Facts about the. Swedish economy 2001

Transcription

1 Facts about the Swedish economy 2001

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3 This booklet has been compiled by a project group within the Confederation of Swedish Enterprise. The following persons have been involved in its preparation: Lars-Olof Jacobsson, project leader Lars Jagrén Patrik Karlsson Anders Rydeman Confederation of Swedish Enterprise 2001 Printed by Wallin & Dalholm Boktr. AB, Lund 2001 Cover: Jaxvall Design 2001 Translated by Alan Harkess The material in this book may be reproduced provided the source is acknowledged ISSN

4 PREFACE Questions concerning the state of the country s economy are the subject of growing debate in Sweden. The presentation of factual data on current trends in the Swedish economy will have a vital role to play in this debate. It is with this aim in mind that the Confederation of Swedish Enterprise publishes Facts about the Swedish economy. It is our hope that this collection of economic data will allow information on the Swedish economy to reach a wider public and at the same time encourage a discussion of those issues that are central to a solution of the problems affecting the Swedish economy. This compilation of facts about the Swedish economy is intended for all those who require readily accessible information on basic economic issues, such as journalists, teachers, students, business executives, politicians and trade unionists. The data consists of about sixty diagrams and tables together with brief explanatory comments. The entire booklet is also available in both English and Swedish on the Internet at Stockholm, August 2001 CONFEDERATION OF SWEDISH ENTERPRISE Göran Tunhammar 3

5 CONTENTS 1 KEY FIGURES SWEDEN AND THE WORLD 6 GDP in Sweden, the EU and the OECD, GDP per capita in selected countries, Inflation in Sweden, the EU and the OECD, Open unemployment in Sweden, the US and the EU, Growth of world trade and GDP, Balance of payments on current account in the US, EU, Japan and Sweden, LABOUR MARKET 13 Sweden s demographic structure, Structural changes in employment, Employment in Sweden, Employment in the private and public sectors, Employment in Sweden, the US, Japan and the EU, Distribution of employment by size of company, Number of employees in temporary employment service agencies, Employment ratios in selected countries, Unemployment in Sweden, University graduates in selected countries, LABOUR COSTS AND MARGINAL TAXES 24 Annual increases in industrial labour costs, Changes in real disposable earnings, Labour costs in selected countries, 1990 and Unit labour costs in manufacturing industry, Social insurance contributions, Social insurance contributions for workers, Marginal rates of taxation on labour, Tax wedges in Sweden, Tax wedges in selected countries, PRODUCTION AND INVESTMENT 34 Industrial production in Sweden and the OECD, Changes in production in different sectors of industry, Changes in production in different service sectors, Composition of industrial production 38 Composition of service sector output 39 Changes in productivity in the private sector, Manufacturing productivity in Sweden and the OECD,

6 Manufacturing investment, Changes in employment and productivity in the IT sector, IT investment in Sweden and the USA, FOREIGN TRADE 45 The importance of foreign trade in selected countries, Composition of imports 47 Composition of exports 48 Sweden s exports, by area 49 Trade and services balance, Balance of payments on current account, PUBLIC SECTOR AND TAXATION 52 Public sector expenditure in Sweden, the EU and the OECD, Public sector expenditure by destination, Tax burden in Sweden, the EU and the OECD, Tax structure, Taxation of labour in Sweden, the US, the EU and the OECD, Aggregate taxation of industrial earnings, Financial savings in the public sector in selected countries, Government budget balance, Government gross debt in selected countries, Sweden s national debt, Private and public sector provision, FINANCE 64 Long term bond rates in Sweden, Germany and the US, Nominal and real rates of interest in Sweden, Exchange rate movements in relation to 11 competitor countries, Exchange rate movements in relation to the Euro and the USD, Stock exchange movements in Sweden and the US, Household savings ratios, Household net financial wealth, Household debt ratios, Sweden s foreign debt, Foreign investment,

