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From a Safety Net Economy to a Trampoline Economy

Why has Sweden managed well in economic crises during the last two decades? Here, we gather research about Swedish economic crises and industrial restructuring from the early 1990s and onwards.

Over the last half-century, Sweden has experienced considerable industrial restructuring of its business sector. In the 1980s and 1990s macroeconomic reforms and microeconomic reforms, increased resilience against significant economic shocks. After these reforms, a dynamic business sector emerged with firms of different types, many with a strong ability for adaption and with employees with a diversity of competencies, boosting job- and productivity growth.

Using a metaphor, one might say that Sweden went from being a ”safety net economy”, to a ”trampoline” economy. When established companies struggle during a crisis, in such an economy, new companies with modern technologies and sustainable business ideas are ready to take the lead, resulting in a quick recovery. The established companies are reorganizing which further strengthens the recovery. Different types of firms and employees with different skills play distinct roles during different phases of the business cycle.

 What does a sustainable industrial restructuring entail?

Research on the importance of industrial restructuring for economic growth and development has been a central part of IFN research during the previous decades. An industrial restructuring implies resource transfer from one part of the business sector to another. Developments such as the adoption of modern technologies, demand for new products and services, and scarcer natural resources force firms to adapt, and employees to develop and invest in new competencies.

During recent years, we have experienced a digitalization-driven industrial restructuring that has accelerated due to the pandemic, a process that IFN has also initiated research on. Simultaneously, IFN researchers have also taken interest in sustainable industrial restructuring which is currently at its outset. A sustainable industrial restructuring must ensure more balanced use of natural resources while maintaining a stable ecosystem. This demands a rapid reduction of carbon dioxide emissions and the development of technologies and business models that can reduce carbon dioxide emissions.

From negative effects on employment towards a trampoline economy: Swedish economic crises during the last three decades

On multiple occasions, Sweden has been adversely affected by different economic crises. Above all, two periods of crisis stand out: The Swedish financial crisis during the ’90s and the financial crisis of 2008. The 90’s crisis had the strongest negative effect on employment – both in terms of longevity and lost employment during individual years. During the years 1991 – 1993, almost 300 000 jobs disappeared. The financial crisis led to a substantial reduction in employment during a shorter period with a sharp decrease in 2009. After the acute crises phase, there was, however, a rapid recovery.

 The business sector was subject to three further shocks during the 1990s, which were less potent: The Asian financial crisis, the Dot-com bubble, and the Euro crisis. Throughout these periods, the increase in employment slowed down, and there is only during a very short period year that there is a slight decline in employment.

One explanation for why Sweden faced only mild negative effects from the Euro crisis, was the reforms implemented during the 1990s, such as abandoning the fixed exchange rate for a floating exchange rate, the introduction of an independent central bank, and stable budget rules for the government.

The reforms were, however, not only macroeconomic. The reforms included deregulation in different product markets, liberalization of foreign direct investments, a reformation of the tax system to encourage entrepreneurship and firm creation, and parts of the labor market were also reformed. These microeconomic reforms contributed to a business sector more resilient to future negative shocks and crises and implied that Sweden went from being a ”safety net economy”, to a ”trampoline” economy.


Further Reading in Swedish and English:

Davidson, Carl, Fredrik Heyman, Steven Matusz, Fredrik Sjöholm and Susan Chun Zhu (2020). ”Globalization, the Jobs Ladder and Economic Mobility”. European Economic Review 127, 103444.

Gardberg, Malin, Fredrik Heyman, Pehr-Johan Norbäck and Lars Persson (2020). ”Digitization–Based Automation and Occupational Dynamics”. Economics Letters 189, 109032. 

Heyman, Fredrik, Pehr-Johan Norbäck and Lars Persson (2018). ”Who Creates Jobs and Who Creates Productivity? Small Versus Large Versus Young Versus Old”Economics Letters 164, 50–57. 

Olsson, Martin and Joacim Tåg (2017). ”Private Equity, Layoffs, and Job Polarization”Journal of Labor Economics 35(3), 697–754. 

Heyman, Fredrik, Pehr-Johan Norbäck and Lars Persson (2016). ”Digitaliseringens dynamik – en ESO–rapport om strukturomvandlingen i svenskt näringsliv”. Rapport till Expertgruppen för Studier i Offentlig ekonomi 2016:4. Stockholm: Finansdepartementet.

Davidson, Carl, Fredrik Heyman, Steven Matusz, Fredrik Sjöholm and Susan Chun Zhu (2014). ”Globalization and Imperfect Labor Market Sorting”Journal of International Economics 94(2), 177–194.

Nilsson Hakkala, Katariina, Fredrik Heyman and Fredrik Sjöholm (2014). ”Multinational Firms, Acquisitions and Job Tasks”European Economic Review 66, 248–265.

Heyman, Fredrik, Pehr-Johan Norbäck and Lars Persson (2013). ”Var skapas jobben? En ESO–rapport om dynamiken i svenskt näringsliv 1990 till 2009”. Rapport till Expertgruppen för Studier i Offentlig ekonomi 2013:3. Stockholm: Finansdepartementet.

Norbäck, Pehr-Johan and Lars Persson (2009). ”The Organization of the Innovation Industry: Entrepreneurs, Venture Capitalists and Oligopolists”Journal of the European Economic Association 7(6), 1261–1290. 

Davis, Steven J. and Magnus Henrekson (1999). ”Explaining National Differences in the Size and Industry Distribution of Employment”Small Business Economics 12(1), 59–83.