sou · GWB3105EN · 2009-01-01 00:00:00 — Therefore, the series that follow are reported both with and without the industries in which the public sector is a leading actor (industries L-Q according to the Swedish Standard Industrial Classification).2 The most common method of measuring the pace of structural change is with the help of measures based on industries share of total output. A number of measures of structural change are available, and there is no common view of which one is best. The pace of structural change measured by the shift share in absolute terms increased in the 1990s compared with the 1980s (table 5.1).3 The level of the pace of structural change after 1990 compared with the 1970s depends on whether the industries L-Q are included. The pace of structural change in the period after 1990 compared with the 1980s, measured with sigma, has also increased. This is valid whether or not the industries L-Q are included.4 The pace in the last 15 years compared with the 1970s is higher if the industries L- Q are excluded, but approximately the same if they are included. If instead the value added is measured using sigma, the pattern is largely the same but with smaller differences between the 1980s and 1970s and greater differences between the period after 1990 and the preceding decades. The long period with a rapid pace of change during the second half of the 1990s is explained by the sharp increase in the value added in the telecommunications products industry during these years. Estimated based on Moores method, the result is somewhat different compared with the estimates based on the shift share and methods.5 The most obvious difference is that the pattern differs markedly for the value added. The more rapid pace of change after 1990 compared with the 1980s holds true both with and without the industries L-Q. However, the pace of structural change after 1990 compared with the 1970s differs, depending on whether the industries L-Q are included. The Long-Term Survey 2008 Economic Change and Adaptability Fact box 5.2 Measures of the pace Table 5.1 Composition of the measures of structural change Index 1971–1979=100, average Hours worked, total Hours worked, not L-Q Value added, not L-Q Hours worked, total Hours worked, not L-Q Value added, not L-Q Hours worked, total Hours worked, not L-Q Value added, not L-Q Note: Education, health and care and other social services are included in the industries L-Q (SNI). Source: EU KLEMS and calculations. 1 Data from EU KLEMS has been used in the analysis. EU KLEMS is a project financed by the EU to produce comparable time series for national accounts from 1970 onwards. The EU KLEMS has data for 47 industries. information on the data series is available on the projects website: . 2Education, health and care and other social services are included in these industries. Structural change for the value added in the entire economy is not reported since the value added for public services has thus far been measured by an indirect method where the value has been set at the cost of wages. 3The sum of absolute changes in shares. This method is used by , L., , O. & , L. [2000], , L. [1997] and Kongsrud, P.M. & Wanner, I. [2005]. 4The deviation in the change in employment for sub-sectors compared with the total, weighted for industry shares. This method is used by the [2007a]. 5Measures the difference in degrees between the vector for the base year and the reference year. This method is used by , M. & , P. [2002]. Substantial differences in the pace of structural change between countries An international comparison shows that there does not appear to be any common trend in the pace of structural change for the countries compared (table 5.2). The differences between countries are large, particularly with respect to the pace but also the level. differed from the others in the 1980s with a considerably lower pace of structural change while the level from 2000 to 2005 is Economic Change and Adaptability The Long-Term Survey 2008 and the had a divergent, low pace of structural change during the early 2000s, which is interest- ing in light of the intensive debate on the impact of international- isation in these countries. Table 5.2 Structural change measured as the annual change in the share of hours worked, 1971–2005 Note: The table shows how large the shift in the labour force between industries has been each period, calculated as the absolute annual change divided by two. The figure 1.24 for from 1971–1979 shows that between these years, the average annual employment structure changed by 1.24 percentage points, i.e. the relatively growing industries became that much bigger at the cost of the contracting industries. Industries L-Q are not included in order to make it easier to compare countries. Source: EU KLEMS and calculations. The employment dynamic measures how many jobs are created in the economy and how many are lost every year. As mentioned previously, it is a broader concept than structural change in that it also covers change within industries. A number of studies of different countries have in the last 15 years looked at the gross flows underlying net changes in employment.131 In the early 2000s, the annual employment dynamic, i.e. jobs created and jobs lost in relation to the total number of jobs, came to about 25 per cent.132 According to studies, the employment dynamic in has been relatively stable from the 1970s to the beginning of the 2000s, even though the composition of lost and 131Davis, S., Haltiwanger, J. & Shuh, S. [1996] have been in the forefront. 