vaikka 1900-luvun lopulla eriarvoisuus kasvoi niin tuloeroissa kuin sosiaalisessa liikkuvuudessa mitattuna, se ei kääntänyt 1900- luvun tasa-arvoistumisen trendiä. Eriarvoisuuden kasvun lähteenä olivat erityisesti pääomatulojen kasvu ja veroasteiden lasku ylimmissä tuloryhmissä, mutta myös työväentaustaisten poikien heikko koulumenestys ja heikentyneet mahdollisuudet sosiaaliseen nousuun.

Tuloerot kehittyivät suhteellisen samansuuntaisesti Suomessa verrattuna muihin länsimaihin, vaikka 1800-luvulta onkin melko vähän kansainvälistä vertailuaineistoa. Myös sosiaalisen liikkuvuuden trendit olivat samankaltaisia Pohjoismaisissa esimerkeissä (Suomi ja Norja) 1800 ja 1900-luvuilla. On kuitenkin merkittävää, että Yhdysvalloissa ja Iso-Britanniassa sosiaalinen liikkuvuus on toisaalta heikentynyt samaisilla vuosisadoilla. Suomen 1900-luku näyttäytyykin pääasiassa kehityksen ja tasa-arvoistumisen vuosisatana, sillä maa saavutti ja ohitti kehityksessä useita muita länsimaita muuttuen samalla verrattain tasa-arvoiseksi yhteiskunnaksi. Tämä kehityskulku tapahtui huolimatta koetuista kriiseistä ja mullistuksista, saati suurista yhteiskuntaluokkien välisistä eriarvoisuuksista.

Väitöskirja osoittaa, että eriarvoisuuden kehityslinjat eivät ole selitettävissä vain yksittäisellä tekijällä, vaan vallitsevat voimat vaihtelevat merkittävästi eri aikakausina. Lisäksi väitöskirjan tulokset viittaavat siihen, että toteutuneet eriarvoisuudet (tuloerot) ovat voimakkaassa yhteydessä mahdollisuuksien eriarvoisuuden (ammatin ylisukupolvinen periytyminen) kanssa.

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Acknowledgements

This thesis would not have been possible without the support of many people to whom I am sincerely indebted. Sakari Saaritsa, Sakari Heikkinen and Markus Jäntti have commented on the work and given me their full support and aid as supervisors. Furthermore, I am grateful for all the advice I received from my co-author and mentor, Antti Häkkinen. They all have had the patience to listen to and provide me with useful tips during the process, which included all the common stresses of academic life. Furthermore, I really appreciate the thorough and detailed comments received by the anonymous referees during the journal submission processes, and special thanks go to the pre- examiners of the thesis: Jesper Roine and Jørgen Modalsli. The Economic and Social History Department at the University of Helsinki has been an outstanding place to work, and it has been especially rewarding and fascinating to work with Department Chair Jari Eloranta and all the others affiliated with the department. I have received help where and whenever I needed it. For instance, Hanna Kuusi and Jaana Laine always had time to give valuable feedback on my research work or teaching. I will always warmly remember our economic and social history seminars as well as the after-hours gatherings, where I received valuable feedback and encouragement for my work. Here, I would also like to express my thanks to all the participants in those seminars as well as the discussants in “the round-table meetings” (afternoon coffee breaks) during the past years.

I am grateful for the funding received from the Research Foundation of the University of Helsinki, the Work, Inequality and Public Policy (WIP) consortium, funded by the Strategic Research Council (SRC) at the Academy of Finland, as well as the Chancellor's travel grants received from the University of Helsinki. Without such funding, it would not have been possible to devote so much of my time to research and teaching, or to take part in conferences, workshops and meetings around the world, or to gather archival materials, complete a summer school programme in Groningen, participate in the Helsinki Inequality Initiative (INEQ), take pedagogical courses and other pertinent courses, or enhance my research in other ways. Again, it would have been impossible to otherwise take part in the intriguing discussions with other researchers in scholarly meetings.

This thesis has demanded a massive amount of archival and data research, and I am most indebted to all the research assistants who have contributed to this process and other closely related projects, including Teppo Lindfors, Lauri Heinonen, Jenni Kärkkäinen, Juho Hellstén, Taneli Urmas and Henrik Hämäläinen. I am also exceedingly thankful to Erik Hieta for his professional work in proofreading this thesis and my articles, often with tight time constraints. In addition, none of this would have been possible without the support, care and patience of my family. I am especially grateful

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to my dearest wife, Suvi, who has stood beside me in all circumstances and repeatedly reminded me about life outside academia.

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List of original articles

The PhD thesis is based on the following articles:

I. Roikonen, Petri, & Heikkinen, Sakari (2020). A Kuznets rise and a Piketty fall: income inequality in Finland, 1865–1934. European Review of Economic History, 24(1), 46–79.

doi:10.1093/ereh/hey032

II. Roikonen, Petri (2021). Income inequality in Finland, 1865–2019. Scandinavian Economic History Review, 1–18. doi:10.1080/03585522.2021.1901774

III. Roikonen, Petri, & Häkkinen, Antti (2019). Generations, social homogamy and stratification

in Finland, 1700–1910. The History of the Family, 1–27.

doi:10.1080/1081602X.2018.1500295

IV. Roikonen, Petri & Häkkinen, Antti (2021). The Land of Opportunity? Intergenerational Occupational Mobility in Finland, c. 1700–2000. Submitted.

These articles are referred to in the text by their Roman numerals. Publishers granted the permission to reprint the articles.

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List of Figures

Figure 1. The GDP per capita in the United Kingdom, Denmark, Sweden, Argentina, Poland and Finland, c. 1700–2010 (real 2011 PPP dollars). ... 25 Figure 2. Life expectancy at birth in Finland, Sweden, Denmark and the United Kingdom, c. 1700–

2010. ... 26 Figure 3. The development of social mobility in Finland, c. 1700–2000 (Altham statistic, parent-son).

