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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 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”) Anders Borg, Swedish Finance Minister, June 2010
Outline • Shocks • Impact on the labor market • Policy responses • Monetary policy • Fiscal policy • Labor market policy • Summing up and outlook
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%
Unemployment across the OECD (%)(OECD Employment Outlook 2010)
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
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
Changes in employment and hours(H is hours per employed worker, E is the employment/population ratio)
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?
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
Changes in productivity in the OECD(OECD Employment Outlook 2010)
Change in GDP vs. change in unemployment (OECD Employment Outlook 2010)
Okun’slaw • u – urate* = a + b·GDP gap u = a* + b·GDP gap (if constant u*) • Okun coefficient: b
Real unit labor cost (The wage share in the business sector)
Private and public sector employees relative to population (16-64)
Annual relative employment changes, temporary and permanent(Temp. and perm. employment changes are weighted by the relative size of the groups)
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)
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)