In recent years, both the percentage of people at work and the hours worked per person have fallen and thus provided a negative contribution to the change in the total number of hours worked in the economy. The fact that mean working time has fallen is partly due to a decline in overtime and normal working hours. The reason behind this development is not entirely clear. Cyclical effects as well as the effects of taxes and benefits are possible explanations. Seen in a longer-term perspective ahead, it is likely that households will tend to want to reduce the mean working time per person so as to use some of their increased prosperity in the form of more leisure time. So what conclusions can we draw regarding developments in the total number of hours worked in the economy on the basis of this review of the various components? Unfortunately, the prospects are not so bright if no measures are taken to improve the situation. In a long-term perspective, the demographic development is very unfavourable because the percentage of the population of working age is decreasing. The problems will be exacerbated if the rise in early retirement and long-term sick  2  The Swedish National Social Insurance Board, “Vem önskar lämna arbetslivet med förtidspension?”(Who wants to leave work on a sick pension? )’, RVF Analyserar 2004:7, and Statistics Sweden, Välfärd (Welfare), No. 1 2003.
Recently, the focus has moved partly away from pure studies of the effects of the income tax system to the combined effects on the labour supply of taxes and various benefit and social insurance systems. The focus has often been on people that work to a smaller extent, that are on sick leave or that are outside the labour force. We know from economic research that different types of compensation and benefit affect the individual’s reservation wage, that is to say, the wage level that primarily influences the individual’s decision to participate in the work force. The reservation wage varies from person to person and if the wage level offered on the market is lower than the reservation wage, the person chooses not to work. One can say that the individual values his or her time more highly than the market does. The relationship between the wages for work offered on the market and the individual reservation wage is thus a decisive factor in the decision on whether or not to work. It is easy to understand that the reservation wage will be affected by taxes, compensation levels in the unemployment and social insurance systems, rules for early retirement, etc.