Events at CERGE-EI

Prof. Kjell G. Salvanes

Norwegian School of Economics, Norway

Austhors: Eirik B. Abel, Ran Abramitzky, Kjell G. Salvanes

Abstract: We study how World War II reshaped the Norwegian income distribution using a newly digitized panel of individual tax records linked to modern registers. The Gini coefficient fell by about 15 percentage points from 1940 to the early 1950s, with roughly half of the decline occurring during the first war years. While top incomes dropped sharply, we show that this was not the only driver of the leveling. To probe mechanisms, we combine a shift-share design exploiting wartime price surges with a difference-in-differences design using the placement of German investments in airports, fortifications, and manufacturing. Areas more exposed to rising primary-sector prices saw broad gains concentrated in the bottom half of the distribution, while manufacturing investments raised incomes disproportionately among those with low education, income, and wealth. We find that price shocks explain roughly one-third to one-half of the wartime decline in inequality, whereas the aggregate impact of investments on national inequality was negligible. Together, the results reveal a bottom-up compression driven by local demand for low-skill labor that lastingly reshaped Norway’s income distribution.