the early 1990s and, in terms of registered unemployment, is now somewhere in the interval between 4. 5 and 7. 5 per cent. 3 the oecd also counts on a marked increase in the 1990s ; in the latest report on sweden the current level is put at between 6 and 7 per cent. 4 there is not, in fact, complete agreement that equilibrium unemployment has moved up sharply. 5 but what suggests that it has, even though we cannot be sure of its exact level, is that otherwise the high unemployment should have acted as a strong restraint on wage formation. the actual development of wages does not indicate this. see e. g. calmfors, l. ( 1995 ), " will high unemployment in sweden become persistent? ", swedish economic policy review, vol. 2, no. 1. economic surveys - sweden 1997, oecd, paris. see e. g. aberg, r. ( 1997 ), " ar stigande jamviktsarbetsloshet huvudproblemet pa arbetsmarknaden? " ( is rising equilibrium unemployment the main problem in the labour market? ), ekonomisk debatt, 25 : 1. it therefore has to be concluded that unemployment cannot be lowered appreciably by monetary policy alone. most economic observers also consider that even with decent growth in the coming years, unemployment will remain high. a lasting return just to something resembling the unemployment figures we have been accustomed to in sweden therefore requires a proper discussion of which measures are needed to bring equilibrium unemployment down. the picture in the usa, western europe and sweden it is not just in sweden that unemployment is high. this is something which is leaving its mark on virtually the whole of the eu area. moreover, the level of european unemployment has been high during most of the 1980s. in the united states, on the other hand, unemployment has fluctuated around 6 per cent for the past quarter century without any upward trend. the direct explanation for the difference between the eu area and the united states is the appreciably faster growth of employment over there. in the past quarter century and more, employment in the united states has risen over 60 per cent as against only 15 per cent in the eu area. the number of new jobs certainly grew by some one per cent in europe when activity was recovering but almost as many jobs disappeared in the downturns. in the united states, on the other hand, over the business

an expansion of public sector jobs ; one million jobs were created in this sector between 1960 and 1990. now that, for various reasons, the political system has been obliged to arrest the public sector ’ s expansion, employment has also fallen. d iagram 5 g d p 1970 - 96 u sa, eu, n etherlands and sweden index 1970 = 100 2 20 2 00 1 80 1 60 2 20 2 00 usa eu n e the rla n ds s we de n 1 80 1 60 1 40 1 40 1 20 1 20 1 00 1 00 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 1996 - 97 o e c d fore ca s t s ou rce : e u r o s t a t it is important, i think, to underscore that, notwithstanding the marked differences in employment, gdp growth does not differ substantially between the united states, the eu area, the netherlands and sweden. therefore it is not high demand generated by a more expansionary monetary and fiscal policy that can account for the creation of so many new jobs in the united states or, in the past decade, in the netherlands. this is an indication that structural factors lie behind the development in western europe as a whole. an important part seems to be played, not least, by wage formation. the weak growth in sweden is also evident from diagram 5. this is another interesting observation in the present context. when potential output rises slowly for structural reasons, growth will be weak even if economic policy is expansionary. in spite of devaluations and fiscal expansion with a view to boosting demand, growth has remained lower than in many other industrialised countries. this is an important lesson to bear in mind when discussing monetary policy ’ s functions and tasks. other economists have been less interested in why employment has been slack and unemployment has risen and more concerned with unemployment ’ s tendency to remain at a high level. the observation that unemployment, having risen, tends to stick at a high level or falls back to normal levels only gradually is usually described in terms of hysteresis and - 10 8 persistence. an explanation for the occurrence of persistence tendencies is provided by the insider - outsider model. briefly, an increase in unemployment does not lead to wage restraint because those who have lost the jobs - - the outsiders - - exercise no influence on wage setting. instead of a restrained wage rise, with lower