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Swedish National Labour Market Board (AMS)
Labour Market Outlook for 2007
Summary
International economic trends reach a high
International economic trends have remained strong in the autumn of 2006, but there are strong indications that the cyclical peak has already been passed; we predict global economic growth to be moderate in the coming year. The main reason is the progressive slowing down of economic growth in the United States, which was accompanied in the third quarter of 2006 by a sizeable reduction in GDP growth. Moreover, there are strong indications that this trend has continued in October and November. As a consequence, there has been increasing concern that there will be a more significant weakening of the global economy. The prevailing view is that a slowing down of the rate of growth is imminent, but global growth in 2007 is nevertheless expected to be good. Trends in Asia remain very strong, mainly because of stable development in China and India. This has favoured the Japanese economy, which has shown clear signs of recovery. As in the United States, however, growth in Japan has slowed down this year. Economic trends in the Eurozone have been positive since mid-2005, with a significant strengthening of GDP growth in the first half of 2006. The main explanation is a clear improvement of economic activity in Germany and France, while the Italian economy has continued to slide.
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Economic growth in Sweden is strong – but set to decrease in 2007
The Swedish economy has had a strong development so far in 2006. The rise is broad, covering all sectors of the economy and the vast majority of the regions. In the first three quarters of the year, the GDP growth rate was 4.6 per cent1. As a consequence, we have chosen to make upward revisions of the GDP growth rates included in our spring forecasts for both 2006 and 2007. GDP growth in 2006 is estimated at 4.4 per cent. This will be followed by a dampening in 2007, when growth is forecast at 3.5 per cent; most of the weakening will occur in the second half of the year. The main driver of growth next year will be good domestic demand, with a considerably stronger increase in private consumption than this year. However, the contribution made by exports will fall over the course of the year. GDP growth will remain above the historical average in both 2006 and 2007. Our forecast is based mainly on the interview survey carried out by the Swedish Public Employment Service in October, which included over 8,700 workplaces in the private sector and in almost all municipalities and county councils. The findings show that belief in the future is strong in almost all industries, but particularly in parts of the private services sector. This indicates that economic growth will continue to be good. The survey findings also show that recruitment problems are growing in the labour market; in unfavourable circumstances, this may cause inflation and interest rates to become higher than assumed in this forecast. In fact, the past three surveys have shown a steady rise in recruitment problems, and there has been a clear increase in the last six months. The share of companies having experienced a shortage of labour is now at its highest in five years.
175,000 more people in employment in two years
There is strong optimism in a wide range of industries as regards taking on new employees next year, according to our interview survey. We estimate that employment will grow by over 80,000 people in 2006 and by over 90,000 in 2007, or by upwards of 175,000 people in two years. Statistics for the past 50 years show that increases of this magnitude have occurred on only two previous occasions: in the mid-1970s and at the turn of the millennium. The supply of labour is always difficult to predict, but this time the task is considerably harder than usual. This is because the number of interacting factors is much larger than usual and because all of them will increase the labour supply in 2007. These factors include several political decisions intended to increase supply, a demographic effect (including cohort effects) and a strong demand for labour which stimulates people to enter the labour market. Together, these factors will lead to an unusually strong expansion of the labour supply. The expansion is expected to be in the same order of magnitude as the increase in employment, which is unusual from a historical perspective. We estimate that the labour force will grow by about 60,000 people in 2006 and by about 95,000 more in 2007. Such a large labour-force increase has been recorded in statistics only once before in the past 50 years.
1
Not corrected for calendar differences.
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Stockholm resumes its role as employment engine
During the past year, employment has increased in all counties. The increase has been strongest in the three metropolitan regions in general and in the Stockholm region in particular. The seven sparsely populated ‘forestry counties’, which make up the northernmost two-thirds of Sweden, and the other counties of southern and central Sweden have also had a good development in terms of employment, but the increase has not been large enough to match the respective counties’ share of the active population aged 18–64. All county labour boards forecast employment growth in 2007, but at very different rates. The metropolitan counties of Skåne and Stockholm forecast the highest rates of employment growth nationwide, and consequently a large share – 65 per cent – of the new jobs will be created in the metropolitan regions. As regards the forestry counties, the picture is not entirely uniform. The counties of Västerbotten and Norrbotten are expecting a very substantial increase in employment while those of Gävleborg, Jämtland and Västernorrland are expecting only weak increases. Taken together, this means that the forestry counties will account for only 10 per cent of the national rise in employment. Among the other southern and central counties, Halland and Östergötland expect a very strong rise in employment during 2007 while Gotland and Västmanland believe that their increases will be moderate. Taken together, the southern and central counties expect just over 25 per cent of the national employment increase to occur in their territory; this does not fully correspond to their share of the active population.
