Because Sweden is an export driven country, and because Sweden's industrial mix is historically sensitive to business cycles, Sweden was hit by the crisis much harder than most other countries. It is therefore interesting to compare how Swedish employment fared in the crisis. Did the reforms have any effect of dampening the crisis?
The result are a resounding yes.
My method is quite primitive, and not useful for long term analysis. I compare how much GDP changed compared to how much employment changed. Since my focus is Sweden, I initially look at the absolute employment change and change in real GDP between the 4th quarter of 2006 (when labor market reforms in Sweden started) and the 4th quarter of 2009 (the latest available year). All figures are from the OECD.
Since Sweden and most other advanced OECD countries have low rate population growth, that is not a major bias (although it means the true figures for the U.S are even worse than indicated). The big problem is that employment is a component of GDP growth. What is crucial for this analysis is however that this underestimates how well Sweden performed. We use GDP growth to get at the value of the "crisis shock". If one country had supply side labor market reforms during this period, and if this worked, this dampens the decline in growth. The true shock was likely even higher for Sweden than the decline in GDP suggests.
In terms of GDP decline, only 3 countries were hit more by the crisis. Yet, in employment terms, Sweden did better than 15 OECD countries. The decline in GDP in Sweden was twice the average of the Euro-countries. Despite this, employment increased 4% for Sweden during this period, with virtually zero growth of the EU-countries!
There is a strong link between the performance of GDP and employment. Different countries were hit by the crisis with different severity. If we compare how employment was to be predicted to perform based on GDP growth with how employment actually performed, we get an index of how well the labor market did in the crisis. This measures the distance between the countries and the regression line for all countries (look at the red line for Sweden and the U.S).
By this index, Sweden did second best out of 23 OECD countries, after Germany.
Considering how hard Sweden was hit by the crisis, if Sweden had the same employment performance of the average of 23 OECD countries, employment should have fallen by 2.0%. Instead, employment increased by 2.2%.
The decline in GDP for Sweden, Denmark and Finland (who did not undertake similar reforms) are very similar. Yet, while Denmark and Finland witnessed a decline of employment by 4.3% and 1.3% respectively, Sweden had a growth in employment of 2.2%.
Since the core period of the crisis was the second half of 2008 until now, I do the same analysis with starting period the second quarter of 2008 and the last quarter of 2009 (all my data are seasonally adjusted).
Again Sweden does far better than average, being the 4th best country in handling the crisis in employment terms. Since many of the labor market reforms precede the second half of 2008, this underestimates how well Sweden performed.
Note in both cases how poor the United States, the epicenter of the crisis, performed in labor market terms. One possibility is that the employment wedge for the U.S increased in this period, through for example higher minimum wage, expectations of higher future taxes and extending unemployment insurance.
Something that this method does not capture is the depths of the crisis. Notice that the U.S, Spain, Iceland and Ireland perform the worst between the crash and 4th quarter of 2009 (the latest available period). These countries were hit by a banking and housing market shock, whereas most of the effect on Sweden and other countries was decline in export.
Perhaps firms let workers go in countries where the effect was deep and expected to be prolonged, whereas they kept on to them in countries where the crisis was equally severe but expected to last shorter.
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