An adverse macroeconomic shock – specifically a substantial increase in
unemployment – can trigger a substantial and long-lasting increase in temporary
employment. That is the central conclusion of research by Bertil Holmlund and
Donald Storrie, published in the latest issue of the Economic Journal. Their study of
Sweden’s experience of a major economic downturn in the 1990s suggests that
adverse macroeconomic conditions give firms stronger incentives to offer temporary
rather than permanent contracts and that workers will be more willing to accept
temporary jobs in a generally depressed labour market.
In the early 1990s, Sweden experienced a macroeconomic downturn unparalleled in
the post-war period. GDP fell by 6%. Unemployment rose from 1.5% to 8.2% and the
employment rate fell by 10 percentage points. But since 1997, GDP and employment
have increased and by the end of 2000, unemployment had fallen to 4%.
The initial decrease in total employment – by 13% or close to 600,000 persons – was
due to falling ‘permanent’ employment and not the result of a decline in fixed-term
contracts. But between 1992 and 1998, there was a remarkable increase in fixed-term
contracts, from 10% to 16% of all wage and salary employment.
Temporary work increased in every broad sector of the economy and across all
demographic groups. By far the most common type of fixed-term contract is to replace
an absent worker. This is a feature unique to Sweden, which has generous allowance
for many forms of leave. But the incidence of leave replacements has remained roughly
constant over the decade. The entire rise in temporary work is accounted for by three
categories: on-call contracts, project work and probationary employment.
The only significant change in statutory legislation occurred in 1997. The researchers
argue that even after 1997 its impact was marginal and note that the major part of the
increase occurred before 1997. Thus, legislation cannot explain the increase. But the
rules operating at a place of work are also determined by collective agreements. There
is at least some scattered evidence suggesting that the regulation of fixed-term
contracts in collective agreements has become more lax. As the outcome of both
collective bargaining and the subsequent agreement’s day-to-day implementation at the
local level is largely a result of relative bargaining power, the researchers suggest that
the mass unemployment of the early-to-mid 1990s may have led to a more liberal
regulation of collective agreements.
On the supply side, shifts in the age and gender composition of the labour force can be
ruled out as explanations. Neither has the labour force changed preferences towards
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more flexible work; indeed, employees express very strong preferences for job security
and ‘permanent’ contracts. The other supply-side candidate is that with mass
unemployment, job searchers may be more willing to accept temporary jobs. This
adjustment, however, is best seen as a response to more fundamental forces that
caused the decline in labour demand in the first place.
The empirical results of this study indicate that an adverse macroeconomic shock, and
specifically a substantial increase in unemployment, can trigger a substantial and longlasting
increase in temporary employment. The relationship between unemployment
and temporary work is empirically well established in Sweden and is also broadly
consistent with the developments in other Nordic countries.
The precise reasons for this relationship are less clear and there are several possible
interpretations. Holmlund and Storrie argue that adverse macroeconomic conditions
give firms stronger incentives to offer temporary rather than permanent contracts and
that workers will be more willing to accept temporary jobs in a generally depressed
labour market.
ENDS
Notes for Editors: ‘Temporary Work in Turbulent Times: The Swedish Experience’ by
Bertil Holmlund and Donald Storrie is published in the June 2002 issue of the Economic
Journal as part of a symposium on temporary work.
Holmlund is at the Department of Economics, Uppsala University, Box 513, SE-751 20
Uppsala, Sweden; Storrie is at CELMS, Department of Economics, Box 640, SE-405 30
Göteborg, Sweden.
For Further Information: contact RES Media Consultant Romesh Vaitilingam on 0117-
983-9770 or 07768-661095 (email: romesh@compuserve.com); Bertil Holmlund on
+46-18-471-1122 (email: Bertil.Holmlund@nek.uu.se); or Donald Storrie on +46-31-
773-1371 (email Donald.storrie@economics.gu.se).