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The 'Third Way' Revisited. A Revaluation of the Swedish Model in the Light of Modern Economics

Author

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  • Erixon, Lennart

    (Department of Economics)

Abstract

The macroeconomic principles behind the Swedish model were developed by two trade union economists, Gösta Rehn and Rudolf Meidner, shortly after World War II. The model’s economic and wage policy represents a unique third way between keynesianism and monetarism in its approach to combine full employment and growth with price stability and equity. This essay describes the content and economic foundation of the Rehn-Meidner model and evaluates its validity in the light of later theoretical and empirical work. With some exceptions, the model is either in harmony with or a serious challenge to current thinking about employment, inflation and growth. The model’s main contribution to economics is its dynamic description of wage formation, giving room for both competitive forces, X-inefficient firms and wage setting phenomena such as relative wage preferences, labour market policy and a wage policy of fairness. The model also makes a valuable contribution to modern growth economics by incorporating the idea that structural change and company productivity can be promoted by profit squeezes induced by wage and economic policy.

Suggested Citation

  • Erixon, Lennart, 2000. "The 'Third Way' Revisited. A Revaluation of the Swedish Model in the Light of Modern Economics," Working Paper Series 159, Trade Union Institute for Economic Research.
    • Handle: RePEc:hhs:fiefwp:0159
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    File URL: http://swopec.hhs.se/fiefwp/papers/WP159.pdf
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    References listed on IDEAS

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    1. George A. Akerlof & Janet L. Yellen, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(2), pages 255-283.
    2. Calmfors, Lars, 1993. "Lessons from the macroeconomic experience of Sweden," European Journal of Political Economy, Elsevier, vol. 9(1), pages 25-72, March.
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    7. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
    8. Lars Calmfors, 1993. "Centralisation of Wage Bargaining and Macroeconomic Performance: A Survey," OECD Economics Department Working Papers 131, OECD Publishing.
    9. Mahmood Arai, 2003. "Wages, Profits, and Capital Intensity: Evidence from Matched Worker-Firm Data," Journal of Labor Economics, University of Chicago Press, vol. 21(3), pages 593-618, July.
    10. Bewley, Truman F., 1998. "Why not cut pay?," European Economic Review, Elsevier, vol. 42(3-5), pages 459-490, May.
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    Citations

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    Cited by:

    1. Arai, Mahmood & Thoursie, Peter Skogman, 2005. "Incentives and selection in cyclical absenteeism," Labour Economics, Elsevier, vol. 12(2), pages 269-280, April.
    2. Vincent Touzé, 2007. "Les performances économiques de la Suède," SciencePo Working papers Main hal-03471883, HAL.
    3. Erixon, Lennart, 2001. "Transformation Pressure and Growth - a Missing Link in Macroeconomics," Research Papers in Economics 2001:3, Stockholm University, Department of Economics.
    4. repec:hal:spmain:info:hdl:2441/3881 is not listed on IDEAS
    5. repec:spo:wpmain:info:hdl:2441/3881 is not listed on IDEAS
    6. Strauss, Tove, 2000. "Economic Reforms and the Poor," Working Paper Series 164, Trade Union Institute for Economic Research.
    7. Maliranta, Mika, 2002. "Factor Income Shares and Micro-Level Restructuring. An Analysis of Finnish Manufacturing," Discussion Papers 796, The Research Institute of the Finnish Economy.
    8. Strauss, Tove, 2000. "Structural Reforms, Uncertainty, and Private Investment," Working Paper Series 165, Trade Union Institute for Economic Research.
    9. Maliranta, Mika, 2002. "From R&D to Productivity Through Micro-Level Restructuring," Discussion Papers 795, The Research Institute of the Finnish Economy.

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    More about this item

    Keywords

    Profits; Inflation; Fair Wages; Labour-market policy; Fiscal Policy; Employment; Productivity; Structural change;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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