Scandinavian Working Papers in Economics

Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)

No 459: Outsider Unemployment, Insider Wages, and the Disappearance of the Swedish Wage Curve

Mikael Carlsson (), Iida Häkkinen Skans () and Oskar Nordström Skans ()
Additional contact information
Mikael Carlsson: Uppsala University and Sveriges Riksbank
Iida Häkkinen Skans: Monetary Policy Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Oskar Nordström Skans: Uppsala University, IZA, and RFBerlin

Abstract: We document a substantial reduction in the wage responsiveness to regional unemployment (the wage curve) in Sweden during the past 25 years. The period is characterized by large changes in the composition of the labor force arising from refugee migration and active labor supply policies targeting marginal workers. During the period, the relationship between regional unemployment and industry demand shocks weakened as the share of immigrants among the unemployed increased from 25 to 60 percent. Simultaneously, a previously stable wage curve disappeared, even though regional wages continued to respond to regional industry demand shocks. The results suggest that wages respond more strongly to unemployment fluctuations that arise from the demand side than the supply side, and that the unemployment rate has become a less informative indicator of resource utilization and inflationary pressure.

Keywords: Wages; Unemployment; Composition

JEL-codes: E24; J11; J21; J31; R23

Language: English

52 pages, January 1, 2026

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