7 1. KEY FIGURES SWEDEN AND THE WORLD After a period of rapidly rising living standards during the 1950s and 1960s, the rate of economic growth in Sweden slowed and fell behind those of most other industrialised countries. During the past 5 6 years, the growth rate in Sweden has recovered to levels comparable with those of the rest of the industrialised world. Sweden has lost its position as one of the richest nations in the world. Measured in terms of GDP per capita, the standard measurement of a country s economic welfare, the level in most other industrial countries now exceeds that of Sweden. The country s adjustment in the early 1990s to the lower rates of inflation within the OECD led to a substantial decline in private demand, a rapid rise in unemployment and a marked increase in the public sector deficit. During recent years, increased competition and strong downward pressure on world market prices have helped to maintain historically low rates of inflation in Sweden and in most other industrial countries. Until the crisis of the early 1990s, the rate of unemployment was appreciably lower in Sweden than in most other countries. Subsequently, as has been the case in other European countries, unemployment has tended to remain at a permanently high level although recent years have shown signs of improvement. It has become increasingly evident that the high levels of unemployment in Sweden and certain other European countries are largely structural in nature and underline the need for reform of ineffectively operating labour markets. Unemployment in the United States on the other hand has remained at unprecedently low levels. In recent decades, the growth of world trade has far outstripped that of GDP. The international economy will continue to benefit from the rapid expansion of world trade. In particular, free trade will play a decisive role in determining the growth opportunities for less developed countries. The growing deficit in American trade reflects an imbalance in economic growth between different regions and in the longer run constitutes a source of destabilisation in the world economy. 6

8 GDP in Sweden, the EU and the OECD, Index 1960= OECD EU Sweden During the 1970s and the 1980s, the Swedish economy expanded at a much slower rate than the average for both the EU and OECD countries. The weak growth performance of the Swedish economy culminated in the severe economic crisis of the early 1990s. Subsequently the rate of growth of GDP in Sweden has been more rapid than in the EU and at about the same rate as in the rest of the OECD. In the 1960s, the average annual rate of growth of GDP in Sweden was 4.6 per cent whereas during the 1970s, it declined to 2 per cent. The 1980s saw a continuation of Sweden s low growth rates compared to both the EU and the OECD average. As a result of the severe economic recession of the early 1990s, Sweden experienced three consecutive years of negative GDP growth. Between 1990 and 1993, Swedish GDP declined by almost 5 per cent in volume terms. After 1993, the rate of growth of GDP in Sweden has been higher than previously and in line with growth performance in the OECD. However in the period the rate of growth of GDP in Sweden was about 4 per cent per annum which actually exceeded the OECD average. Real GDP growth at market prices. Volume index 1960 = 100 Year Sweden EU OECD Preliminary figures. Sources: Statistics Sweden, OECD and own estimates. 7

9 GDP per capita in selected countries, Switzerland 1 United States 1 Luxembourg 2 United States 2 Switzerland 2 United States 3 Luxembourg 3 Canada 3 Switzerland 4 Sweden 4 Luxembourg 4 Norway 5 Canada 5 Iceland 5 Denmark 6 Denmark 6 France 6 Ireland 7 France 7 Norway 7 Canada Between , Sweden fell from fourth to seventeenth position in an OECD league table of the world s richest countries, expressed in terms of GDP per capita. In order to regain a leading position in the OECD league table, economic growth in Sweden will have to exceed that of other OECD countries for many years to come. GDP per capita is the standard measurement of a country s prosperity. Over a twenty year period from the early 1970s, the rate of growth of output in Sweden was lower than in most other industrial countries. This became particularly evident during the deep recession from Subsequently the rate of economic growth in Sweden has been more or less comparable to that of major other industrial countries. During recent decades, Swedish GDP per capita therefore has declined in relation to the rest of the OECD. Between , in terms of GDP per capita, Sweden fell from fourth to seventeenth position in OECD s league table of twenty-nine countries. As the table indicates, Sweden s GDP per capita was 13 per cent above the OECD average in 1970 whereas in the year 2000, it was only 2 per cent above this average. In order to improve comparability between countries, the figures for GDP per capita have been adjusted to take account of differences in purchasing power. 8 Australia 8 Sweden 8 Iceland 9 Netherlands 9 Denmark 9 Netherlands 10 New Zealand 10 Belgium 10 Belgium 11 United Kingdom 11 Australia 11 Australia 12 Belgium 12 Netherlands 12 Austria 13 Germany* 13 Austria 13 Japan 14 Italy 14 Italy 14 Germany* 15 Austria 15 Germany* 15 Finland 16 Norway 16 Japan 16 Italy 17 Japan 17 United Kingdom 17 Sweden 18 Finland 18 Finland 18 United Kingdom 19 Iceland 19 New Zealand 19 France 20 Spain 20 Spain 20 New Zealand 21 Ireland 21 Greece 21 Spain * Unified Germany GDP per capita. As a percentage of OECD average, adjusted for differences in purchasing power. Ranked in terms of position held in Luxembourg United States Switzerland Norway Denmark Ireland Canada Iceland Netherlands Belgium Australia Austria Japan Germany Finland Italy Sweden United Kingdom France New Zealand Spain South Korea Portugal Greece Unified Germany. Source: OECD. 8

