A functioning labor market – key to innovation and knowledge-driven growth

The 2014 Swedish Economic Forum Report was launched on Thursday, November 20, at a seminar and was commented by, among others Hulya Ulku, Senior Private Sector Development Specialist at the World Bank, Anna Kinberg Batra, group leader (M) and Vice Chairman in the Finance Committee, and Annie Lööf, MP and party leader (C). The 2014 Swedish Economic Forum Report focuses on research on higher education, labor and innovation. The report analyzes labor mobility, matching, regulations in the labour market, as well as the conditions for entrepreneurship, innovation and business growth.

Pontus Braunerhjelm, CEO at Swedish Entrepreneurship Forum, Professor KTH and co-author of the report, initiated the launch seminar by presenting one of the report’s main issues; what does innovation mean for economic growth? It has been difficult to find the answer to that question, Braunerhjelm said. One starting point has been the innovation policy framework that Braunerhjelm himself launched in 2010 where a variety of policy areas that affect economic growth are affected, including education, research, entrepreneurship, mobility, infrastructure and taxes.

– What we can see is that there is a clear association between a more deregulated labor market and a higher degree of innovation.

Johan Eklund

Higher Education and Matching in the Labor Market

Johan Eklund, Research Director at Swedish Entrepreneurship Forum and Professor at Jönköping International Business School, is also co-author of the report and has written about the link between higher education, labor market matching and Swedish economic growth. Eklund showed how the unemployment rate increased markedly during the 1990’s crisis, to later decrease again, and today we have an upward trend in the number of vacancies in the labor market. Meanwhile, Sweden has expanded the education system.

– We have a hundred percent growth in the proportion of graduates.

How important is higher education for economic growth? Eklund said that knowledge-driven growth is explained by economic growth in the long term, driven by new knowledge and its transformation into technological advances and innovations. Growth can be driven by capital, labor and technology development.

– Not the least is the composition of the work force important because knowledge-driven growth increases the demand for labor, Eklund said.

Between 2001 and 2010, the Swedish economy grew by about 30 percent, representing an annual growth of 2.2 percent. Highly skilled workers stand for 47 percent of that growth. Research shows that highly educated people in business are up to three times as productive as compared to low skilled, according to Eklund.

– Professional development is central to economic growth!

It is clear that there are increasing matching problems despite the sharp increase in proportion of university graduates. Half of the economic growth last decade can be explained by that more highly educated people entered the business world. Eklund said in conclusion that if the match between business needs and education improved, there is great growth potential.

Labor Mobility

Pontus Braunerhjelm went on to present how labor mobility affects firms’ innovation. According to Braunerhjelm, mobility is the base for business competitiveness and the foundation of economic growth; it provides better matching and proliferation, while labor is the carrier of knowledge.

For an innovative company, it is an asset to hire R&D workers from other innovative companies, both within and between regions. Non-innovative firms have no effect on mobility, according Braunerhjelm. The effect is most pronounced for larger companies and especially welcomes the recent graduates of R&D workers.

– Mobility provides better matching and better circulation. This in turn generates ideas converted to knowledge and finally innovations.

To strengthen the competitiveness of enterprises Braunerhjelm wants to increase incentives, i e salaries, encourage mobility and combine it with professional conversion measures. It is eventually crucial for knowledge-driven growth.

Annie Lööf and Lena Hallengren

Matchmaking and Capacity Building

Lena Hallengren, chairman of the Parliamentary Education Committee (S), was the first to post a comment. She believed that higher education is indeed a driving force. Sweden is a nation of knowledge but companies need to find new ways to match and change the setting, she said.

– Company’s today refrain from hiring because they feel that they cannot find the right labor.

How do we ensure that more people educate themselves, was a question she asked. Education policy has a major responsibility in that, for example, ensure that the institutions interact with industry. Then the question is how fully trained a person is after the completion of a college or university education? How effective is capacity building on the existing labor market?

Hallengren stressed that she wants to see Innovation Council in place under the new government. Innovation is needed to develop the community and the Council must address issues as housing and infrastructure linked to the education system.

– As the situation is now people reject education spots because they don’t have a place to stay.

Hallengren also expressed that it might be a good idea to really think about whether we should educate in areas where we know that it will prevail work. Perhaps instead we should focus on better matching with the industry?

Facilitate Entrepreneurs and Innovation

Annie Lööf, MP and party leader (C) was next out to comment on the report. She began by thanking the Swedish Entrepreneurship Forum for the good cooperation over the years. Furthermore, she thought that this year’s SEF is an extremely interesting and thorough report.

– Entrepreneurship is the answer to economic growth.

She went on to highlight what the alliance (a cooperation between Moderaterna, Centerpartiet, Folkpartiet och Kristdemokraterna) has done for entrepreneurs in recent years by the so-called work line, among other things, they have tried to reduce regulation hassle and increase the number of apprenticeship places. Lööf also argued that the process of matching in the labor market must be strengthened further. According to Lööf it is not a single thing that leads to success, but several factors.

