The liberal-conservative government that took office in Sweden in 2006 has implemented a number of labour market reforms that can be assumed to affect the functioning of the labour market. Among these are reduced generosity in the unemployment insurance and the stepwise introduction of an earned income tax credit (jobbskatteavdraget), beginning in 2007. The probable effects of these reforms have been intensively debated, but there is not yet any empirically based knowledge of how these have in fact affected the labour market.

We evaluate the combined effects of the earned income tax credit and reduced replacement rates in the unemployment insurance on wage formation. Statistical models will be estimated to find out what variables affect wages. After-tax replacement ratios will be a key explanatory variable capturing the combined effects of changes in taxes and unemployment compensation. Moreover, we shall examine if wages are affected differently for those who remain in the same position and those who switch jobs. The latter category is particularly interesting since the labour market reforms could be expected to have large effects on the reservation wages of those who switch jobs with an intervening unemployment period and thus on their actual wages.

Our analyses will be based on data on wages from the annual statistics on pay structures (Lönestrukturstatistiken) and from the database Linda and make use of data on the period 2004-2009.