10 Inflation in Sweden, the EU and the OECD, Percentage 14 EU Sweden OECD The consumer price index is the most commonly used measure of the depreciation in the value of money i.e. inflation. During recent years, the rate of inflation has fallen to historically low levels in Sweden and most other OECD countries. The consumer price index measures the cost of a specified basket of goods and services. By comparing this measure with the cost of the same items in the previous year, it is possible to estimate changes in inflation from year to year. The oil crises of the 1970s led to a rapid rise in the rate of international inflation. However as a result of the counter-inflationary policies that were adopted in most OECD countries in response to the oil crises, the rate of inflation subsequently declined world-wide. A combination of expansionary economic policy, excessively large wage increases and devaluations of the Swedish crown during the 1980s brought about a sharp increase in the rate of inflation in Sweden in relation to the OECD average. In the early 1990s, the combined effects of the economic crisis and the introduction of counterinflationary measures led to a substantial fall in Sweden s inflation rate. Increasing international price competition during recent years has exerted further downward pressure on the price level. At present, the rate of inflation in Sweden and most other countries is at a historically very low level. Consumer prices. Percentage increase over previous year s average level. Per cent Year Sweden 1 EU OECD From 1980, a deduction has been made to allow for the effects of the adjustment of the index between the months of December and January. 2 Excluding high inflation countries such as Greece, Hungary, Mexico, Poland and Turkey. Sources: Statistics Sweden and OECD. 9

11 Open unemployment in Sweden, the US and the EU, Percentage of labour force EU 8 6 United States 4 2 Sweden The rate of unemployment rose rapidly in Sweden between 1991 and 1993 and has subsequently remained at a historically high level. The domestic economic expansion of recent years has however helped to substantially reduce the level of open unemployment. In the early 1990s, the rate of unemployment rose dramatically in Sweden to a level close to the EU average. No statistics are available on the total level of unemployment in other countries i.e. a measure of unemployment that includes persons covered by training and other public manpower programmes. In Sweden the total level of unemployment in 2000 was 7.3 per cent of the labour force while the rate of open unemployment was 4.7 per cent. There is a wide range of open unemployment within the EU. In 2000, it ranged from 14.1 per cent in Spain to 2.4 per cent in the Netherlands. The rate of unemployment has for several years been markedly lower in the United States than in the EU. This suggests that the labour market operates more efficiently in the United States than in the EU. A substantially lower level of structural unemployment in the EU can only be achieved by measures that increase mobility in the labour market and produce more flexible wage relationships. Open unemployment in Sweden, the US and the EU. Percentage of labour force Year Sweden United States EU Preliminary figures. Sources: OECD and Statistics Sweden. 10

12 Growth of world trade and GDP, Per cent Average annual change 7 World trade GDP growth in OECD For several decades, especially during the 1990s, the growth of world trade has outstripped that of GDP. The rapid growth of world trade has been a major driving force underlying the expansion of the international economy during recent decades. Globalisation of a growing number of markets has increased the role of trade in the world economy. In the 1990s, world trade increased annually by almost 8 per cent in volume while the average growth of GDP was just under 3 per cent. As the result of a more integrated world economy, there has been a growing mutual interdependence between the economies of nation states. They have also become increasingly vulnerable to changes in their environment. Financial unrest as for example in the case of rapid, heavy falls in share prices or crises in the real economy such as the Asian crisis will thereby be transmitted rapidly throughout the entire world economy. The exceptionally rapid rate of technological expansion and the increased pace of interna- Growth of world trade and GDP, Annual average change. Per cent. Year World GDP growth trade in OECD World trade refers to total exports in volume terms. Sources: OECD, IMF and own estimates. tionalisation can be expected to be the continuing driving forces behind global economic growth in the years ahead. The free exchange of goods and services will be a particularly important source of growth for lesser developed economies. 11

