Assessment and Recommendations
Sweden’s economic performance over the past decade or so has been impressive in many respects. The business sector has shown its resilience by brushing off some fairly large shocks, including a global slowdown and the bursting of the telecoms bubble. The current account has swung from a deficit to a large and growing surplus. The fiscal accounts have moved into surplus, and the government has moved into a net asset position. Inflation has been maintained at a low level. And one of the more encouraging signs for the country’s medium-term outlook is the remarkable surge in productivity. This productivity pick-up appears to be sustainable and can in part be attributed to the various structural and macroeconomic policy reforms put in place since the economic crisis of the early 1990s. The labour market performance has been less exemplary, however, even though it is better than in many other European economies. While labour force participation and employment rates are high, especially among women and the elderly, the overall employment rate has not yet recovered to its pre-crisis level and hours of work are low by OECD standards...
This chapter discusses the key challenges facing the Swedish economy. It reviews its performance since the crisis of the early 1990s, including the remarkable surge in productivity in the business sector. Next, it looks at the labour market and the reasons why employment has not recovered to its pre-crisis level. Sweden’s key challenge is then discussed: how to maintain the core of its welfare system despite a greying population. Public finances will be squeezed from several quarters: a higher demand for social services as people get older; a reduction in the share of the population that is working; and ongoing tax pressures caused by globalisation and economic integration in Europe. The first solution is to increase labour supply by reducing sickness absences, raising average hours of work and increasing the employment rates of those groups where participation is still relatively low; the second solution is to improve value for money in public services. The chapter concludes by discussing the tradeoff between equality and other social objectives.
Strengthening Public Finances
This chapter discusses the outlook for public finances given the pressures that will arise from the ageing of the population and the forces of globalisation. It looks at how public finances measure up against the government’s 2% surplus target and discusses what is needed to ensure that the current welfare system will be financially sustainable in the future. The key conclusion is that reaching the 2% target over the next few years will go a long way towards making the welfare system sustainable. But getting there requires some fiscal consolidation, and for the welfare system to be fully sustainable, additional measures are required. It would be best to bring about the necessary improvement of public finances through spending restraint and measures that boost employment and/or deliver better value for money from public services. The chapter also discusses what may look like an easy option – raising tax rates – but which may be costly and perhaps even counter-productive in the long term, because of the adverse impact on labour supply.
Best Practice for Reducing Sickness and Disability Absences
Sweden’s single biggest economic problem is the high number of people absent from work due to sickness or disability. This chapter describes the problem and looks at what other countries have done to reduce absenteeism. It emphasises a mutual obligations approach to sickness insurance. This means placing greater responsibilities on the sick person, the employer and the social insurance office to get that person back to work as soon as possible.
Raising Hours Worked
This chapter discusses other ways to increase labour supply, aside from reducing sickness absences (which is discussed in Chapter 3). High labour taxes and the benefit system are contributing to reduce hours worked, and it is recommended that marginal tax rates be lowered by moving to other tax bases. Generous leave schemes also reduce working hours. Although labour force participation is high in general, there are still pockets where it can be raised, notably by getting young people through the educational system faster, improving the integration of immigrants and reducing incentives to early retirement. Labour supply would also benefit from stricter application of unemployment rules and from the elimination of ineffective active labour market programmes.
Improving Quality and Value for Money in Healthcare
This chapter reviews the strengths and weaknesses of the Swedish healthcare system and the challenges that it will face in the future. It discusses ways to improve access to primary care, including different methods for paying GPs, whether access is less equitable than in other countries and the role of patient fees. The maximum waiting time guarantee for elective surgery is reviewed, along with ways of reducing regional variations in quality. The extent of decentralisation is questioned, as that may be affecting the quality of care and value for money in some areas, including elderly and psychiatric care. Mechanisms for improving the hospital sector are also examined including feefor-service (DRG) payment mechanisms and whether for-profit hospitals would help. Finally, it considers ways to make financing more stable and sustainable.
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