The wage share and government job creation in Sweden, 1900–2016

ABSTRACT

This investigation explores the long-run relationship between the wage share in the non-construction private sector and government efforts to create jobs in public services and construction of infrastructure and houses, in Sweden in 1900 to 2016. In the present article, it is argued that the creation of employment with generous wages by the Swedish government has increased the bargaining power of workers outside of these sectors, thus raising the wage share, up to about 1980. Correspondingly, retrenchment from such policy has been detrimental for the wage share in recent decades. This argument is supported by the results of cointegration tests, estimation of long-run and short-run, speed of adjustment, coefficients, as well as by Impulse-response functions. While government consumption is often found to be an important determinant for the wage share, earlier research has neglected the full labor market effect of government job creation associated with an expansion of the welfare state. Sweden is an ideal case for studying the impact of welfare policy on the wage share, since it has been one of the most extensive welfare states and simultaneously has been one of the most egalitarian countries in the world.

KEYWORDS:

• Wage share
• income inequality
• government employment
• public sector
• welfare state

Disclosure statement

No potential conflict of interest was reported by the author.

Additional information

Notes on contributors

Lars Ahnland

Lars Ahnland is affiliated with the Department of Economic History and International Relations at Stockholm University, Sweden, where he works as a researcher and senior lecturer. He holds a PhD in Economic History from Stockholm University, Sweden.