RECENT:
The Solow Residual: Increasing Returns and Factor Utilization
Seminar on Demand Paper Appendix Short presentation Long presentation
In Swedish manufacturing industries, the correlation between yearly changes of production and yearly changes of TFP is often above 0.9. Most of this correlation is explained by demand variation together with increasing returns to scale and variable factor utilization. This leaves little room for technology shocks in the explanation of the cyclical variations of the Solow residual.
This is a substantially revised version of the paper Deep Dynamics.
The Beveridge Curve, Matching and Labor Market Flows -- A Reinterpretation
Published online in Oxford Bulletin of Economics and Statistics here
A standard theory of the Beveridge curve is based on the matching function: when unemployment is high, vacancies are filled quickly, so fewer vacancies are needed to balance the inflow into unemployment. Estimating matching functions on panel data, we find no (or very weak) evidence that vacancies are filled quickly when unemployment is high. A model with on-the-job search can explain the Beveridge curve when vacancies are filled at a constant rate: when unemployment is high, unemployed job seekers fill a larger share of the vacancies, so fewer vacancies are needed to balance the inflow into unemployment.
We are NOT Poorer Without the Euro
The discussion about the euro has been revived recently by businessmen and politicians suggesting that we have become poorer without the euro and that we should introduce the euro in Sweden. Also, they suggest that we should convert the currency at a much higher value of the krona compared to the current rate. In Dagens Industri (March 7, 2024) I argue that fixing the rate at a much higher value would destroy our industry. Also, we have not become poorer compared to the countries which introduced the euro in 1999. On the contrary, real wages have increased more in Sweden; see GRAPH.
DEEP DYNAMICS (with Glenn Mickelsson and Karolina Stadin) NEW VERSION 2024 VERY SHORT PRESENTATION
We use panel data to examine how firms adjust production, employment, capital and inventories in response to demand-side shocks. Then, we construct a theoretical model that matches our estimated impulse-response functions. We find that a combination of convex adjustment costs and implementation lags explains average input adjustment very well. While inputs adjust slowly, production responds quickly to the demand shock and this is explained by increasing returns (overhead labor) and increased factor utilization. Inventory adjustment amplifies the effects of demand-side shocks on production.
Response to referees at top journal
Is Sweden the Poor Cousin of Euroland? A comparison to the original members of the Eurozone
With the weak krona, many appear to think that we have done poorly without the euro. This is not true.
See my article in Svenska Dagbladet (Sept. 25, 2023).
Will high inflation lead to compensatory wage demands?
Seminar arranged by International Labour and Employment Relations Association (ILERA) September 2022 .
Main presentations by Per Jansson (Deputy Governor of the Riksbank) and me (in Swedish).
WHY? ЗАЧЕМ? Flogsta says NO TO WAR
FIRMS’ EMPLOYMENT DYNAMICS AND THE STATE OF THE LABOR MARKET
Karolina Stadin finally managed to publish her important paper in Macroeconomic Dynamics:
According to search and matching theory, a greater availability of unemployed workers should make it easier for a firm to fill a vacancy, but more vacancies at other firms should make recruitment more difficult. Simulating a theoretical model of a firm facing perfect competition in the product market and no convex adjustment costs (standard assumptions in the search and matching literature), I find that shocks to vacancies and unemployment lead to economically significant employment responses. Simulating a more realistic model with imperfect competition in the product market and convex adjustment costs, I find small employment effects of shocks to vacancies and unemployment. In particular, shocks to the number of unemployed seem to be unimportant. Estimating an employment equation on a panel of Swedish firms, I find that neither the number of unemployed workers nor the number of vacancies in the local labor market is important for firms’ employment decisions.
SWEDEN NEEDS MORE INFLATION Svenska Dagbladet 2020 (in Swedish) In a normal situation with positive interest rates, higher wage increases are costly for firms. But with an interest near zero, the logic becomes the reverse – higher wage increases raise inflation and reduce the real cost of financing for firms.
THE EUROPE-NORM IS IRRELEVANT (Europa-normen saknar relevans), report in Swedish commissioned by Swedish unions (6F) 2019.
We have strong unions in Sweden and coordination around a wage norm is important. We left the fixed exchange rate in November 1992 but some still argue as if we had a fixed exchange rate, saying that wage growth in Sweden should be in line with wage growth in "Europe". But with a flexible exchange rate and an inflation target, discussions about appropriate wage growth should instead focus on four aspects: i) the inflation target, ii) relative price changes, iii) productivity growth and iv) the labour market situation. Wage growth in "Europe" is irrelevant.
THE LABOR MARKET IN SWEDEN SINCE THE 1990s, IZA World of Labor online publication 2018
+ Labor force participation and employment rates in Sweden have increased and are now among the highest in the EU.
+ The unemployment rate has been fairly stable and is below the EU average.
+ Labor force participation among women is close to that of men, and labor force participation among older workers is high and trending up.
+ Wage inequality is low and stable and women’s wages are catching up.
+ Real wages have increased steadily for all major groups of workers.
- Labor force participation among young workers has declined.
- The unemployment rate is more than twice as high as it was in the 1970s and 1980s.
- Workers without upper secondary school education do poorly in the labor market, and their problems appear to be growing.
- Immigrants have high unemployment rates, but there is a positive trend in participation and employment rates.
- Income differentials have increased between those who have a job and those who do not.
NORGES BANK WATCH 2016 - An Independent Evaluation of Monetary Policy in Norway