Sweden: Selected Issues

This Selected Issues paper studies the factors influencing Sweden’s recent labor productivity trends. It first places Sweden within the European context, highlighting its superior performance in several areas identified by the IMF. It then documents key findings from Swedish researchers’ analysis on the subject. Next, the paper complements these findings by examining Sweden’s recent labor productivity growth slowdown, focusing on the trends in resource allocation across sectors and firms. Labor productivity in Sweden is among the highest in Europe but has experienced a secular growth decline since the Global Financial Crisis, similar to trends in other advanced economies. Sweden’s strong performance is supported by a skilled labor force, a competitive business environment, high R&D investments, and deep financial markets. However, evidence points to potential barriers to resource allocation across sectors and firms, which requires a multifaceted solution. Proposed reforms by the authorities’ Productivity Commission could effectively address these issues. More broadly, given the evolving structure of the Swedish economy, horizontal policies that facilitate the growth of services sector firms would be particularly beneficial.