Improved labour market matching in recent years

Matching measures how efficiently supply and demand for labour are met in the labour market. It affects the equilibrium unemployment rate –  the long-term sustainable level of unemployment – and thus the assessment of how much spare capacity there is in the economy. Resource utilisation, in turn, affects wage pressures and inflation and is therefore important for monetary policy.

In the economic commentary "Matching in the Swedish labour market", the authors show that matching deteriorated both after the 2009 financial crisis and in connection with the 2020 pandemic. However, the fact that matching has not recovered from the crises can largely be explained by the changing composition of the unemployed as a result of large-scale refugee and family immigration, from the mid-2000s until the pandemic.

Matching has recovered somewhat in recent years, although not quite to the same level as in the years before the pandemic. This is because foreign-born workers currently make up a slightly larger share of total unemployment and have a lower job-finding rate on average.

The fact that the improved matching of recent years is not reflected in the unemployment figures is partly due to the economic situation and partly to an increased inflow into the labour force, and thus higher labour force participation. While unemployment is high, the employment rate is at a high level.

Despite some decline over the past year, the employment rate among foreign-born people is clearly higher than before the pandemic. Focusing solely on unemployment therefore paints too bleak a picture of the Swedish labour market in general and the situation of foreign-born workers in particular.

Matching varies with the economic situation and there is reason to believe that it will continue to improve as the economy recovers.

Authors: Iida Häkkinen Skans and Pernilla Wasén, who work at the Monetary Policy Department.