Government Spending/ Keynesian Model

Outline of Report

Sweden, a developed Scandinavian country located in Northern Europe., with its economy being export-oriented, equipped with a skilled labour force, the country excels in both internal and external communication. The resource base is made up majority from timbre, hydropower and iron ore. The country economy depends heavily on foreign trade.

The Investments The Government Are Investing In

From the pie chart, we can infer that the government spends mostly on unemployment and government sectors in 2016. 38.80% of the budget is spent on unemployment while 19.06% is spent on government affairs, followed up by 9.84% on housing and community, 7.48% on Medicare and Health. In the meanwhile, the government spends 5.27% of the budget on military. From the bar graph, the government military expenditure has been increasing from 2009 to 2017. Military spending increased from 4871.7 USD million in 2009 steadily every year to 5479.4 USD million in 2017. In 2006, sweden’s military spending is amounted to 39 billion SEK which is around 1.5 percent of GDP. 48% was operational funds for the domestic forces, 39% for material procurement, 4% for international missions, another 3% for research and development and the last 6% are funds reserved for unexpected costs related to increased material costs.

As the government decided to give the military a sufficient deterrence capacity, the government plans to increase the budget allocated to military by $22 billion dollars in 2018. Sweden military spending is expected to rise from SEK 37.5 billion in 2015 to SEK 53.4 billion in 2019. A government investigation has found out that the decrease in the military’s capacity would not be inevitable and large investments had to be made.One example is that the Sweden’s current Stridsfordon 9040 tanks which will be 30 years old in 2020 will be replaced with the Leopard 2A5 main battle tanks, a drastic improvement in technology from the old war machine. With this huge spending, the swedish defense will have better flexibility, impact power, better survival opportunities and a higher endurance. The priority of the swedish army is to increase their inventory to strengthen existing units and to maximise the use of equipments. The first step would be to entail better and more coastal missiles, an enhanced naval and amphibian capacity. Sweden would be focusing on artillery and air defence while keeping their five submarines. These implementations would cost sweden about SEK 56 billion. The second step is to put a strong emphasis on on fighter aircraft, strengthening sensors, radar equipments and weapons. In addition, the air force would be more widespread all over sweden so as to decrease the vulnerability to attacks from aboard. This would cost the swedish army about SEK 47 billion. Lastly, the purchase of better submarines and artillery for ground forces which will strengthen the Navy will cost sweden about SEK 47 billion. A prime example would be the SwMS Gotland which was a modern submarine made by the Swedish military. The killer submarine have sunk numerous other submarine including US nuclear based fast-attack submarines. The SwMS Gotland has proven that it is a deadly, efficient and reliable military equipment for the Swedish military. Sweden has been working on their coastal security over the years as to prevent attacks from the sea. All these implementations will result in the country better efficiency and response time when handling external threats, as well as better equipment and technology to counter any attacks. Over the years from 2016-2020, the swedish defence minister Peter Hultqvist pledged in 2015 that about 1 billion more euros will be spent on military which is an increase of about 11 percent and also to purchase more fighter jets, tanks, infantry fighting vehicles and anti-submarine warfare equipment. Additionally, the defence ministry also state that an addition of 100 million euros will be spent in the defence infrastructure if Gotland island.

Standard of living and unemployment

With an increase in military spending, the government has invested in more advanced inventory such as more advanced tanks and air defence system, which enables better security of the country. Citizens would feel more protected as they felt more confident of the more advanced technology that the country has implemented and put in place, boosting citizen’s assurance of the country’s welfare in times of war. This increases the standard of living for people as they feel more safe and secure living in Sweden as the spending of better military equipment dampens the vulnerability of the country.

From the graph, we can infer that the government spending has fluctuated throughout the years. From the year 2008 to 2009, there is a spike increase in government spending from 50.1 to 52.7 followed by a decrease from 2009 to 2011 which was from 52.7 to 50.3. It would later increase again in 2013 at 52 which was the second highest point of government spending within the 9 years. From 2014 to 2017, the government spending would decrease to an all time low of 49.1.

As seen from the graph above, there was a spike increase of government spending from 2008-2009. This is after a major economic recession. To comeback from the downturn, an increase of government spending in the unemployment and social security sector was made. This would aid the citizens during bad economic time and thus could aid the country with the economic downturn. As the country began to recover from recession, the government spending would decrease and thus would focus more on other sectors such as the military which who lift up the standard of living in Sweden. For example in 2018, they invested in more advanced military equipment to safeguard the country from attacks abroad.

