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Centralized Wage Bargaining and Structural Change In Sweden

By

Michelle Alexopoulos

University of Toronto

and

Jon Cohen** University of Toronto

** Corresponding Author, Department of Economics, 150 St. George St.,

Toronto Ontario CANADA M5S 3G7

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Abstract: There is a general consensus among scholars that centralized wage bargaining played a key role

in the ability of Sweden to maintain wage moderation in the early post-WW II period.

Conventional wisdom suggests that it worked through one of two mechanisms; internalization of

the negative externalities associated with excessive wage settlements or implicit contracts that

favoured cooperation between capital and labour over conflict. We contend, instead, that

centralized wage bargaining was introduced because Swedish firms and unions adopted the

Rehn-Meidner plan. In this environment, centralized wage bargaining was used to facilitate

wage compression from below and promote labour release. Wage moderation then was a result

of shifts in the labour supply. In the final section of the paper we argue that excessive wage

compression in the 1970s sapped the morale and effort of skilled workers, pushed down

productivity and profits and eventually led to the demise of centralized wage determination.

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1. Introduction

It is often argued that wage moderation contributed to the ability of many European

countries in the 1950s and the 1960s to achieve rapid economic growth with low inflation and

low rates of unemployment. Wage moderation is usually attributed to one of two factors: excess

supplies of labour linked to sectoral and geographical shifts of the labour force or institutional

innovations in wage determination such as centralized wage bargaining. Italy and Germany are

taken as examples of the first, while Sweden is held up as a classic case of the second. 1 In this

paper we focus on the Swedish case and attempt to show, with the help of new data, that

institutional innovations in Sweden facilitated wage moderation through their impact on the

supply of labour. We propose answers to three questions. First, why was centralized wage

bargaining adopted in Sweden, second, how did it contribute to wage moderation, and, third,

what led to its de facto end in 1983? Before we summarize our answers, it is necessary to

provide a thumbnail history of wage determination in Sweden between 1956 and 1983 and a

sketch of the conventional wisdom.

The first tentative steps towards centralized wage negotiations date from the Saltsjobaden

Agreement of 1938 when, as Olsson and Burns (1987, p. 186) point out, the normative principles

of cooperation and coordination replaced confrontation as the basis of bargaining between capital

and labour.2 It was, moreover, the first peak level agreement in that SAF, the Swedish

association of employers, and the LO, the umbrella association of blue-collar workers, acted on

behalf of their member organizations. The first attempt to hammer out a centralized wage

bargain took place in 1952 (not all LO member unions were willing to participate) followed in

1956 by a comprehensive wage agreement signed by SAF and the LO for all their member

organizations. Within a couple of years, SAF had made similar agreements with white-collar

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groups including SAFO and the TCO; by the end of the 1950s, almost all private sector workers

were covered by centralized wage bargaining. In 1966, public sector employees obtain the right

to strike and to negotiate wage contracts with the government.

Bargaining took place on three levels. A central framework agreement was first

negotiated by peak level associations, initially just the LO and SAF, later SAF with private white

collar unions, later still the government with public sector employees. These agreements were

then ratified or renegotiated at the industry level and subsequently passed down to the plant level

where they were modified and implemented.3 It is important to note that although the peak level

agreements set wage increases for the length of the contract period, wages negotiated at the peak

were often pushed up at the plant level. There was, in other words, considerable scope for wage

drift.

There are two main explanations of the links between centralized wage negotiations,

wage moderation and economic. The simpler and more straightforward argument runs as

follows. If labour as a whole negotiates wage increases with capital, labour will have an

incentive to moderate its demands because it will be prompted to internalize the effects of the

wage bargain on output, profits, and therefore on employment.4 The case is most compelling if

the costs of unemployment are shouldered fully by labour but can hold even if this is not the

case. It is argued that wage moderation, prompted by the internalization of externalities, helped

promote growth in the export-oriented firms by keeping the price of their goods competitive on

international markets.

It is assumed in the second argument, developed by Eichengreen (1996) and Eichengreen

and Iversen (1999) that centralized wage bargaining allowed labour and firms to enter into an

implicit contract in which labour agreed to moderate its wage demands if firms agreed to invest

their enhanced profits to promote growth.5 Labour benefited through low rates of unemployment

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and the promise of higher income in the future. Firms enjoyed labour peace and little cost-push

inflation in spite of low rates of unemployment. Moreover, with the high rates of new capital

formation, labour productivity grew and unit production costs fell. In short, cooperation paid.

But, as with all such arrangements, enforcement was a problem. Firms had an incentive to shirk

on their investment and wage promises once labour committed to wage moderation while labour

was similarly inclined to push for higher wages once management fulfilled its investment

obligations.6 Centralized bargaining, they argued, played a crucial enforcement role since it

reduced the opportunity for malfeasance among individual groups of workers and/or firms.7

Eichengreen and Iversen (1999) add that the wage compression associated with centralized wage

bargaining may have also provided workers with an assurance that the future gains created by

current sacrifices would be distributed fairly.

In this paper we provide an alternative explanation of the link between centralized wage

determination and wage moderation. We argue that centralized bargaining Swedish style was

adopted in part because it helped to resolve a serious labour supply problems faced by the rapidly

growing, export-oriented firms such as Volvo, ASEA, and Saab. In other words, Sweden’s

institutional innovation, much like guest workers in Germany or south-north emigration in Italy,

served to relieve a labour supply constraint. It was, therefore, neither internalization of

externalities nor implicit contracts that produced wage moderation but simply a reallocation of

labour from the slow growing, low productivity sectors to the fast growing, high productivity

ones.

Our reallocation hypothesis is based on a model of the post-war Swedish economy

developed by two labour union economists, Gosta Rehn and Rudolph Meidner.8 The purpose of

the model was to facilitate non-inflationary, full employment economic growth and, at the same

time, to ensure that labour participated fully in the benefits of prosperity.9 A key feature of the

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Rehn-Meidner scheme was wage compression from below, that is, wage increases for lower paid

workers in excess of increases for those higher up on the pay scale. This conformed to labour’s

general goal of wage solidarity but it also played an instrumental role in the model. Rehn and

Meidner argued that wage compression would force low productivity firms to boost productivity

or go out of business freeing up labour for work in the fast growing sectors. The labour transfer

was to be facilitated by a very active labour market policy on the part of the government.

Centralized wage bargaining which, in itself had little appeal to Rehn and Meidner, was viewed

as a necessary means to achieve wage compression and thus to increase the supply of labour to

the more dynamic sectors.10 It was in this sense that peak level wage determination was

conceived to provide the mechanism by which labour was to be transferred from low to high

productivity sectors.11 Moreover, wage moderation was viewed as sector specific; those at the

high end would enjoy moderation, those at the bottom of the productivity scale would not. It is

worth noting that this last feature is quite different from the nature of wage moderation implied

by the other explanations and, in effect, provides us with yet another testable implication.

It is useful at this point to stress in response to our first question that centralized wage

bargaining found favour at least initially with both labour and management because it facilitated

realization of the objectives of the Rehn-Meidner plan; wage solidarity for workers, wage

moderation for the high-growth, export-oriented firms. Centralized wage determination, in other

words, was a means to an end, not an end in itself. Moreover, in response to question two, wage

moderation was achieved not through the bargaining scheme as suggested by the implicit

contract and internalization arguments but through wage compression from below and labour

release.12

There are a priori reasons to believe that it was Rehn-Meidner not centralization

bargaining per se that mattered. First, skilled blue collar and while collar workers displayed a

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distinct lack of enthusiasm for centralized wage determination right from the beginning,

primarily because they recognized, correctly, that it was a method to introduce wage

compression from below. Neither the implicit contract nor the internalization argument would

lead us to expect this kind of opposition from skilled workers, largely because, in both cases, the

benefits and costs would have been shared equally among participants. Second, and related,

Volvo, ASEA, and other large, export-oriented firms were unprepared to tolerate opposition to

centralized bargaining once the Rehn-Meidner plan was tabled, in spite of the opposition

expressed by skilled workers. Once again, it is difficult to square the intransigence of

management and the mixed response of labour with the conventional wisdom.

Once we demonstrate that wage compression from below did help relieve a labour supply

constraint at the top, we are still left with a puzzle. If the system worked so well in the 1950s

and 1960s, why was it so unsuccessful in the 1970s and de facto scrapped in the early 1980s?

According to those who favour the internalization argument, centralized wage bargaining lost its

ability to deliver wage moderation as the number of bargaining units within the labour movement

proliferated.13 Eichengreen and Iverson (1999) argue, instead, that it was changes in the nature

of the demand for labour at the end of the 1960s that put wage moderation in jeopardy and sealed

the fate of centralized wage bargaining. Edin and Topel (1997) maintain that, in the long run, the

wage compression associated with centralized bargaining discouraged investment in human

capital and thus created a serious shortage of skilled workers. This impaired the ability of

Sweden’s export oriented firms to compete internationally and eventually caused them to break

with the system. Hibbs and Locking (2000) also focus on wage compression but emphasize

instead its negative impact on productivity, especially after 1969 with the intensification of intra-

industry and intra-firm wage compression.

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Although many factors contributed to the collapse of centralized wage bargaining, we

will expand on the insight provided by Hibbs and Locking (2000). There is evidence to suggest

that workers in Sweden, as elsewhere, were concerned not only with their absolute pay but also

with their remuneration relative to those above and below them on the pay scale.14 Wage

compression narrowed the differential and, as a consequence, sapped the morale and effort of

highly skilled workers, fostered wage inflation, cut into profits, and discouraged investment. In

1983, Volvo and its principal union, Metall, both desperate to escape the inflexibility of

centralized bargaining, agreed to negotiate outside of the central frame agreement and, in effect,

brought an end to the system.