13 Balance of payments on current account in the US, EU, Japan and Sweden, Percentage of GDP 4 Japan United States Sweden EU The large and growing deficit in American trade is a threat to the long run stability of the world economy. The more rapid rate of growth in the American economy during recent years relative to that of the EU and Japan has accentuated the imbalance in trade between these countries and has brought about a growing deficit in the US foreign trade. The deficit in the US balance of payments in 2000 was in excess of 4 per cent of GDP. In the long run, the US deficit will have to be reduced by means of higher rates of economic growth in the rest of the world, especially in the EU and Asia. This would bring about a more balanced rate of growth in the world economy and reduce the risk of destabilising turbulence in financial markets. The Swedish balance of payments on current account has been in substantial surplus in recent years. A rapid expansion of exports during the past six or seven years is the principal explanation for this improvement in the Swedish current account balance. The growing surplus on current account has allowed Sweden to reduce the foreign debt that it accumulated during the 1970s and 80s. Balance of payments on current account in the US, EU, Japan and Sweden, Percentage of GDP. United Year States EU Japan Sweden Preliminary figures. Sources: OECD and Bank of Sweden. 12

14 2. LABOUR MARKET Since the mid-1960s, there was an increasing tendency in Sweden to shift both employment and consumption over to the public sector. Private sector employment has declined substantially during this period while employment in the public sector has grown by 800,000. The dramatic rise in unemployment during the deep recession in the early 1990s was accompanied by a sharp fall in employment. Between 1990 and 1994, employment declined by as much as 12 per cent. The subsequent recovery in employment has been modest. Indeed it wasn t until that there were any substantial signs of improvement in employment. During recent decades, the overall growth of employment in Sweden has been marginal. It is now actually at the same level as it was in the late 1970s. In contrast to the unchanged levels of employment in Sweden over the past two decades, the net annual increase in employment in the United States has been approximately 2 per cent. As a result of the weaknesses in the Swedish labour market during the 1990s, the employment ratio has declined dramatically from a level of 82.9 per cent in 1990 to 74.2 per cent in The system of wage determination has performed somewhat better in recent years and contributed to an improvement in the operation of the labour market. However a continuing lack of flexibility in many parts of the labour market has tended to permanently exclude a significant number of individuals from the labour market. 13

15 Sweden s demographic structure, Percentage of population Age 0 15 Age Age 65 The number of pensioners in Sweden will increase substantially until At the same time the proportion of economically active persons in the population will decline. Since the 1960s, growing longevity and a reduction of the retirement age has led to a marked increase in the number of pensioners in Sweden. Population forecasts also indicate that the number of non-economically active persons in the population will continue to increase rapidly for some years into the current century. Between 1970 and 2020, the proportion of pensioners in the population will increase by an amount equivalent to 8 per cent of the population. At the same the proportion of economically active persons in the population will decline. Hence a declining proportion of the population will have to provide the welfare of a growing dependent population, both young and old. Excluding immigration, the Swedish population has actually declined in the past twenty years. This is due to the low birth rate. Current forecasts indicate that over the next twenty years, the low birth rate will curtail the growth of the population to approximately 0.2 per cent per annum which is equivalent to an increase in Sweden s demographic structure Thousands Age Num- Percen- Num- Percen- Num- Percengroup ber tage ber tage ber tage Total Source: Statistics Sweden. the Swedish population of 340,000 over the period. This is a substantially lower rate of population growth than during the period between 1970 and 2000 when the overall population increased by 800,000 or roughly 0.3 per cent per annum 14

16 Structural changes in employment, Percentage share Services etc Public sector Industry Agriculture, forestry and fishing The diagram shows the structural changes that have taken place in the sectoral distribution of employment in Sweden between 1965 and The public sector has more than doubled its share of employment since 1965 and currently accounts for one third of total employment. Industry s employment share has on the other hand declined steadily since the early 1950s from a peak of more than one third of the labour force to its present level of 19 per cent. The share of private service employment remained relatively constant at about 40 per cent over a long period. However in the 1990s, private sector employment has substantially increased its employment share to almost 50 per cent of total employment. It should be noted that state owned enterprises are not included in the figures for the public sector. The term industry refers to mining, manufacturing and utilities such as electricity power stations, gasworks, district heating plants and waterworks. Services etc consists mainly of building, commerce, hotels and restaurants, transport and communications, postal services, telecommunications, banking and insurance. Sectoral distribution of employment, Percentage shares of total employment Agriculture, forestry Indu- Services Public Year and fishing stry etc sector Sources: Statistics Sweden and and own estimates. 15

