Industrial Policy, Employer Size and Economic Performance in Sweden
Steven J. Davis
University of Chicago; National Bureau of Economic Research (NBER)
Research Institute of Industrial Economics (IFN)
IFN Working Paper No. 436
Freeman, R.B, Swedenborg, B. and Topel, R. (eds.), The Welfare State in Transition, Chicago: University of Chicago Press, 1997
The pre-1990 Swedish tax system strongly disfavored younger, smaller and less capital-intensive firms and sectors and discouraged entrepreneurship and family ownership of businesses in favor of institutional ownership. Credit market regulations, the national pension system, employment security laws and centralized wage setting in Sweden reinforced the distortionary impact of the tax system. We describe the relevant Swedish policies and institutional arrangements, and explain why attendant distortions are likely to have hampered the efficient allocation of resources, reduced productivity, and retarded economic growth and recovery.
We also develop evidence on the consequences of these distortions for the size structure and industrial distribution of employment. Taking the U.S. industrial distribution as a benchmark that reflects a comparatively neutral set of policies and institutions, Sweden’s employment distribution is sharply tilted away from lower wage industries, and industries characterized by greater employment shares for smaller firms and establishments. Compared to other OECD economies, Sweden has the lowest rate of self-employment, a dominant role for larger firms, and highly concentrated ownership and control of private sector economic activity.
Number of Pages in PDF File: 36
Keywords: Industrial Policy, Size Distribution, Industry Structure, Swedish Economic Performance
JEL Classification: L52, J21, H30Accepted Paper Series
Date posted: November 11, 2012
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