We proceed as follows. First, we show that centralized wage bargaining was introduced

because high wage, high productivity firms, the most influential group within the SAF, found the

Rehn-Meidner plan attractive. They confronted a serious labour shortage and believed that

implementation of the plan would help to relieve it. Second, we demonstrate that centralized

wage bargaining fostered wage moderation through wage compression, structural change, and a

consequent increase in the supply of labour to the high growth sectors. As a result, firms in these

sectors enjoyed wage moderation even as they expanded their work force. In the final section, we

show that stepped-up wage compression in Sweden after 1969 severely reduced the differential

between those at the top and those at the bottom of the pay scale and thus adversely affected the

morale and effort of the former group.15 The result was a jump in the rate of wage and price

inflation and a drop in productivity and profits, especially among the export-oriented firms. It

was in this context that Volvo and Metall agreed to abandon centralized wage negotiations.

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2. The Supply and Demand for Labour

2.1. Rehn-Meidner and the SAF:

The Rehn-Meidner plan found favour, at least initially, with members of the LO because

it fostered wage solidarity, that is, equal pay for equal work. Its successful implementation,

however, depended crucially on endorsement by the SAF since its opposition would surely have

condemned the scheme to the dustbin of history. This, of course, did not happen. Instead, SAF

members, especially the large export-oriented, capital goods firms such as Volvo, were vigorous

supporters of the plan and of centralized wage bargaining right from the beginning. In fact,

following its unsuccessful attempt to introduce full-scale centralized bargaining in 1952, the SAF

declared that its members would no longer bargain individually with unions – in effect, it

unilaterally determined that all wage negotiations had to be centralized. The obvious question is

why the enthusiasm for a plan and bargaining scheme developed by labour union economists?

The answer, we believe, resides in the conditions of the Swedish labour market in the

early post-war period. Swedish manufacturers, especially capital goods producers, confronted,

on the one hand, a rapidly growing demand for their products both at home and abroad but, on

the other, a very tight labour market. The opportunities, in short, were substantial but so were

the risks that wage increases would erode profitability and competitiveness. Centralized wage

bargaining in a Rehn-Meidner context offered output growth with wage restraint. To provide

support for this argument, we first review the growth of demand for Swedish manufactured

goods in the early post-war years then attempt to document the labour supply shortage.

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2.2. Labour Demand:

Henrekson, et al (1996) indicate that Sweden’s performance from 1950-1970 compared

favourably with that of other OECD countries. Although Sweden’s high per capita income,

intact capital stock, and advanced technology denied it the benefits usually associated with

catching up, it did mean that Sweden was well-equipped to meet the reconstruction demands of

its European neighbors. In Table 1, we include data on employment by one-digit industries for

the years 1945-1975 drawn from the Swedish statistical yearbooks. The key feature to note in

the table is the change in the composition of employment. In keeping with its European

neighbors, agriculture and related activities in Sweden lost workers while manufacturing,

commerce, and services added them. In percentage terms, agricultural employment fell from 24

to 12 percent between 1945 and 1965 while manufacturing and services climbed respectively

from 38 to 42 and 15 to 23 percent. The sectoral composition of output as revealed in Figure 1

tells a similar if less dramatic story of structural change; manufacturing output and business

services (finance, wholesale and retail trades) soared between 1950 and 1963 while agricultural

output experienced a modest decline. Our point is simple. Output and employment in most non-

farming related sectors of the economy expanded rapidly during the early post-war years.

If we focus strictly on two-digit manufacturing industries, we find, as indicated by the

numbers in Table 2, that employment growth in absolute and percentage terms was particularly

rapid among the high-wage, export-oriented sectors (metalworking and engineering, chemicals,

and pulp and paper) and slow or negative among low-wage sectors such as textiles, fur and

leather, beverage and tobacco, and wood and cork. Even at the two-digit level, however,

aggregation creates a measurement problem since differences across firms within the same sector

may have been substantial and may, therefore, dampen inter-industry differences. In an attempt

to compensate for the lack of firm level statistics, we have compiled output and input series for

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Volvo from the company’s annual reports. We selected Volvo for two reasons: first, it is an ideal

representative of the export oriented, high growth, high productivity firm and, second, it was

known to be a strong supporter of centralization wage bargaining in the beginning and an equally

vigorous critic of the institution by the end. As the data in Table 2 indicate, employment at AB

Volvo grew even more quickly than the average for all high-wage, high-productivity industries.

The conclusion, consistent with the conventional wisdom on post-war Swedish growth is that

high-wage firms, especially those geared to international markets such as Volvo, ASEA, Aga,

Saab, and Electrolux, were expanding rapidly in the early post-war years and were, thus, very

much in need of workers. 16

Sweden, unusual for a country of its size, had a large number of substantial,

internationally competitive capital goods firms.17 Moreover, because it had suffered relatively

little damage during the war, it was well-positioned to meet the reconstruction needs of its

neighbors both east and west.18 It is, therefore, not surprising to find, as the data graphed in

Figure 2 demonstrate, that capital goods exports jumped sharply in the decade or so after 1945.

The challenge for these exporters, especially as competition from old rivals such as Germany

intensified, was to hold in check labour costs as output expanded.

In short, then, the evidence suggests that demand for Swedish goods was growing rapidly

in the early post-war years and with it the demand for labour. The problem, acknowledged by all

observers, was to find a way to ensure that the growth in output and employment was not choked

off by wage inflation. 19

2.3. Labour Supply:

Cost control problems were not unique to Sweden but, as Eichengreen and Iverson

(1999) point out, Sweden had less access than others to excess supplies of labour – guest workers

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from southern and eastern Europe, repatriated nationals, pockets of underemployed workers, and

ex-colonies. The data would seem to confirm their observation. As indicated in Table 3,

emigration net of immigration was very modest in Sweden throughout the 1950s and 1960s. To

put the numbers in perspective, total net emigration into Sweden between 1950 and 1960 was

approximately 119,000 compared with West German emigration of 12 million or northern Italy

that received 6 million emigrants from the south between the early 1950s and the mid 1960s.20

Another way to look at the problem is illustrated by the numbers in Table 1. Between 1950 and

1960, total employment in the economy increased by roughly 144,000. Even if we were to

assume that 50 percent of all emigrants were potential participants in the labour force, net

emigration fell short of employment growth. It is also worth noting, as the data in Table 3 show,

that the majority of emigrants went to the three main industrial areas of Stockholm, Gotenborg,

and Malmos, an indication that the emigration was, on the whole, driven by economic

considerations.

Figures 3 through 5 provide a smorgasbord of additional evidence to support the

argument that the labour market in Sweden beginning in the late 1940s and extending right

through the 1960s was tight. Consider first the data on unemployment in Figure 3. Aggregate

unemployment dropped sharply in the 1950s and hovered around 1.5 percent for much of the

1960s. The bar chart included in the figure shows, furthermore, that unemployment among

members of the Metall union was even less than among the general union population. It should

be noted as well that since roughly 80 percent of Swedish workers were union members, these

numbers provide an accurate estimate of actual rates of unemployment. The data in Figure 4

indicate similarly low rates of unemployment existed in the three major industrial counties of

Stockholm, Malmos, and Gotenborg.21 As shown in Figure 5, the ratio of vacancies to job

applicants jumped at the war’s end and remained relatively high until the introduction of

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centralized wage bargaining in 1956. Even after that date, however, vacancies consistently

exceeded job offers by a ratio of approximately 1.5 to 1.

There are, finally, the data on wages that would also seem to confirm the existence of a

very tight labour market in the early post-war years. In 1946, LO member unions negotiated

wage increases of 15 percent and, in 1947, another 10 percent jump in nominal wages.22 Part of

this surge is attributable to catch-up since wage increases were limited during the war but it also

reflected a seller’s market for labour services. In 1950, following two years during which the

LO, under pressure from the Social Democratic government, persuaded its member organizations

to accept the equivalent of a wage freeze, wages soared by 23 percent. The decentralized system

of wage determination clearly failed to provide wage stability. Workers were reluctant to forego

the opportunity to push up their take-home pay while employers needed workers and were

prepared to use wage incentives to attract them.23 The problem for management, of course, was

that competition among firms for workers would sooner or later cut into profits and push up

production costs. It was in this context that the Rehn-Meidner plan was conceived and quickly

embraced by the SAF.

3. Wage Compression, Wage Moderation, and Labour Release

It remains to be demonstrated that the behaviour of the economy was generally consistent

with the outcomes predicted by Rehn and Meidner after the introduction of centralized wage

bargaining. We maintain that, at least for the period 1956-68, it was. We show that wage

compression from below pushed up labour costs for low-wage, low-productivity firms and led to

a reduction in the number of firms and employment in these sectors. This, in turn, freed up

labour for work elsewhere in the economy and thus reduced the labour supply constraint faced

by the rapidly growing, export-oriented firms. It was, in effect, wage moderation at the top and

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wage immoderation at the bottom. In the remainder of this section we attempt to make this case

through a review of the data on wages, productivity, output, and employment by sectors and,

where appropriate, by regions. It is important to note that wage compression had one other

important consequence – a significant reduction in inter-industry wage differentials. We return

to this in the next section.

3.1. Wage Moderation and Wage Compression:

We begin with wage moderation. Although there is much talk in the literature about this

phenomenon, there is, in fact, little attempt to define and measure it. Since wage moderation in

post-war Europe is said to have freed up funds for investment in a capital constrained

environment24, it is most appropriately defined as increases in the real wage that lagged behind

increases in total factor productivity (TFP).25 By this measure, between 1950 and 1970 there was

wage moderation in Sweden. The data in Henrekson, et al, (1996) indicate that between 1950

and 1960 TFP went up annually by 2.3 percent while during the subsequent decade the increase

was 4.5 percent. Consumer prices in first period rose on an annual basis by 4.4 percent, in the

latter by 3.7 percent.26 Since nominal wages barely managed to keep pace with the increase in

prices, it is fair to say that Sweden overall experienced wage moderation. The aggregate data,

however, hide significant sectoral differences in the rate of real wage growth and thus in the

degree of wage moderation.

The differences are, of course, exactly what we would expect to find in a Rehn-Meidner

world. According to their scheme, wage increases for low paid workers, employed for the most

part in low productivity activities, were to exceed increases for workers higher up on the pay and

productivity scale. This was to result in wage compression from below and was to appear in the

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data as a narrowing of intra and inter-industry wage differentials. The impact of these changes on

wage moderation was a little more complicated and needs to be made explicit.