... 61

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List of Tables

Table 1. The process of coding occupations into meaningful classes ... 41

Table 2. The main determinants of income inequality patterns ... 46

Table 3. Theories of assortative mating in the past. ... 51

Table 4. The determinants of social mobility ... 52

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1. Introduction

But we care about the sources of inequality as well as its extent, which is why we distinguish between equal opportunity and equal outcomes. To what extent is the claim that our society provides equal opportunity justified? How can we tell? I am going to take the position that if economic success is largely unpredictable on the basis of observed aspects of family background, than we can reasonably claim that society provides equal opportunity. There still might be significant inequality in income across individuals, due to differences in ability, hard work, luck, and so on, but I will call these unequal outcomes. On the other hand, if economic success is highly predictable on the basis of family background, then I think it is difficult to accept the claim that our society provides equal opportunity.

Nancy Stokey (1998, p. 2–3) This PhD thesis investigates patterns of inequality in Finland from the early 18^th century to the early 21^st century. Large datasets have been collected utilised, and methodologies have been developed to explore the patterns of income inequality, homogamy and social mobility. Whereas income inequality can be understood in terms of unequal outcomes, assortative mating captures the level of inequality in the initial positions as well as the level of stratification in a society. Equal opportunities are captured by examining the possibilities for individuals to achieve occupations independent of their social background.

The first theme addressed in this PhD thesis is income inequality, or the inequality of outcomes.

Recently, research on the historical patterns of income inequality have certainly become central in social and economic debates (Acemoglu and Robinson 2015; Piketty 2015b, 2014; Atkinson 2015;

Milanović 2011; Stiglitz 2013; Jones 2015; Kopczuk 2015; Weil 2015; Auerbach and Hassett 2015;

Mankiw 2015; Piketty 2015a; Boushey, DeLong, and Steinbaum 2017). This shift in scholarly attention is largely due to a number of groundbreaking studies that retrieved new data from tax records, social tables and other archival records (Milanovic, Lindert, and Williamson 2011; Scheidel 2017; Atkinson and Bourguignon 2015; Atkinson, Piketty, and Saez 2011; Atkinson and Piketty 2010; Alfani and Gráda 2017; Piketty 2014; Atkinson and Piketty 2007; Piketty 2001). New findings have revolutionised our view about the past and enhanced our understanding of how societies function and the role of such forces as industrialisation, wealth, institutions or globalisation and technological change in the prevalence of inequality in a society (Scheidel 2017; Piketty 2014; Lindert and Williamson 2016a;

Prados de la Escosura 2008; Rossi, Toniolo, and Vecchi 2001; Alfani 2015; Acemoglu 2002; Roine, Vlachos, and Waldenström 2009; Piketty, Saez, and Zucman 2018). This thesis builds on the very

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valuable previous estimations made by other researchers for Finland starting already from the year 1865 (Jäntti 2006; Jäntti et al. 2010; Roine and Waldenström 2015; Hjerppe and Lefgren 1974).

However, the long-run patterns are unknown since the previous studies are not comparable with each other and datapoints do not exist for lengthy periods of time. In addition, the historical context is often lacking, which makes drastically changing patterns difficult to interpret or back up with historical facts.

In particular, relatively few studies have examined novel data before the 20^th century, which hampers research on many crucial aspects of inequality, such as industrialisation and modernisation.

The second theme addressed in this PhD thesis is homogamy, i.e. assortative mating, which has a direct link to the inequality of outcomes (income inequality) through the concentration of a family’s resources (Milanovic 2019). Through marriage, the networks and cultural and material capitals of families became connected and intertwined, which may have hampered or strengthened one’s possibilities in life. Especially earlier in history, a bride’s life prospect for the most part became fixed once married since the division of labour was relatively strict between genders and possibilities for career advancement were limited. Moreover, family is the most crucial factor for descendants’ success in life since it is the institution that transmits human and material capital to the next generation, including skills, talents, and goals in life, social networks, customs, traditions, values, professions and wealth (Corak 2013; Corak and Piraino 2011; Solon 2004; Georg 2004; Ingram and Lifschitz 2006;

Björklund, Roine, and Waldenström 2012; Moring 2009; Bengtson and Harootyan 1994; Milanovic 2019; Moring 1999). Earlier in history, marriage was mainly the result of third-party (family or the larger community) influence and structural constraints in the marriage markets and to a lesser extent of individual preference. Today, marriage in the developed countries is more influenced by individual preferences, though few studies have investigated assortative mating trends in the long run. Despite the outstanding research done by social historians (see the review articles in van Leeuwen and Maas 2005, 2010, 2019) as well as by Moring (1999, 2009, 1996) and Häkkinen (2018) and others from Finland (e.g. Jallinoja 2017), the role of modernisation, individual preferences and structural factors in assortative mating are mostly unknown, especially in Finland in earlier centuries.

The third theme covered in this PhD thesis is social mobility (parent-son), i.e. the equality of opportunities, which is closely connected to income inequality and homogamy. Arguably, the unequally distributed resources of families affected their possibilities to invest in their descendants’

future, and therefore impacted their opportunities, or lack of them; however, the extent to which an inequality of outcomes affected the equality of opportunities, and vice versa, remains ambiguous (Corak 2013; Chetty, Hendren, Kline, and Saez 2014; Bjorklund and Jantti 1997; Solon 1992;

Zimmerman 1992; Bavel, Peeters, and Matthijs 1998). Despite the long-held general assumption that the ultimate goal of equality should be the provision of equal opportunities, studies on the patterns of

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social mobility in the long run are surprisingly scarce, and they mainly concentrate on the period after 1950 due to limited historical data (Clark and Cummins 2015; Pérez 2019; van Leeuwen and Maas 2010; Long and Ferrie 2013a; Song et al. 2020; Clark and Cummins 2014; Clark et al. 2015; Björklund and Jäntti 2000; Chetty, Hendren, Kline, Saez, et al. 2014). The limited number of existing studies indicate that social mobility is more or less stable over time, despite minor spatial and periodical variances (e.g. Erikson and Goldthorpe 1992; van Leeuwen and Maas 2010; Xie and Killewald 2013;

Maas and van Leeuwen 2002; Featherman, Jones, and Hauser 1975; Lipset and Zetterberg 1959;

Kaelble 1986; Lipset and Bendix 1959). The explanations for such stability rely largely on market forces, development patterns, the cultural capital of families and even genetic inheritances (Clark, Leigh, and Pottenger 2020; Clark and Cummins 2015; Clark et al. 2015; Georg 2004; van Leeuwen and Maas 2010). However, recent findings acquired from individual registers dating further back in time now challenge this traditional view (Long and Ferrie 2013b, 2013a; Modalsli 2017; Song et al.