132Appendix 7 to the Long-Term Survey 2008 (SOU 2008:21). The Long-Term Survey 2008 Economic Change and Adaptability created jobs has varied over time.133 One important conclusion from these analyses is that jobs are also created during economic slowdowns and lost during booms. During the early 1990s, employment declined by almost 10 per cent a year, but new jobs equivalent to about 10 per cent of the stock were also created during these years. turnover is higher in the service sector than in the manu- facturing sector (figure 5.3). The reason for this is that workplaces are smaller in the service sector and smaller workplaces generally have a higher job turnover. Figure 5.3 created and lost in manufacturing and in the service sector, percentage of jobs, 1989–2004 Source: Appendix 7 to the Long-Term Survey 2008 (SOU 2008:21). An analysis of the employment dynamic from 1986 to 2002 for various groups by education shows that employment in these groups developed differently.134 The percentage of those employed 133Antelius, J. & , L. [2003], , L., , O. & , L. [2000], , F. [1999], , T., Strannefors, T. & , H. [2003], Appendix 7 to the Long-Term Survey 2008 (SOU 2008:21) and Gartell, M., , A-C. & , H. [2007]. 134Gartell, M., , A-C. & , H. [2007]. Economic Change and Adaptability The Long-Term Survey 2008 with only a pre-upper secondary education declined, both because there were not as many new jobs created as there were in other groups and because this group lost more jobs. All the education groups have experienced stable job flows during the period, apart from the crisis of the 1990s, even those with only a pre-upper secondary education. Thus there was no increase in the pace at which jobs for the low-skilled were eliminated, even though every year jobs for these people disappeared. People with fixed-term contracts represent a large part of the job turnover in the labour market. In 2006 over 1.3 million people were newly hired; of these, almost 1 million were fixed-term appointments.135 Another analysis shows that fixed-term employ- ees in the 1990s constituted about half of the flow in the labour market, while they made up about 10 per cent of the employed.136 High employment dynamic in from an international perspective The number of jobs created and lost varies from country to country (figure 5.4). At the end of the 1990s, had the third highest job flow of a number of EU countries, measured using a sample of enterprises.137 The dynamic was higher in and , while and had the lowest employment dynamic measured. 135National [2007]. 136Arai, M. & , F. [2002]. 137Gomez-Salvador, R., , J. & Vallanti, G. [2004]. All companies that had at least 10 employees or revenues of at least 1 million and had been in business for at least two years were included in the analysis. For , approximately 30 000 companies, with about 30 per cent of the total employed, were included in the study. The use of data for enterprises of a specified size accounts for the lower employment dynamic for in this analysis compared with other analyses. The Long-Term Survey 2008 Economic Change and Adaptability Figure 5.4 Average annual employment dynamic in companies, in the business sector in general Source: , R., , J. & Vallanti, G. [2004]. Thus far, change has been discussed from the perspective of the employed. Alternatively, the enterprise can be the starting point for the analysis.138 Since 1998, more new companies have been started than have failed (figure 5.5). After 1999, the pace has been relatively stable. But it is likely that a longer time series would show more variation since the substantial elimination of companies during the crisis of the 1990s is not included in the reporting. The largest addition of companies took place in the data processing industry and the largest net loss in the land transport sector. 138 An enterprise is not always a proper unit of measure since organisational changes may have a large impact on the statistics. Therefore, many studies instead focus on the work- place. Economic Change and Adaptability The Long-Term Survey 2008 Figure 5.5 Enterprise startups and closures share of the total enterprise stock, excluding primary industries and public administration, 1997–2005 Source: [2008]. Low enterprise turnover in has the lowest share of startups and the lowest share of closures compared with the EU 15 according to the available data (figure 5.6). Enterprise turnover is half that of the . Meanwhile, has the highest survival rate of all the countries studied. One explanation for lower number of startups is that the enterprise stock is larger than in other countries.139 The barriers to entrepreneurship are another explana- tion put forward for the relatively low business dynamic in Sweden.140 139Swedish () [2006]. 140Henrekson, M. & Stenkula, M. [2007]. The Long-Term Survey 2008 Economic Change and Adaptability Figure 5.6 Enterprise startups and closures share of the total enterprise stock, excluding primary industries and public administration, 1998–2005 Note: For most countries data for certain years are lacking. has no data at all for enterprise closures. Source: [2008]. 5.3Technological development and internationalisation affect future change The base scenario in the Long-Term Survey assumes that the pace of structural change until 2030 will continue to be about the same as it was from 1980 to 2005. However, there are grounds for discussing whether internationalisation and the service sectors increased share of production can lead to a faster pace of change in the future. The adjustment of production in recent decades has not meant that has changed its areas of specialisation.141 The question is whether this will hold true in the future. Indications that this will 141 , K. and others [2007]. Economic Change and Adaptability The Long-Term Survey 2008 continue to be the case are that will still have the natural resources and the relatively well educated labour on which current comparative advantages are based. However, the development of goods and services that can be traded will be of great importance. If in the future there are more products that can be traded, not least various services, it is more difficult to predict the effects of change on the Swedish economy in the long term. To assess the potential effects of internationalisation, it