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Economic Performance and Market Work Activity in Sweden After the Crisis of the Early 1990s

In: Reforming the Welfare State: Recovery and Beyond in Sweden

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  • Steven J. Davis
  • Magnus Henrekson

Abstract

Following a severe contraction in the early 1990s, the Swedish economy accumulated a strong record of output growth coupled with a disappointing performance in the labor market. As of 2005, hours worked per person 20–64 years of age are 10.5 percent below the 1990 peak and a mere one percent above the 1993 trough. Employment rates tell a similar story. Our explanation for Sweden’s weak performance with respect to market work activity highlights the role of high tax rates on labor income and consumption expenditures, wage-setting arrangements that compress relative wages, business tax policies that disfavor labor-intensive industries and technologies, and a variety of policies and institutional arrangements that disadvantage younger and smaller businesses. This last category includes tax policies that penalize wealth accumulation in the form of owner-operated businesses, a pension system that steers equity capital and loanable funds to large incumbent corporations, and legally mandated job-security provisions that weigh more heavily on smaller and younger businesses. We describe these features of the Swedish institutional setup and provide evidence of their consequences based largely on international comparisons.

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This chapter was published in:

  • Richard B. Freeman & Birgitta Swedenborg & Robert Topel, 2010. "Reforming the Welfare State: Recovery and Beyond in Sweden," NBER Books, National Bureau of Economic Research, Inc, number free05-1.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 5364.

    Handle: RePEc:nbr:nberch:5364

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    Cited by:
    1. Lars Calmfors & Giancarlo Corsetti & Michael P. Devereux & Seppo Honkapohja & Gilles Saint-Paul & Hans-Werner Sinn & Jan-Egbert Sturm & Xavier Vives, 2007. "Chapter 4: Scandinavia today: An economic miracle?," EEAG Report on the European Economy, CESifo Group Munich, CESifo Group Munich, vol. 0, pages 82-120, 02.

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