Due to government spending being autonomous to Real GDP, and increase or decrease in government spending would not affect directly to the Real GDP. But, government spending have a direct relationship with aggregate expenditure thus when government spending increase, aggregate expenditure would also increase. And when aggregate expenditure increase, the real GDP would also increase. This would be a benefit, for example, in 2009 where Sweden’s government pump in government spendings, it was to increase the Real GDP of the country overall after the economic downturn.

Unemployment

There are two main category of unemployment in Sweden. Seasonal unemployment and structural unemployment.

The seasonal unemployment is mainly due to Sweden’s mandatory summer break where all citizens are given 4 weeks public holiday. This causes the need for part-time jobs during that period and as many as 105,000 summer jobs were advertised between December 2017 to April 2018, highlighting the desperate need from the job market for temporal replacements. Many of the citizens’ jobs are not recorded under the government as they fall under the part-time jobs category, thus inflating the unemployment rate in Sweden.

The main cause for structural unemployment is due to the Swedish labour force lacking of means for firms to find the right profiles for their job . There is an overall shortage for skilled labour in Sweden as demand for certain skilled labour remains high with many vacancies. Many firms in Sweden are looking to expand their business, but majority of them are held back due to the lack of manpower in the main few sector such as education, healthcare, information technology, engineers and various blue-collar jobs such as mechanics, plumbers and even chefs. Most of these jobs require specific skill set which are lacking in the Swedish workforce. Thus, even if there are jobs available, most of the unemployed people lack the skill to do the job. This will be seen as structural unemployment instead of frictional unemployment as many of the workers will need to go for an upgrade of their skills before having the capabilities to take up the jobs.

Sweden’s unemployment benefits comes in 2 main level, the basic protection fund and the Income based protection Fund. Both funds are heavily supported by the government as expected due to the high tax rates for its citizens.

This fund provides very minimal support for citizens who are unemployed and is actively seeing for a job. This helps the citizen get through this hard time as the fund solve the basic needs such as food, lodging and other bills. However, this scheme does not provide enough finances for majority of the citizens under this and most will have to resort to part-time jobs while actively searching for a full time job

Majority of the Swedish working population falls under this category where this provides them about 80% of their previous salary for the first 200 days and 70% of their previous salary for the next 100 days. However, the fund is capped at 680 Krono a day (SGD 105). This is a more sustainable amount for most citizens and ensure that they will not need to rush to grab a job but instead take the time to upgrade their skills to make them more relevant to the workforce and join a job that is of their calibre.

Impact from unemployment benefits

Although the initial idea from the Government to implement these unemployment is so that their citizens have the financial security in case if they lose their job, the system has been exploited by some of the citizens going through unemployment. Majority of the population sees this system as a safety net incase they go through unemployment, they will not have to fear about providing for their family as they are actively looking for a job, helping citizens to place trust in their Government. However, some citizens sees unemployment as a opportunity to take a break and do not actively seek for a job as the Government will provide for them, creating some resentment to the workers that are paying high taxes due to the minority.

Upgrading of workforce

The Swedish government advocate in equal rights for everyone and implements a compulsory schooling for their citizens until a minimum requirement of a diploma certificate. The government also emphasizes on life long learning and provides Adult education and Vocational training.

Adult education compromise mainly of general education. Most public schools provide courses that adults can take to upgrade their skill cap so that they will be more enticing for firms to hire. The focus for this programme is for the people in the workforce who did not manage to achieve a diploma or degree, as Sweden is in need of jobs that needs higher qualification, this is a policy the government has put in place to ensure that the workforce remains relevant.

Vocational training is part of the Swedish government's active labour market programmes. This programme targets the Unemployed and Workers who are in the risk of losing their jobs. One of the industries that are seeing a steady decline in the number of jobs are the Oil industry. This is due to the shift in the supply of power where most countries are going for a more environmentally friendly method of producing power instead of using crude oil, thus many of the engineers there will have to go for a skill upgrade and be equipped with the knowledge on other energy producing industries as well.

Impact From The Implemented Policies

Many of the policies and programme has been hugely successful and the results can be seen in a few prominent factors. Sweden has one of the lowest unemployment rate in Europe, with majority of the workforce highly skilled and educated due to their well known education system and the constant upgrade of the current workforce. This has helped Sweden’s workforce remain relevant in this ever changing economy, bringing economic stability to the country.