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....

A theory of transformation pressure was developed in Sweden in the 1990s which suggested that structural changes, rationalisations and innovations are stimulated by profit crises, arising, for example, from negative demand shocks and restrictive economic policies. Firms will then either become...