3.1.1. Rehn-Meidner Predictions:

Rehn and Meidner argued that, for the most part, low-wage, low-productivity sectors

would lose workers and firms while those at the top would grow. This would be associated with

wage moderation among the latter and wage “immoderation” among the former. However, what

would happen if some firms in the low-wage sectors responded to the rapid run-up in wages by

investing in new equipment and pushing up labour productivity? We would still observe a

decline in intra and inter-industry wage differentials but, with the increase in productivity among

some low-end firms, the drop in the number of firms and in employment in these sectors would

be muted. Before we describe the data and present our results, it is necessary to review the role

played by centralized wage negotiations in facilitating wage compression.27

Three features of centralized bargaining in Sweden contributed to compression. First, the

LO, on behalf of all blue collar workers, insisted that wage increases be expressed as a

combination of percentage and absolute amounts, a policy that obviously favoured those lower

down on the pay scale.28 Second, from the mid-1960s, low wage pots were established by the LO

to boost the pay of low-wage workers. Finally, from the late 1960s when it emerged that wage

drift was eroding the solidaristic ambitions of the LO, wage drift guarantees were introduced to

protect the relative position of low-wage workers. Most authors, including Rehn and Meidner,

concur that centralized negotiations made it possible to coordinate the behaviour of unions and

firms and thus to ensure compliance on their part.

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3.1.2. Empirical Evidence:

Since Rehn and Meidner argued that wages increases should be moderate for the high

wage, high productivity firms and “immoderate” for those at the other end of the wage-

productivity axis, the first order of business is to rank sectors by wage and productivity in 1953.

If the Rehn-Meidner scheme was operative, we would expect to find that wage increases

between 1956, the year in which centralized bargaining was introduced, and 1967, the year that

marked the end of phase one of labour’s quest for wage solidarity, would vary inversely with the

1953 ranking. 29 In Table 4, we report productivity and wage data for manufacturing and mining

and quarrying and for Volvo between 1953 and 1967. Although the industries do not line up

precisely along both wage and productivity measures, the numbers do indicate that mining,

chemicals, and metal and engineering were, on the whole, high wage, high productivity sectors

while textiles, wood and cork and leather were at the low end in both categories.30 This is clearly

shown in Figure 6 where value added per employee is plotted against blue collar wages in the

major industrial sectors. The correlation between these two variables is 0.8. Volvo’s position in

the Figure reveals two significant features about the company. First, it was definitely a high

wage, high-productivity firm in the economy, and second, it was also a high productivity, high

wage firm relative to its peers in the metal and engineering industry.

The next question: do sectoral wage increases appear consistent with the Rehn-Meidner

plan? The answer would seem to be yes. The increase in real wages among textile workers

between 1953 and 1968 was 82 percent or an annual increase of 5.1 percent. If take metal and

engineering as our comparison group, real wages increased for workers in this sector by 66

percent or roughly 4 percent per year. Wage increases among Volvo workers were even more

modest – 36 percent overall or 2.2 percent per year. The data in Figure 7 provide a snapshot

version of the same story. As the figure suggests, there was a dramatic compression of real

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wages from below starting in approximately 1956, the year in which centralized wage

determination became the rule. The results reported in Figure 8 are even more striking; from

1957 on, the wages of Volvo’s workers dropped relative to wages all metal workers.31

There is another issue that needs to be addressed. In a Rehn-Meidner world, wage

compression is not an end in itself but a means to foster labour release. A critical feature of this

process is wage “immoderation” among low-wage, low-productivity firms, that is, wage

increases that exceed increases in value added per worker. The data presented in Figure 9

indicate that indeed the ratio of the real wage to value added per worker for the low wage sectors

(textiles, leather) did increase while it remained constant for metal and engineering, and went

down for chemicals, wood, and Volvo.32

It is useful, at this point, to note that neither the implicit contract nor the internalization

explanations of wage moderation are compatible with the observed sectoral differences in wage

increases. Low-wage, low-productivity firms were unlikely to enter into an implicit agreement

that endangered their survival. Moreover, if nothing were done to ease the labour supply

constraint for the high wage, high productivity firms, they would have had a strong incentive to

break ranks on wages in their bid to attract workers.33 The internalization argument is based on

the notion that labour tailored its wage demands to ensure full employment. On the other hand,

the explicit objective of wage compression from below as conceived by Rehn-Meidner and as

implemented in Sweden was to promote release labour from the low-wage, low-productivity

sectors. The two would seem to be incompatible. The next question then: do the data on labour

release support Rehn-Meidner?

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3.2. Labour Release:

According to Rehn-Meidner, wage compression from below would force the least

productive and thus lowest paying firms to either increase productivity to meet the higher wage

demands or close shop. Workers laid off as a consequence of this would, with the help of the

government’s active labour market policies, find employment in the high wage, high growth

sectors. The creation of a pool of workers in search of employment would obviate the need for

high-end firms to push up wages to attract workers. Fiscal and monetary policy would be just

loose enough to facilitate non-inflationary, full employment growth. Note that the model worked

not because of an implicit contract between capital and labour nor because labour was

encouraged to internalize the external effects of its wage demands on profits and employment but

because it eased a very real labour shortage. Did it, in fact, work as Rehn-Meidner envisioned?

In partial response to the question, the government did pursue a very active labour market

policy. As the data in Figure 10 show, spending on employment exchanges, vocational

guidance, and retraining programs increased sharply from 1959. From that date until the

spending peaked in 1979, expenditures on these programs jumped by a factor of 6 in real terms,

an increase much larger than that experienced by any other item in the government’s budget.

Although Edin and Topel (1997) raise serious questions about the efficacy of these expenditures,

it is clear that the government was committed to maintaining low levels of unemployment and

easing the transition between sectors for workers.

The more fundamental questions is what impact, if any, did wage compression have on

the number of workers and establishments among low and high wage industries? Consider first

the low wage sectors. Rehn and Meidner expected wage compression from below to cause the

number of workers and firms in the low-wage, low-productivity sectors to decline. If we were to

assume that in each of these sectors there existed an array of more and less productive firms,

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wage compression would have caused the least productive firms to disappear. If there were scale

economies, then the least productive firms would also be the smallest. It seems reasonable,

therefore, to argue that at the low end, we would anticipate a drop in the number of workers, an

increase in average firm size, and a rise in productivity per establishment. The impact on the

number of establishments is less clear-cut. Numbers may have fallen but it is also conceivable

that they would have remained unchanged if, in fact, productivity, competitiveness, and output

all rose.

As for the high-end sectors, Rehn and Meidner maintained that firms in these industries

would absorb the released workers. They were growing rapidly thanks to booming export

demand and supportive government policies (favourable tax treatment for reinvested profits, low

real interest rates) and thus needed workers. We would, therefore, expect to witness an increase

in the number of workers in these sectors. On the other hand, there is no obvious link between

wage compression and the number, size, and productivity of establishments – these would have

depended, instead, on the degree of scale economies, technical change and other features of the

growth process.34

The data contained in Figures 11 and 12 would seem, on the whole, to confirm our priors.

The low-wage, low-productivity industries – textiles, wood and cork, leather, and beverage and

tobacco- lost workers and establishments between 1954-64 while average output per

establishment and per worker increased. Figure 13 suggests that some firms in the low

productivity sectors invested in additional capital to increase their productivity and avoid

bankruptcy, while others, who chose to invest less, shut down as the increases in wages outpaced

the increases in their productivity. For example, the fact that investment per establishment in the

wood and cork industry was the lowest of all sectors helps explain why this sector lost more

workers than firms in the beverage and tobacco and food industries.

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Figures 11 and 12 also indicate that the behaviour of firms at the other end of wage-

productivity spectrum was consistent with the Rehn-Meidner plan. Employment and firm size in

metalworking and engineering, printing, and paper increased while the number of establishments

remained, more or less, unchanged. In chemicals, employment, establishments, and size all

increased. At Volvo, the number of workers rose sharply during these years and productivity, as

measured by value added per worker, went up.35 Moreover, as indicated earlier, wage increases

at the high end were very modest, certainly when compared with the growth in labour

productivity. Our conclusion from this analysis is that the impact of wage compression from

below was much as Rehn-Meidner envisioned – the low wage sectors released labour, the high

wage ones absorbed them.36

4. The End of Centralized Wage Determination

Eichengreen (1996) maintains that any explanation of the golden age must also be able to

explain its end. We would argue, in a similar vein, that any explanation of centralized wage

bargaining in Sweden must also be able to explain its demise. To this point, we have tried to

show that the SAF favoured the Rehn-Meidner scheme and, with it centralized wage bargaining,

because it was seen as an effective way to relieve a serious labour shortage and thus to deliver

wage moderation. The LO and other labour groups supported it to further the goal of wage

solidarity (equal pay for equal work) and to ensure for workers a fair share of the benefits

associated with non-inflationary, full employment economic growth. For the most part, it

worked as anticipated until the late 1960s – it helped resolve the labour shortage and thus

fostered wage moderation for the high wage, high productivity firms. Inflation was modest and

labour and capital both participated in the benefits rapid economic expansion. What happened at

the end of the sixties to break this virtuous circle?

21

4.1. Existing Explanations:

There are essentially four answers to this question in the literature. According to those

who favour the internalization argument, centralized bargaining lost its ability to deliver wage

moderation as the number of bargaining units within the labour movement proliferated.37

Although early warning signs were observable in the late 1950s when the TCO, the union

representing white collar workers, insisted on bargaining separately from the LO, real trouble

started when public sector workers gained the right to negotiate and strike in 1966. The problem

was obvious. As the number of bargaining units increased, the ability of labour to internalize the

impact of its wage demands diminished. Olsson and Burns (p. 196) summarize the argument

nicely: ‘…the increase in the number of powerful actors – without an institutional framework to

coordinate and regulate new, destabilizing interactions – contributed to the relative decline of the

powers of each actor to influence the wage and salary systems in favourable directions… The

wage formation process developed into a wage-carousel where the demands of one labour union

pushed up the demands of others.’ 38

Eichengreen and Iverson (1999) argue, instead, that it was changes in the nature of the

demand for labour at the end of the 1960s that jeopardized wage moderation and sealed the fate

of centralized bargaining. They put it this way: ‘…the post-war wave of Fordist mass-

production methods gave way to more skill-intensive science-based technologies and flexible

specialization…increasing the demand for skilled workers, who attempted to ‘liberate’

themselves from centralized bargaining and wage directives and pushed for higher wages.’

