Download - The New Government’s Economic Policy
Ministry of Finance Sweden
The New Government’s Economic Policy
Per Jansson
Ministry of Finance Sweden
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)
Ministry of Finance Sweden
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
Ministry of Finance Sweden
The Government Offices
The Government
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Ministry of Finance Sweden
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
Ministry of Finance Sweden
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
Ministry of Finance Sweden
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
Ministry of Finance Sweden
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
Ministry of Finance Sweden
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
Ministry of Finance Sweden
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
Ministry of Finance Sweden
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
Ministry of Finance Sweden
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)
Ministry of Finance Sweden
CPI inflation
-2
0
2
4
6
8
10
12
14
1981 1986 1991 1996 2001 2006
Ministry of Finance Sweden
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.
Ministry of Finance Sweden
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
Ministry of Finance Sweden
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
Ministry of Finance Sweden
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)
Ministry of Finance Sweden
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
Ministry of Finance Sweden
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
Ministry of Finance Sweden
The difference between going to work and being sick-listed is too small
Ministry of Finance Sweden
Few new companies established
Ministry of Finance Sweden
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
Ministry of Finance Sweden
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
Ministry of Finance Sweden
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
Ministry of Finance Sweden
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
Ministry of Finance Sweden
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
Ministry of Finance Sweden
What is needed?
A combination of measures that affect simultaneously:
The matching process
Labour supply
Labour demand
Ministry of Finance Sweden
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
Ministry of Finance Sweden
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
Ministry of Finance Sweden
P
Y
AS
AD
Ministry of Finance Sweden
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)
Ministry of Finance Sweden
P
Y
AS
AD
Ministry of Finance Sweden
P
Y
AS
AD
Ministry of Finance Sweden
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
Ministry of Finance Sweden
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-
Arb
eta
re
Tjä
nste
m l/m
Tjä
nste
m h
ög
Före
tagare
Förtid
spens
Åld
ers
pens
Arb
eta
r ej
Kort d
eltid
Lång d
eltid
Heltid
Arb
ets
lös
Sju
k
Socbid
Stu
d
Män
Kvin
nor
%Socio Sysselsättn Bidrag/stud Kön
(20+)
Ministry of Finance Sweden
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
Ministry of Finance Sweden
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)
Ministry of Finance Sweden
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
Ministry of Finance Sweden
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
Ministry of Finance Sweden
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