Unravelling income differentials: exploring the decline in skill premiums in twentieth-century Sweden

This paper documents the evolution of income differentials between skilled and unskilled workers in Sweden throughout the first half of the twentieth century. Using newly digitised data on income taxes, this paper demonstrates that the skill premium decreased throughout 1900–1950, and most rapidly from 1930 onward. This is similar to the fall in skill premium documented for the United States. However, unlike in the United States, the fall in skill premium in Sweden cannot be attributed to an increase in the supply of high-school graduates. Rather, this paper shows that the incomes of low-skilled workers were catching up to those at the top of the skill distribution. Part of this development was due to feminisation of skilled employment, shift from agriculture to manufacturing and services, and changing occupational composition. The paper suggests other mechanisms for the falling skill premium in Sweden, such as informal schooling, emigration, and trade union activity.