Unemployment shocks and income distribution: How did the Nordic countries fare during their crises?

We study the inequality of disposable income in Denmark, Finland, Norway an d Sweden during the late 1980s and early 1990s when unemployment rose drama tically in all four countries. A standard measure of inequality - the Gini coefficient - was surprisingly stable in all countries during this period. By decomposing the Gini into income components, we test hypotheses about th e reasons for this stable income distribution. Our most straightforward hyp othesis, that rising unemployment benefits counteracted the impact of more unequally distributed earnings, receives only limited support. More complex mechanisms seem to have been at work.