Globalization and the Welfare State

Macroeconomic Principles

Paper within welfare state Author:

Immigrants in the Maja Kneke 880504 Sandra Sigvardsson 911028 Fredrik Magnusson 860331

Tutor: Jnkping

Peter Warda 3/2011

Assignment Chapter 5
Sweden and the oil crisis The oil crisis affected the world economy with depressive tendencies, an increase in unemployment and monetary inflationary pressure in USA and Western Europe. These events had an impact on the Swedish economy and led to a time of stagflation. Before the crisis Sweden had had a GDP growth rate of about 3% a year for about 100 years. The Swedish government thought the oil crisis only was going to be a short term crisis and used a expansionary policy and to avoid unemployment at all cost. This government was of the belief that this action would give the domestic companies an advantage when the expected boom would come. However the boom didnt come and instead a domestic boom was created due to the expansionary policy Sweden had used. The Swedish government had almost increased the number of employees with 100%, from 524 000 to 1 014 000 between 1965 and 1970, and this number increased even more during the time. Since the unemployment decreased, this put pressure on the wages and they increased and in the same time there was inflation. With all these new employees with higher wages increased the production cost for the domestic companies and the productivity in manufacturing as well as in the public sector decreased. When the oil crisis started the international competition in industries which were of great importance for Sweden increased and because of this the Swedish government had to take new actions. Swedens devaluation policies in the 80s Sweden had in the 70s had a poor labor productivity growth, a decline in competiveness in traditional industries and overspending due to inflationary policies to keep a high employment rate. As a result of this the Swedish government wanted to strengthen the competiveness in the international markets. The government tried to fix the SEK:s exchange rate to a currency basket consisting of a mix of the major trading partners. However since Sweden had such a high inflation rate, for example several percents higher than Germanys. This made it problematic to manage the currency basket and the SEK came into a depreciation trend. To handle this the government did three devaluations of the SEK, the first one with 9% in 1976, the next one with 10% in 1981 and the last one with 16% in 1982. However this was not very successful due to lack of consistency, the government had one policy on the micro level and one on the macro level. This gave a short term improvement in the balance of payments and even showed growth in 1983 and the beginning of 1984, but after this the inflation became out of control.

Dual Economy Sdergren explains the world dual economy as a country that consists of a small but effective export sector combined with an inefficient government sector. The level of labour force participation is decreasing and absenteeism combined with high taxes gives low remuneration for active work. Sdergren also explain how Sweden is a dual economy. Sweden have a strong export performance since 1992 due to a floating exchange rate of the SEK and the inflation fell sharply despite the fact that the SEK depreciated with 20%. Sweden has problems with the welfare state, the number of non-employment has increased and so has the number of people with the attitude of exchanging income for leisure. This can for example be seen in the level of absence for sickness. In 2003 the cost of sickness insurance was 120 billion SEK or in other terms 5,5% of the entire GDP.

Chapter 8
Erik Jonasson och Lars Pettersson defines the measure of non-employment rate as folows: NE=U+LMP+WH+ST+DW+OTH Wich means that non employment (NE) equals the sum of U (open unemployed), people involved in labor market policy programs (LMP), people working in their home (WH), full time students (ST), people disable to work (DW), and the rest of the population in working age who are not in the labor fource (OTH). This way of counting distinguish Jonasson and Pettersson from for example how author of Principles of Economics, Mc Dowell et al., defines unemployement instead of non-employement. According to Mc Dowell et al., the unemployed people are the ones who actively seeking for an employment. The rest of people included in the NE formula above, are classified as out of the labor force. Which in the formula above are included in the nonemployed. The change of non-employement as share of working age population in Sweden between 1970 and 2000, could be explained by, to start with the oil crises in the middle of 1070s, followed by unstable economic period with several devalueations of the currency. This lead to an increase in the unemployement rate. Following changes between 1970 and 2000 are explanations to why the nonemployment rate has changed. To start with, thera has been an increase in high education, resulting in more students that eliminates from the category of people searching for jobs, when measureing this people in the formula above they increase the number of non-employed. As we will mention further down in text, an increased number of immigrants standing without employement, increases the numbers of unemployed. This development with more and more immigrants without work due to for instance failed integration politics escalated during this period, also resulting in the increase of the non-employement rate. The older people who is not involved in working age population are an slightly increasing part of the labor force, this group are not counted into the groopof employed people, due to this way of counting.