2020; Pérez 2019). Thus, research on social mobility in the long run is still in its infancy, and it is crucial to characterise the historical trends in different countries, including Finland, to enhance our knowledge of the past and to improve existing theories regarding the equality of opportunities (social mobility). Indeed, the number of long-run studies on social mobility in Finland are quite scarce, but this work builds on the few pioneering studies that are available (see Häkkinen 2018). In other words, the long-term patterns of social mobility or the extent to which people enjoyed equal opportunities are largely unknown in Finland, but this is generally also true at the international level.

The main contribution of this thesis is that it extends scholarly knowledge of inequality by several centuries in one particular European country. Although many studies have assessed income inequality (e.g. Nummela and Laitinen 1987; Hjerppe and Lefgren 1974; Roine and Waldenström 2015), social mobility (e.g. van Leeuwen and Maas 2010; Maas and van Leeuwen 2002) or marriage patterns (e.g. Moring 1996, 1999; van Leeuwen and Maas 2010) in certain periods or at the local level, the longer trends are more or less unclear, particularly in Finland. Historical income inequality research surged after Piketty’s study (2001), and the motivation for this branch of research was to utilise source material in new ways and develop methods that aimed to be as comparable as possible across countries and extend series further back in time. Before this new research focus, the methodologies and data sources varied between countries, making it quite difficult to construct long-run inequality series or compare series between countries. Although new methods and data sources eased the comparability issues, the series constructed to date are far from perfectly comparable across time and even less so across countries. On the other hand, the methodologies and data sources used in studies on social mobility and marriage homogamy still vary considerably, which makes the results difficult to compare (e.g. van Leeuwen and Maas 2010, 2005; Long and Ferrie 2013b, 2013a; Xie and Killewald 2013). To

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characterise the patterns of inequality over longer periods of time, we need to answer three fundamental questions: First, how can researchers obtain reliable estimates in the first place? Second, how easy is it to compare these estimates with the other available series from previous studies? Third, could these estimates be compared with those from other countries or time periods? Indeed, the previous literature proves that answers to these questions are not simple. To overcome such possible limitations, this thesis has worked with new data sources and developed new methodologies.

Fortunately, Finland is a very interesting case, as it introduced income taxation already in 1865 and population registers already in the early 18^th century. These data offer good opportunities to study income inequality, heterogamy and social mobility patterns over the course of time. Moreover, Finnish history is full of intriguing possibilities to study and make contributions to existing theory and the empirical literature. In short, not until the latter half of the 20^th century did Finland fully transform from being a poor, agricultural and backward country into an industrialised country and later into one of the most developed countries in the world. Moreover, though some of the Nordic welfare state institutions were established earlier in the 20^th century, the welfare state was not significantly expanded until the mid-1960s. Furthermore, Finland has experienced such turbulent shocks as famines, high inflation, world wars and periods of violence (i.e. the bloody civil war). This PhD thesis contributes to these discussions by exploring Finland during the past 300 years. The main objective of the thesis is to create a new understanding of how income inequality, social mobility and homogamy developed in Finland. The inequality patterns are explored through a process of collecting and presenting new data as well as developing new methodologies. This thesis will stimulate new discussions and contribute valuable perspectives with respect to existing theories and literature. In addition, comparisons with other countries are made when possible.

The PhD thesis is organised as follows. First, the objectives and its contribution in relation to previous studies are introduced in Chapter 2. Then, the context of the Finnish history starting from the early 18^th century is discussed in Chapter 3, whereas the research approach is discussed in Chapter 4.

Chapter 5 explores the theoretical foundation of the thesis, while Chapter 6 presents the main results and research contributions of the thesis. Next, the theoretical discussion in relation to the theoretical framework of the thesis is discussed in Chapter 7. Finally, the concluding remarks and possible future research agenda are presented in Chapter 8.

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2. Objectives and scope

2.1. Income inequality

This PhD thesis investigates the long-run patterns of inequality through the lens of income inequality, homogamy and social mobility. The first theme considers income inequality, a subject warranting increasing attention during the last few decades; however, as Lindert and Williamson (2016a) point out, not until now has a new wave of studies substantially advanced the frontiers of research. They also highlight that we need to explore new data from varying periods and countries to find plausible explanations for inequality patterns since regression models are almost useless due to the scarce amount of available data (see the literature reviews in e.g. Morrisson 2000; Atkinson, Piketty, and Saez 2011;

Atkinson and Piketty 2010; Scheidel 2017; Lindert and Williamson 2016b, a; Piketty 2014). Also, many researchers highlight the importance of conducting thorough case analyses to identify such plausible explanations (e.g. Acemoglu and Robinson 2015).

