OECD Economic Surveys V o lu m SwEDEn e 2 OECD Economic Surveys 0 0 SPECiAL FEATURE: EDUCATiOn AnD yOUTh EMPLOyMEnT 8 / 2 0 Most recent editions non-member Countries: Most recent editions S SwEDEn u Australia, October 2008 Baltic States, February 2000 p p Austria, July 2007 Brazil, November 2006 le m Belgium, March 2007 Bulgaria, April 1999 e Canada, June 2008 Chile, November 2007 n t Czech Republic, April 2008 China, September 2005 n o Denmark, February 2008 India, October 2007 . 2 Euro area, January 2007 Indonesia, July 2008 European Union, September 2007 Romania, October 2002 Finland, June 2008 Russian Federation, November 2006 France, June 2007 Slovenia, May 1997 Germany, April 2008 South Africa, July 2008 Greece, May 2007 Ukraine, September 2007 Hungary, May 2007 Federal Republic of Yugoslavia, January 2003 Iceland, February 2008 Ireland, April 2008 Italy, June 2007 Japan, April 2008 Korea, June 2007 Luxembourg, June 2008 Mexico, September 2007 Netherlands, January 2008 New Zealand, April 2007 O E Norway, August 2008 C Poland, June 2008 D E Portugal, June 2008 c o Slovak Republic, April 2007 n o Spain, November 2008 m Sweden, December 2008 ic Switzerland, November 2007 S u Turkey, July 2008 rv e United Kingdom, September 2007 y s United States, May 2007 S w E D E n Subscribers to this printed periodical are entitled to free online access. If you do not yet have online access via your institution’s network contact your librarian or, if you subscribe personally, send an e-mail to [email protected] Volume 2008/20 – December 2008 iSSn 0376-6438 Supplement no. 2 2008 SUbSCRiPTiOn De (18 iSSUES) c e m iSbn 978-92-64-05423-3 -:HSTCQE=UZYWXX: be Volume 2008/20 – December 2008 www.oecd.org/publishing 10 2008 20 1 P r 20 Supplement no. 2 0 8 OECD Economic Surveys Sweden 2008 ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT The OECD is a unique forum where the governments of 30 democracies work together to address the economic, social and environmental challenges of globalisation. The OECD is also at the forefront of efforts to understand and to help governments respond to new developments and concerns, such as corporate governance, the information economy and the challenges of an ageing population. The Organisation provides a setting where governments can compare policy experiences, seek answers to common problems, identify good practice and work to co-ordinate domestic and international policies. The OECD member countries are: Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The Commission of the European Communities takes part in the work of the OECD. OECD Publishing disseminates widely the results of the Organisation’s statistics gathering and research on economic, social and environmental issues, as well as the conventions, guidelines and standards agreed by its members. Also available in French Corrigenda to OECD publications may be found on line at: www.oecd.org/publishing/corrigenda. © OECD 2008 OECD freely authorises the use, including the photocopy, of this material for private, non-commercial purposes. Permission to photocopy portions of this material for any public use or commercial purpose may be obtained from the Copyright Clearance Center (CCC) at [email protected] or the Centre français d'exploitation du droit de copie (CFC) [email protected]. All copies must retain the copyright and other proprietary notices in their original forms. All requests for other public or commercial uses of this material or for translation rights should be submitted to [email protected]. TABLE OF CONTENTS Table of contents Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Assessment and recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Chapter 1. Key challenges for the Swedish economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 The Swedish model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 The current economic slowdown . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Medium-term assessment and key challenges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Annex 1.A1. Progress in structural reform. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Annex 1.A2. Labour force data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Chapter 2. Fiscal policy: What should the targets be?. . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 The current fiscal framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 What should guide the choice of future fiscal targets? . . . . . . . . . . . . . . . . . . . . . . . . 56 Are current policies sustainable given future fiscal pressures? . . . . . . . . . . . . . . . . . 60 How should public spending growth be tackled? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Chapter 3. Taxation and growth: What direction should Sweden take?. . . . . . . . . . . . 71 Tax revenue trends in an international perspective. . . . . . . . . . . . . . . . . . . . . . . . . . . 72 What overall direction should tax reforms take? