Swedish Economic Development and Labor Market Changes 1900-2010

Course Purpose and Content

• The course aims to provide knowledge about the development of Swedish labor policy post-World War II.

• It will discuss fundamental changes from the 1970s, involving the labor market, welfare system, and economy.

• The course will examine processes of change related to immigrants, women, and young people.

• Course content includes:

  • Economic change and the Swedish labor market

  • Transition from school to work

  • Immigration and integration

  • Women in the labor market

• Main objectives:

  • Learn about major changes in the Swedish labor market

  • Discuss reasons behind high labor force participation of women in Sweden

  • Develop familiarity with challenges faced by immigrants and young individuals

Demographic Changes in Sweden

• Sweden's population has shifted from rural to urban between 1800 and 2010.

• There is a current population crisis characterized by low birth rates.

Economic Development and Labor Market (1900-1930)

• The 1920s experienced strong economic growth but high unemployment.

• Responses to unemployment included relief jobs, emergency housing, and cash assistance.

• This period was marked by labor market conflicts.

• Key milestones:

  • 1913: National pension

  • 1919: 8-hour working day

  • 1919: Female voting rights (first election in 1921)

Economic Development and Labor Market (1930-1950)

• Early 1930s saw high unemployment and conflicts, notably the Ådalen shootings in 1931 where five people died after military intervention.

• This period shifted towards labor market peace, facilitated by the Saltsjöbaden Agreement (1938) between the Swedish Trade Union Confederation and the Swedish Employers Association.

• The agreement is considered part of the Swedish model.

• Political stability was achieved through Social Democratic dominance, active labor market policies (from 1946), improved pensions, and steps towards active family policies.

Economic Development and Labor Market (1950s – 1970s)

• Significant social reforms were possible due to economic conditions.

• There was labor immigration, particularly from the common Nordic labor market.

• Keynesianism, state intervention, and an expensive welfare system were in place.

• Real wages increased, and significant resources were allocated to active labor market policies.

• Women’s participation in the workforce increase

• Expansion of the public sector

Women and Family (1950s – 1970s)

• Redistribution policies were implemented.

• Women entered the labor market.

• The public sector expanded.

Economy (1950s – 1970s)

• Post-war, there were initial concerns about the economy, but increased demand from a rebuilding Europe led to increased production, especially in the defense industry.

• Growth and wage increases were observed.

• Several revaluations and devaluations of the Krona occurred:

  • 1946: Revaluation

  • 1949: Devaluation

  • 1976: Devaluation

  • 1977: Devaluation (twice)

  • 1981: Devaluation

  • 1982: Devaluation

Economic Development and Labor Market (1980s –1990s)

• The oil crisis caused concern and disruption of global economies.

• The Krona was overvalued, making exports expensive and affecting competitiveness.

• Several industries, such as shipbuilding, faced crises.

• Sweden devalued the Krona, leading to higher domestic inflation.

• Continued growth occurred during the 1980s.

• A serious crisis occurred in the early 1990s, with increased unemployment.

• 1994: Referendum on joining the EU (Yes 52%)

• 1995: Sweden joined the European Union (EU).

Economic Development and Labor Market (2000s)

• Relatively high growth occurred in the late 1990s and early 2000s.

• The financial crisis of 2008 impacted Sweden, leading to economic challenges.

• Unemployment rates rose, accompanied by a brief downturn in GDP.

• Average annual GDP growth rate: approximately 2.5% (slightly lower than the 3% average in the 2000s).

• Unemployment Rate:

  • Decreased from 7.5% in 2013 to 6.5% in 2023.

• Sectoral Growth:

  • Industry sector: Contributed 18% to GDP in 2013, increased to 20% by 2023.

  • Service sector: Remained the largest contributor to GDP, with consistent growth of around 3% annually.

  • Technology sector: Experienced rapid growth, with an average annual growth rate of 5%.

Summary of Historical Periods

• 1900 – 1930: Conflict

• 1930 – 1950: Peace and stability

• 1950s – 1970s: Economic growth

• 1980s – 1990s: Crisis in industry, early 1990s crisis, EU membership

• 2000s: 2008 crisis, growth in service and technology sectors

Demographic Change and Population

• Population censuses began in 1749.

• The 1930s were marked by a population crisis and low birth rates due to high unemployment, widespread poverty, and overcrowded living conditions.

• Alva and Gunnar Myrdal (1934) highlighted these issues in their book "Crisis in the Population Question," advocating for welfare expansion and family support.

• The 1940s saw a baby boom (1943-1949 in Sweden, continuing until the mid-1960s in the USA) due to increased marriages and confidence in the Swedish economy.

• In the 1960s, fertility rates rose further, and maternity leave was extended from three to six months in 1963.

• From the late 1960s to the mid-1980s, fertility rates declined again due to increased female participation in the workforce and changing gender roles.