Thus far, research on income inequality in Finland has concentrated on the latter part of the 20^th century, and efforts to find explanations for income inequality patterns have focused largely on the 1990s or early 2000s (e.g. Riihelä and Tuomala 2019; Riihelä and Suoniemi 2017; Riihelä, Sullström, and Suoniemi 2008). Fortunately, several studies have assessed income inequality over longer historical time spans: Jäntti et al. (2010) and Jäntti (2006) have investigated income inequality starting from the early 1920s, Hjerppe and Lefgren (1974) have in a pioneering study observed income inequality patterns between the years 1881 and 1967. Moreover, Roine and Waldenström (2015) have estimated top income shares between the 1860s and 1880s. Therefore, there are some studies to build on when exploring income inequality patterns starting from the year 1865. In addition, several studies have examined shorter time spans or have adopted a region-specific focus (e.g. Nummela 1990;

Nummela and Laitinen 1987). Moreover, a vast body of literature exists in the social history field on economic and social inequality, but it covers more specific variables contributing to inequality, such as ethnicity, region, social class or poverty (e.g. Pulma 2012; Peltonen 1992; Haatanen 1968; Siipi 1967; Häkkinen and Peltola 2005).

However, the long-run patterns of income inequality remain unknown since prior studies are methodologically inconsistent and diffuse. For instance, it is not clear how income inequality developed in the late-19^th century since Roine and Waldenströms’ (2015) results are not comparable to the estimations made by Jäntti and colleagues (Jäntti 2006; Jäntti et al. 2010). In addition, no estimations exist for the years between the early 1880s and the year 1920. Moreover, some identified

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patterns found are difficult to explain from an historical standpoint, which demands further elaboration.

Explanations for such patterns are almost completely lacking and the historical context is missing.

Therefore, the research questions regarding income inequality (articles I and II) are as follows:

1. Article I) How did income inequality develop in Finland between 1865 and 1934, and how does it compare with patterns in other countries?

2. Article II) What were the trends and levels of income inequality in Finland between the years 1865 and 2019, and how do the trends compare with those in other countries?

3. Articles I and II) What are the central determinants affecting income inequality patterns?

What does the Finnish historical context reveal when considering the possible drivers of inequality?

Thus, in articles I and II we constructed an income inequality series and knowledge on how income inequality developed between the years 1865 and 2019 by collecting and utilising income taxes and modern income distribution statistics. Distributions of the whole population were utilised when possible, but in many cases only top income shares were used due to a lack of data from the lowest income ranks.¹ To construct the income inequality series, we used a common and recently developed method for reconstructing distributions (Blanchet, Fournier, and Piketty 2017). In addition, cross- country comparisons were also made. Furthermore, the articles contribute to discussions on the determinants of income inequality in the long run. The determinants include theories connected with development patterns, such as the Kuznets curve (Kuznets 1955) and the inequality possibility frontier (Milanovic, Lindert, and Williamson 2011); with shocks, such as famines, wars and recessions (Alfani and Gráda 2017; Piketty 2014; Scheidel 2017; Morelli and Atkinson 2015); with wealth, such as the R-G theory (Piketty 2014), capital and labour shares (Bengtsson and Waldenström 2018), and wealth concentration (Piketty and Zucman 2014); with institutions, such as redistribution through taxes and social transfers (Piketty, Saez, and Zucman 2018; Jäntti et al. 2010; Atkinson 2015), government spending (Lindert 2004; Atkinson and Bourguignon 2015; Atkinson 2015), and unions (Förster and Tóth 2015; Farber et al. 2021); as well as with globalisation and technological change (Acemoglu 2002;

Bartels 2019; Atkinson and Bourguignon 2015; Roine, Vlachos, and Waldenström 2009).

1 Empirical evidence suggests that top income shares are good substitutes for other income inequality measures, such as the Gini coefficients (Morelli and Atkinson 2015).

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2.2. Homogamy

Homogamy in marriage patterns means that spouses have a similar social background in terms of, for instance, family occupation or level of education. The research on homogamy lacks consistent studies on long-run patterns, though. Trends identified in the US suggest that educational homogamy first decreased in 1940–1960, followed by an increase between the years 1960 and 2003 (Schwartz and Mare 2005). Moreover, some evidence indicates that educational homogamy has strengthened in many countries during the last few decades (Katrňák and Manea 2020). Interestingly, educational homogamy in Finland today is relatively modest in comparison with other countries (Mäenpää 2015).

Although the expansion of stratification studies during recent decades has shed light on this complex phenomenon, the roles of modernisation, individual preferences and structural factors in homogamy are still largely unknown (see the review articles: van Leeuwen and Maas 2019, 2010, 2005).

Moreover, studies focusing on historical perspectives of homogamy in Finland are relatively scarce.

Several researchers have studied homogamy and marriage in Finland in the 18^th and the 19^th centuries, identifying strict marriage patterns in pre-industrial society, especially in the landowning class, with the main reasoning for marriage being economic rather than love (e.g. Moring 1999, 2009; Silvasti 2001). Moreover, some scholars have focused on the history of marriage and sexuality in general (e.g.

Nieminen 1993). Other studies highlight the role of marriage as an institution that maintained or even strengthened social divisions in Finland. Such studies also discuss how the impact of family eventually declined in favour of individual decisions about marriage in the 20^th century due in no small part to changes in the modern legal system (e.g. Pylkkänen 1991; Miettinen 2012; Kietäväinen- Sirén 2015). In addition, a valuable study by Jallinoja (2017) examines statuses and dynasties in the upper stratum by analysing marriage patterns and social mobility in varying status hierarchies.

However, proper statistical analyses of historical homogamy patterns between occupational ranks in Finland are still quite rare (see the pioneering work by Häkkinen 2018). Therefore, the research questions presented in article III are as follows:

4. How much homogamy, based on social background, was there in Finland between 1700 and 1910, and how did it change over time?

5. How can we explain the variations in homogamy?

In the article, we study social homogamy in first marriages in detail by comparing the parental occupations of both spouses, in other words, their social origins. We selected this approach not only because it is common practice in the field, but also for practical reasons: the wife was often assigned her husband’s occupation in marriage (e.g. van Leeuwen and Maas 2019). Our empirical work relies

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on data from population and church registers, which consist of data mainly from southern and western parts of Finland. We constructed variables and regression models to explore the roles of modernisation, individual preferences and structural factors in marriage patterns (see van Leeuwen and Maas 2019, 2010, 2005; Bull 2005; Dribe and Lundh 2005).

