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ECONOMY

Union power should come with responsibility

Swedish interest rate rises have been pushed on by high wage demands from trade unions. The unions' short-term gains are being won at the expense of the economy as a whole, argues Nima Sanandaji of think-tank Captus.

The Swedish Central Bank (the Riksbank) last week increased the interest rate by 0.25 percentage points, in a move that will cool down the pace of the Swedish economy. Given that some 20 percent of the workforce is still not active in the labour market and that visible and hidden unemployment remains high, this move is less than desirable.

The Riksbank (as a historical note the first of its kind in the world, founded in 1668) in most likelihood made the right decision. If anyone is to blame, it might be the Swedish labour unions. One of the causes of the interest rate increases is the high wage demands, resulting from aggressive negotiations from Swedish labour organizations.

You could choose to look at the labour market from the same perspective as any other market, where prices are determined by supply and demand. But the reality is that the labour unions have been privileged by various rules and regulations that give them disproportional powers of negotiation.

There are a number of laws that are formed in such a way as to promote the power of unions in workplaces. For example the labour unions can exclude workers from the “first in last out” law, a law that stipulates that those who have been on a workplace the longest are the last ones to be made laid off.

This rule gives the unions the ability to intimidate workers into joining their organization, out of fear of being fired. Also, if a company signs a union deal, all workers will be part of the collective contract, even those not wishing to be. Not only can unions force or persuade workers into joining their organizations, they can also force companies to sign contracts, by threatening to put them under blockade.

According to the unions themselves, their actions in the labour market are justified by the fact that they safeguard the interests of the workers. If the unions were not active, the argument goes, workers wages would decrease rather than increase. In fact, there is no support for this argument. OECD statistics show that around 60 percentage points of GDP in various industrial nations go to wages for workers, whereas the remaining 40 percentage points are income of one person firms, taxes and profits.

A look at the OECD countries shows no correlation between the number workers on under collective contracts and the percentage of GDP given to workers as compensation for labour (this statistics can be found in the report “I fackföreningarnas intresse – en granskning av de nya moderaternas arbetsmarknadspolitik, published by Captus in Swedish, 2007).

In reality, the unions can distort the economy by forcing the wages of the workers over the market price temporarily. Or, as in the case of Sweden, increase the wages of the less skilled at the expense of the well skilled (who are severely underpaid in Sweden). But in the long term, market mechanisms rather than collective contracts are the real guarantees of the high living standard of workers in industrial nations.

Whether or not it is fair, the unions have considerable strength in wage negotiations and if they decide to, they can negotiate aggressively and temporarily increase wages over the market price. Of course, this distortion of the market leads to problems – for the very same workers the unions claim to protect. According to the National Institute of Economic Research (Konjunkturinstitutet) a wage increase of one percentage point, above the market price for labour, leads to a loss of around 100,000 jobs in the long term.

Sharp rises in wages force the Riksbank to increase the rate, reducing economic growth and increasing the costs for companies and individuals alike who have loans. Great power aught to come with great responsibility. If Swedish unions had abided by this mantra, we would most likely be in a better economic situation. Contrary to socialist ideology, what makes economic sense for the Swedish economy as a whole benefits the majority of workers and firms alike. Sadly, the short-term interest of the unions is not always the same thing as the long term interest of the country.

Nima Sanandaji

Nima Sanandaji is the president of the Swedish free market think tank Captus and publisher of the weekly online Swedish magazine Captus Tidning. He is also a PhD student at The Royal Institute of Technology in Stockholm.

www.captus.nu

www.captustidning.se

ECONOMY

‘Tougher times’: Sweden’s economy to slow next year

Consumers in Sweden are set to crimp spending over the rest of the year, pushing the country into an economic slowdown, Sweden's official economic forecaster has warned in its latest prognosis.

'Tougher times': Sweden's economy to slow next year

A combination of record high energy prices over the winter, rising interest rates, and inflation at around 10 percent, is set to hit household spending power over the autumn and winter, leading to lower sales for businesses and dragging economic growth down to just 0.5 percent next year. This is down from the 1.2 percent the institute had forecast for 2023 in its spring forecast. 

