Causes of structural unemployment in Finland and Sweden 1990-2004* Klas Fregert, Department of Economics, Lund University, Sweden,
[email protected] Jaakko Pehkonen, Department of Economics, University of Jyväskylä, Finland,
[email protected] Abstract: We describe the size and timing for comprehensive as well as decomposed measures of unemployment in Finland and Sweden between 1990 and 2004. We then test for and confirm a change in the structural rate of unemployment by finding structural breaks in the Okun and Beveridge relations. Finally, we employ existing empirical models to examine the contributions of exogenous factors to the changes in the structural unemployment rate. We present separate estimates for the mid-1990s, late 1990s and early 2000s. They indicate that the structural rate has decreased in both countries, but has not returned to the levels of the 1980s. Keywords: Structural unemployment; Okun curve; Beveridge curve; Finland; Sweden, JEL: E24; E65; J64 * A shorter version is forthcoming in: The Crisis of the 1990s in Finland and Sweden. The Nordic experience of financial liberalization, Editors: Lars Jonung, Jaakko Kiander and Pentti Vartia, Edward Elgar 2008 0 The crises of the 1990s and unemployment in Finland and Sweden Klas Fregert and Jaakko Pehkonen Introduction The unemployment figures during the early 1990s crises in Finland and Sweden had not been experienced since the Great Depression, and even now, about 15 years later, unemployment is still considerably higher, by any measure, than the normal post-World War II level. In this chapter, we investigate the character and the causes of the unemployment crisis in Finland and Sweden and their aftermath.