(pp.130-31.) This change in labour demand led to wage increases at the top that were matched,

because of the solidaristic nature of the bargaining process, by wage increases at the bottom. As

a result, unemployment among the unskilled began to rise. The government responded first by

22

raising social welfare outlays to compensate for wage restraint and adherence to centralized

wage determination and, second, by increasing public sector employment for low wage workers

to help maintain full employment. While unemployment in Sweden did remain very low through

much of the 1970s, inflation accelerated and the government’s budget deficit ballooned. The oil

price shocks and the slowdown in the growth worldwide of aggregate demand merely served to

exacerbate the situation. The end of wage moderation marked the beginning of the end of

centralized negotiations.

Edin and Topel (1997) take issue with the notion that public sector employment

represented a response by the government to rising unemployment among low skilled workers.

The acceleration in public sector employment dates from the early not the late 1960s and is

closely associated with an increase in the participation rate of women in the labour force.39 In

other words, the rise in public sector employment did not, for the most part, represent a response

to rising unemployment among the unskilled but simply a response to the increase in the supply

of women workers and the willingness of the government to hire them. As the authors note, of

the 29 percent rise in female employment in Sweden between 1971 and 1984, expansion of the

public sector accounted for 96 percent of the total.

Edin and Topel (1997) instead propose that in the short-run, centralized wage bargaining

and solidaristic wage policies on the part of the unions provided management with “cheap”

skilled labour but, in the long-run, discouraged investment in skills and thus created a serious

shortage of skilled workers. This impaired the ability of Sweden’s export oriented firms to

compete internationally and eventually caused them to break with the system. In this respect,

then, Volvo’s decision in 1983 to negotiate wages directly with Metall was a rational response to

this problem.

23

Hibbs and Locking (2000) also focus on wage compression but emphasize instead its

impact on productivity. In particular, they note that from the late 1960s, labour’s solidaristic

wage objectives changed from equal pay for equal work to equal pay period.40 This meant, in

effect, that intra-industry and intra-occupational wage compression intensified. They then use

data on intra-firm wage and productivity dispersion to test the Akerlof-Yellen (1988) hypothesis

that increased intra-firm wage compression boosts morale, effort, and productivity. They find

that while equal pay for equal work may have enhanced labour productivity, equal pay for all

work, at least in Sweden, did not. Although Hibbs and Locking (2000) reject the Akerlof-Yellen

(1988) hypothesis, they do not propose an alternative explanation for the behaviour of Swedish

workers. We attempt to fill this gap with an explanation that is, at once, consistent with their

findings as well as with the discontents expressed by the highly paid workers and export oriented

firms.

4.2. The Fair Wage Hypothesis Revisited:

While the effects of a change in the degree of the internalization of externalities may

provide a compelling account of management’s disenchantment with centralized negotiations, it

fails to explain labour’s apparent change of heart. The proliferation of union groups did make it

difficult for labour to deliver wage moderation and thus did diminish the benefits management

received from centralized wage determination. Management’s loss of enthusiasm for the scheme

is, therefore, not surprising. On the other hand, fragmentation pushed up wages and, one would

have thought, made the system more, not less, attractive to labour. And yet in 1983, Metall, the

union representing metal workers, greeted Volvo’s proposal to negotiate wages directly, that is,

outside of the frame agreement, with enthusiasm. The crucial question, then, is why did

24

centralized wage bargaining during the 1970s lose its appeal to members of Metall and other

unions representing the highly skilled?

Although Eichengreen and Iverson (1999) do not attempt to answer this question, they do

address the issue of wage drift, a feature, we will argue, that was closely linked with

compression. The authors maintain that wage drift and, as a result, wage inflation, from the late

1960s to the mid 1980s, was the outcome of an attempt by low wage workers to keep up with

their better paid, more skilled colleagues. In truth, however, wage drift was not a response by the

lower paid to growing wage differentials but instead represented an attempt by high-wage

workers to maintain wage differentials in the face of policies that fostered compression from

below. Unions and management initially tolerated wage drift because it provided an escape valve

for the discontent felt by workers at the top end of the pay scale.41 The efforts by skilled workers

to maintain wage differentials met with some success in the early years of centralized

negotiations but began to falter from the mid 1960s with the introduction of low wage pots and

wage drift guarantees. Frustration among high-wage workers mounted in the 1970s with the push

for equal pay for all work and the intensification of wage compression. In short, Metall and other

skilled workers, it would seem, viewed the erosion of their relative position with dismay.

Edin and Topel (1997) address this issue directly. They show that the willingness of

workers to invest in education (a proxy for skills acquisition) dropped as the return to schooling

fell. Although they note that some of the decline in returns may be attributable to the general

increase in the number of educated workers, they argue that the drop is too large to be explained

simply by the change in factor ratios. It required something else and that something else was

wage compression from below. As Edin and Topel (1997) note, their model focuses, for the

most part, the long-run consequences of compression: a fall in the supply of skilled workers, a

rise in the shadow price of skills, and an increase in the benefits to both management and labour

25

of defecting from centralized negotiations. We believe there were short-run effects as well

associated with the findings in Hibbs and Locking (2000).

As previously mentioned, Hibbs and Locking (2000) find that increased intra-firm and

intra-industry wage compression was associated with a drop in labour productivity. The question

is why did this occur? As we argue more formally elsewhere, Swedish workers were concerned

not only with their absolute pay but also with their remuneration relative to those both above and

below them on the pay scale.42 Their notion of a fair wage was thus a function of their absolute

wage and their wage relative to other workers in the system. Wage compression in Sweden

narrowed the differential between those at the top and those at the bottom of the pay scale and

thus adversely affected the former group. While management of the high-wage, high-

productivity firms was initially delighted with the outcome of the Rehn-Meidner plan, high-wage

workers such as the members of Metall were not. As we noted in the introduction, the highly

paid unions were reluctant participants in centralized wage bargaining from the beginning - they

anticipated, correctly, that it would narrow differentials and thus shrink relativities.43

In this context, then, the response of the skilled workers to equal pay period helps explain

the end of centralized bargaining and, with it, Rehn-Meidner. With the introduction of wage

drift guarantees, skilled workers lost the ability to maintain wage dispersion and the system lost a

necessary escape value. As the differentials between the high-paid and the low-paid narrowed,

skilled workers responded by cutting back on effort. Absenteeism rates soared. By the late

1960s, Volvo noted in its annual reports that absenteeism rates among its workers had begun to

top10 percent. By the end of the 1970s, absenteeism rates at Volvo’s Swedish plants had jumped

to 22 percent. Other Swedish companies suffered similarly. On January 22, 1980, the Wall Street

Journal reported that, according to the findings of a U.S. consulting firm, Sweden had higher

26

absenteeism than any other major industrialized country. As the data reported in Figure 14

confirm, profits at Volvo and other major industrial firms collapsed.44

Although, as Pontusson (1992) notes, there were other factors aside from a drop in effort

that contributed to decline in profits and productivity, it would be a mistake to underestimate its

negative impact. Certainly Volvo and other leading firms did not. It is important to keep in mind

the constrained context in which these firms were forced to function. They could not raise

relative wages to elicit more effort nor, by the late 1970s, could they fire or penalize workers

who shirked. Thus, they turned to the industrial equivalent of bread and circuses. Volvo’s plant

at Kalmar, based on a new, worker friendly way of organizing production, is a perfect example

of this. The Wall Street Journal, March 1, 1977 reported that the plant cost 30 percent more to

build and cost 30 percent more to operate than traditional plants. But management was

obviously prepared to pay the price to raise worker morale, attendance, and productivity. The

experiment was, on the whole, unsuccessful; the plant was closed and scrapped shortly after

centralized bargaining ended. The point is that centralized wage determination as pursued in

Sweden in the 1970s sapped the morale of highly skilled workers, reduced their effort,

productivity, and eroded profits. It was for this reason that Volvo and Metall, strange bedfellows

under most conditions, were prepared to join forces to bring centralized wage determination to

an end.

5. Conclusion

Most scholars subscribe to one of two explanations of the mechanism through which

centralized wage negotiations facilitated wage moderation in post-war Sweden – either implicit

contracts or internalization of externalities. Although compelling in theory, in practice both

falter when confronted with the observation that the SAF embraced centralized bargaining with

enthusiasm but skilled workers did not. The response of management, we argue, was a perfectly

27

rational one to a serious labour problem. The most dynamic and largest firms in the economy

faced severe labour supply shortages in the early post-war years that threatened to compromise

their competition position and choke off growth. Ironically, it was the Rehn-Meidner plan, the

work of two labour union economists, that saved the day. While centralized wage bargaining

played an instrumental role in the plan, it was the latter not the former that created the conditions

for wage moderation.

As we explain in the paper, the purpose of the plan was to promote economic expansion

with full employment and low inflation and to ensure that labour received its fair share of the

growth dividend. The process was ingenious and simple. Wage increases for low paid workers

would exceed increases for those higher up on the pay scale. This would compel low wage firms

to shut down (or raise productivity) and would thus liberate workers for employment in the high-

wage, high-growth sectors. Labour transfer was to be facilitated by an active labour market

policy on the part of the government - retraining, relocation, and job search assistance.

Centralized wage determination was viewed strictly as a means to an end – it made possible

wage compression from below and fostered labour release. In essence, then, the Rehn-Meidner

plan produced wage moderation in a very conventional manner – it facilitated an increase in the

supply of labour to the most dynamic sectors of the economy. In this respect, the Swedish

experience is much closer to that of, say, Germany and Italy than is usually recognized.

