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Sweden: Labour supply and labour demand

Fri, Nov 3 2006, 16:42 GMT
by Roger Josefsson

Danske Bank A/S  |  View company's profile


  • The government’s announced measures are generally believed to increase both supply of, and demand for, labour. But will supply increase more than demand?

  • From a theoretical standpoint, and in a longer run, the increase in supply and demand should cancel out. But on a shorter horizon, say the coming few years, this is not certain to be the case. The government itself believes that the supply will outpace demand by circa ¼ percentage point (p.p.) in 2007 and thereafter demand will outpace supply in 2008 and 2009 by a total of almost 1½ p.p..

  • The Riksbank has a somewhat gloomier view on the new measures. In their latest forecast, the profile for supply and demand is reminiscent of the Ministry of Finance’s, but the net effect considerably less optimistic. In the Riksbank’s forecast over the period 2007 to 2009, demand outpaces supply by a total of above ½ p.p. compared to the Minstry’s estimate of 1¼ p.p. The difference of 0.6 p.p. may not seem much, but is the equivalent of more than 30000 jobs.

  • However, most economic commentators stress the difficulties involved when estimating the effects on demand for labour given the proposed fiscal policy measures. The effects on demand is mainly a question on if the measures are perceived as sustainable or not, and in a shorter perspective also on the twists and turns of the business cycle.

  • Our view is still that a marked slowdown will materialise no later than 2007. However, domestic demand shelters the Swedish economy from being too adversely affected. Nonetheless, our estimates point to demand only marginally outpacing supply with a net effect for the entire period of circa ¼ p.p.

Published on  Fri, Nov 3 2006, 16:46 GMT


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