Wage Determination and Labor Market Performance in Sweden

1
Wage Determination and Labor Market Performance
in Sweden

• Peter Fredriksson
• Robert Topel

2
Labor Markets the Swedish Model

• U.S. vs. Sweden Market vs. Institutions
• Collective Bargaining
• U.S. lt10 (private) today decentralized
• Sweden gt 80 more centralized
• Public Sector employment
• U.S. 15
• Sweden up to 40
• Policies Regulations
• U.S. UI (6 months) DI, increasing regulation
• Sweden ALMPs, Sickness pay, etc.
• Taxes
• US 28 of GDP
• Sweden gt 50 of GDP

3
Labor Market to 1975 Looks Good

• UE 2
• Productivity growth comparable
• Rising E/P, especially women
• Egalitarian success
• Wage compression
• Women/Men
• Where was the equity/efficiency tradeoff?

4
After 1975 Emerging Doubts

• Slow down in productivity growth
• Rising tax burden
• Wedge reaches .75 for skilled
• Zero growth in disposable wage 1975-93
• Declining hours worked
• Demise of centralized bargaining
• Effects of wage compression

5
1990s Crisis Concerns Peak

• E/P falls by 12 (500,000)
• Private sector 1st, then Public
• Most of decline appears permanent
• Unemployment Soars
• Open UE 10
• Joblessness among young gt 20
• Swedish labor market no longer anyones envy

6
Edin Topel 3 Themes

• Role of Centralized Bargaining
• Restructuring
• Wage compression
• Wage Compression, Taxes Efficiency
• Reduced incentives distorted decisions
• Effects on allocation and growth
• Labor Market Policies Public Sector
• ALMPs
• Growth of Public Sector Women less skilled

7
Rising Pressures on the Swedish Model

• Wage compression public sector
• Subsidized skilled labor raised demand for less
  skilled
• full employment
• But rising social cost
• Swimming against skills tide
• Rising skills shortage
• Implications for growth
• Demise of CB, 1983-87

8
So What Happened?

• Collective Bargaining
• Still dominant form of wage determination
• More decentralizedlocal (Public sector too)
• More coordinated IA (1997) gt 60 by 2001
• Public Sector
• Large contractionfiscal crisis
• Some privatization
• Tax Reforms (pre-crisis)
• Reduced top marginal rates

9
Implications

• Move toward (not to) decentralized market
• Reduction in PS demand
• Partially relaxed constraints on wage
  determination (still constrained)
• Combined with smaller wedge
• Rising wage inequality, and inequality of work
• Magnify employment adjustments in SR
• Smaller distortions, better allocative outcomes
  in LR

10
Employment/Pop 16-64
11
Private Public Employment1987-2004
12
Wage Distribution Small Increase in Inequality
13
Wage DifferencesLonger Term Trends

• Private Sector, Within CategoryLarsson (2004)
  Lindgren (2005)

14
Compare to U.S. 90-10
15
Productivity Wage GrowthWho Gained in Sweden?
16
Productivity Wage GrowthWho Gained in the U.S.?
17
Wage Differentials Characteristics
18
Employment DifferentialsRising Inequality of
Employment
19
Do Skill Differentials Matter for Human Capital
Growth? The U.S.
20
Is Sweden Different?Enrollment Returns to
College
21
Shipping the Good Apples Out Guess which
Europeans Go to the U.S.
22
And More So for Scandinavians
23
A New ChallengeImmigration the Skill
Distribution(Immigrants by Source Percentile,
1993)
24
Like the U.S. (except at the top)
25
Does Wage Compression Still Matter? Minimum
Wages are Very High(Min as of Median, by
Industry)