17 Employment in Sweden, Thousands Over the 25 year period to 1990, the trend level of employment increased by 0.8 per cent per annum. During the crisis years of the early 1990s, employment declined dramatically and has only begun to recover again during the past three years. During the period , employment increased by almost 900,000. It should be noted however that the entire net increase in employment occurred in the public sector. Private sector employment was actually somewhat lower in 1990 than in In the early 1990s, employment fell dramatically. Over the four years between 1990 and 1994, employment declined by as much as 12 per cent. This rapid rate of job loss was due to both the severe impact of the international recession in Sweden and a widespread structural rationalisation of all sectors of the economy. It is only during the past three years that any significant growth of employment has taken place. As a result of this recent stronger rate of economic growth, the level of employment has increased by 240,000 since However a further increase in employment of approximately 300,000 would be required to reach the level prevailing in the early 1990s. Employment in Sweden, Thousands Year Year Sources: Statistics Sweden and own estimates. 16

18 Employment in the private and public sectors, Thousands of persons Cumulative change Public sector Private sector Employment in the private sector has declined over the past thirty years. In the public sector, employment increased substantially from the mid-1960s to the mid-1980s. Subsequently, the level of public sector employment has remained relatively unchanged. Private sector employment has declined in recent decades in Sweden. In 2000 the private sector accounted for slightly less than 70 per cent of total employment compared with a level of 85 per cent in The decline in private sector employment was particularly dramatic during the crisis years of the early 1990s. During this period, private sector employment fell by 400,000, a reduction of 13 per cent. The subsequent recovery in employment was slow although the more rapid economic growth of recent years has increased private sector employment by around 140,000. From the mid-1960s until the mid-1980s, public sector employment increased by almost 900,000. This 150 per cent increase in the number of public sector employees raised the public sector s share of total employment from 15 to just over 30 per cent. The government s programme of fiscal restraint in the mid-1990s however brought about a reduction in public sector employment. By 1997, the number of public sector employees had fallen by 180,000 compared to the level prevailing in During the past three years however public sector employment has risen by around 100,000. Employment in the private and public sectors, Thousands of persons Year Public sector Private sector 1 Cumulative Cumulative change change The term private sector comprises private business enterprises, public utilities and state and municipal enterprises. Sources: Statistics Sweden and own estimates. 17

19 Employment in Sweden, the US, Japan and the EU, Per cent Average annual change United States Japan EU Sweden 0.1 During recent decades, the average increase in employment in the United States has been about 2 per cent per annum. In contrast, the growth of employment over the same period in the European Union has been substantially lower while in Sweden total employment has hardly increased at all. The American economy has created employment in a most impressive manner during recent decades. This success reflects the high degree of flexibility in the American labour market. On average, employment has increased by around 2 per cent per annum in the United States. Over the same period, the annual average growth of employment in Japan has been of the order of 1 per cent. In Europe, labour market adjustment has been much slower and the trend rate of increase in employment over the past twenty-five years has been marginal (0.5 per cent per annum). This failure to increase employment in Europe underlines the need for structural reforms in many European labour markets. In Sweden, total employment is at the same level as it was in During the economic crisis in the early 1990s, Sweden lost more than 500,000 jobs. This was equivalent to 12 per cent of total employment. The subsequent recovery in employment was long delayed. It is only during the past three years that employment has once again began to rise. Since 1997, employment has increased by just over 200,000. Growth of employment in the US, Japan, the EU and Sweden. Index 1975 = 100 United Year States Japan EU Sweden Average annual percentage change (%): Preliminary figures. Sources: OECD and own estimates. 18

20 Distribution of employment by size of company 2000 Manufacturing industry Size of company Number of employees By international standards, Swedish industry is heavily dominated by large companies. About 70 per cent of employees in manufacturing industry work in companies that have more than 200 employees. Swedish industry is characterised by the owerwhelming dominance of large industrial corporations. At a relatively early date, Swedish companies expanded abroad in order to improve their international competitiveness. Another contributory factor to the growth of large businesses in Sweden was the way in which the tax and regulatory framework tended to discriminate against small and medium-sized companies. About 70 per cent of employees in manufacturing industry work in companies that have more than 200 employees. Approximately 13 per cent of manufacturing employees work in small companies with less than 20 employees while medium-sized companies ( employees) accounted for about 16 per cent of the industrial labour force. By international standards, Swedish industry is heavily dominated by large companies. Employment distributed by company size in Swedish manufacturing industry, Number of employees. Number of Groups of Other Percenemployees companies companies Total tage share Total Source: Confederation of Swedish Enterprise. 19

