Economic Performance and Work Activity in Sweden after the Crisis of the Early 1990s

Steven J. Davis, Magnus Henrekson

NBER Working Paper No. 12768
Issued in December 2006
NBER Program(s):Economic Fluctuations and Growth, Labor Studies, Public Economics

Following a severe contraction in the early 1990s, the Swedish economy accumulated a strong record of output growth coupled with a disappointing performance in the labor market. As of 2005, hours worked per person 20-64 years of age are 10.5 percent below the 1990 peak and a mere one percent above the 1993 trough. Employment rates tell a similar story. Our explanation for Sweden's weak performance with respect to market work activity highlights the role of high tax rates on labor income and consumption expenditures, wage-setting arrangements that compress relative wages, business tax policies that disfavor labor-intensive industries and technologies, and a variety of policies and institutional arrangements that disadvantage younger and smaller businesses. This last category includes tax policies that penalize wealth accumulation in the form of owner-operated businesses, a pension system that steers equity capital and loanable funds to large incumbent corporations, and legally mandated job-security provisions that weigh more heavily on smaller and younger businesses. We describe these features of the Swedish institutional setup and provide evidence of their consequences based largely on international comparisons.

download in pdf format
   (391 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w12768

Published: Economic Performance and Market Work Activity in Sweden After the Crisis of the Early 1990s, Steven J. Davis, Magnus Henrekson. in Reforming the Welfare State: Recovery and Beyond in Sweden, Freeman, Swedenborg, and Topel. 2010

Users who downloaded this paper also downloaded* these:
Davis and Henrekson Economic Performance and Market Work Activity in Sweden After the Crisis of the Early 1990s
Ottaviano and Peri w11672 Rethinking the Gains from Immigration: Theory and Evidence from the U.S.
Freeman, Swedenborg, and Topel Introduction to "Reforming the Welfare State: Recovery and Beyond in Sweden"
Fredriksson and Topel Wage Determination and Employment in Sweden Since the Early 1990s: Wage Formation in a New Setting
Auerbach, Hassett, and Sodersten w5189 Taxation and Corporate Investment: The Impact of the 1991 Swedish Tax Reform
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us