2.3. Social mobility

A common view found in the literature is that, at least in market economies, social mobility has remained more or less stable through history. Although differences occur between countries and time periods, scholars suggest social mobility was generally rather stagnant (e.g. Erikson and Goldthorpe 1992; van Leeuwen and Maas 2010; Xie and Killewald 2013; Maas and van Leeuwen 2002). Moreover, such studies are inconclusive about the extent to which industrialisation and modernisation affected social mobility (Kaelble 1981; Wiebke, Ineke, and Marco 2015; Maas and van Leeuwen 2002; Dribe, Helgertz, and van de Putte 2015; Lipset and Bendix 1959; Kaelble 1986). One explanation for the

‘constant flux’ in market economies as compared to non-market economies is the level of efficiency and competition prevalent in market economies, which evens out the playing field and increases opportunities (Featherman, Jones, and Hauser 1975; Friedman 1962). Moreover, stagnant social mobility is also explained by families’ cultural capital or even by genetic inheritance (Clark, Leigh, and Pottenger 2020; Clark and Cummins 2015; Clark et al. 2015; Georg 2004).

Strikingly, these theories and arguments rely on only a relatively minor amount of empirical evidence and often lack long-run time series. Often the studies account for only a brief period, a restricted region or only part of the population, such as elite families (Clark and Cummins 2015; Clark et al. 2015; van Leeuwen and Maas 2010). During the past decade, however, some studies have started to question the prevailing wisdom after finding considerable changes in social mobility patterns in history (Long and Ferrie 2013b, 2013a; Modalsli 2017; Song et al. 2020; Pérez 2019). Since the longer term trends remain mostly unknown, revealing the long-run patterns of social mobility in Finland constitutes a significant contribution to the current body of literature on the topic. Numerous empirical studies exist from Finland that consider the intergenerational transmission of socio-economic status

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(including education,² health,³ incomes,⁴ family formation⁵ and disadvantage⁶), however comprehensive long-run studies are quite limited, and existing studies mainly concentrate on the period after the 1950 census (e.g. Erola and Moisio 2006; Pöyliö and Erola 2015; Erola 2009; Häkkinen 2018;

Sirniö, Martikainen, and Moisio 2011; Jarvela 1983). Thus, the research questions presented in article IV are as follows:

6. How did parent-son social mobility patterns develop in Finland, c. 1700–2000?

7. How do these patterns compare with those in other countries?

8. What were the main drivers of social mobility in the long run?

Article IV explores the intergenerational persistence of occupation in Finland from the early 18th century to the 21st century. In other words, it investigates the influence of parents on their sons’

occupational attainment (relative mobility) and how often sons pursued the same occupation as their parents (absolute mobility). Moreover, it compares Finnish data with data from countries, where comparable studies exist: the US, the UK and Norway. To our knowledge, our article is the first to extend the time frame of long-run social mobility literature to cover the 18^th century utilising common empirical methods. Moreover, it covers the longest time span ever studied, if the studies on elite families by Clark et al. (2015) are not taken into account. Lastly, recent papers suggest that intergenerational income persistence varies significantly between regions and is heavily influenced by the same forces that determine income inequality (Corak 2013; Solon 2004; Jäntti and Jenkins 2015;

Chetty, Hendren, Kline, and Saez 2014). This proposition, however, does not imply that social mobility is influenced by the same forces. Thus, one of our interests is to discuss development and institutional (mainly educational) as well as income inequality patterns together with social mobility trends.

2 See Erola (2009); Hertz et al. (2008); (2016); Kivinen, Hedman, and Kaipainen (2007).

3 See Kröger et al. (2018); Remes, Martikainen, and Valkonen (2010); Tarkiainen et al. (2014).

4 See Airio and Niemelä (2009); Jäntti et al. (2006); Jäntti and Jenkins (2015); Pekkala and Lucas (2007).

5 Raab et al. (2014); See Erola, Härkönen, and Dronkers (2012); Nisén et al. (2014).

6 Social assistance (e.g. Ilmakunnas 2018), school dropouts and unemployment (e.g. Vauhkonen et al. 2017), and labour market outcomes (e.g. Sirniö, Kauppinen, and Martikainen 2017b).

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3. Historical context

It is not completely wrong to describe Finland as a bark boat caught up in the waves of world history.

The Finnish population has always accounted for far less than one per mille of the world’s population, and therefore, the Finnish development story relied heavily on technologies and innovations adopted and copied from more developed countries as well as world trade (Eloranta and Ojala 2018; Heikkinen 2019; Haapala and Christopher 2018; Kokkinen 2019). It is evident that the policies adopted, and institutions created based on foreign models helped the country successfully navigate through the choppy waves; however, success through planning and careful policymaking were rather limited since Finland only became independent rather late, in 1917. Although many reforms were planned already during the late 19^th century, they were implemented only in the aftermath of independence (see further discussions in Haapala and Christopher 2018).⁷ The region now known as Finland, in Northern Europe,

‘drifted’ through the centuries by adopting institutions largely imposed by Swedish rulers. Subsequent Russian rulers mainly retained the old Swedish institutions, and Finland became an autonomous Grand Duchy of the Russian Empire. Next, I discuss the following central topics in Finnish history, which are important for understanding the patterns of inequality: 1) development, 2) wealth, 3) shocks, 4) globalisation and technological change, and 5) institutions.

Finland can be described as a poor, backward, rural region before the latter part of the 19^th century. Finland began to gradually industrialise roughly from the 1870s onwards, but it did not transition to a more service-based economy until the late 20^th century. Industrialisation occurred gradually, and the social and the economic structure of Finland were predominantly agrarian until the early 20^th century. The share of the workforce employed in agriculture and forestry did not drop below 50% until roughly the 1940s (Haapala and Peltola 2018; Hjerppe 1989). In the mid-19^th century, more than 80% of the workforce was still engaged in agricultural production, declining to roughly 70% in the early 20^th century, and only below 10% in the late 20^th century. Today, more than 60% of the workforce belongs to the service sector (e.g. Eloranta and Ojala 2018; Hjerppe 1989) (for more detail on the social structure, see article IV). Moreover, the primary sector’s share of GDP has decreased from 58% in the 1870s, to 43% in 1913, to 26% in the early 1950s and to roughly 10% in the 1970s (Heikkinen 2017a).

