If the incentives are low for workers to quickly change jobs and move to a new sector, at the same time as the incentives for firms to employ labour from a different sector are reduced by high initial wages, costs of sick leave and job security, there is a risk that more people will get stuck in the transition. This would entail a rise in frictional unemployment. In addition, the risk of long-term unemployment rises if more people become discouraged and stop looking actively for work. The Swedish labour market has previously functioned efficiently in these respects. Think of the closing down of almost the entire textile industry and of the shutdown of the Swedish shipyards at the same time as the paper and pulp industry and the iron and steel industry were rationalised considerably during the 1970s. Not least the trade union movement, more specifically the Swedish Trade Union Confederation, helped facilitate structural change. Read the official reports from 1941, 1951 and 1961 for the Confederation’s conferences in those years. The findings of these reports are something we need to take in today. The trade union movement realised that structural change was the prerequisite for increasing real wages and for generally higher prosperity. Conclusions I believe that it’s fully possible with the right methods to achieve both an employment rate that is sharply higher and an unemployment rate that is considerably lower than today’s level.
The fact that employment depends on a number of other factors than monetary policy decisions and cyclical variations is illustrated, among other things, by the miscalculations of the National Labour Market Board just prior to 2004. In November last year the Board estimated that Swedish economic growth would be 1.4 per cent in 2003 and 1.9 per cent this year, while unemployment was forecast to be 5.1 per cent this year. Moreover, the Board believed that the repo rate should be cut from 2.75 to 2.25-2.5 per cent. These forecasts were roughly in line with those of the Riksbank at that time, with the exception that we, as usual, based our forecasts on the assumption that the repo rate would be kept unchanged. A year later we can say that economic growth has exceeded both the National Labour Market Board’s and our expectations at the same time as the monetary stance has become looser. Nevertheless, labour market growth has been weaker. This shows both that forecasters can be surprised by unexpected developments in the economy and that unemployment at present is not chiefly due to insufficient demand for goods and services owing to low growth and tight monetary policy.