The question, then, is did the economy behave between 1956 and 1968 in a way that was

consistent with implementation of the Rehn-Meidner plan? We attempt to show in the paper that

the answer is unequivocally yes. Demand, especially for Sweden’s capital goods’ exports, was

booming and firms in the high-growth sectors were scrambling for scarce workers. From 1956

on, we observe wage compression from below, labour release by industries at the lower end of

the pay and productivity scale and labour absorption by those at the top. Low-end firms

28

experienced wage “immoderation”, high-end ones enjoyed wage moderation - exactly the

outcome intended by Rehn and Meidner.

The plan appeared to work reasonably well in the early post-war years but started to

stumble badly by the late 1960s. Although a variety of forces strained the system, we argue that

intensified wage compression, the result in large part of labour’s quest for equal pay for all work,

severely reduced wage differentials and thus eroded the morale and effort of workers at the top

of the pay scale. Absenteeism rates soared, investment in human capital tumbled, and labour

productivity dropped. Attempts by high-wage firms and high-skilled workers to limit wage

compression merely fostered higher rates of wage and price inflation and lower profits, largely

because of the imposition of wage caps and wage drift guarantees. Export-oriented firms were

particularly hard hit by this changed environment. Volvo and Metall, in an attempt to free

themselves from the debilitating constraints of centralized wage bargaining, opted to negotiate

outside of the frame agreement and, in effect, brought the system to an end.

We are left with a final question: why does it matter? The answer, we believe, lies in the

renewed interest among economists in labour market institutions such as centralized wage

negotiations. Such arrangements, it is often argued, worked well in the early post-war years –

they facilitated growth, low inflation, and full employment – and may be just the thing to help

reduce the very high rates of unemployment in Europe today. Our tale is a cautionary one. Much

as economists and policy makers in the 1920s misconstrued with disastrous consequences the

contribution made by the pre-war gold standard to peace and prosperity between 1870 and 1914,

many today risk misinterpreting the role centralized wage bargaining played in Sweden’s post-

WW II economic achievements. Although centralized wage determination may, in some cases,

facilitate the internalization of externalities and/or create the opportunity for cooperation instead

29

of competition between capital and labour, the Swedish case provides support for a different

argument. It would be most unfortunate if we failed to learn the lessons of the past.

Acknowledgements

We would like to thank participants in the Economic History/Macro workshop at the

University of Toronto for their comments and suggestions. We are particularly grateful to

Aloysios Siow, Shouyong Shi, John Munro, and Donald Moggridge for their help and

encouragement. We would also like to thank Volvo’s Investor Relations group both in New

York and Gothenborg for providing us with the complete series of Annual Reports and taking the

time to answer questions about their operations and accounts. Radha Subramani and Richard

Kohari provided able research assistance. All errors and omissions remain the responsibility of

the authors.

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Alexopoulos, M. and Cohen, J (2003). What's Wrong with Wage Compression? The Fair Wage

Hypothesis Redux. Manuscript. University of Toronto.

Beveridge, W. (1967). Full employment in a free society. 2nd edition. London: George Allen and

Unwin.

Calmsfors, Lars and John Driffill (1988). Bargaining structure, corporatism and macroeconomic

performance. Economic policy 6. Pp.13-62.

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Edin, Per-Anders and Topel, Robert (1997). Wage policy and restructuring: the Swedish labor

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welfare state in transition: reforming the Swedish model. Chicago: University of Chicago Press.

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Lundberg, Erik (1985). The rise and fall of the Swedish model. Journal of economic literature

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33

Appendix A: A Simple Model We argue in the paper that firms in the high wage sector supported centralized wage bargaining

because it was a necessary component of the Rehn-Meidner plan. A principal objective of the

plan was to increase the supply of labour to the high wage, high growth sectors by promoting

labour release among firms in the low wage sectors. The mechanism, wage compression from

below, can be interpreted as an imposition on the low wage sectors of a binding minimum wage.

With this in mind, we attempt to answer the following question. Under what conditions will

firms in a high wage sector choose to impose a minimum wage on firms in a low wage sector, in

spite of the costs involved, to promote labour release? The obvious alternative, of course, is for

the high wage firms simply to bid up the wage to attract workers. We present a very simple two-

sector model that provides an answer to this question.

Assumptions:

1) Nh individuals are attached to the high wage sector (sector 1) and Nl individuals are attached

to the low wage sector (sector 2).

2) Individuals are risk neutral and provide each period one unit of labour inelastically to the

sector in which they work.

3) If individuals work in the sector to which they are not attached, they incur a fixed cost, c,

each period. The cost can be viewed as the disutility associated with the other type of work

or the extra effort required to do this type of job.

4) Firms in the low wage sector (sector 2) are perfectly competitive and produce output

according to the following production function, Y2=A2L, where L is the number of workers

hired.

5) Firms in the high wage sector are each endowed with a fixed amount of capital that does not

depreciate and cannot be augmented. Each firm earns a return on its fixed capital that can be

34

interpreted as profits. They each produce output according to the production function: Y1=A1

Kα (H) 1-α, where H is the number of workers hired by the representative firm.

6) Firms in sector 1 have the ability to impose a minimum wage on sector 2, but in every period

during which they chose to enforce this minimum wage, they must incur a cost equal to g.

This cost may be interpreted as the extra expenses that the companies in this sector must

incur to support the introduction a program, like Rehn-Meidner, that enforces the minimum

wage in the low paying sector. In Sweden, these may have included extra costs associated

with: engaging in wage setting at the national level, lobbying the government and other SAF

members for support, extra taxes levied by the government to finance active labour market

programs (including retraining), etc.

Firms in sector 2 will hire all of their workers at a wage equal to A2. The workers will

move from the low paying sector to the high paying sector if W1>=A2+c (i.e., the wage in

sector 1 is greater than or equal to the wage in the low paying sector plus the cost of working

in the other sector). If there is no minimum wage imposed on the low wage sector, and

W1<A2+c, firms in the low wage sector will hire all of the workers attached to their sector,

and firms in the high wage sector will hire all of the workers attached to their sector. There

will, in short, be no movement of workers between sectors.

Assume now that firms in sector 1 become more productive. W1 increases and eventually

reaches a level at which workers in sector 2 become indifferent between continuing to work

in sector 2 and taking a job in sector 1. If W1 exceeds A2+c, all workers abandon their jobs

in the low wage sector and the low wage sector shuts down. Figure 1 depicts labour demand

and labour supply in the high wage sector.

35

W1 Labour Supply before

Labour demand

W1 Labour demand

Figure 1.

In our environment, firms in the high wage sector have

the option to pay a cost and impose a minimum wage

on the other sector to force them out of business. As a

result, firms in the high wage sector will increase the

supply of labour to their sector provided that the value

of the unemployment benefits (or value of home

Nh (Nh+Nl) H production) plus the cost associated with working for

the other sector is lower than the wage in sector 1.45 For what follows, we assume that this is

the case.

Figure 2 depicts labour supply and labour demand in the high wage sector when the

minimum wage is enforced.

Figure 2.

Firms in sector 1 will chose to incur the costs

associated with imposing the minimum wage if their

resulting profits are larger than their profits would have

been in the absence of the minimum wage. Below we

graph the two possible outcomes. In the first, the costs

Nh (Nh+Nl) H

of introducing the minimum wage are so large that the firms never choose to implement it. In

the second, firms will choose to impose the minimum wage for certain levels of labour demand.

The value of g and the level of labour productivity, A1, in the economy will determine which of

these two emerge in equilibrium.

Labour Supply after

Labour Supply

A2+c

36

π

A3

Case 1: Firms in the high wage sector never support the wage minimum in the other sector. A Below A1, firms in this industry only hire NH people, between A1 and A2 employment expands

from NH to NH+NL, after A2 firms in the high wage sector hire all workers (NH+NL).

A1 A2

Profits with no minimum wage in other sector π= αY1=αA1 Kα (H) 1-α

Profits with minimum wage in other sector π= αY1=αA1 Kα (Nh+Nl) 1-α-g

37

π

A3

Case 2: Firms in the high wage sector support the wage minimum in the other sector for

some values of A.

For A<A1, firms in the high wage sector do not pay to impose a minimum wage on the other

sector, for A1 <A<A2 firms in this sector will pay to impose the minimum wage, and for A>A2

the firms again do not find it profitable to pay to impose the minimum wage on the other sector.

In the simple model presented in this appendix, the decision to impose a minimum wage

in the low productivity sector depends on labour productivity as well as the costs associated with

implementing and enforcing the minimum wage. However, it is possible to obtain similar results

using a more complex model where changes in labour demand and profits depend on other

factors. These may include changes in: the demand (domestic and/or foreign) for the output of

the high wage sectors, the prevailing prices for the goods of these sectors, and taxes and tariffs

faced by firms in these sectors.

A A1

Profits with no minimum wage in other Sector π= αY1=αA1 Kα (H) 1-α

Profits with minimum wage in other sector π= αY1=αA1 Kα (Nh+Nl) 1-α-g

38

Appendix B. Data Sources

The data used in Tables 1-5 and Figures 1-14 were obtained from three sources. Data on

AB Volvo were compiled from Volvo’s annual reports from 1947-1982. The statistics on one

digit industries were made available from the National Accounts section of the Swedish

Statistical Agency (SCB). The numbers on vacancies, job applicants, unemployment rates and

Government expenditures on labour market programs, along with the statistics for the two digit

industries, including wages, employment and value added, were collected from the Swedish

Statistical Yearbooks from 1945-1983.

39

Endnotes: 1 For the former countries see Kindleberger (1967) and Temin (2002); for the latter see among

many others Freeman and Gibbons (1995), Edin and Topel (1997), Calmsfors and Driffill

(1988), Eichengreen and Iverson (1999).

2 See also Martin (1995).

3 See Hibbs and Locking (2000), p. 112.

4 Calmfors and Driffil (1988); Freeman and Gibbons (1995).

5 A similar argument is presented in Martin (1985).

6 Eichengreen (1996); Temin (2002).

7 See Edin and Topel (1997). The government also helped to encourage compliance with

subsidies, tax breaks, and welfare payments contingent on good behaviour.

