The Rehn-Meidner Model in Sweden: Its Rise, Challenges and Survival

Abstract

The Rehn-Meidner model recommends active labor-market policies, tight macroeconomic policies and solidarity wage policies to combine price stability, growth, full employment and equity. The golden age for the model in Sweden began in the late 1950s and ended in the early 1970s. The following postwar period was characterized by obvious deviations from the Rehn-Meidner model but also by the survival of parts of the model. The rise and partial fall of the model in Sweden is explained by changes in political institutions, wage bargaining systems, trade union power, economic policy makers and economic thinking and by experiences of economic policy in the past. However, there is weak evidence that the departure from the Rehn-Meidner model is ultimately explained by globalization and new technologies.The Rehn-Meidner (R-M) model is a unique Swedish contribution to economics. The model represents a consistent "third way" between a Keynesian and a neoclassical or monetarist approach to economic policy. The means of the R-M model are also, together with the general welfare state, the cornerstones of the "Swedish model." Two trade union economists -Gösta Rehn and Rudolf Meidner -advocated an active labor-market policy, a wage policy of solidarity and a restrictive macroeconomic policy to combine full employment with fair wages, price stability and high economic growth. The program was presented in a report to the 1951 congress of the Swedish Confederation of Trade Unions (LO), the central organization for blue-collar workers in Sweden. Rudolf Meidner was then the head of LO's research department and Gösta Rehn the department's leading macroeconomist. Lennart ErixonErixon (2008) analyzes the performance of the R-M model in Sweden and the validity of its underlying economic theory, and Erixon (2011) pinpoints the theoretical roots of the model. Erixon (2001) scrutinizes the relevance of the R-M wage and economic policy program; a similar evaluation today should have compared the R-M model with the Danish (or Dutch) flexicurity model recommended by the European Commission (of the European Union [EU]). Both models stress the importance of active labor-market policy and high unemployment benefits at the expense of legislation and agreements on job security. However, the Danish flexicurity model is commonly associated with decentralized wage negotiations and wage differentials between companies, thus not as the R-M model with coordinated wage bargaining and solidarity wage policy.The aim of the current paper is to complement earlier studies of the R-M model by disentangling the political-institutional and economic-structural conditions, policy priorities, power relations, technologies, economic paradigms and economic-policy experiences underlying the Swedish application of and subsequent departure from the model. Swedish economic policy was uniquely influenced by the R-M model but also by the conventional view of the model's performance. It is possible to speak of a "golden age" for the R-M ideas in Sweden from the late 1950s up ...

The Nordic Model of Economic Development: Shocks, Reforms and Future Prospects

“…The current paper defines the Nordic model by borrowing the main lines of the framework presented in Barth et al (2014). This choice is based on analytical tractability, and should not be interpreted as a claim of the superiority of the chosen framework with respect to alternative frameworks of the Nordic model in the economic and political economy literature (Andersen et al, 2007;Calmfors, 1993;Erixon, 2010Erixon, , 2016Esping-Andersen, 1990;Lindbeck, 1997;Moene, 2008). Analytical tractability is given by the three distinct but interconnected features listed in Barth et al (2014), which can be summarized as follows:…”

“…Barth et al (2014) develop a theory of creative destruction and wage compression, based in essence on the Rehn-Meidner model (often labeled the Swedish model, as in Erixon, 2010Erixon, , 2016. Briefly, this theory emphasizes that a high initial level of wage compression functions as a "tax" on low-productivity enterprises (raising the bar for access to low-skilled human capital), whilst high-productivity enterprises receive an indirect "subsidy" (due to the lower wages for high-skilled human capital).…”

Poverty trends during two recessions and two recoveries: lessons from Sweden 1991–2013

“…Sudden recessions also spur situational policies to combat poverty: in Sweden, the foremost strategy is to implement active labour market policy, such as retraining, relief work, and work experience schemes as well as various youth programmes, following the established Swedish Rehn-Meidner model (Erixon 2010). This strategy was also followed during the 1990s crisis, with two effects: A large portion of the workforce were in some paid activity at some point in time, and such activity could be used to renew (or even create) eligibility for unemployment benefits (in principle, indefinitely).…”

Strained Compromises? Danish Flexicurity During Crisis

“…In line with this, both van den Berg (2008) and Klindt (2008) have argued that Danish policies during the 1990s to a large extent resemble the Swedish Rehn-Meidner (R-M) model which was presented by two trade union economists at a LO-congress (union confederation for blue-collar workers) in 1951. Klindt (2008) has illustrated the connections of Danish flexicurity policies during the 1990s and onwards with the R-M model in the figure below: Adapted from Klindt (2008) The R-M model -designed for post-war Sweden in the 1950s -entails a policy similar to the Danish flexicurity version 1 aiming at full employment, high economic growth, price stability and fair and egalitarian wages (Erixon, 2008). Contrary to much post-war economic thinking, the policies are not based on Keynesian demand-stimuli as price stability is put at the core of the model through a restrictive fiscal and monetary policy under normal business activity.…”

“…ALMP such as retraining, vocational, education and relocation grants together with matching actions (primarily public information services) and as noted above targeted demand-oriented policies to increase demand for labor in certain regions, industries and firms shall furthermore facilitate mobility. If wage-setting is not to be the main allocator of labor, then ALMP will (Erixon, 2008;Klindt, 2008). Mobility is -as noted -cushioned by income security in job transitions, i.e.…”