Government proposes unemployment insurance reform, while union launches own scheme

At the end of June 2000, the Swedish government presented a bill seeking to establish a "fairer and more distinct" unemployment insurance system. The reform will not involve a major increase in the current earnings-related ceiling on the maximum level of unemployment benefit, a major concern for better-paid workers. Soon after the bill was presented, the Swedish Confederation of Professional Associations (SACO) launched a supplementary unemployment insurance scheme for its members, which will cover their real loss of income in the event of unemployment.

On 29 June 2000, Björn Rosengren, the Minister of Industry, Employment and Communication, presented a bill proposing changes in the unemployment insurance system, entitled A fairer and more distinct unemployment insurance (En rättvisare och tydligare arbetslöshetsförsäkring, 1999/2000:139). The title alludes to earlier public debate and criticism of the current unemployment insurance system, which offers a number of opportunities for abuse and for unequal treatment of unemployed workers.

In November 1999, about 70 possible changes to the unemployment insurance system were set out in a report from the Ministry of Industry, Employment and Communications (SE9912108N). Most of these proposals are found in the new bill, but the amount of the suggested increase in daily unemployment allowances has been omitted for now. The proposal in the report to increase the maximum daily unemployment allowance from SEK 580 to SEK 640 will be dealt with in connection with the decision-making on the 2001 national budget in autumn 2000. It is, however, clear that an increased daily allowance would apply only during the first 100 days of unemployment. The government wants the allowance to be increased in two stages, from July 2001 and then from January 2002.

The unemployment insurance system is currently administered by the trade unions and financed mainly by the state. The trade unions contribute to financing through membership fees amounting to an average of 6% of the whole insurance. Unemployed people who had a previous monthly income of up to SEK 15,950 receive 80% of this income as a daily allowance during 300 days of unemployment. The SEK 15,950 figure is a ceiling for calculating benefits, so unemployed workers with higher previous incomes still receive only 80% of this sum as a daily allowance. The daily allowance is paid for 300 days but can be prolonged by another 300 days if the unemployed person concerned fulfils the conditions for a new period of insurance. This rule has been criticised for allowing unemployed people to enter a spiral of unemployment, short periods of work and various employment schemes.

Main proposals

The main proposed changes to the unemployment insurance system are as follows:

1. during the first 100 days of unemployment, unemployed workers (or "job-seekers", as the new terminology has it), may limit their job search in both occupational and geographical terms. This means that job-seekers do not have to leave their home area or previous occupation immediately in order to find a new job;

2. in order to receive unemployment benefit, job-seekers must cooperate with the labour market authorities in establishing an individual action plan, a contract specifying the kind of jobs regarded as suitable for the job-seeker, whose sphere of job-seeking will be widened as the period of benefit payment lengthens;

3. the "work condition" (arbetsvillkor) for qualifying for benefit will be altered. Only "regular work" will be counted towards fulfilling this condition. Regular work includes sheltered work and up to two months of parental leave or military service;

4. the "requalification condition" (återkvalificeringsvillkor), whereby unemployed people may qualify for further periods of unemployment benefit, will be abolished. Instead, a new form of support for long-term unemployed people is being introduced, known as the "activity guarantee" (aktivitetsgaranti). The aim is to give people unemployed for over 24 months, and those who risk becoming so, better chances of finding a job (SE0005144F);

5. the current basic unemployment benefit period of 300 days will not be altered;

6. job-seekers who run the risk of becoming long-term unemployed will, within 27 months, be offered a full-time activity within the "activity guarantee" scheme. The same will apply to part-time workers who want more working hours; and

7. the rules on sanctions will be changed. In principle, this means that job-seekers who have not cooperated with the authorities will have their daily allowance reduced according to certain conditions. Job-seekers who refuse to accept a job offer will have their daily allowance reduced by 25% for 40 days on the first occasion. The next time they refuse an offer, the daily allowance will be reduced by 50% for 40 days. The third time that an offer is refused, benefit payments will be stopped. Only if the person finds work and fulfils the "work condition" again (see above) can a new entitlement to benefit be acquired.