• The crisis years of the 1990s saw a robust economy initially, with a total fertility rate (TFR) of 2.1 in 1991.

• During the crisis years, birth rates plummeted, reaching a TFR of 1.5 in 1999, the lowest ever recorded.

• Sweden serves as an example of how population responds to economic fluctuations.

Total Fertility Rate (TFR) Trends

• 1960s – 1980s: Decline in TFR due to increasing female workforce participation and access to better birth control methods.

• 1990s: Upswing in TFR attributed to a strong economy and changes in family policy.

• Late 1990s: Downturn in TFR linked to economic downturn, higher education, and delayed childbearing.

• 2000s – 2010: TFR increased.

• In 2022, TFR was 1.52, close to the lowest observed.

• Historical context:

  • Until 1880: 4.5 children per woman

  • Currently: 1.5 children per woman (replacement level 2.1)

Factors Influencing Low Birth Rates Globally

1. Economic Factors

   • Economic fluctuations impact TFR, with downturns often leading to lower birth rates due to financial insecurity and delayed family planning.

   • Strong economies may encourage higher birth rates as families feel more confident about their financial stability.

2. Societal and Cultural Shifts

   • Changing gender roles: More women are pursuing higher education and careers, leading to delayed childbirth.

   • Urbanization: People living in cities often prioritize careers and lifestyle over having large families.

3. Lifestyle and Personal Choices

   • Prioritizing personal freedom: Many individuals prefer traveling, personal development, and other experiences over parenthood.

   • Delayed marriage and relationships: Many people are marrying later, reducing their reproductive years.

4. Government Policies (or Lack of Support)

   • Weak family support policies: Countries with minimal parental leave, childcare support, and housing assistance see lower birth rates.

   • Lack of incentives: Some governments offer financial incentives, but they are often not enough to encourage higher birth rates.

5. Biological and Health Factors

   • Increased infertility rates: Rising infertility due to lifestyle factors (stress, diet, environmental issues) makes it harder for couples to conceive.

   • Access to contraception: More people have access to birth control and can plan pregnancies better.

6. Global Uncertainty

   • Climate change and environmental concerns: Some people fear bringing children into a world facing environmental crises.

   • Political instability: Economic downturns, wars, and social unrest make people hesitant to start families.

Migration and Foreign-Born Women

• Foreign-born women exhibit higher fertility rates, especially shortly after immigration.

• Despite higher initial rates, long-term trends suggest convergence between foreign-born and Swedish-born women’s fertility rates.

Future Considerations

• Attitudes

• Uncertain future

• House prices

Labor Market and Aging Population

• An increasing life expectancy.

• Later entry into the job market for young people.

Policy Considerations

• Raise the retirement age.

• Increased taxation, employment, and productivity.

Labor Market Integration

• The number of taxpayers increases, which is necessary to finance welfare (healthcare).

• With an increase in the retirement age to 69 by 2050, there may be no need to cut welfare.

Feasibility and Alternatives

• Can we work longer? Is it physically feasible?

• Potential cutbacks in other areas.

• Private alternatives, such as private healthcare.

• Potential increases in taxes on capital and property.

• Challenges included extended working hours and reduced vacation time.

Immigration Impact

• From the 1970s, immigrants have had lower employment rates.

• The foreign-born were hit hardest by the 90s crisis.

• At the same time, the number of refugees increased.

• In the 1990s, 40-50% of social payments went to immigrant households.

Key Features of the Swedish Model

• A labor market with a before and after 1930s.

• High economic growth after WWII (industrial sector).

• 1980s: crisis in industry, economy; growth in service and technology sectors.

• Demographic change and population shifts from the baby boom in the 1940s to low fertility and an aging population.

• Shift from emigration to immigration.

• Inequality in the labor market.

The Swedish Model

• "Middle way" or "third way."

• Active state:

  • sizable public sector (social service)

  • labor market policies (employment)

  • income and wealth distribution

  • relatively ‘women-friendly’ welfare state

GDP Sector Composition

• 1930s-1940s: origins (ideology)

• 1950s-1970s: rise and golden age

• Restrictive fiscal and monetary policy (curbing inflation).

• A large privately owned industrial sector.

• A strong trade union movement with compromise between capital and labor.

The Swedish Model Over Time

1. 1930s-1940s: Origins

2. 1950s-1970s: Rise and golden age

3. 1970s-1990s: Imbalances and crisis

4. 1996-Today: Redefined Swedish Model

Functional Socialism

• Private enterprise.

• Strict public controls and regulations.

• Comprehensive welfare systems.

• Social Democrats continuously in government 1932-1976.

• Per Albin Hansson’s folkhemmet (People’s home): “In the good home there is equality, consideration, cooperation and helpfulness”.