21 Number of employees in temporary employment service agencies, Number of employees From the mid 1990s, temporary employment service agencies have undergone rapid expansion. Temporary employment service agencies provide personnel for companies that require extra labour during a period of peak demand or need specialist labour services over a longer period of time. The rapid growth of these employment service agencies during recent years is mainly attributable to the need for increased flexibility on the labour market. By utilising their services, employers retain the flexibility that is partially undermined by employment legislation at the same time as they obtain the labour services that they require. Temporary employment service agencies operate as a kind of safety valve releasing pressure on the labour market in times of excess demand and allowing a better balance to be created between the demand and supply of labour. The number of employees in temporary employment service agencies is still only a very small proportion of the total labour force. Between 1994 and 2000 its share of the labour force expanded from 0.11 to 0.96 per cent. There is undoubtedly considerable scope for expansion. In countries such as the UK and the Netherlands, temporary employment service agencies account for almost 4 per cent of the labour force. 20 Number of employees in temporary employment service agencies, Year Number of employees Source: SPUR.

22 Employment ratios in selected countries, 1999 Number of employed as a percentage of the working age population, years of age Switzerland Norway Denmark United States Sweden United Kingdom Netherlands Canada Japan Austria Portugal Finland Germany Ireland France Greece Spain Italy EU OECD The number of employed as a precentage of the population of working age varies substantially within the OECD. Switzerland and Norway have the highest employment ratios, closely followed by the USA, Denmark and Sweden. Southern European countries have substantially lower employment ratios. The current debate on economic policy focuses more than ever on the need to raise employment levels. A primary reason for this emphasis is that the demographic structure of most OECD countries is undergoing a rapid change in terms of the increase in the share of pensionable age groups. This has in turn placed increased emphasis on the need to raise the employment ratio. Sweden has traditionally had one of the highest employment ratios in the OECD, particularly for women. However during the 1990s, Switzerland, Norway and Denmark have had the highest employment ratios in the OECD for both men and women. Their overall employment ratios have ranged between 75 and 80 per cent. Southern European countries have substantially lower employment ratios, especially for women. In Italy, Greece and Spain, female employment ratios are around 40 per cent compared to 70 per cent in Switzerland and several of the Nordic countries. Employment ratios in selected countries Number of employed as a percentage of the working age population, years of age. Country Men Women Total Switzerland Norway Denmark United States Sweden United Kingdom Netherlands Canada Japan Austria Portugal Finland Germany Ireland France Greece Spain Italy EU OECD Source: OECD. 21

23 Unemployment in Sweden, Thousands 700 Special adult education initiative Public manpower programmes 100 Unemployed Unemployment increased dramatically in the early 1990s and has only recently begun to decline. In 2000 approximately 510,000 people were unemployed or engaged in public manpower and educational programmes such as the special adult education initiative. The level of unemployment is related to a number of factors. It may be caused by cyclical factors that give rise to a temporary fall in the demand for labour during an economic recession. It may also be structural in nature caused by the disappearance of markets in specific industries or by a lack of specific skills in the labour force. Unemployment may also be disguised. The extent of disguised unemployment is difficult to estimate and is not shown in the diagram. It includes individuals who are studying or working at home, but who would wish to obtain employment if it was offered and persons who have been granted early retirement because of the state of the labour market. Public manpower programmes may be categorised as cyclical and non-cyclical. The former include labour market training, work experience programmes, different types of employment grants and start-up allowances. The latter comprise wage subsidised employment for the occupationally handicapped, community workshops and other forms of public sheltered employment. During 2000 around 110,000 persons were covered by the special adult education initiative for the unemployed (kunskapslyftet). 22 Number of persons unemployed or engaged in public manpower programmes Annual averages. Thousands. Special Public manpower adult programmes educa- Unem- Cyclical Non-cyclical tion Year ployed measures measures initiative 1 Total Circa 2 New method of measurement introduced. The figures for the years prior to 1987 should be reduced by 10 per cent to be comparable with later years. Sources:Statistics Sweden and National Labour Market Board.