8 See The Swedish Confederation of Trade Unions (1953); T.L. Johnston (1962); Rehn (1952);

Lundberg (1985) for the details of this model. See also Pontusson (1992).

9 Their objective was in keeping with the social democratic principles presented at some length

in Beveridge (1967).

10 Eichengreen and Iverson (1999) make an argument very similar to the one developed here but

fail to explore fully its implications for the nature of centralize wage bargaining in Sweden.

11 See e.g., Kindleberger (1967); Temin (2002).

12 In appendix A, we develop a very simple two sector partial equilibrium model that illustrates

the conditions under which firms in the high wage sector will choose to push for wage

compression from below. The results of this analytical exercise appear to be consistent with

Swedish experience.

13 Freeman and Gibbons (1995); Olsson and Burns (1987).

40

14 This interpretation is consistent with Metall’s resistance to centralized wage bargaining in the

early 1950s.

15 The change in the Swedish income taxes during the period served to exacerbate the wage

compression. See the Wall Street Journal, February 1, 1979 for a concise description of the

effects of the change in the income tax system.

16 See Freeman and Gibbons (1995).

17 See Erixon (1996). These firms loomed large in Sweden’s trade balance. According to

Volvo’s annual report in 1960, the Volvo Group alone accounted for 4.1 percent of the total

value of Swedish exports in 1960.

18 See Eichengreen and Iverson (1999).

19 Olsson and Burns (1987) and Pontusson (1992) among others recount the efforts made by the

government and management to persuade labour to moderate its wage demands in the face of a

very tight labour market.

20 See Kindleberger (1967).

21 It should be noted that the unemployment ratio if this figure represents unemployment as a

percent of the total adult population- not the ratio of the unemployed to the total labour force.

Therefore, these figures overstate the actual rate of unemployment in these areas.

22 Olsson and Burns (1987), p.187.

23 Pontusson (1992), p. 59

24 See Eichengreen (1996).

25 It is worth noting that Rehn and Meidner had this in mind for the high wage, high growth

sectors. In the 1960s, three Swedish economists, one employed by SAF, two by the LO, made

the argument explicit. Referred to as the EFO model, the economists argued that non-

41

inflationary wage increases in the export sectors, determined by the increase in productivity and

the increase in international prices (Sweden was viewed as a price taker in all of its export

markets) would set the pace for wage increases throughout the economy.

26 Henrekson, et al (1996).

27 Martin (1985), Olsson and Burns (1987), Freeman and Gibbons (1995) all review the system

of wage determination in Sweden.

28 See Pontusson (1992), Olsson and Burns (1987). There was considerable controversy, at the

time, about this policy in spite of the general commitment of labour to a solidaristic wages.

29 See also Edin and Topel (1997) and Hibbs and Locking (2000).

30 Our breakdown resembles that of Edin and Topel (1997) who rely on census data.

31 Our results, on the whole, are consistent with the findings of Hibbs and Locking (1996) and

Edin and Topel (1997).

32 It is worth noting that these numbers underestimate the wage immoderation in the low wage

sectors because a number of firms experiencing wage immoderation closed during this time

frame.

33 As Eichengreen (1996) and Eichengreen and Iverson (1999) point out, the government allowed

firms to place retained earnings in non-taxed accounts on the understanding that the funds could

be withdrawn only with government approval and used only to fund new capital projects. There

was, however, nothing to prevent firms from increasing wages to snag new workers.

34 Henrekson, et al (1996) note that the Rehn-Meidner scheme favoured existing over new firms

which, if correct, would have promoted growth in size of establishments at the expense of new

ones.

42

35 In Volvo’s 1966 annual report, management reported that “the Swedish labour market was

normalized and the supply of manpower improved, one of the factors contributing to this being

the progressive structural rationalization resulting in a manpower surplus within several branches

of Swedish industry”.

36 Our results our consistent with those reported by Edin and Topel (1997).

37 See e.g., Freeman and Gibbons (1995); Olsson and Burns (1987).

38 See also Freeman and Gibbons (1995).

39 See also Henrekson, et al (1996); Rosen (1997).

40 See Martin (1985, 1995) and Pontusson (1992) for attempts to explain the reason for the

change.

41 Olsson and Burns (1987); Martin (1985).

42 See Alexopoulos and Cohen (2002).

43 See Olsson and Burns (1987).

44 See Pontusson (1992), pp. 99 and passim.

45 The unemployment benefits could simply be modeled as a lump-sum tax on firms, or on

workers. However, so long as the wage in the high paying sector exceeds the value of the

unemployment benefits plus the cost associated with working in the other sector, there will be no

unemployment and there will be no taxes levied to finance unemployment insurance benefits.

TABLE 1. SWEDISH EMPLOYMENT, 1945-1975

YearIndustry 1945 1950 1960 1965 1970 1975

Agriculture, forestry, hunting, fishing

732682 639832 433465 407560 276505 227751

Mining, Construction and Manufacturing

1142084 1257444 1427532 1452572 1347435 1313717

Commerce 430792 484804 438526 534243 658909 707012Transport, storage and communication

219790 249983 241858 246634 247056 254366

Services (including Electricity, gas, Water and Sanitary Services)

462996 467655 643315 795573 874033 1036699

All industries 2988344 3099718 3244084 3449897 3412668 3539545

1950

1951

1952

1953

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

Year

0

5

10

15

20

25

Tho

usan

dsR

eal G

DP

Agriculture hunting forestry and fishing

Mining and quarrying

Manufacturing

Electricity gas and water

Construction

Wholesale and retail trade

Transportation, storage and communications

Finance insurance and real estate

Community social and personal services

Figure 1. Real GDP by Sector(1947 Kr.)

TABLE 2. EMPLOYMENT BY INDUSTRY, 1953-1963

Total Employment

Year MiningMetal and

Engineering

Quarryingand non-metallic

manufacture

Manufactureof wood and

cork

Pulp andPaper

Industry PrintingFood

manufacture

Beverageand

tobaccoindustry

Manufactureof textiles,

wearingapparel

Manufactureof leather,furs andrubber

products

Manufactureof chemicalsand chemical

products AB VolvoTotal

Industry1953 15166 341612 39391 64755 52909 35945 51968 11525 107716 31158 31655 3662 7838001954 15348 356633 40645 71539 55064 37919 55077 11389 107710 32044 32989 4511 8163571955 15853 377726 41389 72665 57232 39224 56063 11698 105022 31864 34222 5301 8429581956 16573 386757 40214 68806 58511 39965 56447 11657 102747 31907 35470 5549 8490541957 17263 392003 39055 67330 59096 39997 56122 11015 98531 32132 36388 5802 8489321958 17486 392205 37861 66603 59319 40593 55859 10777 92543 31475 36519 6773 8412401959 16371 398961 38456 66080 60900 40345 56921 10655 92202 32060 37308 7491 8502591960 16863 427941 39900 69471 63661 41731 58258 10934 94303 33024 39193 8309 8952791961 16941 456066 41329 69282 65984 42983 59751 10631 93870 33011 40650 8600 9304981962 15454 467920 42392 68182 65632 43417 61024 10913 91187 32264 41540 9040 9399251963 13855 467084 43294 69757 64964 43964 61169 10292 89513 32560 42391 9624 938843

Yearly Change in Total Employment (%)

Year MiningMetal and

Engineering

Quarryingand non-metallic

manufacture

Manufactureof wood and

cork

Pulp andPaper

Industry PrintingFood

manufacture

Beverageand

tobaccoindustry

Manufactureof textiles,

wearingapparel

Manufactureof leather,furs andrubber

products

Manufactureof chemicalsand chemical

products AB VolvoTotal

Industry1953-1954 1.20 4.40 3.18 10.48 4.07 5.49 5.98 -1.18 -0.01 2.84 4.21 23.18 4.151954-1955 3.29 5.91 1.83 1.57 3.94 3.44 1.79 2.71 -2.50 -0.56 3.74 17.51 3.261955-1956 4.54 2.39 -2.84 -5.31 2.23 1.89 0.68 -0.35 -2.17 0.13 3.65 4.68 0.721956-1957 4.16 1.36 -2.88 -2.15 1.00 0.08 -0.58 -5.51 -4.10 0.71 2.59 4.56 -0.011957-1958 1.29 0.05 -3.06 -1.08 0.38 1.49 -0.47 -2.16 -6.08 -2.04 0.36 16.74 -0.911958-1959 -6.38 1.72 1.57 -0.79 2.67 -0.61 1.90 -1.13 -0.37 1.86 2.16 10.60 1.071959-1960 3.01 7.26 3.75 5.13 4.53 3.44 2.35 2.62 2.28 3.01 5.05 10.92 5.291960-1961 0.46 6.57 3.58 -0.27 3.65 3.00 2.56 -2.77 -0.46 -0.04 3.72 3.50 3.931961-1962 -8.78 2.60 2.57 -1.59 -0.53 1.01 2.13 2.65 -2.86 -2.26 2.19 5.12 1.011962-1963 -10.35 -0.18 2.13 2.31 -1.02 1.26 0.24 -5.69 -1.84 0.92 2.05 6.46 -0.12

FIGURE 2. REAL VALUE OF MAJOR EXPORTS, 1945-1958

1945

1946

1947

1948

1949

1950

1951

1952

1953

1954

1955

1956

1957

1958

Year

0

50

100

150

200

250

300

Th

ou

san

ds

Rea

l 194

7 K

r.

