Temporary Work in Turbulent Times: the Swedish Experience

Abstract

The paper presents the Swedish institutional setting, documents basic stylised facts about fixedterm contracts, and discusses the causes of their increased prevalence. Open-ended and temporary employment exhibit strikingly different cyclical behaviour with temporary employment being more volatile. A recession is associated with an initial decline in temporary employment followed by a sharp rise from the trough to the end of the recession. We argue that the severe recession of the 1990s is a major factor behind the rise in temporary work in Sweden. Adverse macroeconomic conditions make firms more prone to offer fixed-term contracts and workers more willing to accept them. In the early 1990s, Sweden experienced a macroeconomic downturn unparalleled in the post-war period. GDP fell by 6% from the cyclical peak in the first quarter of 1990 to the trough in the first quarter of 1993. The unemployment rate stood at around 1.5% in 1989-90 and had risen to 8.2% by 1993. The employment-topopulation ratio fell over the same period by 10 percentage points. Signs of a sustained labour market recovery did not appear until the end of the century. The period from 1997 and onwards has seen a large decline in unemployment as well as rising employment, a rebound triggered by a marked increase in GDP growth. By the end of the year 2000, unemployment had fallen to 4% of the labour force. An intriguing aspect of the Swedish experience is that the entire decline in employment during the downturn was the result of job losses among workers with 'standard' open-ended contracts, ie those covered by fairly stringent employment protection provisions. In contrast, employment in fixed-term contracts (temporary work) increased substantially over most of the 1990s. By the end of the century, fixed-term contracts accounted for 16% of total wage and salary employment, to be compared with 10% in the early 1990s. Among the other Nordic countries, only Finland has exhibited a similar growth in fixed-term contracts. Indeed, the Finnish experience during the 1990s has been even more dramatic than the Swedish one, with both a greater increase in unemployment and in fixed-term contracts. The macroeconomic conditions in Denmark and Norway were generally more favourable, with some fall in unemployment. Interestingly, neither of those two countries experienced any significant rise in fixed-term contracts. The purpose of this paper is to describe and discuss the evolution of fixed-term