“I don’t want to be alarmist,” Ylva Hedén Westerdahl, forecasting head at the Swedish National Institute of Economic Research, said at a press conference announcing the new forecast. “We don’t expect the sort of economic slowdown that we saw during the financial crisis or the pandemic, where unemployment rose much more. But having said that, people who don’t have a job will find it tougher to enter the labour market.” 

She said that a shortage of gas in Europe over the winter, will push electricity prices in Sweden to twice the levels seen last winter, while the core interest rate set by Sweden’s Riksbank is set to rise to two percent. 

As a result, Sweden’s unemployment rate will rise slightly to 7.8 percent next year, from 7.7 percent in 2022, which is 0.3 percentage points higher than the institute had previously forecast. 

On the plus side, Westerdahl said that she expected the Riksbank’s increases in interest rates this year and next year would succeed in getting inflation rates in Sweden under control. 

“We expect a steep decline in inflation which is going to return to below two percent by the end of 2023,” she said. “That depends on whether electricity prices fall after the winter, but even other prices are not going to rise as quickly.” 

After the press conference, Sweden’s finance minister, Mikael Damberg, said he broadly agreed with the prognosis. 

“I’ve said previously that we are on the way into tougher times, and that is what the institute confirms,” he told Sweden’s state broadcaster SVT. “There’s somewhat higher growth this year, at the same time as fairly high inflation which will hit many households and make it tougher to live.”

Damberg called on Sweden’s political parties to avoid making high-spending promises in the election campaign, warning that these risked driving up inflation. 

“What’s important in this situation is that we don’t get irresponsible when it comes to economic policy,” he said. “Because when parties make promises left, right and centre, it risks driving up inflation and interest rates even more, so Swedish households have an even tougher time. Right now, it’s important to prioritise.” 

 The call 

Sverige är på väg mot lågkonjunktur enligt Konjunkturinstitutets (KI) senaste prognos. Enligt finansminster Mikael Damberg (S) är det därför viktigt att Sverige sköter sin ekonomi ansvarsfullt och vågar prioritera.

– Jag tror att alla partier behöver vara lite återhållsamma och inte lova för mycket, säger han.

Mikael Damberg tycker att KI tecknar en realistisk bild av Sveriges ekonomiska verklighet.

– Jag har sagt tidigare att vi går mot tuffare tider och det är väl det som KI bekräftar. Något högre tillväxt i år men sämre tillväxtförutsättningar nästa år samt fortsatt ganska hög inflation som slår mot många hushåll och gör det tuffare att leva, säger han.

Och vad vill regeringen göra åt det?

– Det är viktigt att vi i det här läget inte är ansvarslösa i den ekonomiska politiken. För när partier lovar vitt och brett till allt riskerar vi att driva upp inflationen, öka räntan ytterligare och svenska hushåll får det svårare. Nu måste man våga prioritera.

Se intervjun med Damberg om konjunkturläget klippet ovan.

“Electricity prices are going to be twice as high as last winter,” said 

Elpriserna kommer att bli dubbelt så höga som förra vintern, säger Ylva Hedén Westerdahl, chef för Konjunkturinstitutets prognosavdelning, på en pressträff.
Den lågkonjunktur som KI ser framför sig kallar hon trots det för en mjuklandning. Den handlar främst om att människor kommer att ha mindre pengar att konsumera.

“Brist på gas i Europa gör att energipriserna ser ut att bli rekordhöga under vintern”, skriver KI, och ser att inflationen kommer att närma sig 10 procent.

Deras prognos för styrräntan är att den ligger på 2 procent vid årsslutet, vilket gör att inflationen faller tillbaka snabbt under nästa år och Riksbanken låter då räntan ligga still.

KI tillägger att de offentliga finanserna är fortsatt starka och de bedömer att det finns ett budgetutrymme på runt 120 miljarder kronor för de kommande fyra åren.

Vad gäller BNP spår KI en blygsam tillväxt på 0,5 procent nästa år – en nedskrivning från tidigare 1,2 procent.

Prognosen för arbetslösheten under 2023 är 7,8 procent, 0,3 procentenheter högre än tidigare prognos.

Fredrik Fahlman/TT
Johanna Ekström/TT

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