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Capital and business taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Social security contributions and personal income taxation . . . . . . . . . . . . . . . . . . . 75 Housing taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Climate and environmental taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Chapter 4. Education and youth employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 Human capital and youth employment outcomes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 Compulsory education: ensuring a strong start . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 Upper secondary education: preparing better for labour-market entry. . . . . . . . . . . 100 Higher education: shortening delays in study completion . . . . . . . . . . . . . . . . . . . . . 104 OECD ECONOMIC SURVEYS: SWEDEN – ISBN 978-92-64-05423-3 – © OECD 2008 3 TABLE OF CONTENTS Labour markets: easing the impediments to youth employment . . . . . . . . . . . . . . . 109 Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 Chapter 5. Privatisation: The next phase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 Why privatise? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 How to proceed with the privatisation programme . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 Boxes 1.1. The Swedish financial system and international financial turmoil. . . . . . . . . . . 26 1.2. Monetary policy and communication in Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . 31 1.3. Immigrants’ labour market integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 1.4. Sickness and disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 1.5. Housing market deregulation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 2.1. Key elements of Sweden’s fiscal policy framework. . . . . . . . . . . . . . . . . . . . . . . . . 53 2.2. Is a golden rule necessary?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 2.3. Summary of fiscal policy recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 3.1. Decomposing the international comparison of average annual hours worked . . . . 77 3.2. Estimated cross-country effects of taxes on hours worked. . . . . . . . . . . . . . . . . . 81 3.3. From a proportional value-based state housing tax to a capped municipal fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 3.4. Summary of tax recommendations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 4.1. Education and youth employment policies in a Swedish economic context . . . 91 4.2. Immigrants and school drop-outs are most at risk of long-term unemployment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 4.3. Proposals from the Upper Secondary Reform Commission (Gymnasieutredningen). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 4.4. What elements of the strict Swedish employment protection rules may hamper youth entry?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 4.5. Summary of education and youth employment recommendations . . . . . . . . . . 119 5.1. Evidence on the benefits of privatisation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 5.2. Corporate governance of state-owned enterprises in Sweden . . . . . . . . . . . . . . . 130 5.3. Summary of privatisation recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 Tables 1.1. Short-term economic outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 1.2. Potential output growth and its components. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 1.3. Growth in market economy gross value added and its components. . . . . . . . . . 39 1.A2.1. Philips curve estimation results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 2.1. Fiscal balance and expenditure: have the targets been met? . . . . . . . . . . . . . . . . 54 2.2. General government balance sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 3.1. Composition of tax revenue across OECD countries. . . . . . . . . . . . . . . . . . . . . . . . 73 3.2. The anatomy of a work year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 4 OECD ECONOMIC SURVEYS: SWEDEN – ISBN 978-92-64-05423-3 – © OECD 2008 TABLE OF CONTENTS 4.1. Estimated percentage differences in job-finding rates. . . . . . . . . . . . . . . . . . . . . . 94 5.1. Sweden central government-owned enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . 132 Figures 1.1. GDP per capita evolution and decomposition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 1.2. Market openness and trust–key features of the Swedish model. . . . . . . . . . . . . 20 1.3. Indicators of equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 1.4. Income disparities went down, but labour market exclusion went up . . . . . . . . 22 1.5. Short-term economic indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 1.6. Business and consumer confidence have fallen sharply . . . . . . . . . . . . . . . . . . . . 