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The new economic-policy regime in Sweden in the 1990s included deregulation, central-bank independence, inflation targets and fiscal rules but also active labour market policy and voluntary incomes policy. This chapter describes the content, determinants and performance of the new economic policy in Sweden in a comparative, mainly Nordic, perspective. The new economic-policy regime is explained by the deep recession and budget crisis in the early 1990s, new economic ideas and the power of economic experts. In the 1998–2007 period, Sweden displayed relatively low inflation and high productivity growth, but unemployment was high, especially by national standards. The restrictive monetary policy was responsible for the low inflation, and the dynamic (ICT) sector was decisive for the productivity miracle. Furthermore, productivity increases in the ICT sector largely explains why the Central Bank undershot its inflation target in the late 1990s and early 2000s. The new economic-policy regime in Sweden performed well during the global financial crisis. However, as in other OECD countries, the moderate increase in unemployment was largely attributed to labour hoarding. And the rapid recovery of the Baltic countries made it possible for Sweden to avoid a bank crisis.

Labor markets for unskilled and low-wage workers in the United States stagnated in the last quarter of the 20th century. The collapse in the low-wage labor market has been well documented¹ and numerous research initiatives have investigated the causes. Despite some geographical mismatches between buyers and sellers low-paying jobs are generally available but forces are at work on both the demand and supply sides of unskilled labor markets that make it increasingly difficult for working families at or near the bottom of the income distribution to earn enough to meet basic needs. Welfare reform effectively increased the supply of unskilled workers, which placed added pressures on wages and earnings of low-income families.

We study the impact of tax and minimum wage reforms on the incidence of informality. To gauge the incidence of informality, we use measures of the extent of tax evasion, the extent of minimum wage noncompliance, and the size of the informal workforce. Our approach allows us to examine (i) the distinction between determinants of firm-level reported wage distribution and actual wage distribution, (ii) the complementarity of tax and minimum wage enforcement, (iii) the impact that a minimum wage reform has on tax and minimum wage compliance, and (iv) the impact that a tax policy reform has on tax and minimum wage compliance. We conclude with the design of optimal minimum wage and tax policies (even in the complete absence of minimum wage enforcement). We do so based on two objectives derived from popular concerns associated with an unchecked expansion of informality: tax revenue maximization, and poverty alleviation among workers.

We examine personnel policies and careers in public agencies, particularly how wages and promotion standards can partially offset a fundamental contracting problem: the inability of public-sector workers to contract on performance, and the inability of political masters to contract on forbearance from meddling. Despite the dual contracting problem, properly constructed personnel policies can encourage intrinsically motivated public-sector employees to invest in expertise, seek promotion, remain in the public sector, and work hard. To do so requires internal personnel policies that sort “slackers” from “zealots.” Personnel policies that accomplish this task are quite different in agencies where acquired expertise has little value in the private sector, and agencies where acquired expertise commands a premium in the private sector. Even with well-designed personnel policies, an inescapable trade-off between political control and expertise acquisition remains.

This chapter reviews recent developments in the density discontinuity approach. It is well known that agents having perfect control of the forcing variable will invalidate the popular regression discontinuity designs (RDDs). To detect the manipulation of the forcing variable, McCrary (2008) developed a test based on the discontinuity in the density around the threshold. Recent papers have noted that the sorting patterns around the threshold are often either the researcher’s object of interest or may relate to structural parameters such as tax elasticities through known functions. This, in turn, implies that the behavior of the distribution around the threshold is not only informative of the validity of a standard RDD; it can also be used to recover policy-relevant parameters and perform counterfactual exercises.

The chapter presents a historical and economic analysis of Nordic wage formation, with a special focus on how collective agreements really work. A stereotypical interpretation of the evolution of Nordic wage bargaining systems is that a centralised setting of wages has gradually been substituted with more decentralised pay bargaining. This overlooks the fact that central organisations could never really control wage levels, even in the golden age of centralised bargaining. Instead, central pay bargains defined minimum wage changes that ensured that local conflicts would be ruled out. Moreover, the central stipulations could often be overruled or adjusted at the local level. Following insights of Teulings and Hartog, we argue that the main function of Nordic collective agreements has always been to rule out local conflicts that would otherwise be initiated to seek local rents. Thus, collective agreements combine macroeconomic flexibility with adequate investment incentives at the local level. In this crucial sense, Nordic collective agreements are a completely stable institution. The most important transformation that has taken place is that formal peak bargaining on mean pay increases has been substituted with pattern bargaining where the manufacturing industry acts as a wage leader. Economic theory suggests that this almost amounts to centralised pay setting.

Norway is a small nation state on the northernmost coastline of Western Europe, integrated in the Western world economy. For centuries Norway's integration in the world economy had been based on exports of raw materials such as fish and timber, as well as shipping services. In the early 20th century, furnace-based metals (made possible by cheap hydropower) were added to this export basket. Just as the world economy entered an increasingly unstable phase in 1970s, another natural resource was discovered in Norway: petroleum – that is, oil and natural gas from the North Sea. This chapter analyses the challenges and possibilities inherent in the Norwegian strategy of developing an oil economy in a world economic situation influenced by new and stronger forms of international integration through the four decades between 1970 and 2010.