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Outsider Unemployment, Insider Wages, and the Disappearance of the Swedish Wage Curve

Author

Listed:
  • Carlsson, Mikael

    (Uppsala University and Sveriges Riksbank)

  • Häkkinen Skans, Iida

    (Monetary Policy Department, Central Bank of Sweden)

  • Nordström Skans, Oskar

    (Uppsala University, IZA, and RFBerlin)

Abstract

We document a substantial reduction in the wage responsiveness to regional unemployment (the wage curve) in Sweden during the past 25 years. The period is characterized by large changes in the composition of the labor force arising from refugee migration and active labor supply policies targeting marginal workers. During the period, the relationship between regional unemployment and industry demand shocks weakened as the share of immigrants among the unemployed increased from 25 to 60 percent. Simultaneously, a previously stable wage curve disappeared, even though regional wages continued to respond to regional industry demand shocks. The results suggest that wages respond more strongly to unemployment fluctuations that arise from the demand side than the supply side, and that the unemployment rate has become a less informative indicator of resource utilization and inflationary pressure.

Suggested Citation

  • Carlsson, Mikael & Häkkinen Skans, Iida & Nordström Skans, Oskar, 2026. "Outsider Unemployment, Insider Wages, and the Disappearance of the Swedish Wage Curve," Working Paper Series 459, Sveriges Riksbank (Central Bank of Sweden).
    • Handle: RePEc:hhs:rbnkwp:0459
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    Keywords

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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