7 The region now known as Finland was largely part of Sweden until 1809, whereas it was an autonomous Grand Duchy of the Russian Empire during the years 1809–1917. Finland only gained its independence in 1917 after the collapse of the Russian Empire.

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Figure 1 compares the real GDP per capita ($2011 PPP dollars) starting from 1700 in Finland, Poland, Argentina, Sweden, Denmark and the United Kingdom. Only in 1900 did the income level in Finland exceed the GDP level attained in the United Kingdom two centuries previously. The Finnish income level was considerably lower in comparison with the other Western countries over the centuries, but it was not far from the income level in Sweden in the 18^th and the 19^th centuries.

Nevertheless, the income level was significantly lower in Eastern European countries before the mid- 19^th century, including Poland (see also the development of real wages in Eloranta and Ojala 2018).

The income level remained relatively stagnant through the centuries, and it only gradually began to increase in the latter half of the 19^th century in Finland. The industrialisation process combined with new technologies and innovations advanced first in the industrial core, the United Kingdom, only to gradually be adopted in Denmark, Sweden and Finland centuries later. However, Finland caught up with the other economies quite quickly in the 20^th century, when it industrialised, modernised and became service-dominant economy. The Finnish GDP per capita did not exceed the figures for Argentina until the 1950s (Figure 1). The period of 1950–1990 especially was a time of development:

Finnish annual real GDP growth was 3.6%, exceeding by a large margin its Western counterparts. In addition, annual productivity growth varied greatly by sector: for the primary sector it was 4.1%, for industry it was 4.7%, for the construction sector it was 2.7% and for the service sector it was 2.5%, whereas overall productivity growth was 3.9% (Heikkinen 2017a).

Before industrialisation and modernisation, people’s source of living was tightly connected to the land (wealth). Finland, as one of the world’s northernmost agricultural regions, was vulnerable to frequent crop failures and its agricultural productivity remained low until the late 19^th century (Nummela 2018). Highly fluctuating and low production meant a stark social divide between the landowners and the landless, brutally affecting people’s odds of surviving, especially during crises: for example, in the famine years (1866–1868), when almost one tenth of the population was lost and the death rates were much higher among the poorer social classes and in the poorer regions (Häkkinen 2018; Nummela 2018). Therefore, Finland was still a quite unequal estate society, even neither though serfdom on the one extreme nor massive fortunes on the other existed, as was common in the feudal systems in parts of Europe. Estates had many privileges, many of which were abolished after Finland became an democratic state, but they were not completely abolished until as late as 1995 (Nummela 2018).⁸ According to probate inventory data, Finland was at least as unequal as the much wealthier nations, such as the UK, France or the US, between the years 1750 and 1900. During the industrialisation period of 1850–1900, forests that were largely owned by farmers increased in value,

8 See the law abolishing estate privileges (971/5.12.1995) (https://finlex.fi/fi/laki/alkup/1995/19950971).

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which helped level off the extremes of wealth concentration. This transition had an impact on the upper part of the social stratum, whereas the overall wealth inequality gap did not diminish drastically until during the 20^th century (Bengtsson et al. 2019; Roine and Waldenström 2015).

Figure 1. The GDP per capita in the United Kingdom, Denmark, Sweden, Argentina, Poland and Finland, c. 1700–2010 (real 2011 PPP dollars).

Sources: Finland 1600–1860 (Eloranta, Voutilainen, and Nummela 2016), other years (Bolt and van Zanden 2020); Sweden 1560–1950 (Schön and Krantz 2015), other years (Bolt and van Zanden 2020);

Denmark (Bolt and van Zanden 2020); the United Kingdom 1700–1870 (Broadberry et al. 2015);

Argentina 1800–1870 (Prados de la Escosura 2009), 1870–1900 (Bertola and Ocampo 2012); Poland 1700–1913 (Malinowski and van Zanden 2017), other years (Bolt and van Zanden 2020).

Life expectancy serves as a crucial development indicator, with Figure 2 showing comparisons between Finland, Sweden, Denmark and the UK from the early 18^th century to the 21^st century. Low-income levels before the modern period of economic growth tended to lower life expectancy in Finland, which is decidedly evident during shocks. As highlighted by Häkkinen (2018), the late 18^th and 19^th centuries were difficult times from the standpoint of life expectancy. Most people’s life expectancy was quite

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low because of poor working conditions and nutrition as well as low productivity in agriculture and unequally distributed resources (Häkkinen 2018; Nummela 2018). Life expectancy started to increase along with economic growth, industrialisation and modernisation, which began in Finland in the 1870s and converged with figures for other Western countries in the latter 20^th century. Remarkably, average life expectancy has more than doubled during the last 150 years or so.⁹ Moreover, public health and medical interventions played a significant role in lowering death rates (e.g. Lazuka 2017; Peltola and Saaritsa 2019).

Figure 2. Life expectancy at birth in Finland, Sweden, Denmark and the United Kingdom, c. 1700–

2010.

Sources: Zijdeman and Ribeira da Silva (2015).

9 Other development indicators suggest a relatively similar story as witnessed previously, although there are differences in volatility and timing (see indicators considering life expectancy, schooling rates, reading and writing scores and HHDI-index in Saaritsa 2019).