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The authors explanations of the development of non-employment during the 1990s, is that women entering the labor market contributed to an increase of numbers of the labor fource, this lead to an increase in the number of employed workers during the 1970s and1980s. This was in the early 1990s followed by a decrease in the employement rate, wich remained stable trough the rest of the 1990s. A nother reason to the decreas in number of people working age employed can be explained by the fact that numbers of students have doubled during the 1990s partly due to more educational possisions offered in Sweden today. Further on there has also been an increase of people estimated to be out of the labor force because of there disability to work.

Chapter 9
The immigration to Sweden has changed over the last years. After 1940 and the Second World War, immigrations to Sweden increased a lot. The reason to this could be explained by the fact that Sweden didnt suffer any damage due to the war and therefore became a resource to the other warred countries. The population from these countries also saw the opportunity to restart and in Sweden there were a lot of jobs available, because of the expanding industrial production that was started to rebuild the damaged countries in Europe. In this early stage of immigration to Sweden we can see clear signs of the supply and demand affecting the European labor market, which in other words means that people moved to the countries and places where they could get a job. So far the immigration was mainly labour-fource and was called the first wave immigration. In the middle of the 1970s, the second immigration wave began, those immigrants from the first wave, who chose to stay rather than return to their foreign countries brought their relatives into Sweden. As mentioned above the labor market was good and therefore there were a lot of jobs for the immigrants, this was about to change in the late 1970s which resulted in, that a large number of the refugees arriving immigrating to Sweden in the 1980s, never entered the labor market. There have been three different ways of Index of employment rate immigration policies, trying to integrate the Year Both sexes immigrants to the Swedish society and also 120 labor market. The first one is institutional 1950 change in the policy, the responsibility for the 1960 105 immigrants has been moved from the Swedish labor market policy board, to the Swedish 1967 110 immigration board, this resulted in a longer 98 time from the arrival of the immigrants to their 1978 entrance on the labor market, since the main 89 focused changed from finding an employment 1987 to social integration. The second one is called 1991 83 Whole Sweden strategy, the main idea was to 75 spread the immigrant over the country to give 1994 them a better opportunity to learn the language 76 and in that way find it easier to get an 1999 employment. This strategy didnt result as 2001 79 planned since the immigrations were placed on available accommodations rather than where 2002 79 there were available jobs. This resulted in that so called small business district Gnosj, Gislaved and Vrnamo were more successful,

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integrating immigrants. These regions with many small industries, usually have a low unemployment rate. And due to that the Swedish specific knowledge are not that important and needed as in for example Stockholm and Malm. During the 80s the labor situation in Malm were quite depressed, a large number of the native population had left the region because of the difficulty to find jobs in the region, this certainly did not help the immigrants placed in this area. The Bosnians who arrived to Sweden in the years 1993-1994 had succeed a very different way in finding jobs. In 1997 Bosnians were placed in small business areas where they relatively easy could get a job, 64.7 % succeeded in getting employment. This compared to only 11.4 % of those who were placed in the region of Malm. Two years later the situation was improved on both places, in the small business areas 85.7 % were employed and in Malm 32.4 % were employees. The third labor market programs for immigrants constrained two main goals, one was to prevent segregation and the other one was to prevent the permanent marginalization of individuals from the labor market. The Swedish government decided that groups with high level of unemployment should be prioritized to an active labor market policy. Unfortunately this try failed because of the disability to involve the most needing groups of immigrant, for example immigrants from the middle east were somehow excluded meanwhile the Bosnians not in the same need had a greater access to these programs. Ekbergs explanations of why the integration of immigrations has deteriorated over time are that when the immigrants from outside Europe increased, the differences between the cultures made it more difficult to integrate the immigrants to the labor market as well as the society. The failure in the Swedish integration policy as mentioned above, also contributed. To summaries the consequences of this developement, Ekberg mentions that the deteriorated labor market integrations of immigrants have gone from a positive income effect in the 50s-70s to burden the Swedish economy with about 30 billion SEK/year in 1999.

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