Wallboard

Newsprint

Autocars and parts

1945

1946

1947

1948

1949

1950

1951

1952

1953

1954

1955

1956

1957

1958

Year

0

50

100

150

200

250

300

Th

ou

san

ds

Rea

l 194

7 D

olla

rs

Steamboilers,

motors, etc

Metalworking

machines

Generators,electric

motors etc

Telephonicand

telegraphicapparatus

Autocarsand parts

1945

1946

1947

1948

1949

1950

1951

1952

1953

1954

1955

1956

1957

1958

Year

0

100

200

300

400

500

600

700

Th

ou

san

ds

Rea

l 194

7 K

r. Autocars and parts

Ships and boats

Volvo

TABLE 3. SWEDISH IMMIGRATION AND EMMIGRATION, 1950-1968Total and by Major Lans

Total for Sweden Gotenborg och Bohus Stockholm MalmosYear Total Immigration Total Emmigration Net Gain Immigration Emmigration Net Gain Immigration Emmigration Net Gain Immigration Emmigration Net Gain1950 27495 12592 14903 1656 1445 211 7591 4401 3190 2133 1481 6521951 31133 16298 14835 1858 1696 162 8248 6022 2226 2605 1630 9751952 25842 14740 11102 1790 1156 634 7480 4802 2678 1944 1587 3571953 18857 17237 1620 1551 1335 216 6189 6304 -115 1514 1810 -2961954 20445 13628 6817 1612 1290 322 6129 4362 1767 1484 1466 181955 29692 12457 17235 2460 1047 1413 8236 4609 3627 2294 1221 10731956 27675 14487 13188 2754 1212 1542 7790 5365 2425 2406 1389 10171957 32339 14819 17520 3235 1556 1679 8778 5357 3421 3087 1567 15201958 21617 13998 7619 2485 1354 1131 7096 5036 2060 2217 1355 8621959 18785 15331 3454 1762 1535 227 6719 5460 1259 1690 1665 251960 25763 14813 10950 2123 1583 540 8095 5237 2858 2143 1584 5591961 29218 14771 14447 2792 1644 1148 9264 5146 4118 2556 1620 9361962 24721 14717 10004 2578 1502 1076 8871 4940 3931 2291 1512 7791963 26468 15095 11373 2759 1690 1069 8780 5726 3054 2474 1501 9731964 37706 15459 22247 4207 1680 2527 10876 5624 5252 3641 1639 20021965 48575 15700 32875 4716 1712 3004 12588 5701 6887 5188 1651 35371966 46066 19262 26804 4973 2265 2708 13051 5794 7257 5214 2087 31271967 29416 19614 9802 3560 2404 1156 9569 6923 2646 3151 1940 12111968 35286 22797 12489 4221 2883 1338 10603 8679 1924 3878 2208 1670

1942194319441945194619471948194919501951195219531954195519561957195819591960196119621963196419651966196719681969197019711972197319741975197619771978

Yea

r

0123456

Percentage

To

tal

Met

all

FIG

UR

E 3

. IN

SU

RE

D U

NE

MP

LO

YE

D A

S A

PE

RC

EN

T O

F U

NIO

N M

EM

BE

RS

HIP

Yea

rly

Ave

rag

e

1956

1957

1958

1959

1960

1961

1962

1963

1964

1965

1966

1967

1968

1969

year

0

0.5

1

1.5

2

2.5

3

Per

cen

t U

nem

plo

yed

/Ad

ult

Po

pu

lati

on

% unemployed in adult pop

FIGURE 4. RATIO OF UNEMPLOYED TO ADULT POPULATION FOR THE

1942

1943

1944

1945

1946

1947

1948

1949

1950

1951

1952

1953

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

1965

1966

1967

Yea

r

0

500

1000

1500

2000

Thousands

# V

acan

cies

# o

f A

pp

lican

ts

FIG

UR

E 5

. VA

CA

NC

IES

AN

D A

PP

LIC

AN

TS

, 194

2-19

67

TABLE 4. REAL BLUE COLLAR WAGES AND VALUE ADDED PER EMPLOYEE IN SWEDISH INDUSTRY, 1953-1968

Real Average Earnings per Hour (1947 Kr.)

Year MiningMetal and Engineering

Quarrying and non-metallic manufacture

Manufacture of wood and cork

Pulp and Paper Industry Printing

Food manufacture

Beverage and tobacco industry

Manufacture of textiles, wearing apparel

Manufacture of leather, furs and rubber products

Manufacture of chemicals and chemical products AB Volvo

Total Industry

1953 381.95 313.77 268.22 260.91 284.43 304.08 254.74 254.43 223.83 256.47 279.94 410.53 283.261954 395.64 321.95 283.29 277.18 301.56 313.91 259.77 267.97 232.22 266.68 290.75 438.12 293.991955 414.16 335.85 298.87 292.83 320.41 339.23 276.92 283.80 243.33 280.85 306.42 430.91 309.861956 424.04 347.65 305.51 299.69 331.60 350.31 282.26 289.81 251.64 288.71 319.53 442.60 320.501957 434.19 353.44 312.47 304.43 334.93 355.75 286.26 291.50 256.43 296.06 324.63 456.83 324.391958 440.41 361.66 316.99 310.20 335.07 363.29 291.74 294.15 259.20 300.25 325.46 446.03 332.901959 459.13 374.36 329.60 323.68 346.95 375.81 305.05 307.68 267.94 311.04 334.50 443.39 345.501960 469.98 380.63 343.32 331.39 359.37 385.41 312.53 325.96 271.68 318.95 341.68 447.45 353.851961 494.42 401.42 361.63 349.20 375.96 413.01 331.39 346.99 290.04 335.93 358.85 466.51 373.851962 494.86 413.47 378.49 363.40 381.37 431.26 354.13 365.57 304.98 349.37 368.82 480.56 387.541963 509.93 429.57 395.48 381.03 395.20 456.86 373.98 380.60 320.21 366.39 380.74 496.19 403.491964 525.10 450.30 419.71 402.10 414.81 514.87 395.66 396.86 339.26 390.40 399.41 526.44 424.701965 539.26 471.89 442.65 424.27 437.65 524.56 413.32 422.79 357.13 413.12 422.22 539.34 447.111966 544.40 479.26 454.41 430.94 445.98 531.88 428.86 448.94 365.66 422.12 430.35 531.63 456.531967 552.89 498.62 469.34 449.81 467.40 560.80 448.25 460.97 379.83 436.83 446.77 541.69 474.531968 576.44 520.24 493.45 469.67 506.22 529.40 497.89 494.73 407.32 455.34 464.59 556.83 497.25

Real Value Added per Employee (1947 Kr.)

Year MiningMetal and Engineering

Quarrying and non-metallic manufacture

Manufacture of wood and cork

Pulp and Paper Industry Printing

Food manufacture

Beverage and tobacco industry

Manufacture of textiles, wearing apparel

Manufacture of leather, furs and rubber products

Manufacture of chemicals and chemical products AB Volvo

Total Industry

1953 42.99 11.13 10.46 8.63 13.93 11.89 12.97 18.03 7.97 9.28 16.37 19.56 11.661954 35.16 11.69 11.09 9.54 17.59 12.51 13.76 19.03 8.04 10.10 17.46 20.15 12.281955 37.65 11.86 11.36 9.76 18.10 12.80 14.89 18.52 8.11 10.46 17.58 18.27 12.611956 40.43 12.27 11.45 9.47 17.64 12.87 15.62 17.23 8.21 10.21 18.17 17.59 12.921957 39.95 12.76 12.08 10.25 17.59 12.94 16.27 17.45 8.64 10.54 18.63 21.08 13.411958 34.56 12.66 12.53 9.94 16.40 13.06 17.09 18.94 8.75 10.40 18.68 20.93 13.301959 34.23 13.43 14.06 11.17 16.58 13.65 17.64 19.99 8.99 10.72 20.30 20.92 14.001960 36.65 13.33 14.07 11.04 17.47 13.95 17.69 18.50 9.26 10.28 20.69 21.67 14.081961 38.59 14.48 14.71 11.73 16.21 14.44 18.08 19.63 9.90 11.30 20.96 21.76 14.841962 41.37 14.53 14.85 11.78 14.53 15.14 18.17 19.27 10.06 11.30 21.50 26.85 14.871963 36.99 14.75 15.81 12.64 16.40 16.02 20.27 22.23 10.83 11.85 21.79 26.35 15.431964 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 27.22 n/a1965 46.22 16.52 17.96 15.21 20.16 18.40 20.57 24.21 11.80 13.09 24.81 24.27 17.411966 41.44 16.70 17.95 14.81 17.95 19.01 21.16 27.32 12.18 13.25 24.27 21.46 17.421967 37.86 17.23 19.23 15.18 19.72 20.00 22.43 29.11 12.68 13.65 26.42 24.94 18.17

Mining

MetalQuarryingWood and Cork

Pulp and Paper

PrintingFood

Beverage and Tobacco

TextilesLeather, Fur, Rubber

Chemicals

Volvo

200 240 280 320 360 400

Blue Collar Wages

5

10

15

20

25

30

35

40

45

Val

ue

Ad

ded

Per

Em

plo

yee

FIGURE 6. BLUE COLLAR WAGES VS. VALUE ADDED PER EMPLOYEE (1953)

TABLE 5. CHANGE IN REAL BLUE COLLAR WAGES AND VALUE ADDED PER EMPLOYEE IN SWEDISH INDUSTRY, 1953-1968

Change in Real Average Earnings per Hour (%)