• Export boom (machinery, ships, electronic goods).

• Restrictive fiscal and monetary policy to curb inflation and ensure full employment.

• Active Labor Market Policy (ALMP) promoting occupational and geographical mobility and reduced work capacity.

• Extensive social services – a strong social safety net.

• Increased taxation.

• Strong organizations (unions, employer organizations).

• Collective agreements instead of legislation.

• Centralized and coordinated negotiations promoting solidarity and wage policy.

Imbalances and Crisis (1970s-1990s)

• Long-term effects of the 1991-1994 crisis including a banking, financial, and real estate crisis with abruptly falling property prices.

• Credit market regulations (from 1985 no restrictions lending).

• Savings of two banks from bankruptcy by the state.

• Currency crisis involving a fixed exchange rate and currency speculation leading to failing public finances.

• Unemployment:

  • 1990: 1.4%

  • 1993: 9% (low skilled hit extra hard)

• More households depended on benefits.

• Lower employment rate.

• Demographic changes (aging population).

• Broke a continuous expansion of social security systems.

Key Social Legislations

• 1951: Annual Leave Act (Three weeks)

• 1962: Education Act “one-school-for-all”

• 1955: Universal health insurance

• 1957: Pension reform (ATP)

• 1964: Public Housing Program -”The million program”

• 1974: Parental Leave (men and women)

• 1978: Annual Leave Act (Five Weeks)

Economic Uncertainties

• Devaluations of SEK: 1976, 1977, 1981, 1982.

• Internal and external factors.

• Social insurance system preserved and public provision of health and social care even expanded.

• Move towards economic liberalization since 1980s.

• Swedish model not questioned during the 1980s.

Rise of the Welfare State

• Historical solutions to societal problems.

• Focus on lowering benefits, shorter benefit periods, and stricter controls.

Societal Issues Addressed by Welfare States

• Otto von Bismarck's Germany (1880s):

  • Sickness benefit

  • Healthcare

  • Pensions

  • “Bismarck model” (or Insurance Model)

• 1911: Sickness benefit and primary care (England)

• 1913: National Pension System (Sweden)

• Family and Kinship roles.

• The Swedish Empire or the Great Power era (17th and early 18th century):

  • A ban on begging

  • All parishes must care for their poor

  • Poor laws: 1788, 1847, 1871, 1918

  • Social Aid Act: 1956

• 1913: National Pension system– not based on poverty.

• 1928: Per-albin Hansson’s People’s Home Speech - “Folkhemmet” (People’s Home) promoting social solidarity and welfare policies.

• 1935 : Imported pension

• 1938 : Law on vacation (two weeks). 1937/1948 : Child allowance

• 1955 : Universal healthcare - Beveridge model (tax funded)

Different Welfare Models

• Selective: Benefits provided to specific groups or individuals most in need (Means-tested benefits : 1913 Pension and 1937 Child allowance).

• Universal: All citizens regardless of income, need, or other criteria (1955 Universal healthcare and 1948 child allowance).

• Bismarck model (or Insurance Model).

• Beveridge model (tax funded– high degree of public provision of welfare).

Family Policy Post War

• Favorable economic conditions.

• Reforms in family policy aimed at population growth.

• Child Allowance in 1948

• Maternity assistance in the 60s-70s.

• Economic growth years saw a demand for female labor force participation prioritized gender equality and neutrality.

• Abolishment of joint taxation in 1971.

• Abortion law in 1974.

• Sterilization law in 1975.

• 1980s & 1990s

  • Declining economic growth limited opportunities for reforms

  • Critique of Family and Gender Equality Policies addressed were persisting gender disparities such as lower wages for women, increased domestic responsibilities, and gender-segregated labor market.

• Economic Crisis of the 1990s

  • Decreases nativity (birth rates) and female labor force participation due to economic downturn.

Swedish Labour Market Organisations - Current Trends

• Growing income disparities among families with children, disproportionately affecting children in single-parent households and children with immigrant backgrounds.

Trade Unions

• Focus on real wage increases and employment.

• An important part of industrialized society.

• Forbidden according to Swedish legislation until 1864.

• Swedish Typographer Associations (1886).

• The Swedish Trade Union Confederation -LO (1898) → today 1.5 million members.

• The Swedish Confederation of Professional Employees - TCO (1931) → 1.2 million members.

• The Swedish Confederation of Professional Associations –SACO (1947) → 600,000 members.

Factors Determining Union Density

• Political factors.

• Ideology, solidarity with one’s own group.

• Institutional factors including collective agreements which maintain high coverage (the Ghent system– welfare payments (such as unemployment insurance) through unions).

• Collective agreements remain strong but face challenges with free movement within the EU.

Current Trends and Inequalities

• Increasing trend of income inequality, regional inequality, and inequality of opportunity where foreign-born pupils are lagging behind.

