ARBETSMARKNADSREGLER UNDER LUPP SVENSKT NÄRINGSLIV 18 NOVEMBER 2010

Labor Market Regulation – Should We Bother? Knowledge is main factor of growth, societal value created through: Individual – appropriate skill and education Industry – efficient allocation (of relevant knowledge) across sectors Innovation – process of making knowledge economicallt valuable to society Regulations – influence capacity to restructure, more important due to global integration (Rogoff)

Strict employment regulation - dynamic effects Lock-in effects, dynamics lower, restructuring slower, lower entry rates (Djankov et al 2002, Autor 2007, Kugler & Pica 2008, Micco & Pages 2008) ”Constrained contractual capabilities” at labor markets (and in the financial system) hamper the process of creative destruction (Caballero and Hammour 2000) Productivity decrease as labor market regulations become more severe (Bassanini and Venn 2007, Martins 2009) Negative effects on marginal groups, redistribution effects (Skedinger 2008) Exemption from first in-last out principle, lower sick leave (Lindbeck 2006)

Negative impact on location/establishment of firms (Gross & Ryan 2008, Javorcik et al 2006) Regulated labor market negatively influence entry particularly for opportunity based entrepreneurship (Ciccone and Papaioannou 2006, Ardagna and Lusardi 2010) Less employment due to higher risk in SMEs (Fraisse 2008), others find no effect on employment (von Below & Skogman Thoursie 2008) No systematic evidence for strict labor market regulation positively affect level of employment Empirical evidence inconclusive

Innovation and labor market regulation Mobility of labor – channel through which knowledge is transmitted, associated with higher productivity (Andersson & Thulin 2009) Diffusion of knowledge expected to facilitate innovation Strict labor market regulation, stronger trade unions/higher wages, firms less willing to take risk and less innovation (Malcomson1997, Arvanitis 2005) Less mobile labor force, keep competence and innovation capacity of (large) firms, lower administrative costs But radical innovations (often in SMEs) may be hampered (Zhou et al 2010) Evidence inconclusive

Labor market structure and regulation Countries with strict employment regulations – high growth in fixed term contracts Sweden, majority of firms with less than 50 employess – no collective wage agreement with trade unions Transaction costs – employees fired due to strictness even if they productive and employer wants to keep them (Blanchard & Landier 2002) Individual security does not seem to vary with strictness in employment laws (attitude surveys) Dual labor market

Swedish labor market and future challenges? Dual structure? Fixed term employees increased from about 9 to 14 % Flexibility, allocation of knowledge? Demand side – SMEs and entry of new firms? Growth of new firms?

Education level and mobility

Employment changes distributed on size categories, private sector, Källa: SCB

Employment in genuinely new firms 1990–2009, (1000) Källa: Statistiska Centralbyrån. Anm.: NSYSS j / 1000

Selected labour market regulations under current law NB: Should be ”last in – first out”

Reform the Swedish labor market. Reforming the Protection of Employment Act (LAS) in order to increase adjustment capacity in the economy, strengten allocation efficiency, strengthen individual incentive to upgrade and invest in knowledge, enhance growth potentials and lower the barriers to labour market entry. Competence should count as a ”factual” criteria Abolish rules of first in – last out CF: Large firms – negotiation with trade unions Small firms (<10 L) – exemption rule Plus number of other reforms to enhance employees employability and enable smooth transitions between jobs and sectors