The Nordic experience revisited: labour market booms and slumps since the 1990s in Finland and Sweden

This paper aims to provide an account of the unemployment performance of two Nordic countries during their recent labour market booms and slumps.

Based on the empirical models of Karanassou et al., we conduct dynamic simulation exercises and explore the determinants of unemployment.

The analysis yields two main findings. First, the capital stock was the most important determinant of the unemployment trajectory in both countries. This result appears in all periods considered: in the slump of the early 1990s and the boom of the late 1990s, as well as in the stabilisation period of the early 2000s. Second, the role of the foreign sector on the unemployment trajectory was significant in Finland, its quantitative impact being one‐third of the effect for the capital stock in the first and third periods, and half of the latter in the second period.

The results illustrate the importance of non‐standard labour market variables in examining unemployment trajectories. The findings call for a wider than usual perspective in trying to solve the unemployment problem.