Spoiler: This is a longer and revised version of a letter to the newspaper Sydöstran that was published 12 April. As I have blogged repeatedly, growth is declining. We need more educated people to work longer to counteract the effect of declining productivity growth on GDP per capita growth. The only factor contributing positively to decreased GDP per capita growth is the increased labour force. But the government is about to make it more difficult for firms to employ people who want to come here to work. The Tidölag, (that sounds much worse in Swedish than in English), has also decided to continue to make life miserable for Ukrainian refugees. For more than two years after the fascist regime’s fullscale invasion, Ukrainian refugees had to live on SEK 71 per day, faced severe difficulties to work and become part of the Swedish society. Now, the government brags about a proposal that actually makes things worse. As a well-known columnist phrases it, it is difficult to know whether the government is determined to force Ukrainain refugees to leave or is incredibly incompetent.
First things first. Growth is declining as I have blogged about so much that I have bored myself. Enter “growth” in this blog’s search field and you get more posts than you wished for. Anyway, here are two graphs that show that growth of GDP per capita is slowing down mainly because GDP per hours worked is slowing down, and that the only human capital component that is counteracting this development in the increasing labour force participation rate. That rate is defined as employment relative to the working age population rate. And the working age population is here defined as people from fifteen to sixtyfour years of age.
As in previous posts I draw the conclusions from a growth accounting exercise. According to this, GDP per capita is the product of GDP per hours worked (Y/H), hours worked per employee (H/L), the number of employees relative to the number of people in the working age (L/Pw), and the number of people in the working age relative to the total population (Pw/P):
According to this version of growth accounting, changes in GDP per capita is the sum changes in the four components. A reminder. Growth accounting does not explain anything, it only decomposes the change of a total into changes of its parts.
Decreasing productivity means decresing prosperity
Most of the growth rate in GDP per capita is due to growth in GDP per hours worked. And since growth in GDP per hours worked has slowed down significantly, so has GDP per capita growth.
Ten year average growth rates for GDP per capita and GDP per hours worked.
Source: Ameco Database, European Commission. Note. Ten year average annual growth rates computed as .1*ln(yt/yt-10).
Turning to the remaining three components in the growth accounting, shows that for the last decade, it is only the labour force participation rate that has contributed positively to GDP per capita growth.
Ten year average growth rates for human capital.
Source: Ameco Database, European Commission. Note. Ten year average annual growth rates computed as .1*ln(yt/yt-10).
A government without a clue?
Now, anyone facing these numbers would draw the conclusion that we need more people to work to prevent the GDP per capita growth from continuing to decline. Not our government, Tidölaget. It does the opposite.
It is about to introduce a reform that makes it more difficult and expensive to employ immigrants. According to the proposal, a new employee has to earn a minimum wage corresponding to 80% of the median wage. For 2022 that meant at least SEK 27,360, an increase by SEK 14,360, an increase by more than 50%! The new rules not only applies to potential new immigrants, also immigrants already employed are affected.
It may actually be worse than that, this government acts fast when it comes to making matters worse. Anyway, according to the Conferation of Swedish Employers, the proposal will decrease GDP by one percent. That does not sound like a lot. However, some industries will hurt more than others. Value added in the IT-industry which is dependent on skilled labour from abroad, will decrease by some 14%. The analysis is static so it is possible that it will be worse as time goes by and other countries learn from our mistakes.
Or a government without a heart?
This is unfortunately not the first time that the government shoots itself in the foot. When it recently bragged about its attemts to finally improve the situation for Ukrainain refugees, it turns out that it actually tries to make things worse. The EU has recently decided to extend the temporary protection directive until 2026. Since the refugees have been here some time now, they would by 2025 be eligible for the same rights and benefits as anyone else who is registered in the population register. However, the government’s propsed new law will worsen the conditions for Ukrainian refugees. They will not be able to allowances for children, housing costs, elderly support, care taking, and student grants.
As a consequence, it will be even more difficult for Ukrainan refugees to be selfsufficient. They will have to rely on economic assistance from the municipalities where they live. The marginal effects of those are 100 %! Every single SEK they earn by working is deducted from the economic assistance. If a household does not have the allowances mentioned in the previous paragraph, they need a substantial income to become selfsufficient.
Is it possible to be so incompetent or does the government want to force the Ukrainian refugees to settle in another country? From what I understand of the proposal of a higher minimum wage, the government does not want any immigrants.