The government has also announced that the establishment of "readjustment insurance" (omställningsförsäkring) for employees will soon be examined. Consideration will also be given to the establishment of a special authority to control the unemployment offices, which are connected with the trade unions, and the local labour market authorities.

Little enthusiasm

"It is wrong to increase the level of unemployment benefits when there are so many branches facing shortages of labour" commented Jan Herin, chief economist at the Swedish Employers' Association (Svenska Arbetsgivareföreningen,SAF), on the proposal. He added that: "it is also wrong to allow unemployed people to limit their job-seeking geographically and occupationally. The signal will be that the unemployed can relax for the first 100 days. The government should, instead of raising the benefit levels, promote private unemployment insurance."

Wanja Lundby-Wedin, the deputy chair of the Swedish Trade Union Confederation (Landsorganisationen, LO), says that it is satisfactory that the government clearly accepts the necessity of raising the upper limit of unemployment benefit, "however, it is not enough to raise it during the first 100 days. In the long run, unemployment benefit must follow the development of wages." She also described as a "welcome change" that the government has now rejected doing away with the much-criticised "further parenthesis" system (SE9912108N). This refers to the possibility in the Swedish unemployment insurance system of people entering a cycle of unemployment, short periods of work and employment schemes, while pushing back the final limit of their unemployment benefit entitlement. The principle of abolishing the "further parenthesis" is not directly affected by the government's bill, but is partly dealt with by other proposals (see above).

The chair of the Swedish Confederation of Salaried Employees (Tjänstemännens Centralorganisation, TCO) Sture Nordh, commented on the proposal that "the unwillingness of the government genuinely to increase the upper level of unemployment benefit is a threat to the whole system. The level has not been changed in 10 years. The upper level must be increased. It is the time to do so now, when Sweden has such good finances."

Professionals to invest in own insurance

The situation today is that over 50% of workers earn more than SEK 15,950 per month, the upper level for calculating unemployment benefit. If workers with a higher income become unemployed, they receive at most 80% of SEK 15,950 (SEK 580 per day) as unemployment benefit. Some 90% of the members of the unions affiliated to the Swedish Confederation of Professional Associations (Sveriges Akademikers Centralorganisation) earn more than SEK 15,950 per month, and they thus lose considerable income if they become unemployed. The idea of starting a private unemployment insurance scheme has been discussed within the organisation since 1999 and on 28 June 2000, just a week after the government's bill was presented, SACO announced that it was ready to launch supplementary insurance for its members. For this purpose, a joint company, SACO SalusAnsvarFörsäkring AB, will be founded by SACO, all its affiliated unions, and the private insurance company, SalusAnsvar. During summer 2000, SACO has been receiving applications for the insurance, and interest is reported as very high.

The upper level for the SACO unemployment insurance will be a monthly income of SEK 40,000. The insurance will cover the income between SEK 15,950 and SEK 40,000, with income below the lower figure still covered by the ordinary unemployment insurance system. The new insurance will be open to those aged 21-58 years and will cease at the age of 60. The maximum period of benefit payment will be 240 days.

Commentary

The government says that it is willing to increase the daily unemployment allowance, at least for the first 100 days of unemployment. It had earlier announced that the new daily maximum would be SEK 640 instead of the current SEK 580. A daily allowance of SEK 640 is still a very low sum compared with the earnings of the majority of workers - 90% of university graduates, for example, earn more than the upper limit for calculating unemployment benefit. SACO has now taken a new initiative by offering private unemployment insurance to its 400,000 members. The "normal" unemployment insurance system is by tradition linked to the trade unions. It may be that unions which are losing members, especially blue-collar unions, could see an opportunity to recruit and keep members in offering supplementary unemployment insurance. The question remains whether the government, which wants to control the "unemployment system", will take on the challenge of giving a real boost to the level of state-financed unemployment benefit, or whether it will welcome the development of a number of new private insurance schemes. (Annika Berg, Arbetslivsinstitutet)