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The pattern of average life expectancy starkly reveals how crop failures and turbulent shocks impacted individual lives (see also Sweden in Figure 2). Indeed, Finland experienced repetitive epidemics, crop failures and other turbulent shocks every other year or between decades for several centuries. The list of crises is long and includes the following: the Great Northern War (1700–1721); the Russo-Swedish War of 1741–1743; the splenic fever epidemic (1763); the Russo-Swedish War of 1788–1790; typhus epidemics (1788–1790, 1808–1809); the Finnish War (1808–1809); smallpox, splenic fever and typhus epidemics (1830–1834); crop failure (1833–1834); famine years combined with typhus and typhoid fever epidemics (1866–1868); another splenic fever epidemic (1893); the Spanish flu, the Finnish Civil War and prisoner internment camps (1918–1919); the Winter War (1939–1940); the Continuation War (1941–1944); and the Lapland War (1944–1945). Thus, the most severe crises that affected life expectancy were related to crop failures, wars and epidemics throughout the 18^th and the 19^th centuries (Figure 2; Häkkinen 2018).

After the famine years of the 1860s, economic crises no longer primarily occurred as a result of crop failures due to productivity growth and modernisation in the agricultural sector. Moreover, rapid globalisation provided new possibilities to buy food products from abroad or from the Russian Empire, if necessary. For instance, Finland imported roughly half of its bread corn just before WWI, which eased the centuries-old pressure on agriculture. On the other hand, relying on trade and the global economy had its disadvantages as well. The great economic crises that occurred in the 20^th century were related to the civil war and two world wars (1914–1919, 1939–1945) as well as to global economic turmoil connected with national-scale challenges (especially the Great Depression of 1929–

1932, the crisis of the early 1990s and the financial crisis after 2008). In the past, Finland had recovered from such turbulent shocks quite rapidly, apart from the most recent protracted financial crisis, by trusting in a recovery of the exports. Overall, however, Finland has benefitted from global trade and globalisation massively during the 20^th century (Heikkinen 2017a; Heikkinen and Kuusterä 2001;

Heikkinen 2013).

Already in the early 19^th century, Finland had become more closely connected to global networks and had absorbed innovations and technologies from abroad. However, Finland started to develop industrially and become more connected to the global trade especially from the 1870s onwards (Eloranta and Ojala 2018; Ekholm and Hjerppe 2019; Koponen and Saaritsa 2019; Heikkinen 2019;

Nummela 2019). During the first wave of rapid globalisation, 1870–1913, Finland became one of the most open economies in Europe (export and import share of GDP was roughly 50%). Starting from the 1870s, Finnish primarily exported goods and materials to Western countries (mainly butter and lumber), but exports to Russia were important too (mainly paper). Whereas the share of foreign trade with respect to overall GDP remained at relatively similar levels during the anti-globalisation phase

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lasting from 1913 to 1950 (roughly 30–50%), the share drastically increased during the rapid globalisation periods of the later 20^th century (roughly to 80%). Being a small open economy, Finnish exports rely on relatively small export trades, like paper, chemical pulp, board and timber, although exports have diversified somewhat after the 1960s (like ICT products and services) (Heikkinen 2017a;

Haaparanta et al. 2017). Thus, the development process was tightly connected with globalisation processes, where a small and open economy like Finland’s could benefit from innovations and technologies copied abroad but especially from countries or regions offering large-scale export markets.

It is a widely accepted fact that institutions play a central role in economic growth. Perhaps the most crucial institutions are legal apparatuses that guarantee ownership rights, a constitutional state and other institutions that enable a market economy to function properly. Many such institutions were established during the 1850–1870s, when people had greater freedom of movement and more opportunities to become entrepreneurs or choose a trade (Heikkinen 2017a; Nummela 2018).

Moreover, the adoptions of innovations and technology was possible only after enough human capital existed to make use of them. Earlier, the necessary level of human capital needed was not outstanding, whereas the need grew rapidly during the latter part of the 20th century. Thus, it has been crucial for Finland that it has also invested in human capital, not only for adopting innovations and technologies but also for devising new innovations (Heikkinen 2017a; Kokkinen 2019, 2012).

Despite the basic market institutions that were established in the late 19^th century, it can be argued that the ‘real’ opportunities were rather limited since the cumulated privileges and disadvantages of the various social groups only fractured gradually (see more details in Häkkinen 2018;

Nummela 2018; Hannikainen 2018). For instance, the old poor relief system contained strong power asymmetries between the haves and the have nots, with it being much harsher towards the poor.

Typically, the unemployed were assigned to a house (based on the idea of allotment) for one year at a time to work as a means of offsetting their living expenses. The poor relief system was based on varying types of institutions in the parishes and municipalities, as was common in Sweden and other Western societies at the time, including workhouses, allotments and giving minimal cash and food supplies.

Also, employers had certain obligations to offer some amount of security to their employees if and when they should retire or become ill. Gradually during the late 19^th and the early 20^th centuries, a general relief fund and trade unions were established to cover the livelihood of persons during sickness or retirement (Hannikainen 2018; Häkkinen 2018).

Indeed, the bargaining power of labour relative to the owners of capital and other market institutions was still rather limited before the increasing power of trade unions (Jaumotte and Osorio Buitron 2019; Farber et al. 2021). The Finnish trade unions and relief funds were established during

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the late 19^th and the early 20^th centuries. Nevertheless, the power of labour unions was still relatively weak in Finland in comparison with other Nordic countries before WWII. The labour movement increased its power through the growing number of union members as well as negotiations between various labour market organisations from the early 1960s until the early 1990s. Today, the Nordic countries, including Finland, have the highest share of union representation of all Western countries (Heikkinen and Lundh 2020; Bergholm 2016; Visser 2019).

Finland gained its independence in 1917 and a democratic state was established in 1919, which arguably explains to a great extent the adoption of new policies during the 20^th century. Finland introduced many new taxes on the wealthy already starting from 1915, and it established a state income and wealth tax in 1920. In addition, a law was passed in 1918 stating that crofters and other leaseholders could redeem their rented land. The state supported these leaseholders in multiple ways, especially by setting a fixed land value in 1914, enabling leaseholders to buy the land at a low real value due to high inflation (Rasila 1970; Peltonen 1992; Wikström 1985; Hannikainen 2018). Moreover, the state in 1921 introduced a law, making education compulsory until the age of 13 in rural areas and 14 in urban areas.

