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The Swedish Labor Market in the Financial Crisis

The Swedish Labor Market in the Financial Crisis. Bertil Holmlund Department of Economics Uppsala University European Economic Association Congress Glasgow, August 2010. Intro. “The Swedish labor market defies the law of gravity” (”Svensk arbetsmarknad trotsar tyngdlagen”)

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The Swedish Labor Market in the Financial Crisis

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  1. The Swedish Labor Market in the Financial Crisis Bertil Holmlund Department of Economics Uppsala University European Economic Association Congress Glasgow, August 2010

  2. Intro “The Swedish labor market defies the law of gravity” (”Svensk arbetsmarknad trotsar tyngdlagen”) Anders Borg, Swedish Finance Minister, June 2010

  3. Outline • Shocks • Impact on the labor market • Policy responses • Monetary policy • Fiscal policy • Labor market policy • Summing up and outlook

  4. Shocks • Sharp fall in aggregate demand • GDP fell by 7% 2008q2—2009q2 • Manufacturing output fell by 20% • Export down by 16% • Investment down by over 20%

  5. GDP gap

  6. Manufacturing output (annual change, %)

  7. Private consumption relative to potential GDP

  8. Gov’t expenditure

  9. Unemployment 1976--2010 (%)

  10. Unemployment across the OECD (%)(OECD Employment Outlook 2010)

  11. Unemployment in Sweden and the OECD (%)

  12. Nordic unemployment (%)

  13. Underemployment and discouraged workers (%)

  14. Transition rates (quarter)

  15. Employment/population 16-64

  16. Labor force participation rate 16-64

  17. Summing up • Sharp fall in GDP (7%) • Increase in unemployment • From 6% to 9% • Decline in employment • 3 percentage points relative to population • Stable participation • Cf. with the early 1990s: • More muted labor market response 2008--2009

  18. Why not stronger employment response? • An increase in work-sharing? • No policy initiatives to promote work-sharing • UI benefits not available for work-sharing • Some collective agreements introduced shorter work-weeks • Hours/worker have not declined much

  19. Hours of work per week

  20. Changes in employment and hours(H is hours per employed worker, E is the employment/population ratio)

  21. Hours/worker (quarter)

  22. Why not stronger employment response? • An increase in work-sharing? • No policy initiatives to promote work-sharing • UI benefits not available for work-sharing • Some collective agreements introduced shorter work-weeks • Hours/worker have not declined much • A substantial increase in labor hoarding?

  23. Labor productivity

  24. Productivity gap

  25. Productivity in mining and manufacturing

  26. Productivity puzzle • Increased labor hoarding? • Recent years very different from the early 1990s • Reasons for productivity gap? • Sectoral patterns (manufacturing vs. other industries) • Expectations of short recession • Fall in potential productivity • Cf. other countries

  27. Changes in productivity in the OECD(OECD Employment Outlook 2010)

  28. Change in GDP vs. change in unemployment (OECD Employment Outlook 2010)

  29. Okun’slaw • u – urate* = a + b·GDP gap u = a* + b·GDP gap (if constant u*) • Okun coefficient: b

  30. 1980--1990q2: Okun coefficient=0.4

  31. 1990q3—1999q4: Okuncoefficent = 0.8

  32. 2000q1—2010q2: Okuncoefficent = 0.25

  33. Real unit labor cost (The wage share in the business sector)

  34. Unemployment rates by age (%)

  35. Log unemployment rates by age

  36. Relative youth unemployment (u1624 /u2554)

  37. Employment/population by age

  38. Labor force participation rates by age

  39. Private and public sector employees relative to population (16-64)

  40. Temporary and permanent contracts

  41. Trend rise in temporary work

  42. Annual relative employment changes, temporary and permanent(Temp. and perm. employment changes are weighted by the relative size of the groups)

  43. Policy responses • Monetary policy • A sequence of interest cuts • Fiscal policy • Modest expansion • Supply side reforms (EITC) • Labor market policy • Modest expansion • Focus on search and matching, not training • Supply side reforms (UI)

  44. Monetary policy

  45. Exchange rate

  46. Inflation (CPIX, %)

  47. Policy responses • Monetary policy • A sequence of interest cuts • Fiscal policy • Modest expansion • Supply side reforms (EITC) • Labor market policy • Modest expansion • Focus on search and matching, not training • Supply side reforms (UI)

  48. Fiscal policy

  49. Gov’texpenditure relative to potential GDP

  50. Gov’t expenditure relative to potential GDP

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