No change in unemployment but the ‘imbalance figure’ is set to fall
Next year’s strong rise in the labour supply will lead to unemployment being unchanged. We expect about 250,000 people, or 5.4 per cent of the labour force, to be unemployed in 2006 and 2007. The ‘imbalance figure’ (comprising the unemployed plus participants in labour market policy programmes) will fall in 2006 by about 7,000 people to about 385,000, or 8.4 per cent of the labour force. Next year, the ‘imbalance figure’ will fall to about 340,000 people or 7.3 per cent. The number of participants in labour market policy programmes will fall from 140,000 in 2006 to 90,000 in 2007. This corresponds to a fall from 3.0 to 1.9 per cent of the labour force. To this should be added the effect of new programmes relating to ‘fresh-start jobs’ and the ‘job guarantee’. The extent of these programmes is as yet uncertain, but the Government expects the former to have about 10,000 places. As regards the ‘job guarantee’, it has been announced as a replacement for the ‘activity guarantee’ from July 2007. While the design and extent of this programme are uncertain at the time of writing, our assumption is that its volume will be more or less the same as that of the ‘activity guarantee’ and that its participants will share the same statistical definition, i.e. be long-term unemployed. The Government has said that its purpose in cutting back on labour market policy programmes is to ensure that the labour supply increases and that priority is given to matching in the current situation characterised by a strong demand for labour. In 2007, the level of programmes will be at its lowest since the ‘years of overheating’ in the late 1980s, when the unemployment rate was about 2 per cent.
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Increasing labour shortages
There has been a clear increase in the shortage of suitable labour since the last forecast was made, even though a very large share (nine out of ten) of employers reporting vacancies to the Public Employment Service say that they succeed in finding people. Our assessment is that this shortage will edge up further in 2007. We predict that over the course of the year, employers will be finding it increasingly difficult to raise employment as quickly as they would like. The shortages will mainly concern occupations within the building and construction industry, manufacturing, IT and engineering, private services and transport as well as a number of municipal occupations requiring a university degree. Given the severe reduction in the extent of labour market policy programmes, and because many of the places available are already tied up, the volume of labourmarket training will be insufficient to remedy the shortage of labour in many occupations which require an upper-secondary vocational education (the level at which labour-market training is at its most effective). Incidentally, the largest ongoing increases in labour shortages tend to affect occupations at that educational level. Another factor underpinning our assessment that labour shortages will increase is that the educational system has not had, or does not have, the volume and focus required to secure the supply of labour against a backdrop of both ever-larger retirement cohorts and a strong demand for workers with vocational training. A further factor affecting the shortage is that the increased supply of labour cannot simply be matched against the demand for labour. Among next year’s new arrivals on the labour market, a significant proportion will have difficulty in finding jobs quickly. This will for instance be the case for many former participants in labour market policy programmes, people transferred from the social-insurance system, many foreign-born recent immigrants and people who fail to gain admission to municipal adult education.
A growing group will have difficulties on the labour market
Finding a job quickly is harder for some categories of the unemployed. Examples of groups with greater problems in this respect include young people with low educational qualifications, women with low educational qualifications, disabled people whose working capacity is reduced and people born outside Europe. The number of people from these groups who were in the ‘imbalance’ continues to rise and amounted to approximately 90,000 in October 2006 (double counting eliminated). The cuts in labour market policy programmes risk leading to increased open unemployment in these groups, as well as to longer periods of unemployment. Against this background, their chances of finding a solution to their labour-market situation will deteriorate next year. Among those who were in the ‘imbalance’ in October 2006, 26 per cent or just under 90,000 people had been registered job-seekers for a total of at least three years during a period of slightly less than seven years (January 2000 to October 2006). The average time spent in the ‘imbalance’ by this group was four and a half years, which shows how serious their problems are. A further 37 per cent or 123,000 people had
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been registered job-seekers for between one and three years, and their average period of registration was almost two years. The large number of people in this second group also indicates that there is a very real risk that those with long registration periods will become more numerous next year. The ‘fresh-start jobs’ to be introduced on 1 January 2007 are intended to make things easier for those who have spent a long time outside the labour market. Under this programme, a private company or public enterprise which employs such a person will be exempt from payroll tax for a certain period which depends on how long the employee has been outside the labour market. However, one prerequisite for the success of ‘fresh-start jobs’ is that those eligible have skills which are appropriate for the tasks in question, and this will be difficult to ensure given the limited extent of labour-market training which can be carried out. In this forecast, we identify the following challenges for labour-market policy in 2007: 1. Increased shortages of suitable labour in certain fields: • • • • • • • • • • Building and construction occupations; Manufacturing occupations in industry with higher qualification requirements; Engineering and IT occupations; A number of service occupations in the private services sector; A number of public-sector occupations requiring a university degree.