25 1.7. Inflation and inflation expectations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 1.8. Developments in market interest rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 1.9. Productivity should recover to its trend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 1.10. Sickness absence and disability pensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 1.11. Actual and structural unemployment rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 1.12. Shift-share analysis of labour productivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 2.1. Government spending as a share of GDP has fallen. . . . . . . . . . . . . . . . . . . . . . . . 54 2.2. Government net financial assets is improving in Sweden. . . . . . . . . . . . . . . . . . . 56 2.3. The fiscal position is expected to deteriorate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 2.4. Health and long-term care expenditure is not expected to rise as much as in other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 2.5. Sweden’s public finances appear sustainable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 2.6. User choice and competition in public services could be improved. . . . . . . . . . . 66 2.7. User fees are only moderately used at the local government level. . . . . . . . . . . . . 67 3.1. Trends in tax revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 3.2. Total labour supply is around average. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 3.3. Total marginal tax wedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 3.4. Illustrative simulation: women’s labour supply if marginal tax rates were at Australian levels. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 3.5. Distributional effects of the housing tax cut . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 4.1. Educational attainment compared with other Nordics . . . . . . . . . . . . . . . . . . . . . 92 4.2. Youth unemployment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 4.3. Learning outcomes in compulsory education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 4.4. Aspirations and attitudes towards science at the end of compulsory education. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 4.5. Low between-school variation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 4.6. Learning outcomes for immigrant and native students compared . . . . . . . . . . . 98 4.7. Schools’ technical efficiency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 4.8. Wage premia, living costs and internal rates of return . . . . . . . . . . . . . . . . . . . . . 104 4.9. Students start and complete tertiary education late . . . . . . . . . . . . . . . . . . . . . . . 105 4.10. The years between secondary and tertiary education . . . . . . . . . . . . . . . . . . . . . . 106 4.11. Share of youth in education, employment or inactivity by age. . . . . . . . . . . . . . . 107 4.12. Foreign students enrolled in tertiary education . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 4.13. Regulation of tertiary education providers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 4.14. Wage dispersion by age. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 4.15. Temporary contracts compared internationally . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 4.16. Transitions in the Swedish labour market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 OECD ECONOMIC SURVEYS: SWEDEN – ISBN 978-92-64-05423-3 – © OECD 2008 5 TABLE OF CONTENTS 4.17. Strictness of employment protection legislation. . . . . . . . . . . . . . . . . . . . . . . . . . . 115 5.1. The Swedish State owns enterprises in a wide range of sectors. . . . . . . . . . . . . . 126 5.2. Privatisation proceeds in OECD Europe. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 This book has... StatLinks2 A service that delivers Excel® files from the printed page! Look for the StatLinks at the bottom right-hand corner of the tables or graphs in this book. To download the matching Excel® spreadsheet, just type the link into your Internet browser, starting with the http://dx.doi.org prefix. If you’re reading the PDF e-book edition, and your PC is connected to the Internet, simply click on the link. You’ll find StatLinks appearing in more OECD books. This Survey is published on the responsibility of the Economic and Development Review Committee (EDRC) of the OECD, which is charged with the examination of the economic situation of member countries. The economic situation and policies of Sweden were reviewed by the Committee on 9October2008. The draft report was then revised in the light of the discussions and given approval as the agreed report of the whole Committee onThursday23October2008. It was further updated to reflect the projections of the Economic Outlook published on 25November2008and financial market developments through 12November2008. The Secretariat’s draft report was prepared for the Committee by Jens Lundsgaard and DavidTurvey under the supervision of VincentKoen. Research assistance was provided by RoselyneJamin. The previous Survey of Sweden was issued in February2007. Information about the latest as well as previous Surveys and more information about how Surveys are prepared is available at www.oecd.org/eco/surveys. 