Economic Performance and Work Activity in Sweden after the Crisis of the Early 1990s

49 Pages Posted: 22 Dec 2006 Last revised: 3 Aug 2010

See all articles by Steven J. Davis

Steven J. Davis

University of Chicago; National Bureau of Economic Research (NBER)

Magnus Henrekson

Research Institute of Industrial Economics (IFN)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2006

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. and Henrekson, Magnus, Economic Performance and Work Activity in Sweden after the Crisis of the Early 1990s (December 2006). NBER Working Paper No. w12768. Available at SSRN: https://ssrn.com/abstract=951924

Steven J. Davis (Contact Author)

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Magnus Henrekson

Research Institute of Industrial Economics (IFN) ( email )

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