OECD calls for Swedish labour market reform

Sweden needs to pare down its bureaucracy, introduce more competition in the public sector and liberalize labour markets if it is to cater effectively for an ageing population and preserve its high standards of social welfare, according to a new OECD report.

The report, which was presented to the Swedish parliament on Friday, also calls for improved competition in the construction and food retailing industries, as well as more independence and stronger powers for the Competition Authority (Konkurrensverket).

The OECD would also like to see more effort made to avoid situations where the public sector is in direct competition with private actors. The report mentions public-owned bakeries, gyms and garden centres as examples of distorted competition acting as a hindrance to the creation of small firms.

The report – ‘Sweden: Achieving Results for Sustained Growth’ – praises the country for progress made on regulatory reform since the early 1990s, which has resulted in major productivity gains. In terms of GDP per capita, Sweden comes in above the euro area average. Spending on research and development as a percentage of GDP exceeds that of all other OECD countries.

Sweden is also held up as a positive example of a country that has successfully met its own ambitious environmental goals. The use of market-friendly taxes to virtually eliminate fossil fuels from the heating and household sectors is presented as a case in point.

But these successes need to be followed by further reforms. Job creation, for example, has remained low despite a thriving economy. A more flexible labour market and greater competition would lead to more new businesses and an injection of jobs, with the services sector likely to benefit most.

The OECD carried out the report following a request from the Swedish government – in common with a number of other countries – for a broad review of its regulatory practices and reforms.