6 OECD ECONOMIC SURVEYS: SWEDEN – ISBN 978-92-64-05423-3 – © OECD 2008 BASIC STATISTICS OF SWEDEN THE LAND Land area, 1000sq. km 410 Inhabitants in major cities Lakes, 1000sq. km 39 31December2007, thousands Arable area, 1000sq. km 27 Stockholm 795 Woodland, 1000sq. km 227 Göteborg 494 Malmö 281 THE PEOPLE Population 31December2007, thousands 9183 Civilian labour force2007, thousands 4838 Number of inhabitants per sq. km 22 Civilian employment2007, thousands 4541 Net natural increase2001-07, thousands 7.6 As a percentage of total Net natural increase per 1000inhabitants, 2001-07 0.8 Agriculture, forestry, fishing 11.7 Net inward-migration2001-07, thousands 35.1 Industry (including construction) 30.7 Services 57.6 THE PRODUCTION Gross domestic product2007, Kr billion 3071 Gross domestic product at factor cost Gross domestic product per capita2007, USD 49670 by origin2007,per cent of total Gross fixed capital formation, 2007 Agriculture 2.7 Per cent of GDP 18.9 Industry (including construction) 24.5 Per capita, USD 9408 Services 72.8 THE GOVERNMENT Public consumption, 2007,per cent of GDP 25.9 Composition of Parliament Public investment, 2007 Social democrats 130 Per cent of GDP 3.0 Moderates 97 Per cent of total investment 15.6 Liberals 28 Total general government current spending2007 Christian democrats 24 Per cent of GDP 51.4 Left 22 Total general government current revenue2007 Centre 29 Per cent of GDP 54.9 Greens 19 Total 349 Last general election : September2006 Next general election : September2010 THE FOREIGN TRADE Exports of goods and services Imports of goods and services 2007,per cent of GDP 49.5 2007,per cent of GDP 40.3 Main merchandise exports,per cent of total Main merchandise imports,per cent of total January-July2008 January-July2008 Wood and paper products 10.8 Wood and paper products 2.9 Mineral products 11.4 Mineral products 10.0 Chemical products 11.4 Chemical products 12.5 Energy products 8.2 Energy products 15.0 Engineering products 47.5 Engineering products 41.7 Other products 10.7 Other products 17.9 THE CURRENCY Monetary unit : Krona October2008, monthly average of spot rate SEK per USD 7.43 SEK per euro 9.87 EXECUTIVE SUMMARY Executive summary T hanks to strong economic institutions and fundamentals, Sweden is well prepared to cope with fall-out from the global financial crisis. The cycle has turned and, clearly, the key near-term challenge is to steer through the slowdown without jeopardising longer-run macroeconomic stability. With sound structural reforms, material living standards have risen strongly in Sweden over the past 10to 15years. Market opening has boosted productivity growth, and recent reforms have curbed labour market exclusion and benefit dependency. The relative decline of previous decades is gradually being reversed. This Survey focuses on how to further promote economic growth while preserving social cohesion and examines the following policy challenges: Keeping fiscal policy on a sustainable track and continuing tax reforms to promote growth. The ample fiscal surplus and relatively low public debt allow for some policy easing, but the fiscal framework should be strengthened by linking targets more clearly to long-term considerations. Sweden used to have the highest tax-to-GDP ratio in the OECD but has started to move down the list. The challenge now is to continue with tax cuts, focusing on the worst impediments to growth resulting from corporate and personal income taxation –with due regard to equity concerns. Improving education and employment outcomes for youth. Despite a high overall employment-to-population ratio, youth unemployment is widespread. One reason is that with a high wage floor and stringent employment protection rules, strong skills are required to get a regular job. The quality of compulsory school can be improved, especially regarding mathematics and science. Upper secondary education could make youth more “job ready”, notably via more work-place contact. Students should complete higher education and enter the labour market earlier. Universities could benefit from more freedom to develop, possibly based on tuition charging. But in the end, disproportionate youth unemployment can probably only be overcome if also addressing the core labour market rigidities. Taking privatisation further. Starting with a large portfolio of government-owned enterprises, it was easy to identify a list of first candidates for sale. Going forward, privatisation will have to be taken further in those numerous areas where societal objectives are better served by open but regulated markets rather than by public ownership. 8 OECD ECONOMIC SURVEYS: SWEDEN – ISBN 978-92-64-05423-3 – © OECD 2008