– Enterprise and Entrepreneurship grows from below and is created by people and that’s what we need to facilitate.

Other initiatives that must be strengthened according to Lööf are, among others, payroll tax reductions, tax system that encourages flexibility in the housing market and better matching of immigrants.

– Innovation is no gutters mindset, it is everyone’s job and not just for the private sector but also for the public sector.

Lööf said that this is a shared responsibility between politics and business, and that they both need to create environments for innovation. The Swedish innovation strategy launched in 2012 is an attacking way for this. She concluded by saying that there are different kinds of work skills and they are all needed in the business life.

Jonas Milton, Madelene Sandström and Pontus Braunerhjelm

Highly Educated More Productive

Jonas Milton, President at Almega, began his remarks by emphasizing that the mobility of highly educated must increase. The lock-in effects that prevail in the Swedish labor today stifle innovation and growth.

– Last in – first out feels old time.

Furthermore, Sweden must have a functioning labor of movement to work. Other factors such as taxes and labor costs also contribute. The report says that highly educated people are two to three times more productive but according to Milton Sweden does not have the wage development that it pays to get an education in order to get a higher salary.

Another factor that Milton pointed out is the immigration expertise. He mentioned the gaming company DICE example, how they must go beyond Sweden’s borders to find the skills needed. Even the expertise of asylum migrants must be utilized.

– Diversity is important for economic growth.

Attractive colleges and universities

Madelene Sandström, CEO at the Knowledge Foundation, began by saying that she supports professional development. She went on to praise the venture the previous government has done in Sweden’s universities and colleges, it is a fantastic development. For example, it has helped regions outside major cities to increase the proportion of graduates from 15 to 22 percent. Sandström said that we need to ensure that colleges and universities are attractive and have a live interaction with businesses in rural areas.

– It means a revolution in productivity and competitiveness.

Sandström went on to commend the cooperation that exists between universities and companies in Sweden, that it is unique. It creates conditions for growth ambitions, Sandström said. She also agreed on that mobility is essential for development and innovation. Likewise professional development on advanced level which creates more opportunities for development. We also need to get better at defining what a competence is, Sandström said.

– Profiling in this matter is crucial, a keyword.

Lina Bjerke

Regulations Hinders Self-Employment

Lina Bjerke, Ph.D. at Jönköping International Business School, noted a need for new types of employment.

– A dynamic labour market demands flexibility. Therefore, self-employment is a possible alternative.

This would involve employment in a self-employment company, where the employees themselves are responsible for acquiring contracts or assignments. There are only two forms of employment in the labour market right now – employer and employee – which is a problem, Lina Bjerke explained.

– Plenty of people want to remain employed and do something of their own at the same time.

A lot of people who considers starting their own business will not do this due to poorly understood regulations, Bjerke showed the audience by presenting numbers from own surveys. A self-employment company might be able to offset this, since the company will be in charge of handling regulations. This while the employee can pursuit his or her own ideas, she said in conclusion.

Johan P Larsson

Dense and Well Connected Cities Increase Productivity

Johan P Larsson, Ph.D. and Researcher at Swedish Entrepreneurship Forum, showed positive socioeconomic effects of a dense and well-connected city in his presentation. When lots of people live at the same location infrastructure will become cheaper per person, for example.

– There are more positive effects of densely populated cities like better matchmaking in the labour market, an insurance argument and positive learning.

The first effect could mean a higher demand for rare products or services, thus making sure a company specialized in this field still can make a profit. If a person wants to try a new line of occupation he or she can do this with the knowledge that there are plenty of opportunities to go back to their old type of job, which is the gist of the insurance argument. Positive learning can be seen as the prospect people have to learn from competitors, customers and other institutions.  A prospect that is higher in frequency in dense cities, Johan P Larsson explained.

– There is a clear connection between dense cities and productivity, Larsson said as a final point.

Huyla Ulku

The Swedish Labour Market in Need of Increased Flexibility

Huyla Ulku, Senior Private Sector Development Specialist at the World Bank, talked about the Swedish labour market regulations and its effects on the economy.  She could see a positive effect on the Swedish economy in regards to the decentralized wage bargain system, which is negotiated between labour unions and businesses. The system allows more flexibility since enterprises can lower wages during a crisis. When the crisis subsides the recovery will be quicker because fewer employees have been made redundant.

– However, the regulations concerning redundancy are very strict in Sweden compared to other OECD countries.

Notice periods in Sweden are very long, this combined with the last in first out rule could lower productivity, Huyla Ulku explained.

– Sweden have a dual labour market where permanently employed are protected too extensively, and temporary employed are not protected enough.

