In reconciling the policy objectives of price stability, on the one hand, and full employment and economic growth, on the other, Sweden has employed a governmental incomes policy only in the period immediately after World War II. At that time the authorities attempted to achieve price stability through direct control of prices, maintenance of low and stable interest rates, and exhortation to the trade unions to exercise restraint in their wage demands. Since this strategy was not complemented by a demand management policy that was adequately restrictive, it failed to ensure domestic and external stability. Consequently, there was a deliberate shift in the policy mix from direct controls to the active use of monetary and fiscal policies during the 1950s. Increased reliance was placed on labor market policies1 in the late 1950s and beyond, but these have been combined recently with measures to stimulate industrial development in depressed areas. In the housing, agriculture, and public service sectors, the system of price control has been retained.
APPENDIX Swedish Labor Market Organizations
In addition to its size and the close association of its leadership with the ruling Social Democratic Party, the influence of the Swedish Federation of Trade Unions (LO) is reflected in its comfortable financial position. In 1963, LO and its affiliates had accumulated funds totaling Skr 702 million, of which Skr 202 million were held in liquid form. Certain large unions, affiliated with LO, also have considerable funds of their own—for example, the metal workers’ union (Skr 7.9 million in 1964) and the building trade union (Skr 2.2 million in 1964).39 LO works through a tripartite structure consisting of: (1) a 13-man executive committee (the Secretariat); (2) a Representative Assembly, which comprises the Secretariat and representatives of over 40 affiliated national unions; and (3) a Congress comprising 300 delegates (including the Secretariat and Assembly). The supreme decision-making body is the Congress, convening once every five years. The Representative Assembly is the supreme authority between each Congress and convenes twice a year, partly in order to consider collective bargaining problems. The Secretariat has executive power in all important matters, namely, intra-union disputes, labor conflicts, and wage policies and negotiations.40
On the other hand, the Swedish Employers’ Confederation (SAF), founded in 1902, represents a large section of the manufacturing, transportation, and building industries and, with respect to wage bargaining, acts as the leader for the independent employers’ associations in the private sector 41 and the employers in the public sector.42 Membership of SAF includes members of employers’ associations in different industries. Individual employers or companies are affiliated with SAF through their employers’ associations, in which they are “partners.” All activities of SAF are carried out through the members rather than through the partners. Members are entitled to a voice and vote in SAF, while partners can vote only through the members. The partners can receive compensation from SAF in the case of approved industrial conflicts.
The structure of SAF is tripartite, comprising: (1) an Annual General Meeting as the highest authority, consisting of representatives of the members who have voting power; (2) a General Council, which is also composed of member representatives and whose main task is to fix annual dues and to serve as a body of reference for major lockout decisions; and (3) a Board which has executive powers in all important matters—namely, lockout decisions and wage negotiations. A partner and member can thus call a lockout only after approval by the Board. The powers of SAF over its members are also reflected in its right to impose fines against members or partners not observing its rules, and in its administration of a substantial mutual assistance fund.43
Cooperation between SAF and other employers’ associations is achieved through a joint consultative committee with employers in the commerce, shipping, and agricultural sectors. In practice, this committee does little more than maintain representation on certain public bodies, such as the Labor Court, or exchange information on common problems.
Mr. Brehmer, Chief of the Northern European Division of the European Department, is a graduate of Kiel University, Germany, and has served as a staff member of the Deutsche Bundesbank. He is the author of Struktur und Funktionsweise des Geldmarktes der Bundesrepublik Deutschland Seit 1948 (Tübingen, 1956 and 1964) and of a number of journal articles.
Mr. Bradford, a graduate of the University of Canterbury, Christchurch, New Zealand, was an economist in the Northern European Division on temporary assignment from the New Zealand Treasury when this article was written. He has now returned to the New Zealand Treasury.
Labor market policies mainly comprise programs to promote the geographical mobility and retraining of labor and to generate employment.
See especially, Rudolf Meidner, “The Dilemma of Wages Policy Under Full Employment,” and Gösta Rehn, “The Problem of Stability: An Analysis and Some Policy Proposals,” in Wages Policy Under Full Employment by Erik Lundberg and others, edited and translated by Ralph Turvey (London, 1952).
See, for example, Bent Hansen, The Economic Theory of Fiscal Policy (London, 1958), pp. 353 ff.
See Assar Lindbeck, “Theories and Problems in Swedish Economic Policy in the Post-War Period,” American Economic Review, Vol. 58 (June 1968), pp. 12–14.
See, for example, Gösta Rehn and Erik Lundberg, “Employment and Welfare: Some Swedish Issues,” in Industrial Relations, Vol. 2 (February 1963), pp. 2–3.
See, for example, Meidner and Rehn, op. cit. In his criticism of direct controls, Lundberg focused particularly on the distortion of investment between sectors subject to control and uncontrolled sectors. See Erik Lundberg, Business Cycles and Economic Policy (London, 1957), Chapters 11 and 12.
See, for example, Meidner and Rehn, op. cit.
Lindbeck, “Theories and Problems in Swedish Economic Policy” (cited in footnote 4), pp. 22 ff., and Lundberg, Business Cycles and Economic Policy (cited in footnote 6), pp. 258–61.
See Hansen, op. cit., pp. 353 ff., and Lindbeck, ibid., pp. 24–26.
Rent control is designed to prevent high profits on housing in the interest of consumers. Rent controls have been retained for social welfare reasons. However, the substantial decline in the relative price for housing (compared to prices of other consumer goods) since the 1930s contributed to considerable excess demand for housing until recently, despite a high rate of residential building. The waiting period for apartments remained very long throughout the postwar period, particularly in the high growth areas of southern Sweden. This has formed a considerable obstacle to the policy of promoting geographical mobility of labor. The excess demand conditions in the building market have also sometimes caused a faster rise in the wage rates of building workers than for other groups, particularly in the 1960s.
