Labour supply incentives, income support systems and taxes in Sweden

Comparing Sweden to other EU countries, labour force participation rates of older individuals and females are high. These facts are consistent with the idea that institutional design matters: access to child care, paid parental leave, and a tax system with individual rather than household income taxation, probably explain a significant fraction of the high female participation rate; and the evidence suggests that the design of pension systems has an impact on the labour force participation of the elderly. Active labour market policies may contribute to high labour force participation, but cannot be relied on as a major means of raising employment and participation in the long run.Labour supply; taxes; income support systems

Income support systems, labour supply incentives and employment – some cross-country evidence

This paper summarizes a set of expert reports commissioned by the IFAU. The expert reports cover Estonia, Germany, Italy, the Netherlands, Sweden, and the United Kingdom. These countries represent range of welfare states, both in terms of scope and design. And in each country there are interesting experiences from which other countries may learn. The overall objective is to identify policy tools that help generate sustained increases in employment in the long run. Therefore, we focus on policies that improve the incentives for labour force participation and reduce the barriers to participation.Labour force participation; employment; income support; long-run sustainability

Direct Displacement Effects of Labour Market Programmes: The Case of Sweden

Using a panel of 260 Swedish municipalities over the period 1987-1996, this paper investigates the direct displacement effects of active labour market programmes (ALMPs). Compared to earlier studies on this topic, we have more and better data. From our GMM estimations, we find that (i) there are direct displacement effects from those ALMPs that generate subsidised labour (in the order of approximately 65 percent), but there seems to be no (significant) displacement effects from training, (ii) most ALMPs seem to increase labour force participation, and (iii) the adjustment to the optimal level of employment seems to be sluggish. A consequence of (ii) is that the earlier studies have overstated the displacement effects (since they normalised with the labour force).Labour market programmes; Displacement effects; GMM estimation

Random and stock-flow models of labour market matching - Swedish evidence

In this paper we estimate aggregate matching functions taking advantage of a rich data base that enables us to compute observations on the variables in the matching function at (virtually) any frequency to assess the importance of the time aggregation problem. We also generate stocks, outflows and inflows of vacancies and job seekers to shed light on the importance of stock-slow matching. Finally, we assess the contribution of labour market programme participants to matching. Our evidence rejects random matching. More precisely, we find that a non-trivial fraction of new job seekers match instantly (within the first week), that stocks of "old" vacancies and job seekers do not contribute significantly to matching and that the inflow of vacancies matches with the lagged stock of job seekers. Our results also suggest that labour market programme participants contribute to matching to a lesser extent than openly unemployed job seekers. We also find that the use of lagged stocks as right-hand side variables in matching functions (i.e., ignoring the within-period inflow of job seekers and vacancies) gives lower estimates of matching elasicities and that this is more pronounced the lower the measurement frequency.Stock flow matchíng; time aggregation

Direct displacement effects of labour market programmes: the case of Sweden

Using a panel of 260 Swedish municipalities over the period 1987-1996, this paper investigates the direct displacement effects of active labour market programmes (ALMPs). Compared to earlier studies on this topic, we have more and better data. From our GMM estimations, we find that (i) there are direct displacement effects from those ALMPs that generate subsidised labour (in the order of approximately 65 percent), but there seems to be no (significant) displacement effects from training, (ii) most ALMPs seem to increase labour force participation, and (iii) the adjustment to the optimal level of employment seems to be sluggish. A consequence of (ii) is that the earlier studies have overstated the displacement effects (since they nomalised with the labour force).Labour market programmes; Displacement effects; GMM estimation

The Swedish Youth Labor Market in Boom and Depression

This paper is concerned with the labor market experience of Swedish youths during the 1980s and the 1990s. The first objective is to portray early economic attainment among young Swedes. The second objective of the paper is to examine the impact of labor market programs on youth employment. We find that the slump in the 1990s has been associated with dramatic increases in youth unemployment and youth participation in active labor market programs. The impact on unemployment rates by age and education has been roughly proportional, however. The evolution of employment and unemployment does not offer much ground for the popular hypothesis that the recent rise in unemployment is driven by large and pervasive shifts in the demand for labor by skill attributable to technological innovation. The employment crisis has been met by an unprecedented increase in active labor market programs, in large part targeted at unemployed youths. There is a risk that these programs may crowd out regular youth employment, a hypothesis that is supported in our empirical investigation of regular youth employment in Swedish municipalities.Employment; Unemployment; Wages; Labour force and employment; Size and structure; Employment determination; Demand for labour

Active labour market policies and real-wage determination - Swedish evidence

A number of earlier studies have examined whether extensive labour market programmes (ALMPs) contribute to upward wage pressure in the Swedish economy. Most studies on aggregate data have concluded that they actually do. In this paper we look at this issue using more recent data to check whether the extreme conditions in the Swedish labour market in the 1990s and the concomitant high levels of ALMP participation have brought about a change in the previously observed pattern. We also look at the issue using three different estimaton methods to check the robustness of the results. Our main finding is that, according to most estimates, ALMPs do not seem to contribute significantly to an increased wage pressure.Labour market policies; Real-wage determination

An Evaluation of the Swedish Active Labor Market Policy: New and Received Wisdom

About 3% of GNP is spent on government labor market programs in Sweden, compared to 2% in Germany and less than 0.5% in the U.S. In Sweden these programs include extensive job training, public sector relief work, recruitment subsidies, youth programs, mobility bonuses, and unemployment benefits. Using county-level data, we provide new evidence that public relief workers displace other workers, especially in the construction sector. Our review of the previous literature suggests that job training programs have small effects on wages and re-employment in Sweden, but precise inferences are difficult because of small sample sizes. We also investigate alternative reasons for the stability of the Beveridge Curve in Sweden, and compare regional evolutions of employment and unemployment in Sweden and the U.S. Lastly, we present cross-country analysis for 1993 which, contrary to studies that use earlier data, shows that the extent of a country's active labor market programs is positively associated with the national unemployment rate.