The Swedish Third Way : An Assessment of the Performance and Validity of the Rehn-Meidner Model

This paper analyses the functioning of the Rehn-Meidner model in Sweden and the validity of the model's underlying theory. Both sceptics and friends of the Swedish model have exaggerated the effects of active labour market policy and solidarity wage policy on employment, inflation and growth. However, these policies have contributed to the reduction of hysteresis effects and wage differentials in Sweden. Furthermore, Swedish experiences confirm the Rehn-Meidner view that positive demand shocks and expansionary macroeconomic policies make it difficult to combine full employment with price stability, economic growth and equity even if central wage negotiations are coordinated and trade unions willingly accept wage restraint