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The 'Third Way' Revisited. A Revaluation of the Swedish Model in the Light of Modern Economics

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Author Info
Erixon, Lennart () (Department of Economics)

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Abstract

The macroeconomic principles behind the Swedish model were developed by two trade union economists, Gösta Rehn and Rudolf Meidner, shortly after World War II. The model’s economic and wage policy represents a unique third way between keynesianism and monetarism in its approach to combine full employment and growth with price stability and equity. This essay describes the content and economic foundation of the Rehn-Meidner model and evaluates its validity in the light of later theoretical and empirical work. With some exceptions, the model is either in harmony with or a serious challenge to current thinking about employment, inflation and growth. The model’s main contribution to economics is its dynamic description of wage formation, giving room for both competitive forces, X-inefficient firms and wage setting phenomena such as relative wage preferences, labour market policy and a wage policy of fairness. The model also makes a valuable contribution to modern growth economics by incorporating the idea that structural change and company productivity can be promoted by profit squeezes induced by wage and economic policy.

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Publisher Info
Paper provided by Trade Union Institute for Economic Research in its series Working Paper Series with number 159.

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Length: 99 pages
Date of creation: 27 Mar 2000
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Handle: RePEc:hhs:fiefwp:0159

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Related research
Keywords: Profits; Inflation; Fair Wages; Labour-market policy; Fiscal Policy; Employment; Productivity; Structural change;

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Find related papers by JEL classification:
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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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.:
  1. Calmfors, Lars, 1995. "Labour market policy and unemployment," European Economic Review, Elsevier, vol. 39(3-4), pages 583-592, April. [Downloadable!] (restricted)
  2. Agell, Jonas, 1999. "On the Benefits from Rigid Labour Markets: Norms, Market Failures, and Social Insurance," Economic Journal, Royal Economic Society, vol. 109(453), pages F143-64, February. [Downloadable!] (restricted)
  3. Lars Calmfors, 1993. "Centralisation of Wage Bargaining and Macroeconomic Performance: A Survey," OECD Economics Department Working Papers 131, OECD, Economics Department. [Downloadable!]
  4. Akerlof, George A & Yellen, Janet L, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 255-83, May. [Downloadable!] (restricted)
  5. Arai, Mahmood, 1994. " An Empirical Analysis of Wage Dispersion and Efficiency Wages," Scandinavian Journal of Economics, Blackwell Publishing, vol. 96(1), pages 31-50.
  6. Calmfors, Lars, 1993. "Lessons from the macroeconomic experience of Sweden," European Journal of Political Economy, Elsevier, vol. 9(1), pages 25-72, March. [Downloadable!] (restricted)
  7. Bewley, Truman F., 1998. "Why not cut pay?," European Economic Review, Elsevier, vol. 42(3-5), pages 459-490, May. [Downloadable!] (restricted)
  8. Bjorklund, A. & Holmlund, B., 1988. "Job Mobility And Wage Subsequent Wages In Sweden," Papers 1988s, Uppsala - Working Paper Series.
  9. Mahmood Arai, 2003. "Wages, Profits, and Capital Intensity: Evidence from Matched Worker-Firm Data," Journal of Labor Economics, University of Chicago Press, vol. 21(3), pages 593-618, July. [Downloadable!]
    Other versions:
  10. Agell, Jonas & Lommerud, Kjell Erik, 1992. "Union Egalitarianism as Income Insurance," Economica, London School of Economics and Political Science, vol. 59(235), pages 295-310, August. [Downloadable!] (restricted)
    Other versions:
  11. Gary E. Bolton & Axel Ockenfels, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March. [Downloadable!] (restricted)
  12. Blanchflower, David G & Oswald, Andrew J & Sanfey, Peter, 1996. "Wages, Profits, and Rent-Sharing," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 227-51, February. [Downloadable!] (restricted)
    Other versions:
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Cited by:
(explanations, 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.)

  1. Arai, Mahmood & Skogman Thoursie, Peter, 2001. "Incentives and Selection in Cyclical Absenteeism," Working Paper Series 167, Trade Union Institute for Economic Research. [Downloadable!]
    Other versions:
  2. Erixon, Lennart, 2001. "Transformation Pressure and Growth - a Missing Link in Macroeconomics," Research Papers in Economics 2001:3, Stockholm University, Department of Economics. [Downloadable!]
  3. Strauss, Tove, 2000. "Economic Reforms and the Poor," Working Paper Series 164, Trade Union Institute for Economic Research. [Downloadable!]
  4. Strauss, Tove, 2000. "Structural Reforms, Uncertainty, and Private Investment," Working Paper Series 165, Trade Union Institute for Economic Research. [Downloadable!]
  5. Mika Maliranta, 2002. "Factor Income Shares and Micro-Level Restructuring. An Analysis of Finnish Manufacturing," Discussion Papers 796, The Research Institute of the Finnish Economy. [Downloadable!]
  6. Mika Maliranta, 2002. "From R&D to Productivity Through Micro-Level Restructuring," Discussion Papers 795, The Research Institute of the Finnish Economy. [Downloadable!]
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