The Swedish labor market gives some signs of firming up in the March/Q1 report issued today by Statistics Sweden. The unemployment rate stands at 5.5%, lower by 0.3 percentage point than March 2004. Total employment is still decreasing, but quarterly data indicate a stabilizing trend, with the Q1 average 4,145,700 virtually identical to Q1 2004. The quarterly data for employment by industry also reveal that non-manufacturing jobs have started to increase, however slightly.

At the same time, the "improvement" in the unemployment situation is partially related to reduced labor force participation. As shown in the table below, a participation rate which we calculate is off noticeably from last year to 76.2% from 77.4%, reflecting a sizable rise in the number of people not in the labor force. This movement reflects some month-to-month volatility, so it probably does not imply such a severe weakening of sentiment among labor market participants. In fact, consumer confidence has firmed considerably in recent months and averaged 11.5% in Q1, the highest quarterly average since Q4 2000. If people were so concerned about labor market prospects that they were pulling out of the labor force, confidence surveys would likely give some corroborating evidence of such distress.

So labor market conditions are not particularly favorable in Sweden presently, but they do seem to be stabilizing after a protracted erosion from late 2001 to early last year.