Sweden: No signs of lowered entry-level wages in 2016 bargaining round

In preparation for the 2016 wage bargaining round, debates on how to reduce unemployment among low-skilled workers and new immigrants dominated the news in Sweden. Suggestions included lowering minimum wages and introducing so-called ‘simple jobs’. However, the debates had little impact on the overall wage increases agreed during the bargaining round.

The Swedish labour market and its challenges

In the Swedish Model of wage bargaining, entry-level wages are determined in collective agreements between trade unions and employers. As explained in the Swedish Labour Policy Council’s latest report (PDF), the Swedish labour market has gone through two significant structural changes in recent decades. Firstly, technological development has reduced demand for low-skilled jobs, and secondly, educational achievement in Sweden has declined considerably, leading to a higher proportion of low-skilled workers in the labour market. Despite several changes to the education system, Sweden has not been able to raise overall qualification levels sufficiently. This has led to a decline in the relative employment rate of low-qualified workers.

Immigration to Sweden has also had an impact on the structure of the labour market. It often takes several years for immigrants to find a job after arriving in Sweden. The vast majority of migration to Sweden is for humanitarian rather than labour reasons and the migrants come, to a large extent, from countries with lower levels of education than Sweden. New statistics from Statistics Sweden (SCB) show that the number of foreign-born people who are unemployed will soon exceed the number of Swedish-born unemployed.

The debate on minimum wages and simple jobs

The increased rate of unemployment among low-qualified workers and immigrants has resulted in an intense debate about whether Sweden should lower or freeze its minimum wages and introduce so-called ‘simple jobs’ which require little or no education. Sweden has the lowest share of 'simple jobs' in the European Union, and several liberal and right-wing politicians argue that creating more could increase employment among low-skilled workers and new immigrants.

This argument has been criticised by trade unions and left-wing politicians who argue that such proposals would primarily affect workers who already have low incomes, and that increased distribution of income would lead to increased socioeconomic inequality.

The proposal to lower minimum wages would in fact mean a governmental intervention, something very uncommon for the Swedish Model and has been highly criticised by several trade unions. According to the Swedish Confederation of Professional Employees (TCO), a legislation of minimum wages in order to keep wages low and generate more jobs is not compliant with trade unions’ right to negotiate and sign agreements. The president of the research institute Ratio argues, on the other hand, that the Swedish Model is no longer working and that a governmental intervention will be inevitable if the social partners cannot agree on lowered wages.

Effects on the 2016 bargaining rounds

The 2016 collective bargaining round was unusually conflict-ridden. Conflicts arose not only between employers and unions, but also between unions within the same confederations. For the first time since the 1980s, there was no wage coordination by the Swedish Trade Union Confederation (LO) because unions failed to agree on relative wage increases in the female-dominated industries.  

The main conflict was about wage levels. Employers’ associations in the manufacturing industry, which sets the norm for bargaining in other sectors, emphasised the need for reduced wage increases to improve competitiveness. The unions drew attention to Sweden’s rapid economic growth and demanded wage increases of 2.8%. On the day before the Industrial Agreement was due to expire, the partners finally agreed on 2.2% increases. Most unions would normally then have adapted their demands to this figure, as is usually the custom in the Swedish Model. However, this did not happen because of conflicts in and among the blue-collar unions.

The Commercial Employees’ Union (Handels) initially requested increases in minimum wages of at least 3.1%, while their counterpart, the Swedish Trade Federation (Svensk Handel), called for a freeze on minimum wages to create more jobs for new immigrants and young people. In the service sector, the Hotel and Restaurant Workers’ Union (HRF) demanded the highest wage increase in this year’s bargaining round, while the employers’ association Visita argued that wage costs in the sector were already high and there was very limited room for increases. In the end, parties in both industries agreed wage increases of 2.2% in line with the norm-setting Industrial Agreement. Handels was satisfied with the outcome but Svensk Handel, representing employers, expressed disappointment.

Ultimately, despite intense debate about lowering minimum wages, many unions managed to push through demands for wage increases.

Commentary

The Swedish Model continues to survive despite many calls for government intervention, in part because the current government is intent on protecting the bipartite bargaining structure of the Swedish labour market.

However, Sweden is currently in a precarious situation. Unemployment among low-qualified workers is high; meanwhile, for highly qualified workers, the emerging economic boom is driving up both wage levels and demand for their services. Sweden’s main challenge is, therefore, to manage skill distribution in the labour market to combat unemployment and to reduce the risk of social exclusion.

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