TABLE OF CONTENTS
Acknowledgments
Introduction - Richard B. Freeman, Birgitta Swedenborg, Robert Topel
DOI: 10.7208/chicago/9780226261911.003.0001
[Sweden, welfare state, capitalism, labor market, economy, financial crisis, economic crisis]
During the twentieth century, Sweden experienced a very ambitious experiments by creating a large welfare state. Sweden is often cited as a model of how to deal with financial and economic crisis after it had to go through a recovery from a banking crisis in the mid-1990s. The Swedish economic model illustrates perhaps the most ambitious and publicized effort by a capitalist market economy to develop a substantial active welfare state. This book is about Sweden's recovery from crisis and the role that the country's welfare state institutions and policy reforms played in that recovery. The chapters in this book examine changes in the labor market, tax and benefit policies, local government policy, and industrial structure and how international trade affected Sweden's recovery. The analyses clarify the trade-offs between the egalitarian outcomes that Sweden seeks and economic efficiency. (pages 1 - 24)
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Searching for Optimal Inequality/Incentives - Anders Björklund, Richard B. Freeman
DOI: 10.7208/chicago/9780226261911.003.0002
[Sweden, welfare state, financial crisis, economic crisis, labor force, income distribution]
This chapter examines the extent to which the economic crisis and recovery in Sweden affected the egalitarian goal of the welfare state. It shows that while inequality increased in the 1990s, Sweden maintained its position as one of the most egalitarian economies in the world and continued its successful conquest of poverty. Rising inequality in Sweden took the form of faster income growth for higher-income families rather than of lower real income for poorer families. The welfare state buttressed the incomes of those at the bottom. The area in which inequality increased most dramatically was in the distribution of hours worked because of a higher rate of unemployment and lower labor force participation among low-wage individuals, reflecting Sweden's failure to recover its full employment status after the crisis. The chapter highlights the fact that Sweden's narrow income distribution reflected not only a compressed wage structure, welfare state tax, and spending policy, but also reflected narrow dispersion in hours worked, as most adults had jobs and worked comparable hours. (pages 25 - 56)
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Policies Affecting Work Patterns and Labor Income for Women - Ann-Sofie Kolm, Edward P. Lazear
DOI: 10.7208/chicago/9780226261911.003.0003
[child care subsidies, policies, work patterns, labor supply, women]
This chapter analyzes the effects of child care subsidies and other policies on female labor supply decisions in a life cycle context that has not been fully considered in the previous literature. Child care subsidies and three other policies that impact women's labor supply—paid parental leave, in-work benefits, and tax relief on substitutes for household goods and services—are considered. The chapter develops a new model to examine the impact of the policies on the work outcomes, and links the model to observed behavior. The chapter concludes that the programs in that model strengthen the economic independence of women. They create a high excess burden by being financed through higher taxes, but because the benefits go disproportionately to women, while the costs are borne disproportionately by men, the policies aid women. (pages 57 - 82)
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Wage Determination and Employment in Sweden Since the Early 1990s: - Peter Fredriksson, Robert Topel
DOI: 10.7208/chicago/9780226261911.003.0004
[wage determination, employment, Sweden, labor market, economic crisis, immigrants]
The original Center for Business and Policy Studies (SNS) in Sweden and the National Bureau of Economic Research (NBER) in the United States (SNS-NBER) study of the Swedish labor market was written in the midst of the economic crisis of the early 1990s. This chapter is a sequel to that study and focuses on the postcrisis performance of the labor market, emphasizing institutional and other changes that have affected wage determination, inequality, and employment. Since the crisis, wage formation has become more decentralized. Centralized bargaining continues to set minimum wages in different sectors, but firms and unions bargain above the minimum and decide on specifics in local bargaining. Decentralization contributed to rising wage dispersion as wage outcomes were more likely to reflect market valuations for particular skills. Some of the 1990s increase in wage dispersion in Sweden presumably reflected catching up with market forces, but the catch-up does not seem complete, given the changing economic environment. Employment outcomes are worse for low-skilled persons and non-OECD (Organization for Economic Cooperation and Development) immigrants than for other workers. However, in the 1990s, the minimum wage increased in hotels and restaurants, which disproportionately employ the less skilled, presumably contributing to the low share of these sectors in the economy. (pages 83 - 126)
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Labor Supply, Tax Base, and Public Policy in Sweden - Thomas Aronsson, James R. Walker
DOI: 10.7208/chicago/9780226261911.003.0005
[labor supply, tax base, public policy, Sweden, social insurance, welfare state]
Sweden's diverse set of social insurance programs provides a high safety net for its citizens but requires a high rate of taxation. Social insurance programs create their own disincentives for market work. Historically, Sweden's programs have been robust to individual malfeasance, yet there is an emerging evidence that malfeasance is on the rise. This chapter explores studies on labor supply from crisis through recovery. The welfare state creates strong incentives to be in the labor force by making many benefits conditional on labor force participation, but it also creates strong incentives not to work many hours, which helps explain why Swedes work relatively few hours. Much of the labor supply adjustment in Sweden, however, takes place in dimensions other than contracted hours of work. The reform increased the long-term viability of the pension system and improved incentives to save and work. Here, Sweden is ahead of the United States—where the private pension system has been in crisis and where there is no national consensus on how to deal with social security—and the United Kingdom, where pension system reforms created a funding crisis. Sweden will need to increase self-insurance of small (short-term) risks and may need to increase the monitoring of benefits to limit the free riding that stems from the apparent shift in norms away from market work. (pages 127 - 158)