The Swedish regulations could cause problems since permanently employed who are highly protected will increase labour costs, Ulku noted. This will result in greater unemployment and more temporary employed. Employers are more reluctant to invest in temporary employed; this is not good for productivity, Hulya Ulku said at last.

Anna Felländer

Tech Sector: Not a Job Creating Sector

Anna Felländer, Head Economist at Swedbank, was the next speaker and told the audience in what way people with tertiary education can be vital to the economy. A person with higher education is – thanks to their increased productivity – also a person with great purchasing power, which can create up to three jobs in the service sector.

– Nevertheless, there are challenges since very few jobs are created at the biggest companies within the tech sector.

When Microsoft bought Mojang they paid 2.5 billion dollars for a company with 39 employees, Felländer told the audience. Comparing this to the purchase of Volvo with 21 000 employees for 1.5 billion dollars, and a strong contrast emerges. The service sector could help the economy by negating the jobs lost due to the increased digitalization, Anna Felländer said in conclusion.

Sweden Lacks Key Educations

Per Tryding, Vice President at Sydsvenska Handelskammaren, initially said that the report highlights a real problem for the employers in finding matching competences, even though there are plenty of people with tertiary education.

– There are problems finding e g sales people and leaders, there is also a lack of educational options to acquire these jobs. Nowhere is education in sales technique offered in Sweden.

The Swedish labour market can become more flexible but it will happen by enterprises circumventing the regulations by for example hiring staffing companies. A better strategy would be if politicians would be willing to deal with the problem directly, he said as a final remark.

Karolina Ekholm

Education towards skills development for better matchmaking

Karolina Ekholm, State Secretary at the Ministry of Finance, considered the report thought provoking even though she could not agree with each and every one of the report’s conclusions.

– I share the main base of the report but I do think it is alarming to an unnecessary extent, which I would like to nuance. Sweden’s position on international innovation indexes remains high.

Ekholm pointed to top placements at e g Global Innovation Index and the World Bank’s index for knowledge economy. Nevertheless, Sweden has to work hard to remain at those levels, she noted.

With the exception of the Anglo-Saxon countries, Sweden also placed average concerning regulations in the labor market, she added.

However, she did think an increased unemployment rate at the same time as an increased rate of vacancies did highlight a problem.  But given a recent global financial crisis this should not come as a surprise, Ekholm said, adding that the expected change back to normal had not occurred yet.

– I find education and skills development incremental in improving matchmaking in the labor market.

In this field the government is placing more focus on better schools and a better situation for teachers – something more easily said than done – as well as improved access to tertiary education, Ekholm said in conclusion.

Anna Kinberg Batra

Swedish safety must be converted into innovation

Anna Kinberg Batra, Deputy Chair Committee of Finance and Chief Whip (M), could initially establish a tendency to take employment for granted. Companies are facing an even quicker rate of change in today’s globalized world. Kinberg Batra took Ericsson as an example, a company that has changed in time.

– I am old enough to remember Ericsson Hotline, their first mobile phone, and I had not yet had my 30th birthday when Ericsson discontinued their production of telephones.

Kinberg Batra pointed to a report from KPMG; it calculates a threefold increase of the global middle class to five billion by 2030. As an effect big challenges would arise as well as bigger markets

– If we are to compete with Indian and Chinese engineers, we must focus on research.

Kinberg Batra therefore wants to increase priorities, from preschool to research, in inter alia math education, the highest R&D investments in the world measured in percentage of GDP as well as clusters of global competences of excellences. There is a need for a combination of strong economic growth and a strong social contract.

– Swedish safety must be converted into innovation. From the report I note an importance for regular education as well as vocational education. Everybody needs an adequate education to get their first job.


Lack in infrastructure

As the seminar came to an end the participants gathered on stage discussing the dual labor market with a lot of temporary work contracts. Kinberg Batra emphasized a need for reforms, which would make it easier for employers, try certain individuals.

– The weakest groups are always those most adversely affected by a recession, Ekholm noted.

Correspondingly Ekholm saw a risk for the economy if these individuals would fail to re-enter the labor market.

The seminar’s moderator Pontus Braunerhjelm asked Ulku if the Swedish labor market regulations should be adjusted seen from an international perspective.

– Sweden has long notice periods, which should be looked at, Ulku replied.

She also proposed that new regulations could be tested locally to see if they prove successful, before being implemented nationally.  Johan Eklund suggested a test of flexicurity in Skåne since the region boarders Denmark.

Eklund added that education does not solve everything, infrastructure and the housing market are important as well. Karolina Ekholm saw the housing market as a big problem without a quick solution and wanted to see a broad political agreement about rent control. Several new underground stations are planned in Stockholm in areas with a possibility to build more housing, Kinberg Batra added.  She felt a need to review planning regulations to make it easier and cheaper to build more.

– Sweden needs more flexibility in the labor market, Ulku said. However, the right amount of balance with solidarity must be retained she added as a last remark.

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