Ministry of Finance Sweden The New Government’s Economic Policy Per Jansson

Ministry of Finance Sweden

The New Government’s Economic Policy

Per Jansson


Plan of talk

• Some personal data• A few facts about the Government

Offices, the Ministry of Finance, and economic policy in general

• Facts about the Swedish economy• The new economic policy

– Undertaken and planned policy measures– Expected effects (forecasts from Budget

Bill and evaluation done by Lars Calmfors)


Personal data

• PhD 1994; Associate Professor 2000 (Uppsala University)

• Mainly: general macro (empirical) and monetary policy

• 10 yrs at the Riksbank, 2 yrs at the NIER

• Also: FIEF, the Economic Council of Sweden, SJ


The Government Offices

The Government

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most common occupations: economists, lawyers and social scientists

470 plus employees

95% are non-political staff

average age is about 40

50 per cent are women

65% have executive responsibilities

10% have managerial responsibilities

25% have administrative responsibilities

The Ministry of Finance


IA KLA

Minister for FinanceAnders Borg

MinisterMats Odell

Chief Political Adviser

Political Advisers

Press PressPoliticalAdvisers

7 Divisions

BudgetDepartment

Economic Affairs

Tax and Customs

PublicAdministration

FinancialMarkets

International Department

3 Divisions 4 Divisions3 Divisions 5 Divisions 5 Divisions

Legal Secretariat

InformationDepartment

Departement forCoordination and

Support

3 Divisions

State Secretary

Hans Lindblad

State SecretaryPer Jansson

State SecretaryIngemar Hansson

State Secretary


State Secretary for economic policy responsible for…

• Departments: International Department, Economics Affairs, Division for Structural Policies at Budget Department

• In addition: issues related to statistics and government real estates

• Government agencies: NIER, Statistics Sweden, the Economic Council of Sweden, the Swedish National Financial Management Authority (ESV), the National Property Board (SFV), the National Fortification Administration


Conducting economic policy means…

• monitors and analyses the Swedish economy • makes short and long-term forecasts • conducts studies at household and individual level• takes part in international economic work

The Ministry of Finance

…undertaking measures to influence the national economy.

Divided into: - stabilisation policy- distribution policy- structural policy


The goals of economic policy…

full employment

a stable economy

stable prices high growth

fair distribution

… are set by the Government and the Riksdag, and can broadly be summarised as follows:

sound public finances


Government commences preparatory budget work

Government submits Spring

Budget Bill including

proposals for expenditure ceilings to the Riksdag

Economic policy is implemented through the budget process

Riksdag approves the budget

January • February • March • April • May • June • July • August • September • October •

November • December

Government agencies supply

background budget data

The Riksdag approves

expenditure ceilings and preliminary

frames for the expenditure

areas

Government submits

the Budget Bill to the Riksdag


The Swedish economy: since the mid 1990s good macro performance in many respects• Growth higher than previously and

higher than in many other countries• Inflation low and stable• Public finances with surplus• Reasonable real and nominal wage

increases


GDP level and growth rate

050095908580

2800

2600

2400

2200

2000

1800

1600

1400

5.0

4.0

3.0

2.0

1.0

0.0

-1.0

-2.0

-3.0

SEK billion Per cent

2.9

4.1

1.72.0

1.1

4.34.5

3.7

2.3

1.3

3.93.9

-2.0

-1.2-1.1

1.0

2.72.6

3.4

2.8

2.2

4.3

1.9

1.2

-0.2

1.7

Level, constant prices (left scale)Annual change (right scale)


CPI inflation

-2

0

2

4

6

8

10

12

14

1981 1986 1991 1996 2001 2006


Public savings (percent of GDP)

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Note: The dashed line is the forecast in the Budget Bill for 2007.


Nominal and real wage growth

-4

-2

0

2

4

6

8

10

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Nominal Real


But there are also problems…

• Weak labour market development with high absence

• Equilibrium (un)employment too low (high)

• It does not pay enough to work• Business climate for in particular small

companies not as good as it should be• Too few want to employ and run a

business• Demographic challenges ahead


GDP growth and unemployment

0604020098969492908886848280

8

6

4

2

0

-2

-4

-6 10

8

6

4

2

0

BNP (vänster)Öppen arbetslöshet, säsongrensad (höger)


The Swedish population by labour force

status, 2005 Population

9 047 700

19,5 % 16,7 %

Population, age<16 Population, age>641 762 900 1 515 000

63,8 %

Population, age 16—645 769 800

59,0 % 41,0 %

At work Not at work3 409 850 2 359 950

36,1 % 11,5 % 52,4 %

Employed, absent from work Unemployed Not in the labor force852 750 270 400 1 236 800

45,4 % 22,0 % 32,5 %

vacation & Sick Else Sickness- & Retiredholidays 187 750 277 500 activitucompensation 77 000

387 500 383 800

Else Full-time students

243 800 532 200


Individuals supported by social transfers Thousands of full-time equivalents

0

200

400

600

800

1 000

1 200

1 400

1 600

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04

Sickness allowance Disability pension

Unemployment Labour market programs

Social assistance

Source: SCB, Swedish Social Insurance Administration, National Labour Market Board