2. Groups of unemployed who have particular difficulty in finding a job: There is a risk of rising unemployment and ‘imbalance’ rates among young people with low educational qualifications; There is a risk that unemployment may rise and the ‘imbalance’ remain high among those born outside Europe; Women with low educational qualifications will continue to have difficulty in gaining a foothold on the labour market; There is a risk that the share of the disabled who are unemployed or programme participants may rise; There is a risk that the share of job-seekers who have spent a long time in the ‘imbalance’ may increase, especially in the above-mentioned groups, and also that a large group of those in the ‘imbalance’ may never find a permanent solution to their unemployment situation.
Strong jobs growth in the private services sector
The private services sector will account for most part of the increase in employment. For the sector as a whole, we expect employment to rise by 51,000 people in 2006 and by 60,000 people in 2007. Most of this increase is expected to occur in professional services and consulting, where employers believe that demand for their services will remain strong and where recruitment plans are expansive. However, the
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increasing labour shortages give cause for concern and may put a damper on the otherwise very quick expansion of employment. The retail industry is doing better than for many decades and its representatives expect next year to bring yet another increase in employment above and beyond what has been usual during previous booms. In fact, the expectations of the retail industry square well with the increase in households’ room for consumption which will occur next year. The banking and insurance industry is doing well financially, but companies still continue to restructure in order to focus more on financial advice and capital management. Demand for labour will remain moderate. As regards transport services, demand has increased considerably more than companies were expecting. Part of the reason is that the transport industry has benefited from a high level of activity in other industries, including building and construction, retail and manufacturing. In addition, the ongoing increase in business and private travel has had a positive effect on bus, coach, rail and air traffic. The rise in demand has also led to fairly extensive new recruitment by companies, and labour shortages are increasing in an ever-larger number of regions. The hotel and restaurant industry is sensitive to economic fluctuations and to companies’ and individuals’ willingness to spend money. The current strong Swedish economy thus creates good conditions for a favourable development in this industry, and companies are indeed expecting continued turnover growth and an increasing need for new recruitment. Companies in the personal-services industry also benefit greatly from households’ willingness to spend. This industry includes hair and body care as well as the field called ‘other recreational activities’, but also cultural and sporting activities. We expect the current strong trend to continue next year.
Building and construction set to peak
The trend for the building industry is very strong at present, but there are many indications that it is about to peak. Construction activity has increased further in the past six months, according to the findings from our most recent interview survey. However, construction companies’ expectations in a one-year perspective are more moderate, according to the sample surveys of both the Swedish National Labour Market Administration and the Swedish National Institute of Economic Research. In other words, 2006 looks set to be the peak year of the boom in the building industry and to be followed by a calmer phase as regards production and investment. What is putting a damper on next year’s growth rate is the evolution of interest rates and costs along with an increasingly strained resource situation (in the form of labour shortages). The increase in construction activity has also led to strong growth in employment, accompanied by a progressive fall in unemployment; the number of unemployed people is now at a record low. In all, employment is expected to increase by 24,000 people this year and next.
New industrial jobs after years of decline
Industry continues to perform well. So far this year, both production volumes and order books have developed more strongly than companies previously expected, and there has been a palpable increase in investment as well. Still, even though next year is expected to be a fairly good one for industry, there is a widespread view among companies that the boom has peaked and that growth is heading for a calmer phase.
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For instance, this view can be seen in our interview survey, where demand expectations for the coming six-month period are somewhat lower than they were at the time of the previous survey. For many years now, the strong rise in industrial production has been accompanied by very rapid productivity growth. While there was a certain dampening in 2005, productivity has again risen at a good rate in 2006. In 2007, however, we expect another decline in the rate of increase. This strong productivity growth has held back an expected rise in employment. At present, though, there are certain signs that employment is turning upwards, albeit weakly. The best performer is the engineering industry, where the number of employees has increased by 9,000 between the third quarters of 2005 and 2006. In all, we expect employment to increase by 3,000 people in 2006 and by 5,000 in 2007.
Stronger public finances create conditions for job growth
In recent years, the budgets of municipalities and county councils have improved significantly. Factors contributing to this positive development include rises in central-government grants and local taxes, positive labour-market effects in the form of a broader tax base and reduced unemployment costs. Some non-recurrent revenue, mainly capital gain from property sales, is also part of the picture. This improvement in the budgetary situation and the increase in public consumption create conditions for a rise in employment within the public sector, where pay costs make up a large share of expenditure. According to the short-term employment statistics of Statistics Sweden, the number of employees in the public sector has increased by 12,000 from the first three quarters of last year to the corresponding period this year, and this trend has progressively become stronger. Most of this increase is attributable to municipalities and county councils – in part because ‘plus jobs’ (subsidised jobs for long-term unemployed people) have been created mainly in municipal administrations – but employment has gone up in the central-government sector as well. The development of public operations is governed to a large extent by political decisions, and the change of government which occurred in the autumn of 2006 has entailed some readjustment of priorities. For instance, several government agencies will be slimmed down or closed down entirely. Municipalities feel uncertain about the future for a variety of inter-related reasons, such as the unknown size of future centralgovernment grants and their large unfunded pension commitments, and this may make them and county councils less willing to take on new costs. These factors imply a certain dampening of employment growth in the next few years as compared with earlier forecasts. It should be noted that this makes employers somewhat cautious when assessing the future, as evidenced for instance in our survey of municipalities. However, we expect a rise in employment for the public services sector as a whole amounting to a total of 32,000 people in 2006 and 2007.
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Selected indicators2
2002 GDP, at market price, change in % Number of hours worked, change in %3 Productivity growth, change in % UND1X, inflation, annual average, change in % Hourly wage, change in % Households’ real disposable income, change in % Private consumption, change in % Savings rate, including collectively agreed occupational pensions Municipalities’ income (SEK billion)
4
2003 1.8 –1.5 3.3 2.2 3.5 1.2 1.8 8.9 –0.8
2004 4.1 0.8 3.3 0.8 3.3 1.3 2.2 8.4 2.2
2005 2.9 0.6 2.3 0.8 3.1 1.8 2.4 7.7 13.2
2006 4.4 1.9 2.5 1.2 3.3 3.1 3.0 7.7 19
2007 3.5 2.0 1.5 1.7 3.8 4.1 3.8 8.0 10
2.0 –1.3 3.3 2.3 4.1 3.4 1.5 8.9 –7
Key figures5
Thousands of persons Outcome Forecast Change Outcome Forecast
2002 2003 2004 2005 2006 2007 2002 2003 2004 2005 2006 2007 Labour force Employed Unemployed % of LF Labour market policy programmes % of LF ‘Imbalance’ as % of LF 4452 4484 4261 4248 192 4.3 236 5.3 4495 4533 4228 4263 268 270 6.0 6.0 4592 4687 4345 4436 247 5.4 251 5.4 +5 +32 +4 –13 +1 +44 0.0 +1.0 +11 –20 +32 +0.6 +38 +35 +2 0.0 +59 +82 –23 –0.6 +95 +91 +4 0.0
117 2.6 6.9
92 2.1 7.3
107 123 2.4 8.3 2.7 8.7
140 3.0 8.4
90 1.9 7.3
+5.0 –25 +0.1 –0.6 +0.1 +0.4
+15 +0.3 +1.0
+16 +0.3 +0.3
+17 +0.3 –0.2
–50 –1.1 –1.2
2 3
The figures are not corrected for calendar differences. After correction for calendar differences, the increase in hours worked is 1.9 for 2006 and 1.7 for 2007. 4 Income before extraordinary items. Source: Swedish Association of Local Authorities and Regions. 5 The labour force (LF) is the sum of the employed and the unemployed, and the ‘imbalance’ is the sum of the unemployed and participants in labour market policy programmes. Totals do not always add up because numbers have been rounded.