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Economic Performance and Work Activity in Sweden affter the Crisis of the early 1990s

Author

Listed:
  • Davis, Steven J.

    (The University of Chicago Graduate School of Business)

  • Henrekson, Magnus

    (Dept. of Economics, Stockholm School of Economics)

Abstract
Following a severe contraction in the early 1990s, the Swedish economy accumulated a strong record of output growth coupled with a disappointing performance in the labor market. As of 2005, hours worked per person 20–64 years of age are 10.5 percent below the 1990 peak and a mere one percent above the 1993 trough. Employment rates tell a similar story. Our explanation for Sweden’s weak performance with respect to market work activity highlights the role of high tax rates on labor income and consumption expenditures, wage-setting arrangements that compress relative wages, business tax policies that disfavor labor-intensive industries and technologies, and a variety of policies and institutional arrangements that disadvantage younger and smaller businesses. This last category includes tax policies that penalize wealth accumulation in the form of owner-operated businesses, a pension system that steers equity capital and loanable funds to large incumbent corporations, and legally mandated job-security provisions that weigh more heavily on smaller and younger businesses. We describe these features of the Swedish institutional setup and provide evidence of their consequences based largely on international comparisons.

Suggested Citation

  • Davis, Steven J. & Henrekson, Magnus, 2006. "Economic Performance and Work Activity in Sweden affter the Crisis of the early 1990s," SSE/EFI Working Paper Series in Economics and Finance 647, Stockholm School of Economics, revised 03 Aug 2007.
    • Handle: RePEc:hhs:hastef:0647
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    References listed on IDEAS

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    3. Lars Calmfors & Giancarlo Corsetti & Michael P. Devereux & Seppo Honkapohja & Gilles Saint-Paul & Hans-Werner Sinn & Jan-Egbert Sturm & Xavier Vives, 2007. "Chapter 4: Scandinavia today: An economic miracle?," EEAG Report on the European Economy, CESifo, vol. 0, pages 82-120, February.
    4. Robert E. Lipsey & Birgitta Swedenborg, 2007. "Explaining Product Price Differences Across Countries," NBER Working Papers 13239, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    Business taxation; Industry structure; Swedish economic performance; Tax effects; Time allocation; Wage-setting institutions; Work activity;
    All these keywords.

    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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