The difference between going to work and being sick-listed is too small


Few new companies established


Swedish population growth up to 2050 (change compared to 2006)

-200

0

200

400

600

800

1000

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

65 years and older

20-64 years

19 years and younger


Dependency ratios

2050204520402035203020252020201520102005

0.45

0.40

0.35

0.30

0.25

0.45

0.40

0.35

0.30

0.25

Äldrekvot Yngrekvot


Population growth in the age 20-64 years (change compared to 2006)

-300

-200

-100

0

100

200

300

400

500

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Born abroad

Born in Sweden

Total change


The labour market at different points in time

1990 1993 2005

Unemployment 1,5 8,3 5,4

Labor force participation 84,5 77,7 78,0

Employment 83,3 71,2 73,8

Benefit recipients 15,7 22,2 20,4


Possible sources of unemployment persistence

Decreasing search activityCalls for: measures that increase search activity and decrease locking-

in effects

Generous benefits Calls for: measures that make it worthwhile to work

The compressed wage structure Calls for: measures that increase the availability of low-skilled jobs at

an agreeable wage

Stigmatization Calls for: measures that decrease the cost associated with employing

jobseekers who have been out of work for a long time

Employment protection legislation


What is needed?

A combination of measures that affect simultaneously:

The matching process

Labour supply

Labour demand


Autumn Budget Bill 2007 affects Matching

through:

Changes in the institutional set-up of labour market policies

Individual action plans and coaching

Changes in unemployment benefits

Lower volumes of labour market programmes


Autumn Budget Bill 2007 affects Labour supply

through:

Earned income tax credit that increase after-tax revenue

Changes in unemployment benefits

Changes in sick-leave benefits

Lower volumes of labour market programmes


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AS

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Autumn Budget Bill 2007 affects Labour demand

through:

“New start jobs” targeted at benefit recipients, refuges, and older people

Decreased employers’ contributions for youth & older

Increased possibilities to time-limited hires

and also:

Tax reductions on household-related services (in 2007)

Tax reductions in various service sectors (in 2008)


P

Y

AS

AD


P

Y

AS

AD


The Swedish labour market according to the Budget Bill

2005 2006 2007 2008 2009

Employment, percentage change

0,8 1,7 1,5 1,0 0,6

Labour force,percentage change

0,8 1,3 1,8 0,1 0,0

Regular employment rate(20-64)

77,4 77,7 79,0 79,8 80,2

Open unemployment rate

6,0 5,6 5,8 5,0 4,3

Labour market programmes – participants– per cent of labour force

123 0002,7

143 0003,1

91 0001,9

64 0001,4

70 0001,5

Total unemployment rate 8,7 8,7 7,7 6,3 5,8


Effects on income distribution (2007, percentage change)

Ålder

-0,2

0,3

0,8

1,3

1,8

2,3

2,8

-17

18-2

4

25-3

4

35-4

4

45-5

4

55-6

4

65-7

4

75-

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m l/m

Tjä

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m h

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Förtid

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Åld

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Arb

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Kort d

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Lång d

eltid

Heltid

Arb

ets

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Sju

k

Socbid

Stu

d

Män

Kvin

nor

%Socio Sysselsättn Bidrag/stud Kön

(20+)


Effect on income distribution: Gini coefficient

0,20

0,21

0,22

0,23

0,24

0,25

0,26

0,27

0,28

0,29

0,30

1991 1993 1995 1997 1999 2001 2003 2005 2007

Before proposal

After proposal


Calculation of effects by Lars Calmfors

• Approach: use estimates (elasticities) of previous empirical studies (several) to quantify the long-run effects of the different policy measures

• Studies considered:– Bassanini & Duval (2006, OECD WP 486)– Forslund, Gottfries & Westermark (2006,

CESifo WP 1649)– Forslund & Kolm (2000, IFAU WP 7)– Nickell (2003, CESifo DICE Report 2)


Bassanini & Duval (2006): lower unemployment benefits and tax wedgeCategory Effect in percentage

terms

Unemployment -1.0 / -0.8

Employment rate,males 25-54

+1.4 / +1.0

Employment rate,females 25-54

+2.4 / +1.8

Employment rate,youth 20-24

+3.2 / +2.7


Forslund et al (2006): lower net replacement rate and reduction of ALMPsCategory Effect in percentage

terms

Wage -1.7 / 0

Open unemployment -1.0 / -0.4

Total unemployment -2.0 / -1.4


Forslund & Kolm (2000) and Nickell (2003)

• FK about 1 percentage point larger unemployment effect

• Nickell:Change in U = -0.42 – 1.24 x (net no. of

”employment-friendly” reforms)R2 = 0.51, N = 20=> for Sweden this gives 3 x 1.24 = 3.7

percentage points lower unemployment

Documents

Ministry of Finance Sweden The New Government’s Economic Policy Per Jansson