With continued price control of agricultural products in the 1950s and 1960s, the Swedish authorities retained an instrument to guarantee reasonable incomes to farmers. As an outgrowth of this policy, agricultural support prices have exceeded world market prices by a considerable margin (on average by 70 per cent at the end of the 1960s). Such a policy has not been without consequences for union wage policy. Although the unions have publicly agreed with the agricultural support policies of the Government, they have frequently demanded wage compensation for price increases caused by higher agricultural support prices (see Lindbeck, “Theories and Problems in Swedish Economic Policy” (cited in footnote 4), p. 73). As the income of farmers has nevertheless remained relatively low, agricultural price support has not hampered the outflow of labor from agriculture to other occupations.
See Assar Lindbeck, Svensk economisk politik (Stockholm, 1968), p. 209 (table).
The margin of public tolerance of unemployment appears to be very narrow in Sweden. For example, the 4 per cent rate of unemployment in the winter of 1958/59 was viewed by the unions as a serious failure of stabilization policy. See Rehn and Lundberg, op. cit., p. 2.
See Erik Lundberg, “Incomes Policy in Sweden: Some Issues,” in On Incomes Policy, Papers and Proceedings from a Conference in Honour of Erik Lundberg (Stockholm, 1969), p. 19.
See Rudolf Meidner, “The Goals of Labor Market Policy,” in ibid., p. 190.
See Rehn and Lundberg, op. cit., p. 6.
See Organization for Economic Cooperation and Development, Labor Market Policy in Sweden, Reviews of Manpower and Social Policies (Paris, 1963), pp. 25 and 52.
For details, see ibid., pp. 64–65.
Sweden operates an investment reserve fund scheme which allows firms to set aside sums for future investment at times designated by the Swedish authorities. In setting aside funds, the firm obtains a tax benefit of advance depreciation and, at the time of use, an additional tax allowance. The release of these funds is coordinated with the labor market authorities.
See Organization for Economic Cooperation and Development, Economic Survey of Sweden (Paris, April 1972), p. 27.
See Rehn and Lundberg, op. cit., p. 7.
See Lindbeck, “Theories and Problems in Swedish Economic Policy” (cited in footnote 4), pp. 31 and 65.
Jean Mouly, “Wages Policy in Sweden,” International Labour Review, Vol. 95 (March 1967), pp. 174 and 182. The Basic Agreement was concluded in an atmosphere in which the Government had threatened to legislate in the field of labor relations at a time when labor relations were particularly difficult.
For more technical details, see T. L. Johnston, Collective Bargaining in Sweden (Harvard University Press, 1962), pp. 263–75, and Mouly, op. cit., pp. 168–74.
The 1966 agreement was valid for three years, but the provisions relating to wages concerned only the first two years. Most industrial wage agreements expire on January 30 or March 30 each year and are automatically renewed for another year, unless notification is given three months before expiration date.
Provisions for wage increases under the frame agreement are related to actual earnings. For remuneration by piece rates (the most prevalent in Sweden), the agreements foresee an average percentage increase in earnings subject to a minimum increase expressed in ore per hour, while for workers paid on a time basis the average increase is expressed in terms of ore per hour. The reference to average increases in the frame agreement implies that some wages may be raised by a greater and some by a smaller amount.
There are eight mediators officially appointed for one year, representing each of eight labor districts.
See Johnston, op. cit., p. 272.
Finance Ministry, Svensk ekonomi 1971–1975 med utblick mot 1990:1970 års långtidsutredning (1970), pp. 155–56.
Empirical evidence shows that the rate of increase in wages in Sweden is sensitive to the degree of demand pressure in the labor market, particularly at low unemployment rates. See L. Jacobson and Assar Lindbeck, “Labor Market Conditions, Wages, and Inflation—Swedish Experiences, 1955–67,” Swedish Journal of Economics, Vol. 71 (June 1969), pp. 64–103.
See Lindbeck,”Theories and Problems in Swedish Economic Policy” (cited in footnote 4), p. 76. Lindbeck believes that in this case the adoption of an incomes policy in the form of guidelines is complicated, as the productivity increase cannot be taken for granted.
See Gösta Edgren, Karl-Olof Faxén, and Clas-Erik Odhner, “Wages, Growth and the Distribution of Income,” Swedish Journal of Economics, Vol. 71 (September 1969), p. 149.
Edgren and others, op. cit.
Ibid., p. 157.
Ibid., pp. 158–59.
See “The 1967 Proposal for Wage Stabilization,” in On Incomes Policy (cited in footnote 13), pp. 225–31.
Clas-Erik Odhner, “The Government Agency for the Determination of Wages,” in ibid., pp. 235–42.
See Mouly, op. cit., p. 172.
For a thorough description of the structure and legal status of the labor market organizations, see Johnston, op. cit., pp. 23 ff.
This group is estimated to employ about 400,000 persons. It includes the Commercial Employers’ Association (about 113,000 employees in 1967), the Swedish Shipowners’ Federation, and the Newspaper Employers’ Association. See Mouly, op. cit., p. 173.
The counterpart of central government employees in collective bargaining is the Government Collective Bargaining Board. For local government employees, the central bargaining partners are three federations—the Federation of Municipalities (covering about half of local government employees), the Federation of Rural Councils, and the Federation of County Councils, which provide a common bargaining front for local governments.
The insurance fund of SAF amounted to SKr 277 million in 1964. In addition, each partner is obliged to give a formal guarantee, which can be used to cover the cost of any dispute if the fund is not adequate. Such guarantees totaled SKr 340 million in 1964. See Mouly, op. cit., p. 172.