We know Americans do better on average. But how about the distribution? After all, the left like to claim that in the U.S only a few hedge fund managers and the like are well off, while the masses live in poverty.
I used the Census American Consumer Survey to make American income data comparable to Swedish income data. Swedish income distribution data adjusts household income to household size (with children having less weight). I further use OECD data to adjust for purchasing power. The data for Sweden is the latest available year, 2007, whereas the U.S data is for 2006-2008.
I think this is a pretty good, but of course not perfect, comparison. You should think about it as comparing GDP per capita taking income distribution into account. More about the method in the end.
Up until around the 45th percentile, Sweden does better than the U.S. After this the U.S opens up a substantial advantage. It is clearly better to be poor in Sweden compared to the U.S, and obviously to be rich in America compared to Sweden.
What matters most is that this graph illustrates that it is better to be middle class in America. The 60% in the middle earn 20% more in the U.S than they do in Sweden, even taking government purchases crudely into account. It is a myth that only a few at the top do better in the American system compared to even arguably the most successful of the European welfare states.
Here is the same data with the differences filled in.
This comparison up until now was between Sweden and all the US. That is not the correct comparison. A better comparison, if we think culture and norms matter, is between Swedes in the Swedish system and people of Swedish ancestry in the American system. I will make those comparisons in the next post.
Method: I combine differences in GDP with distribution data, in terms of differences in income for 10 deciles. Swedish income distribution data adjusts household income to household size (with children having less weight), so I did the same for the American data, giving children the weight 0.35. I further use OECD data to adjust for purchasing power. The data for Sweden is the latest available year, 2007, whereas the U.S data is for 2006-2008.
The comparison is close, but not perfect. Fringe benefits are lacking. The U.S data does not include income taxes and fringe benefits, and many government transfers. The Swedish data is with capital gains. The American income data is top coded. Most importantly, the Swedish data does not include the value of government purchases. The average advantage in household income is 42.6% for the U.S, compared to a 24.3% advantage in GDP.
For a thing such as health care, the bias goes both ways, since American worker’s health care is largely paid for by the employer and not included in income. This effects the distribution of income however, since poor workers in the U.S get less health care than rich workers, whereas they get equal or more in Sweden.
To account for all these problems and in order not to bias the comparison against Sweden, I did a crude adjustment of increasing the Swedish average data to reflect government services, so that the average difference is now equal to average difference in GDP. What is great about GDP is that it includes almost everything. Now, for a perfect comparison for the U.S and Sweden we would need to know exactly how much government cervices each income groups gets, data that is very hard to calculate. Another problem is that this assumes that 1$ spent by the state is worth 1$ spent by the individual, where I believe it is worth somewhat less, something that benefits Sweden in the comparison. But since much of government spending has already been taken into account, and since most of the remainder does not differ significantly in the U.S and Sweden in terms of who it is targeted towards (in both countries the poor get more benefits than the rich), the comparison is likely to be a reasonable reflection of the economic status of various groups.