However, the legislation only took effect in municipalities gradually. Therefore, the compulsory basic education was only really implemented on a national level until the early 1950s. Moreover, the comprehensive school reforms of 1972–1977 abolished the old two-track schooling system. The state also raised the minimum age for compulsory schooling to 15 in 1957–1958 and to 16 in 1970. In addition, secondary school education was vastly expanded: whereas only roughly one third of pupils continued past primary school in the 1935 birth cohort, more than two thirds continued their education after primary school in the birth cohorts of the early 1950s (Jäntti, Saari, and Vartiainen 2006; Pekkala and Lucas 2007).

Although the welfare state began to take shape already in the early 20^th century, the level and coverage of its institutions and redistribution policies were rather limited before the 1950s. For instance, the level of unemployment benefits covered only a small fraction of the population and the level was much lower in 1950 compared with other OECD countries (Kangas 2006). Indeed, despite introducing some reforms quite early, Finland was behind most OECD countries in terms of the share of social expenditures relative to GDP until the 1950s. The great expansion of the welfare state occurred when the social expenditures as a percentage of GDP increased from roughly 10% to 25% (roughly 30% if education is included) between the early 1960s and the late 1980s. The most crucial reforms were made until the late 1980s, and they consisted of an expanded social insurance system (accident insurance, unemployment benefit, health insurance and pensions), public healthcare system (healthcare centres, hospitals), educational system (comprehensive schools, vocational schools and universities), benefits extended to families (family allowances, day care, school meals and child health clinics), and

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other forms of support offered during an individual’s lifetime (housing allowance, student financial aid and disability subsidies). Therefore, the catch-up phase after WWII encompassed structural changes as well as the constructing and expanding of a comprehensive welfare state (Hannikainen 2018; Kangas 2006; Jäntti, Saari, and Vartiainen 2006).

In historical perspective, Finnish social and economic development reads as a great success story. The cold climate and low agricultural productivity combined with unequally distributed resources had resulted in repeated crop failures, epidemics and severe struggles with subsistence before the late 19^th century. During the research period, Finland transformed itself from one of the poorest and most backward countries of Europe into a prosperous and highly developed Western nation. The catch- up phase started gradually during the late 19^th century, however the real convergence only occurred during the latter half of the 20^th century, when Finnish economic growth, development and progress in well-being were greatly enhanced. The Finnish development story is tightly interconnected with expanding global markets, which propelled it forward in the late 19^th century and inflicted severe economic crises sporadically during the 20^th century. The welfare state developed during the 20^th century, and was greatly expanded only after WWII, to soften the impacts of these global market shocks. However, although the Finnish state enjoyed reasonably prosperous outcomes, its success is not unique and progress in implementing reforms has repeatedly been halted due to shocks or other delays.

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4. Research approach

4.1. Income inequality

4.1.1. Data

The long-run patterns of income inequality are commonly studied by utilising income tax records or social tables, wages and ratios, such as land rents and wages (Milanovic, Lindert, and Williamson 2011; Prados de la Escosura 2008; Humphries and Weisdorf 2015; Atkinson and Piketty 2010, 2007;

Lindert 2000). In this study, I utilised income tax records as the main source for assessing income inequality, complemented by such supplementary data as wages and household surveys. The income distribution surveys are from the modern period. The number of studies examining income inequality using income tax records has grown quite rapidly in recent decades. The results and discussions have changed our view of the past and enhanced our knowledge of how societies work. However, using such data as tax records has its caveats, too. Next, I present the main data used in the thesis and discuss just what and who are represented in the data and explain some heterogeneities in the data (see further discussions on methodology in Atkinson and Bourguignon 2015).

The main sources utilised in this PhD thesis on income inequality are national state income tax (1865, 1871, 1876 and 1880), municipal income tax (1898–99, and 1904), high income tax (1916) and state income tax (1920–2004).¹⁰ In addition, a few supplementary data sources were collected:

municipal taxation from the four largest cities (Helsinki, Turku, Tampere and Viipuri) from 1875 to 1899 (Renvall, 1900), municipal taxation in Helsinki for 1880, 1900–04 and 1906–28,¹¹ and an income survey of six rural municipalities (Tuusula, Humppila, Vihanti, Kymi, Räisälä and Vihanti) from 1903.¹² Furthermore, household budget surveys (1966–81), income distribution statistics sample data (1986–1994) and income distribution survey data (1995–2019) have been used to characterise income inequality patterns during the most recent decades, all of which are compiled by Statistics

10 Tax tabulations for the most part accounted for all taxed units, however the tabulations only consisted of a representative sample of units in 1945–1969. Fortunately, these samples included all top income earners and were relatively large (see Jäntti et al. 2010).

11 Statistical Yearbook of Helsinki, 1920–28.

12 See Gylling (1906); Gylling (1907). Central economic and demographic statistics were also collected from the following sources: wages (Heikkinen 1997, 2017b); demographic statistics (OSF 1870, 1882, 1894, 1905; Vattula 1983; Statistical Yearbook of Finland (SYF) 1879–1938, 1885, 1911, 1916, 1921, 1931, 1949, 1961–1962, 1987, 1990, 1991); GDP (Hjerppe 1989; OSF 2019).

Patterns of Inequality: Income Inequality, Homogamy and Social Mobility in Finland, c. 1700–2019

Publica tions of the F acult y of Social Scienc es

Petri Roikonen

PATTERNS OF INEQUALITY

Income Inequality, Homogamy and Social Mobility in Finland, c. 1700–2019

200 2021

Patterns of Inequality

Income Inequality, Homogamy and Social Mobility in Finland, c. 1700–2019

Petri Roikonen

Abstract

Tiivistelmä

Acknowledgements

List of original articles

Contents

List of Figures

List of Tables

1. Introduction

2. Objectives and scope

2.1. Income inequality

2.2. Homogamy

2.3. Social mobility

3. Historical context

4. Research approach

4.1. Income inequality