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Industrial Policy, Employer Size, and Economic Performance in Sweden

In: The Welfare State in Transition: Reforming the Swedish Model

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  • Steven J. Davis
  • Magnus Henrekson

Abstract

The pre-1990 Swedish tax system strongly disfavored younger, smaller and less capital-intensive firms and sectors and discouraged entrepreneurship and family ownership of businesses in favor of institutional ownership. Credit market regulations, the national pension system, employment security laws and centralized wage setting in Sweden reinforced the distortionary impact of the tax system. We describe the relevant Swedish policies and institutional arrangements, and we explain why the attendant distortions are likely to have hampered the efficient allocation of resources, reduced productivity, and retarded economic growth and recovery. We also develop evidence on the consequences of these distortions for the size structure and industrial distribution of employment. Taking the U.S. industrial distribution as a benchmark that reflects a comparatively neutral set of policies and institutions, Sweden's employment distribution is sharply tilted away from lower wage industries, less capital-intensive industries, and industries characterized by greater employment shares for smaller firms and establishments. Compared to other OECD economies, Sweden has the lowest rate of self employment, a dominant role for larger firms, and highly concentrated ownership and control of private-sector economic activity.

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This chapter was published in:

  • Richard B. Freeman & Robert Topel & Birgitta Swedenborg, 1997. "The Welfare State in Transition: Reforming the Swedish Model," NBER Books, National Bureau of Economic Research, Inc, number free97-1.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 6527.

    Handle: RePEc:nbr:nberch:6527

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Steven J. Davis, 1992. "Cross-Country Patterns of Change in Relative Wages," NBER Working Papers 4085, National Bureau of Economic Research, Inc.
    2. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
    3. Charles Brown & James L. Medoff, 1989. "The Employer Size-Wage Effect," NBER Working Papers 2870, National Bureau of Economic Research, Inc.
    4. Erik Norrman & Charles E. McLure Jr., 1997. "Tax Policy in Sweden," NBER Chapters, in: The Welfare State in Transition: Reforming the Swedish Model, pages 109-154 National Bureau of Economic Research, Inc.
    5. Agell, Jonas & Lundborg, Per, 1993. "Theories of Pay and Unemployment: Survey Evidence from Swedish Manufacturing Firms," Working Paper Series 380, Research Institute of Industrial Economics.
    6. Steve J. Davis & John Haltiwanger, 1991. "Wage Dispersion Between and Within U.S. Manufacturing Plants, 1963-1986," NBER Working Papers 3722, National Bureau of Economic Research, Inc.
    7. Stefan Fölster & Sam Peltzman, 1993. "The Social Costs of Regulation and Lack of Competition in Sweden," University of Chicago - George G. Stigler Center for Study of Economy and State 91, Chicago - Center for Study of Economy and State.
    8. Jensen, Michael C, 1993. " The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems," Journal of Finance, American Finance Association, vol. 48(3), pages 831-80, July.
    9. John M. Abowd & Richard B. Freeman, 1991. "Immigration, Trade and the Labor Market," NBER Books, National Bureau of Economic Research, Inc, number abow91-1.
    10. Edward E. Leamer & Per Lundborg, 1995. "A Heckscher-Ohlin View of Sweden Competing in the Global Market," NBER Working Papers 5114, National Bureau of Economic Research, Inc.
    11. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932, December.
    12. Sherwin Rosen, 1996. "Public Employment and the Welfare State in Sweden," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 729-740, June.
    13. J. G. Cragg & Burton G. Malkiel, 1968. "The Consensus And Accuracy Of Some Predictions Of The Growth Of Corporate Earnings," Journal of Finance, American Finance Association, vol. 23(1), pages 67-84, 03.
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