School-to-Work Transition

• A critical period in the life of young people involving change, uncertainty, and waiting impacting wellbeing and economic prospects.

Optimal Societal Point of View

• Allocation of human resources shaped by demand for labor.

Barriers to Obtaining Optimal Transition

• The lottery of birth including no control on birth country, family, gender, or school (zip code).

Under Perfect Competition Scenarios

• Allocation of wages adjusts to align individual & societal interests.

Determinants of Youth Employment

• Main determinants include individual background, education, ability, motivation, and expectation.

• Difficult to separate in empirical analyses due to double skill-bias where education and experience must both be considered alongside Macroeconomic conditions.

Macroeconomic conditions
*Youth employment tends to be super cyclical but this does not fully explain cross-country differences (Ryan 2001).

Culture + Skills Mismatch + Institutional Frameworks:

• Example 1 – Centralized pay coordination (i.e. minimum wages, Krugman 1994) where the wage effect is seen in the UK and US and the employment effect is seen in Sweden and France.

• Example 2 – National school to work institutions (apprenticeship in Germany).

Measurement:

• When does youth start? Official statistics use:

  • Age 15–24 or 15–29 BUT.. Longer education + life expectancies lead to the redefinition of “Youth”.

• Age of establishment in Sweden:

  • Age when 75% of a cohort is employed (see Olofsson 2005).

    • 1987 → 21 years old.

    • 2005 → 27 years old.

Labor Force Participation Metrics Definitions:

• Labor Force Participation: LFP = \frac{Employed + Unemployed}{Population}

• Youth NEET rate is a broad measure of the underutilization of youth, who could potentially contribute to national development and growth through their work or by furthering their qualifications in education (ILO 2017).

• Unemployment Rate = \frac{Unemployed}{Employed + Unemployed}

• Unemployment ≠ Jobless.

• NEET = Neither in Employment nor in Education and Training ( = Better measure of youth inactivity … except if on holiday).

Global Trends In Labor Force Participation and Unemployment

• Sharp decline in youth LFP:

  • ↓ 12% points between 1999 and 2019 (ILO, 2020) with the Smallest change where in Central & Western Asia (before in Sub-Saharan Africa)).

• Good or bad?

  • Depends on activities and reasons but the largely reflect rising education rates.

• Youth unemployment rate : Roughly constant since 2009 (ILO, 2020) with Youth = over-represented among total unemployed also Youth = more strongly hit by long-term unemployment and Young people = 3x more likely to be unemployed. Large regional differences.
  Emerging economies = worse trend

• In 2024 : 20.4% of global youth are NEET – 13.1% Male; 28.1% Female and 11.3% of young people in Europe are NEET – 10.1% Male; 12.5% Female.
  The statistic crude and mask important aspects of youth employment opportunities

Quality of Employment Considerations

• Very different incidence for different regions of the world - Quality of Employment is important.

  • Young workers = over-represented among working poor where Working poor = people who work but live below poverty line and Young workers = more frequently in informal labor markets.

  • 3 out of 4 young workers.

Length of the Transition Assessment

• Transition from school → Stable employment where Stable employment = contract > 12 months (or satisfactory temporary employment) with the Focus kept on individual youth’s experiences.

• Transition depends on cumulative factors over life span so Different trajectories Can be used to identify issues in labor markets.
  Transition differs by country’s level of development:
  Least developed countries → lower % of young workers in stable occupation and Stable employment vs. self-employment have great disparities

• How does education affect length of transition?
  Long education = short transition
  Alignment of skills to demand determines transition lengths
  Mismatch occurs due to over and under qualification situations
  A combination Work-study can shorten the transitionGerman apprenticeships can be used as a model

Path to Employment - Determinants of Success

Determinants of Success:
* Individual characteristics
* Macroeconomic conditions
* Frictions in labor markets
* Cultural barriers
* Institutional frameworks
Determinant of employment prospects for young adults: Education

Best Set Ups Include:

• Vocational education

• General education

• Apprenticeship

Educational Models

Vocational education vs. General education Vocational education = oriented towards acquiring skills directed to a specific job
e.g. Denmark, some Eastern European countries General education = more general → less applied skills (e.g. US, UK)
Apprenticeship vs. Full time schooling = Mass apprenticeship requires strong institutions to support it. Problem = investing in training is risky as other employers might benefit- Example Germany

Part time vocational education = coupled with apprenticeships - Unions accept low paid apprenticeship

Transitional Regimes

Vocational Education among upper secondary pupils
State Central Model: School based vocational education, Influenced by labour market organizations
Anglo-Saxon Model: Primarily generalized education, Training seen as a voluntarily responsibility

Challenges and Policies for New Labor Market Entrants

EU – Challenges and Policies after 2008 Crisis – for new labor market entrants During the recession
Afterwards: