The Nordic Experience of Financial Liberalization
Edited by Lars Jonoug, Jaakko Kiander and Pentti Vartia
Chapter 4: The Crisis of the 1990s and Unemployment in Finland and Sweden
Klas Fregert and Jaakko Pehkonen INTRODUCTION The unemployment figures during the early 1990s crises in Finland and Sweden had not been experienced since the Great Depression, and even now, about 15 years later, unemployment is still considerably higher, by any measure, than the normal post-World War II level. In this chapter, we investigate the character and the causes of the unemployment crises in Finland and Sweden and their aftermath. We ask whether the current high unemployment in these two countries is a legacy of the earlier crises. Any attempt at evaluating the cost of the crises must take into account this possibility. Long-term forecasts as well as policy analysis will also depend on how the present unemployment rates came about. The chapter is divided into four parts. In Section 4.1, we present the unemployment outcome. We describe the size and timing for comprehensive as well as decomposed measures of unemployment. Through inspection of graphs, we look for indications of possible structural breaks that would indicate a change in the structural rate of unemployment. The purpose of the section is two-fold: to gain a sense of the welfare consequences of the unemployment crises in Finland and Sweden and to collect clues about the underlying causes. In Section 4.2, we investigate the division into temporary and permanent effects by testing for structural breaks in Okun and Beveridge relations. In Section 4.3, we look at possible exogenous causes, again seeking indications of temporary versus permanent effects. Finally, in Section 4.4, we employ previously...
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