However,  4  See, for example, Ljungqvist, L and T J Sargent (2006), ”How Sweden’s unemployment became more like Europe's” in Freeman R, B Swedenborg and R Topel (ed), ”Reforming the welfare state – American perspectives on the Swedish model”, SNS Förlag. BIS Review 52/2007  5  it is not exactly easy to assess the level of resource utilisation in the labour market. There are many indications of fairly large labour reserves in total, although this may not be reflected in the recently agreed wage increases. Employment appeared to be developing in line with the forecast we made in February. However, the labour supply was showing weaker development than we had expected. Altogether, this means that unemployment has been slightly lower than we assessed in our forecasts in February and the labour market situation is therefore slightly more strained. Our assessment in May was that on the whole, the repo rate would need to be raised gradually and by more during the forecast period than was indicated by the forecast we made in February. I did not consider the changes in the economic outlook to be so great that they required an immediate adjustment in the repo rate. The reason for this was that inflation is low and there are still factors holding it back. What we must do is to balance the pace of our interest rate increases so that inflation does not accelerate more quickly than expected, but so that growth in production and employment are not slowed down too soon.
It also contributed to a growing central government debt. The economy was fuelled during economic upturns, which led to overheating and inflation. The Riksbank’s task was to try to defend the fixed exchange rate. The social partners were instead to contribute to low inflation by ensuring that wage increases were not too high. Soaring wage costs and poorer international competitiveness meant that the system broke down in the mid-1970s. To safeguard the objective of full employment, the krona was devalued by a total of around 40 per cent on five different occasions between 1976 and 1982. Each devaluation held unemployment down temporarily, but instead contributed to kindle the inflation fire until it was time for the next devaluation. Unemployment was also held down in that the number of employees in the public sector increased substantially. The number of persons employed in the public sector increased from 15 to 30 per cent between 1960 and 1980. In my opinion, unemployment was held down during this period using methods that were not sustainable in the long term. I consider this to be the first important aspect to bear in mind when discussing why unemployment is now much higher than it was in the 1970s and 1980s. Towards the end of the 1980s the situation became untenable. Everyone was then counting on the krona being devalued if the rate of increase in prices and wages rose too high. The driving forces for holding down prices and wages had thus disappeared.