SSE/EFI Working Paper Series in Economics and Finance
No 647:
ECONOMIC PERFORMANCE AND WORK ACTIVITY IN SWEDEN AFTER THE CRISIS OF THE EARLY 1990S
Steven J. Davis ()
and Magnus Henrekson ()
Abstract: 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.
Keywords: Business taxation; Industry structure; Swedish economic performance; Tax effects; Time allocation; Wage-setting institutions; Work activity; (follow links to similar papers)
JEL-Codes: D13; H30; J20; L52; O52; (follow links to similar papers)
47 pages, December 8, 2006, Revised August 3, 2007
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- This paper is published as:
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Davis, Steven J. and Magnus Henrekson, (2010), 'ECONOMIC PERFORMANCE AND WORK ACTIVITY IN SWEDEN AFTER THE CRISIS OF THE EARLY 1990S' in Freeman, Richard, Birgitta Swedenborg and Robert Topel (eds.) Reforming the Welfare State: Recovery and Beyond in Sweden, National Bureau of Economic Research Conference Report, chapter 7, pages 225-252, University of Chicago Press.
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