What are The main challenges for the Swedish Economy? Christophe André Sweden-Finland desk OECD Economics Department Seminar ”Ett utmanat Sverige” Stockholm, 22 November 2016 The views expressed in this presentation are those of the author and not of the OECD or of its member countries.

Overview Sweden’s economic performances are among the best in the OECD. But Sweden is facing global challenges: Slowdown in productivity growth. Skilled-biased technological change. Population ageing. Uncertainties about the future of globalisation. Climate change. What should the economic policy priorities be? Raising education and skills (levels and equality). Labour market: ensuring flexibility, preventing exclusion and polarisation. Better integrating immigrants. Moving towards a more growth- and employment-friendly tax structure (lower taxation on labour and increase indirect and property taxation). Reforming the housing system.

Sweden’s economic performances

The Swedish economy is performing well Gross adjusted household disposable income per capita, Thousand USD, PPP Source: OECD National Accounts.

The gap in GDP per capita and productivity is small and narrowing Gap to the upper half of OECD countries 1 1. Percentage gap with respect to the weighted average using population weights of the highest 17 OECD countries in terms of GDP per capita and GDP per hour worked (in constant 2010 PPPs). Source: OECD National Accounts.

Income inequality remains low Gini coefficient for household disposable incomes Source: OECD Income Distribution Database.

The employment rate is high Source: OECD Labour Force Statistics.

The challenges

The global slowdown in productivity growth also affects Sweden Labour productivity growth GDP per worker, annual percentage change Source: OECD Productivity Statistics.

Sweden is well placed to benefit from the diffusion of innovations “Spillover” from an increase in MFP growth of the world’s most productive firms by 2% points Global connections Reallocation Knowledge-Based Capital Sweden Notes: The chart shows how the sensitivity of MFP growth to changes in the frontier leader growth varies with different levels of policy variables. The diamond refers to Sweden. The label “Minimum” (Maximum) indicates the country with the lowest (highest) value for the given structural indicator in a given reference year. Source: Saia, Andrews and Albrizio (2015).

Framework conditions are favorable, but there is still room for improvement Source: OECD (2013), Product Market Regulation Database.

Income inequality is increasing Source: Statistics Sweden.

Lower educational results translate into lower adult skills PISA and PIAAC scores for the same cohorts Source: OECD Survey of Adult Skills (2012) and PISA Databases (2009 and 2012).

Few jobs for the low-skilled Low-skilled employment among foreign- and native-born workers Percentage of total employment, 15-64 year olds, 2012-13 Source: OECD Indicators of Immigrant Integration 2015.

Labour market integration of immigrants is a challenge Employment gap between foreign and native born Observed gap and adjusted for differences in education and socioeconomic characteristics, percentage points Men Women Source: OECD Migration Outlook 2015.

Large skills differences between young immigrants and natives Literacy score among young adults by education level and immigrant status Source: OECD Survey of Adult Skills (2012).

The low-skilled struggle to find employment Employment and wage by skill level Source: OECD Survey of Adult Skills (2012).

The tax wedge on labour is high Note: Average tax wedge for a couple with two children and average earnings. Social security contributions include both employee and employer contributions. Taxes include personal income tax and any payroll tax. Source: OECD, Taxing Wages database.

Housing construction lags behind population growth Source: Statistics Sweden.

Shortages of rental housing are acute in some places Source: Stockholm Housing Agency.

Conclusions Sweden’s economy is performing well, but facing challenges related to global developments and some domestic weaknesses. Policies can contribute to fostering inclusive growth. In particular: Regulations will need to adapt to changes in technology and the global business environment to avoid hampering innovation, while protecting citizens/ consumers and ensuring a level playing field for businesses. Investments in education and skills, combined with enhanced labour market flexibility and changes in the tax structure can increase employment and prevent excessive polarisation of the labour market. Success in integrating immigrants will enhance Sweden’s economic growth potential and social cohesion. A more efficient housing system would bring benefits in terms of affordability, labour mobility, well-being, equality and macroeconomic stability.

Thank You !