Year Mining

Metal and Engineering

Quarrying and non-metallic manufacture

Manufacture of wood and cork

Pulp and Paper Industry Printing

Food manufacture

Beverage and tobacco industry

Manufacture of textiles, wearing apparel

Manufacture of leather, furs and rubber products

Manufacture of chemicals and chemical products

Total Industry AB Volvo

1953-1954 3.58 2.61 5.62 6.23 6.02 3.23 1.97 5.32 3.75 3.98 3.86 3.79 6.721954-1955 4.68 4.32 5.50 5.64 6.25 8.06 6.60 5.91 4.78 5.31 5.39 5.40 -1.651955-1956 2.39 3.51 2.22 2.34 3.49 3.27 1.93 2.12 3.41 2.80 4.28 3.44 2.711956-1957 2.39 1.66 2.28 1.58 1.00 1.55 1.42 0.58 1.90 2.55 1.59 1.21 3.221957-1958 1.43 2.33 1.45 1.89 0.04 2.12 1.91 0.91 1.08 1.41 0.26 2.62 -2.361958-1959 4.25 3.51 3.98 4.35 3.54 3.45 4.56 4.60 3.37 3.59 2.78 3.79 -0.591959-1960 2.36 1.68 4.16 2.38 3.58 2.55 2.45 5.94 1.40 2.54 2.14 2.42 0.911960-1961 5.20 5.46 5.34 5.37 4.62 7.16 6.04 6.45 6.76 5.32 5.03 5.65 4.261961-1962 0.09 3.00 4.66 4.07 1.44 4.42 6.86 5.36 5.15 4.00 2.78 3.66 3.011962-1963 3.05 3.89 4.49 4.85 3.63 5.94 5.61 4.11 5.00 4.87 3.23 4.11 3.251963-1964 2.97 4.83 6.13 5.53 4.96 12.70 5.80 4.27 5.95 6.55 4.90 5.26 6.101964-1965 2.70 4.79 5.47 5.51 5.51 1.88 4.47 6.53 5.27 5.82 5.71 5.28 2.451965-1966 0.95 1.56 2.66 1.57 1.90 1.40 3.76 6.19 2.39 2.18 1.93 2.10 -1.431966-1967 1.56 4.04 3.29 4.38 4.80 5.44 4.52 2.68 3.87 3.49 3.82 3.94 1.891967-1968 4.26 4.34 5.14 4.41 8.31 -5.60 11.07 7.32 7.24 4.24 3.99 4.79 2.79

Change in Real Value Added per Employee (%)

Year Mining

Metal and Engineering

Quarrying and non-metallic manufacture

Manufacture of wood and cork

Pulp and Paper Industry Printing

Food manufacture

Beverage and tobacco industry

Manufacture of textiles, wearing apparel

Manufacture of leather, furs and rubber products

Manufacture of chemicals and chemical products

Total Industry AB Volvo

1953-1954 -18.21 4.99 6.08 10.46 26.33 5.19 6.10 5.54 0.84 8.88 6.69 5.33 2.991954-1955 7.07 1.50 2.38 2.38 2.87 2.33 8.21 -2.68 0.93 3.61 0.71 2.73 -9.311955-1956 7.40 3.40 0.81 -2.95 -2.53 0.58 4.93 -6.94 1.22 -2.48 3.33 2.42 -3.741956-1957 -1.19 4.02 5.46 8.21 -0.30 0.51 4.13 1.28 5.30 3.29 2.55 3.79 19.821957-1958 -13.49 -0.76 3.77 -3.08 -6.74 0.95 5.04 8.52 1.23 -1.38 0.26 -0.82 -0.681958-1959 -0.95 6.02 12.22 12.45 1.08 4.50 3.25 5.54 2.72 3.13 8.67 5.26 -0.061959-1960 7.08 -0.71 0.03 -1.21 5.34 2.19 0.29 -7.46 2.99 -4.10 1.91 0.54 3.571960-1961 5.28 8.59 4.55 6.30 -7.20 3.58 2.20 6.14 7.00 9.89 1.32 5.45 0.401961-1962 7.20 0.40 0.98 0.40 -10.35 4.82 0.48 -1.86 1.55 0.01 2.56 0.19 23.401962-1963 -10.57 1.48 6.46 7.28 12.85 5.84 11.58 15.36 7.65 4.88 1.34 3.75 -1.841963-1964 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 3.281964-1965 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a -10.831965-1966 -10.34 1.09 -0.09 -2.61 -10.98 3.30 2.86 12.87 3.14 1.24 -2.19 0.04 -11.561966-1967 -8.65 3.17 7.16 2.49 9.91 5.21 6.01 6.55 4.15 3.06 8.88 4.32 16.21

1952

1953

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

1965

1966

1967

1968

1969

1970

1971

Year

0.6

0.7

0.8

0.9

1

1.1

1.2

1.3

Wag

e/M

etal

Ind

ust

ry W

age

QuarryingWood and CorkPulp and PaperPrinting

FoodBeverages and TobaccoTextilesLeather

ChemicalsBuilding and Construction.Public WorksFarm Workers

FIGURE 7. MALE BLUE COLLAR WAGES RELATIVE TO METAL MANUFACTURING WAGE

1952

1953

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

1965

1966

Year

0.9

1

1.1

1.2

1.3

1.4

Wag

e/M

etal

Man

ufa

ctu

rin

g W

age

Volvo

FIGURE 8. VOLVO BLUE COLLAR WAGE RELATIVE TOMETAL MANUFACTURING WAGE

FIGURE 9. REAL WAGE PER UNIT OF VALUE ADDED PER EMPLOYEE

1953

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

Years

15

20

25

30

1947

Kr.

Rea

l Wag

e/V

alu

e A

dd

ed p

er E

mp

loye

e

Metal and engineeringprinting

chemicals Total Volvo

High Wage Sectors and Volvo

1953

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

Years

10

15

20

25

30

35

1947

Kr.

Rea

l Wag

e/V

alu

e A

dd

ed p

er E

mp

loye

e

woodfood

bev and tobaccotextiles

leather (and rubber) Total

Lower Wage Manufacturing Sectors

1950

1951

1952

1953

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

Year

0

100

200

300

400

500

600

700

800

Mill

ion

s o

f R

eal 1

947

Kr.

Total Expenditures Employment Exchanges,Vocational Guidance

Retraining Programs

FIGURE 10. GOVERNMENT EXPENDITURES ONLABOUR MARKET PROGRAMS

FIGURE 11. EMPLOYMENT, ESTABLISHMENTS AND FIRM SIZE

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

year

101112131415161718

Tho

usan

ds#w

orke

rs

60

70

80

90

100

110

120

#est

ablis

hmen

ts

workers establishments Total employees

Mining

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

year

25

30

35

40

45

Tho

usan

ds#w

orke

rs

750

800

850

900

#est

ablis

hmen

tsworkers establishments Total employees

Printing

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

year

250

300

350

400

450

500

Tho

usan

ds#w

orke

rs

5000

5200

5400

5600

5800

6000

# es

tabl

ishm

ents

workers establishments Total employment

Metal

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

year

115

120

125

130

135

140

145

150

worker/establishment

Mining

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

year

31

32

33

34

35

36

worker/establishment

Printing

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

year

45

50

55

60

65

worker/establishment

Metal

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

year

47484950515253545556

Tho

usan

ds#w

orke

rs

310

315

320

325

330

335

340

esta

blis

hmen

ts

workers establishments

Paper

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

year

140

150

160

170

worker/establishment

Paper

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

year

20

25

30

35

40

45

Tho

usan

ds#w

orke

rs

450

500

550

600

650

esta

blis

hmen

ts

workers establishments Total employees

Chemical

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

year

43

44

45

46

47

48

49

50

worker/establishment

Chemical

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

year

25262728293031323334

Tho

usan

ds#w

orke

rs

550

600

650

700

750

esta

blis

hmen

ts

workers establishments Total employees

Leather

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

year

35

40

45

50

worker/establishment

Leather

FIGURE 12. EMPLOYMENT, ESTABLISHMENTS AND FIRM SIZE

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

year

3032343638404244

Tho

usan

ds#w

orke

rs1000

1100

1200

1300

1400

esta

blis

hmen

ts

workers establishments Total employment

**There was a redefinition of Establishments for this group in 1962.

Quarrying

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

year

2728293031323334

worker/establishment

**There was a redefinition of Establishments for this group in 1962.

Quarrying

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

year

7

8

9

10

11

12

Tho

usan

ds#w

orke

rs

250

300

350

400

esta

blis

hmen

ts

workers establishments Total employees

**There was a redefinition of Establishments for this group in 1962.

Beverage and Tobacco

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

year

22

24

26

28

30

32

34

worker/establishment

**There was a redefinition of Establishments for this group in 1962.

Beverages and Tobacco

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

1964

(fo

rwa

year

40

45

50

55

60

65

Tho

usan

ds#w

orke

rs

1600

1800

2000

2200

esta

blis

hmen

ts

workers establishments Total employees

Food

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

year

20

22

24

26

28

30

worker/establishment

Food

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

year

55

60

65

70

75

Tho

usan

ds#w

orke

rs

2300

2500

2700

2900

3100

3300

esta

blis

hmen

ts

workers Establishments Total employees

Wood and Cork

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

year

192021222324252627

worker/establishment

Wood and Cork

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

year

20

40

60

80

100

120

Tho

usan

ds#w

orke

rs

1200

1300

1400

1500

1600

1700

esta

blis

hmen

ts

workers establishments Total employees

Textiles

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

year

55

57

59

61

63

65

worker/establishment

Textiles

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

year

600650700750800850900950

1000

Tho

usan

ds#w

orke

rs

14500

15000

15500

16000

16500

17000

esta

blis

hmen

ts

workers establishments Total employees

Total

1954

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

year

38

40

42

44

46

48

50

52

worker/establishment

Total

FIGURE 13. REAL INVESTMENT PER ESTABLISHMENT

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

Year

0

0.05

0.1

0.15

0.2

Mill

ion

s o

f 19

47 K

r.R

eal I

nve

stm

ent

per

Est

ablis

hm

ent

Metal andEngineering

Quarryingand

manufacturingof Stone

WoodIndustry

Food

Beverageand

TobaccoIndustries

Manufactureof Textiles

Manufactureof leather

1955

1956

1957

1958

1959

1960

1961

1962

1963

1964

Year

0

0.5

1

1.5

2

Mill

ion

s o

f 19

47 K

r.R

eal I

nve

stm

ent

per

Est

ablis

hm

ent

Mining

Pulp and Paper Products incl.printing

Manufacture of Chemicals

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

Year

-200

0

200

400

600

800

1000

1200

Th

ou

san

ds

of

1947

Kr.

0

30

60

90

120

150

180

210

Vo

lvo

Pro

fits

in M

illio

ns

of

1947

Kr.

Average Real Profit per Establishment Volvo

FIGURE 14. REAL PRE-TAX PROFITS IN LARGE INDUSTRIAL ESTABLISHMENTS