Wednesday, January 04, 2006

Swedish Unemployment Increases Despite Cyclical Boom

Following up on the last post, where I pointed out how Sweden is now in a cyclical boom driven by rapid credit expansion induced by the interest rate cuts of the Swedish central bank, Riksbanken, as well as combined tax cuts and spending increases from a Social Democratic government desperate to avoid defeat at the elections due September this year.

Yet despite large interest rate cuts and the falling value of the krona this have implied and despite the fiscal stimulus, the latest weekly labor statistics show that unemployment -including unemployed which the government have put in training programs to mask unemployment- rose by 10,208 in the lastest week compared to the same week last year . While that is a lower increase than the 28,847 it increased in the 52 week period before that, it is extremely dismal considering that it occured when both monetary and fiscal policy are as "stimulative" as possible. And if unemployment continues to increase during a cyclical boom, just how much will it increase during a coming recession? The Swedish labor "market" is highly dysfunctional because high taxes, unemployment insurance payments and mimimum wages have made it necessary to put quotation marks around the market in labor market.


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