New tax incentive for employers to create more jobs

On 1 January 2007, the Swedish government initiated a new labour market policy to encourage employment of long-term unemployed people, young people and immigrants. The so-called ‘new-start jobs’ initiative offers reduced social security contributions or payroll tax to employers who provide work for people who have been unemployed for a period of six months to a year.

The ‘new-start jobs’ (in Swedish) reform is one of many new initiatives launched by the government to get more people into employment in general. In particular, this reform measure aims to increase the opportunities available for those groups of people who are most detached from the labour market such as unemployed people, young people and immigrants. The new-start jobs are regular types of employment, for which employers willing to hire people from the target groups are not required to pay social security contributions or payroll tax for the new recruits.

In practice, the employer requests workers for new-start jobs at the Employment Service (Arbetsförmedlingen). Once the application is approved, the tax incentive accredited to the employer’s tax account corresponds to the amount of the payroll tax for each worker, which at present is 32.28%. To be granted a new-start job, the salary and other benefits have to be in line with provisions of sector-specific collective agreements.

Target groups

The new-start jobs initiative targets three groups of people who appear to be most detached from the Swedish labour market:

• individuals who are aged 25 years or older and have been unemployed, participated in employment policy programmes, received sickness benefit, sickness or activity compensation, or obtained social benefits for more than a year, as well as those who have been employed on a full-time basis at Samhall for at least one year – Samhall is a state-owned company that provides meaningful work for people with disabilities to further their personal development. For this category, the new-start jobs have a maximum duration of five years. There is, however, one exception; for those who are older than 55 years of age, the new-start job can last up to twice the amount of time a person has been absent from the labour market, up to a maximum of 10 years or up to the month the individual turns 65 years of age;

• young people between the age of 20 and 25 years, who have been unemployed, participated in employment policy programmes, received sickness benefit, sickness or activity compensation, or obtained social benefit for up to six months, and in addition, those who have been full-time employees of Samhall for at least six months. For young people, a new-start job lasts for maximum of one year;

• refugees or related immigrants, who in the past three years have been given a residence permit. This category of worker can obtain a new-start job for a maximum period of three years.

Reactions of social partners

The government predicts the provision of 20,000 new-start jobs throughout 2007. So far, only 2,500 such jobs have been created. Hence, the government has set aside SEK 10 million (€1.08 million as at 18 April 2007) for the Employment Service to launch an information campaign to attract employers’ interest.

The Confederation of Swedish Enterprise (Svenskt Näringsliv) believes that the reform will have a generally positive effect, but criticises the project for creating an unnecessary administrative burden for employers. The confederation also sees a potential risk in the fact that long-term unemployed people will be able to obtain jobs that others would have perhaps got. Thus, the confederation believes that the project only shifts unemployment between different groups of people instead of dealing with the actual problem of creating more new jobs in general.

The Swedish Confederation of Trade Unions (Landsorganisationen, LO) considers that it is too early to comment on the possible outcome of the initiative, but it does see some potential risks. One possible risk is that it usually takes a huge amount of subsidies to attract employers to hire people above the age of 55 years. LO believes that only a fraction of workers from those categories requiring target-oriented subsidies to encourage employers to hire them will enter the labour market through this reform. They also see a risk in the fact that the decisive factor in getting a new-start job is determined by coincidence, due to lack of assessment.

The government agrees that some target-oriented funding is needed to encourage employers to hire people from specific groups. However, they state that the specific job-creation subsidy (särskilt anställningsstöd), which is a reform initiative aimed at getting people back into employment who have been unemployed for more than two years, will still be available, and that the new-start jobs initiative is only one part of the overall strategy to get more people into the labour market.

Commentary

It is too early to determine the full effects of the new-start jobs reform. The government’s estimate of placing 20,000 people in new-start jobs will be analysed more intensely towards the end of the year. The initial lack of information about the reform is one explanation to the project’s slow start. Nevertheless, the reform will support the targeted categories of workers to get back into employment or to enter the labour market for the first time.

In general, compared to previous reforms such as the job-creation subsidy and the disabled-employee subsidy, the new-start jobs reform could be seen more as a tax reduction rather than an actual subsidy. Furthermore, this reform is also part of the current debate in Sweden concerning a reduction of the payroll tax in general. This is designed to strongly encourage employers to recruit additional workers, and thus to create more jobs.

Jenny Lundberg, Oxford Research