is important to assume not the current but rather the future scale of trade with low cost countries and others.142 This trade may be considerably larger than what was previously the case, owing to technological developments. Today it is possible to move several parts of production to low cost countries, owing to the ability to separate operations in the production process in a way that was not previously possible. In the past, a large part of the labour market has not been exposed to international competition. Instead, wages have been set in the local labour market.143 The effects of exposure to inter- national competition would thus be considerably lower wages for these tasks. Studies show that internationalisation has very effect on the employment dynamic.144 According to estimates, more inter- nationalisation leads to less risk that a workplace will downsize. However, the effect is small. turnover is currently higher in the service sector than in the manufacturing sector. If the percentage of people employed in the service sector increases, it may lead to higher job turnover. In addition the method for adjusting between industries varies. Some prominent features in the production of services indicate that the increased share of production in the service sector will mean changes in the adjustment mechanisms used. Generally, the production of services uses less capital per employee, which means that the company does not need to take into account the effects of changes in employment on invested capital to the same extent. This also means that it may be easier for potential competitors to enter the market and challenge the companies already there. 142Blinder, A. [2005]. 143Baldwin, R. [2006]. 144Appendix 7 to the Long-Term Survey 2008 (SOU 2008:21). The Long-Term Survey 2008 Economic Change and Adaptability 5.4Considerable individual effects of change The most relevant issue is whether the level of change is adequate, not whether or not it has increased. Change means both income and expenses and the right pace is determined by the net effect of these two. If change makes a positive contribution to productivity growth, it will result in income, while unused production resources lead to costs both for the public and for individuals. Chapter 4 discusses the effect of structural change on produc- tivity. It shows that in the last decade, employment has grown in those service sectors with relatively low productivity growth. This development is expected to continue. However, it does not mean that productivity growth would be higher if attempts were made to slow down economic change. The growing business services involve more specialisation, which may mean greater efficiency in producing these services. , productivity may also increase in those sectors that use business services as inputs. Productivity growth as a whole may thus be higher than it would be if there was no change in the economy, even if it is lower than before. It may be difficult for those who have lost their jobs to find a new job with at least the same terms of employment. The sooner those dismissed get a new job with the same or better terms, the better the job turnover functions. Studies of other countries show that the impact on wages of losing a job and then obtaining a new one was relatively small for those who had been employed a short time, while older workers who had been employed for a long time had a larger wage loss.145 It was more difficult for older workers with education to find a new job after losing their old one. Large wage losses occurred primarily in countries with a relatively large wage spread and low unemployment compensation levels such as , the and the . people found a new job within six months in the countries and than in the European countries. A Swedish study shows that those who lost their jobs as a result of company closures in 1987 and 1988 ran a greater risk of both 145 Kuhn, P. [2002]. Data for the late 1980s and the early 1990s have been used in this analysis. An study shows similar results. A review of the studies discussing the can be found in appendix 7 to the Long-Term Survey 2008 (SOU 2008:21). Economic Change and Adaptability The Long-Term Survey 2008 unemployment and not being employed.146 There was a heightened risk both in the first years after the closures and after the crisis of the 1990s, but not in the intervening period. This implies that an increased risk of unemployment reappeared when unemployment declined. The dismissals had a negative effect on wages and the negative effect was more lasting over the period examined than was the effect on employment.147 A study of the effect on individuals over a one-year period has found a considerably higher unemploy- ment among those who worked in workplaces that downsized.148 It is difficult to draw any long-term conclusions on the effect of the change on individuals as there are only a few studies. However, the studies that do exist indicate considerable effects on employ- ment and wages for those who lost their jobs. In the discussion of the individual effects of change, it is also important to take into account not only the effects on those who lose their jobs, but also on those who get jobs after being unemployed or a student. However, it is impossible to judge the importance of this effect, since there is a lack of studies on the effect of change on those who are not in the labour force. 5.5Ways of adjustment for companies and employees Even though it is very difficult to define the desired pace of change precisely, it should be as high as possible provided that resource utilisation ends up at a reasonable level. The better the adjustment works in the economy, the higher the pace of change can be. Obtaining the largest possible social benefit from the change requires that both companies and employees can handle it. 146Eliason, M. & Storrie, D. [2006]. & Storrie, D. [2007] have examined closures at and in the shipbuilding industry in the early 1980s and found that the effects on employment and wages were relatively small. Government measures at the time of the closures were quite substantial, however, and may account for the result. 