24 University graduates in selected countries, 1999 Percentage share of university graduates in the population years old years old United States Norway Netherlands Japan Iceland United Kingdom Spain Finland Germany Sweden Ireland France Italy Denmark A modern high skills economy places great demands on its labour force. In an international perspective, Sweden has a strikingly low proportion of university graduates. The proportion of university graduates is denoted by the share of the population that has university studies extending over at least three years. The United States has the highest proportion of university graduates followed by Norway, Japan and the Netherlands. Sweden is to be found a long way down the table. Among the younger age group (25 34 years old) only Italy and Denmark have a lower proportion of graduates. Sweden is also the only country that has a lower proportion of graduates among the younger age group than among the larger and older age group (25 64 years old). During the latter half of the 1990s, the number of university students in Sweden has increased a lot although there has been no comparable increase in the number of university graduates in the population. This may be partly a matter of an increase in the number of students who fail to complete there studies as a result of the improvement in employment opportunities in recent years. However the number of graduates in Sweden is most likely to rise in the near future which should improve Sweden s relative position. Percentage share of university graduates in the population 1999 Country years old years old United States Norway Netherlands Japan Iceland United Kingdom Spain Finland Germany Sweden Ireland France Italy 10 9 Denmark Source: OECD. 23

25 3. LABOUR COSTS AND MARGINAL TAXES During the 1970s and the 1980s, wages tended to rise more rapidly than in previous decades. Swedish wages were also increasing more rapidly than in competitor countries. Since productivity was not increasing at the same pace, companies were forced to raise their prices in order to cover the increase in costs and prevent a decline in profitability. At the same time, taxes also increased sharply. Household real incomes recorded only a slight increase. Indeed for many people, real incomes actually declined. At the beginning of the 1990s, Sweden found itself in the middle of an inflationary crisis which served to deepen the impact of the international recession in Sweden. The subsequent sharp contraction in the level of economic activity led to a reduction of wage and price inflationary pressures and unemployment increased dramatically. During the 1990s, above average increases in productivity have helped to restrain inflationary pressures. Although costs have increased at a lower rate than was normal during the 1970s and the 1980s, wage rises in Sweden have still tended to exceed the country s principal competitors. As a result of the greater degree of price competition that now prevails in many sectors, excessive wage increases tend to exert a negative effect on employment rather than the price level. Marginal tax rates were lowered as a result of the tax reform of However a series of subsequent tax changes including higher municipal taxes, the introduction of an income tax surcharge and higher national insurance contributions once again raised marginal rates of taxation. The resultant tax wedges i.e. the proportion of an increase in labour costs that disappears in tax are still much higher in Sweden than in most competitor countries. 24

26 Annual increases in industrial labour costs, Per cent In the 1990s, labour costs tended to rise less rapidly than during previous decades. Over the period , increases in labour costs have generally been lower than the average growth of industrial productivity. Total labour costs comprise wage payments and social insurance contributions. During the 1970s, average increases in labour costs reached 13 per cent per annum, largely due to the exceptionally rapid increases recorded during the inflationary crisis of the mid-1970s when hourly wage costs rose by nearly 20 per cent per annum. During the same period, productivity increased by only 3.5 per cent per annum. In the 1980s, the rate of increase in labour costs declined to a level of around 8.5 per cent per annum which was nevertheless well in excess of most other OECD countries and substantially higher than the annual rate of productivity growth of around 2.5 per cent. During the economic crisis years of the 1990s, increases in labour costs fell sharply as unemployment rose and economic policy increasingly adopted a counter-inflationary stance. Between 1992 and 2000, average wage costs in industry rose by 4 per cent per annum. Although this increase in labour costs was more rapid than in competitor countries, it was nevertheless lower than the annual rate of productivity growth during the period of approximately 5 per cent. Annual increases in industrial labour costs Year Per cent Year Per cent Sources: US Department of Labor and National Institute of Economic Research. 25

