Unions criticise proposal to cut unemployment and sickness benefits

In its recently presented budget bill, the Swedish government continues to focus on combating exclusion from the labour market. Unemployment and sickness benefits will be reduced to encourage more people to make the transition into employment, thereby saving SEK 13.4 billion (€1.43 billion). The government is also cutting company and personal income taxes by SEK 14 billion (€1.5 billion). The social partners have given a mixed reaction to the proposals.

Reduced unemployment and sickness benefits

The Swedish government has proposed a new form of unemployment insurance, which will function rather as an ‘adaptation insurance’. The latest budget bill, presented in the autumn of 2007, establishes that unemployed persons and people on sick leave will receive less benefit (SE0702029I). As part of the plan, the government has announced a number of changes in sickness insurance to increase the incentive to return to work.

  • The number of qualifying days (karensdagar) in unemployment insurance will be extended from two days to seven days in total.
  • The individual unemployment insurance contribution will match the unemployment rate in the particular economic sector: high unemployment implies a higher insurance cost and vice versa. However, the government has stated that no fund will have to raise contributions by more than SEK 300 (€32 as at 22 October 2007) a month.
  • Part-time employed persons will obtain unemployment benefit for a maximum of 75 days.
  • More active integration measures will be offered to people who are excluded from the labour market to promote their return to work.
  • The ceiling in the sickness insurance system will be lowered from 10 to 7.5 base amounts; one base amount is SEK 40,300 (€4,308). In Sweden, many benefits are expressed as percentages or multiples of what is known as the ‘base amount’, which is determined by the government each year. With this lower ceiling, for example, one person earning SEK 20,000 (€2,140) a month will lose SEK 3,460 (€370) during one year of sick leave.
  • Income-based sickness benefit will decrease by 0.03%, which corresponds to at most SEK 390 (€41) per month.
  • The responsibility of employers for co-financing sickness benefit costs for employees who are on full-time sick leave will be abolished.
  • Employers will be able to demand a doctor’s certificate from the first day of sickness.
  • Work will be stepped up on examining cases of long-term sickness and encouraging use of any capacity for work.

Tax incentives to work and to hire personnel

The following tax measures related to the labour market aim to foster both labour supply and the demand for labour.

  • Income earners will receive an income tax deduction amounting to a total of SEK 10.8 billion (€1.15 billion).
  • The ‘new-start jobs’ (nystartsjobb) will also include the public sector; a previous regulation targeted three vulnerable population groups in the private sector (SE0703019I).
  • Special new-start jobs – so-called ‘new healthy jobs’ (nyfriskjobb) – are introduced, which grant employers the value of a double social insurance contribution when employing a person who has been on sick leave for more than one year.
  • In order to facilitate young people’s entry into the labour market, SEK 2 billion (€210 million) has been put aside to reduce employers’ social insurance tax for people aged between 18 and 25 years.

Reactions from social partners

The President of the Swedish Confederation of Trade Unions (Landsorganisationen i Sverige, LO), Wanja Lundby-Wedin, believes that varying the unemployment insurance contribution to match unemployment in the particular sector is unjust, as it creates too great a financial burden on certain groups of the economy. The risk for unemployment is higher for LO members compared with white-collar workers. Ms Lundby-Wedin is also critical of the proposal to extend the number of qualification days to seven days, since this will affect part-time employed people, most of whom are women with low income and/or are young. For example, 59% of women aged between 20 and 24 years hold part-time jobs.

Conversely, the Chair of the Swedish Confederation of Professional Associations (Sveriges Akademikers Centralorganisation, SACO), Anna Ekström, considers that it is reasonable that the employment insurance contribution should match the unemployment rate according to the particular sector: unemployment insurance should be adaptation insurance. In Ms Ekström’s view, it is rational that part-time unemployed people should not be able to claim unemployment benefit for a long period. However, she concedes that this budget proposal may be too stringent and might create new problems.

Meanwhile, according to the Chief Economist at the Confederation of Swedish Enterprise (Svenskt Näringsliv), Stefan Fölster, the budget bill is not radical enough in reducing taxes further to foster investment, jobs, savings and to avoid increasing inflation. Mr Fölster considers that it is also necessary to introduce flat tax rates in the future.

Thomas Brunk, Oxford Research

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