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Did Active Labor Market Policies Help Sweden Rebound from the Depression of the Early 1990s? - Anders Forslund, Alan Krueger
DOI: 10.7208/chicago/9780226261911.003.0006
[labor market policies, Sweden, unemployment, economic crisis, social safety]
There are indications that the modus operandi of the Swedish labor market changed during the 1990s. Most importantly, it is documented that unemployment followed a different, less favorable pattern after the crisis of the 1990s than during the previous four decades. This could reflect the fact that some of those who lost their jobs in the early 1990s remained jobless during very long periods and became less employable in that process. The chapter investigates whether active labor market policy (ALMP) facilitated the recovery from the high unemployment rates of the early 1990s. The chapter concludes that ALMPs probably played a minimal role in reducing total unemployment since the early 1990s. The finding that program participation generally was outperformed by job search, however, points to another alternative. If the social safety nets are kept at a high level, job search and job acceptance incentives must be provided in other ways. (pages 159 - 188)
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How Sweden's Unemployment Became More Like Europe's - Lars Ljungqvist, Thomas J. Sargent
DOI: 10.7208/chicago/9780226261911.003.0007
[Sweden, unemployment, Europe, welfare state, labor market]
This chapter identifies some institutional features that might explain differences in equilibrium unemployment between a welfare state such as Sweden and a more laissez-faire economy such as in the United States. The chapter recalls recent patterns of Swedish unemployment and describes facts about European and U.S. unemployment outcomes, labor market institutions, and earnings volatility that are used to frame the theoretical and computational work that interprets outcomes in Sweden. The chapter explains higher-than-U.S. European unemployment in the 1980s and 1990s after lower-than-U.S. European unemployment in the 1950s and 1960s by bringing to light the macroeconomic implications of a force whose presence we infer from diverse sources of evidence about how the microeconomic risks facing individual workers have increased over time. The chapter concludes by discussing proposals for reforming Swedish labor market institutions. (pages 189 - 224)
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Economic Performance and Market Work Activity in Sweden after the Crisis of the Early 1990s - Steven J. Davis, Magnus Henrekson
DOI: 10.7208/chicago/9780226261911.003.0008
[economic performance, market work activity, Sweden, economic crisis, tax rates]
This chapter describes Swedish developments with respect to output and market work activity. It discusses several aspects of the Swedish institutional setup that repress market work activity. The discussion highlights the role of high tax rates on labor income and consumption expenditures, wage-setting arrangements that compress relative wages, and business tax policies that disfavor labor-intensive industries and technologies. The chapter describes these features of the Swedish institutional setup and provides evidence of their consequences based on Swedish outcomes and international comparisons. The chapter also identifies some noteworthy policy changes since 2006 and their potential effects on market work activity in Sweden. (pages 225 - 252)
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Competition, Regulation, and the Role of Local Government Policies in Swedish Markets - Stefan Fölster, Sam Peltzman
DOI: 10.7208/chicago/9780226261911.003.0009
[competition, government policies, Swedish markets, intervention, municipalities, economic performance]
This chapter describes the dramatic changes in competition policy, the deregulations that have been implemented, and the effects that have been found in various studies. To broaden the perspective, the chapter relates the Swedish experience to developments in other European countries, in general, and in the United States, in particular. The survey suggests that by and large, the Swedish policy changes have been successful. Prices are lower and/or productivity has improved in deregulated industries. Also, aggregate productivity growth has picked up, and Swedish prices have converged to those in other countries. The chapter also presents an empirical analysis of how local government intervention affects income and employment. The analysis makes use of panel data for 290 local municipalities to examine how political economy variables such as unfair competition, cumbersome bureaucracy, small share of private competition, and high tax rates affect economic performance. The relationships are descriptive rather than causal, but the consistent pattern suggests that much more attention should be paid to local government policies in any analysis of Swedish economic performance. (pages 253 - 284)
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What Have Changes to the Global Markets for Goods and Services Done to the Viability of the Swedish Welfare State? - Edward E. Leamer
DOI: 10.7208/chicago/9780226261911.003.0010
[global markets, Sweden, welfare state, exports, European markets, high-income countries, low-income countries]
This chapter presents correlations between the product mix of different countries' exports in 1987 and 1999 that reveal dramatic changes in the competition between high-income and low-income countries. In 1987, the correlation between the export product mix of high-income countries and low-income countries in the U.S. and European markets was low, because capital-rich countries specialized in capital-intensive products, while labor-rich countries specialized in labor-intensive products. By 1999, this had changed. Product mixes in all countries had become more similar. The chapter concludes that the key issue is to invest in human and physical capital to avoid direct competition with low-wage countries. (pages 285 - 326)
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Contributors
Author Index
Subject Index