27 Changes in real disposable earnings, Skr. thousand at 2000 prices White-collar worker Industrial worker The growth of real disposable earnings was very weak during the 1970s and 1980s. However real disposable earnings have grown much more rapidly in the late 1990s. During the past three decades, total labour costs for both industrial and white-collar workers have grown more than tenfold. At the same time real disposable earnings have increased by only 43 and 47 per cent recpectively. Increases in taxes and payroll charges together with a periodically high rate of inflation have severely eroded the purchasing power of labour earnings. During the latter half of the 1990s however real disposable earnings rose more rapidly than had previously been the case. The annual rate of increase was 3.1 and 3.8 per cent respectively for industrial and white-collar workers compared with an annual average of 1.2 per cent during the past three decades. Real disposable earnings for an average industrial and white-collar worker respectively. Swedish crowns Labour costs Real disposable earnings at 2000 prices White- White- Industrial collar Industrial collar Year worker worker worker worker Annual salary denotes average earnings for a male industrial and white-collar worker respectively covered by SAF collective agreements. 1 Forecast. Source: Confederation of Swedish Enterprise. 26

28 Labour costs in selected countries, 1990 and 2000 Skr. thousand Germany Norway Japan Denmark Belgium Sweden In the early 1990s, Sweden, Germany, Norway and Finland had the highest labour costs in the OECD area. The depreciation of the Swedish crown in 1992 led to a marked reduction in Swedish relative labour costs. In the late 1990s, however rapid increases in labour costs together with the appreciation of the crown tended to once again erode the country s competitive advantage. The diagram shows total labour costs in 1990 and These costs include wages, social security charges, fringe benefits, etc. The average exchange rate for each year has been used for conversions into Swedish crowns. In the late 1970s, Sweden had the highest labour costs in the industrialised world. A series of devaluations led to a reduction in the country s relative costs. However by the early 1990s, excessively high increases in costs in the latter part of the 1980s had returned Sweden to the same relative cost level as prior to devaluation. The further depreciation of the Swedish crown in the autumn of 1992 accompanied by modest wage increases however brought about a marked reduction in Swedish labour costs. The rapid increase in labour costs during 1996 and 1998 and a substantial rise in the value of the Swedish crown in 1996 brought about a deterioration in Sweden s competitive position wich has remained relatively unchanged over the past two years.the rate of increase in labour costs has been more or less compatible with those of its competitors while the country s exchange rate has remained relatively stable. Hourly labour costs, 1990 Hourly labour costs, 2000 United States Austria Finland Netherlands United Kingdom Canada France Italy Ireland Hourly labour costs for industrial workers in Swedish crowns. (Ranked according to hourly labour costs, 2000) Germany Norway Japan Denmark Belgium Sweden United States Austria Finland Netherlands United Kingdom Canada France Italy Ireland Preliminary figures. Source: Confederation of Swedish Enterprise 27

29 Unit labour costs in manufacturing, Index 1970= Relative unit labour costs in local currency Relative unit labour costs in common currency Exchange rate movements Unit labour costs in local currency have increased much more rapidly in Sweden than in other countries. This loss of competitiveness has been compensated for by means of devaluation of the Swedish crown. Compared with Swedish costs in common currency are 30 per cent lower than those of its competitors. During the same period, the value of the Swedish crown has been halved. Relative unit labour costs are a standard measure of a country s competitiveness. They are determined by changes in relative wage costs, growth of productivity and changes in exchange rates. Since 1970 Swedish unit labour costs have increased by almost 40 per cent more than in competitor countries, measured in terms of local currencies (diagram s upper curve). The five devaluations of the Swedish crown between and the currency depreciation of 1992 led to a substantial depreciation of its value in terms of the currencies of other countries (lower curve). By 2000, unit labour costs in Sweden expressed in terms of a common currency were more than 30 per cent lower than its competitors (middle curve). Between 1991 and 1994, relative unit labour costs fell by 35 per cent, primarily due to the sharp decline in the value of the Swedish crown and a high rate of productivity growth. In 1995 and 1996 Sweden s competitive position declined as a result of a relatively rapid increase in hourly wage costs. Subsequently, relative unit labour costs have remained largely unchanged. Unit labour costs in manufacturing, Index 1970 = 100 Relative unit Relative unit labour costs Exchange labour costs in local rate in common Year currency movements currency Preliminary figures. The competing countries used for purposes of comparison with Sweden are Norway, Denmark, Germany, Netherlands, Belgium, France, Italy, United Kingdom, United States, Canada and Japan. Sources: US Department of Labour, National Institute of Economic Research and own estimates.. 28