147It should be noted that it was the annual wage that was studied. This means that the wage may be lower as a result of a lower number of hours worked. 148Appendix 7 to the Long-Term Survey 2008 (SOU 2008:21). The impact in 2005 of downsizing and closures in the preceding year has been studied. The Long-Term Survey 2008 Economic Change and Adaptability 5.5.1Companies have different adjustment strategies It may be difficult to distinguish between the causes of a change and the reaction to a change. Far-sighted companies may act in a way that exposes less far-sighted companies to pressure to restruc- ture. Companies may use several strategies simultaneously and the strategies for a given change may differ. Some examples of strate- gies are: innovations in production processes or products to increase productivity mergers or takeovers to increase productivity through econom- ies of scale or acquisition of products that are in another phase of development streamlining, for example, by moving production abroad reduced labour costs for the same number of hours worked Irrespective of the alternative a company chooses, there are often large demands testing a companys adaptability. Entrepreneurship in terms of being able to detect and exploit new economic oppor- tunities under uncertainty is crucial in this connection.149 Entrepreneurship in new and existing companies Entrepreneurship is often equated with the creation of new businesses. However, it is important to point out that entrepre- neurship does not occur exclusively in new businesses nor are all new businesses a manifestation of entrepreneurship. A well- functioning change requires not only entrepreneurship by those entering a market, but at least as important, by the companies already in the market. New companies have, however, an important function in the economy since they challenge existing companies and ideas. One feature of every production structure is that a certain size distribution of the enterprise stock is most efficient.150 If the underlying conditions for production change, the optimal stock of 149For a discussion of the importance of entrepreneurship, see Henrekson, M. & Stenkula, M. [2007]. 150Audretsch, D. and others [2002]. Economic Change and Adaptability The Long-Term Survey 2008 companies also changes. Until the 1970s, technological develop- ment meant that companies in many industries kept getting bigger. Thereafter, the optimal enterprise stock has probably shifted to an increasing percentage of smaller companies, primarily owing to technological developments. Factors that hinder adjustment of the enterprise stock should be removed to the extent possible. A research review notes that policies for entrepreneurship do not mean updating the policy in order to support small and medium-sized companies.151 Instead a policy for entrepreneurship should take a much broader approach and cover a broad spectrum of institutions and government agencies. Changes should concern changing existing institutions rather than creating new specific measures. A policy that specifies particular conditions for particular types of companies, based, for example, on business form, industry, size, or activity, risks leading to lock-in effects and barriers. As a result, production takes place in subsidised companies instead of where it is most rational. , the risk with this type of measure is that it will make the economy less adaptable. 5.5.2The individual moves or changes occupation or employer Individual adjustment to changed conditions basically concerns changing work tasks or employer. If individuals are well able to adapt, they can easily find a new job. As shown in chapter 3, efficiency is a problem in the Swedish education system. This means that there is a risk that there will be less adaptability. Broader groups need to become more adaptable since technological developments and internationalisation lead to the exposure of new industries and occupations to competition. This should apply regardless of whether or not the pace of change in the economy as a whole increases. Following the work-first principle is therefore desirable in order that individual adjustment will be based on long- term dependence on the public transfer system to a lesser extent than it was in the last 15 years. From an economic perspective, letting individual adjustment occur via long-term absence from the 151 Audretsch, D. and others [2007]. The Long-Term Survey 2008 Economic Change and Adaptability labour market with compensation from the public insurance systems is not sustainable. Mobility chiefly in connection with studies Migration and commuting make labour geographically mobile. Commuting has increased more than migration since the beginning of the 1990s.152 The increase in migration takes place almost exclusively between the ages of 20 and 29 (figure 5.7). Here the increased percentage studying at university has been of crucial importance. Men and women move to about the same extent while commuting is considerably more common among men. Mobility is about the same among those born abroad as it is among those born in . Migrating generally increases earned income, particularly for well educated men. For married or cohabiting women or people without a post-secondary education, the increase in gross income is very small. These differences could account for the relatively small spread in incomes among those without a post-secondary education. Commuting has greater positive effects on income for women than for men. 152 Appendix 3 to the Long-Term Survey 2008 (SOU 2007:35). Economic Change and Adaptability The Long-Term Survey 2008 Figure 5.7 Migration intensity between employment catchment areas for various age groups 1974–2005