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

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  • Erixon, Lennart

    ()
    (Department of Economics)

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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Bibliographic 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
Date of revision:
Handle: RePEc:hhs:fiefwp:0159

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

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References

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  1. Agell, J., 1998. "On the Benefits from Rigid Labour Markets: Norms, Market Failures, and Social Insurance," Papers 1998:17, Uppsala - Working Paper Series.
  2. Calmfors, Lars, 1993. "Lessons from the macroeconomic experience of Sweden," European Journal of Political Economy, Elsevier, vol. 9(1), pages 25-72, March.
  3. 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.
  4. Lars Calmfors, 1993. "Centralisation of Wage Bargaining and Macroeconomic Performance: A Survey," OECD Economics Department Working Papers 131, OECD Publishing.
  5. Calmfors, Lars, 1995. "Labour market policy and unemployment," European Economic Review, Elsevier, vol. 39(3-4), pages 583-592, April.
  6. Arai, Mahmood, 1999. "Wages, Profits and Capital Intensity: Evidence from Matched Worker-Firm Data," Research Papers in Economics 1999:3, Stockholm University, Department of Economics.
  7. 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.
  8. Bjorklund, A. & Holmlund, B., 1988. "Job Mobility And Wage Subsequent Wages In Sweden," Papers 1988s, Uppsala - Working Paper Series.
  9. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
  10. Arai, Mahmood, 1994. " An Empirical Analysis of Wage Dispersion and Efficiency Wages," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(1), pages 31-50.
  11. Bewley, Truman F., 1998. "Why not cut pay?," European Economic Review, Elsevier, vol. 42(3-5), pages 459-490, May.
  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.
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Cited by:
  1. Strauss, Tove, 2000. "Economic Reforms and the Poor," Working Paper Series 164, Trade Union Institute for Economic Research.
  2. Arai, Mahmood & Skogman Thoursie, Peter, 2001. "Incentives and Selection in Cyclical Absenteeism," Working Paper Series 167, Trade Union Institute for Economic Research.
  3. Strauss, Tove, 2000. "Structural Reforms, Uncertainty, and Private Investment," Working Paper Series 165, Trade Union Institute for Economic Research.
  4. Maliranta, Mika, 2002. "Factor Income Shares and Micro-Level Restructuring. An Analysis of Finnish Manufacturing," Discussion Papers 796, The Research Institute of the Finnish Economy.
  5. Maliranta, Mika, 2002. "From R&D to Productivity Through Micro-Level Restructuring," Discussion Papers 795, The Research Institute of the Finnish Economy.
  6. Erixon, Lennart, 2001. "Transformation Pressure and Growth - a Missing Link in Macroeconomics," Research Papers in Economics 2001:3, Stockholm University, Department of Economics.

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