Home > Uncategorized > Second graph of the day. Why did Sweden do so much better than Denmark, after 2008?

Second graph of the day. Why did Sweden do so much better than Denmark, after 2008?

Swedendidbetter

In the former post it was shown that Sweden did much better than Denmark when it comes to the post-2008 increase of long term unemployment. Why? Denmark pursued, influenced by neoclassical mythology, a policy of rigid money/flexible labour markets while Sweden pursued a policy of flexible money/normal labour markets. As a consequence, the employment rate in Sweden decreased much less than in Denmark, a sharp break with the past. In a crisis, ‘easy money’ policies aimed at boosting effective demand clearly trump the Danish ‘easy hire/easy fire/re-education’ policies formally aimed at boosting the effective supply of labour. But which in a real slum, as there is not too much hiring, permanently diminishes the effective supply of labour. Some call this the macro consequence of scarring. Some call this the lasting effects of the ‘paradox of flexibility’. Some call it hysteresis. I call it plain stupid.

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  1. December 31, 2013 at 2:29 am | #1

    This seems like an argument in favor of using monetary policy to get out of recessions instead of flexible regulatory regimes, but is not an argument against flexibility in markets the rest of the time. So how does this show the Danish model to be “just plain stupid”?

    • merijnknibbe
      December 31, 2013 at 10:47 am | #2

      I didn’t intend to call the Danish model ‘plain stupid’. I intended to call the neo-liberal idea that it’s all about supply while demand takes care of itself ‘plain stupid’. Last time I checked markets did not just consist of suppliers but also of customers – and of institutions which enable suppliers and customers to find each other and to make and enforce contracts. Remember: this flexicurity ideas are based upon new-classical models which assume unemployment away and which have only one producer/consumer! It’s very much assuming the Robinson Crusoë story is the right metaphor for the macro economy! However, we have to redefine ‘flexibility’ as real flexibility also enhances the power of labour, for instance the right to change a full time job to a part time job and the like. Worked very well in the Netherlands. And zero-hour contracts must, as ‘zero-hours’ are as such of course a service supplied by an employee to the employer (otherwise the employer would not negotiate a contract at all!) of course have a basic renumeration of, say, 10% of a full-time job. Flexibility is abour empowering people, not about dumbing them down by giving mediocre managerz the power to hide their mistakes by firing others.

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