Sweden close to meeting employment policy targets

In May 2000, the Swedish National Action Plan (NAP) for employment was submitted to the European Commission, at a time when Sweden is within reach of the NAP target of achieving a rate of open unemployment of 4%. The government has also presented a new labour market policy bill, with new measures for long-term unemployed people. The proposals have been criticised by employers concerned about mounting labour shortages in some sectors.

Sweden's 2000 National Action Plan (NAP) for employment (prop. 1999/2000:100), in response to the EU Employment Guidelines for 2000 (EU9909187F) was discussed in parliament on 13 April 2000 as part of the debate over the government's spring fiscal policy bill. The discussion covered matters such as the results of the various labour market policy activities conducted in 1999 in pursuit of the Guidelines. The Swedish NAP was then presented to the European Commission on 2 May. It also contained declarations from the social partners that they support the EU Guidelines and will, together with the government, work for their fulfilment and ensure a strong impact on Swedish employment policy.

Government employment goals and policy

The Swedish government's general goals for labour market policy are both to increase employment and decrease unemployment. In 1996, the newly elected Social Democratic government declared that the rate of "open" unemployment (ie excluding those involved in labour market schemes) in Sweden should be halved to 4% by the year 2000. In 1998, the government set another goal of increasing the rate of regular employment among those aged between 20 and 64 years from 74% in 1997 to 80% in 2004.

Considerable strides have been made towards these goals. In the three years to 2000, the rate of open unemployment has decreased by some three percentage points. The open unemployment rate was 5.5% in February 2000, according to Ministry of Finance figures, and 4.7% in April 2000 according to Statistics Sweden. Since 1997, employment has increased by a total of 190,000 new jobs, with 89,000 being added in 1999, when the largest increase was recorded in the private services sector. The employment rate for those aged 20-64 stood at 75.9% in 1999.

Since 1995, the government's employment policy has been built on the following premises: public finances should be sound and prices stable; there should be a well functioning wage formation system; unemployment should be halved (from 8% to 4%, see above); most new jobs should be created in the private sector; and unemployment should be cut principally by placing more unemployed people in new jobs or in training for potential employment.

Prices and pay

With regard to the premise of price stability, the government states that prosperity increased in 1999. In order to meet the risk that the good economic conditions will lead to an increase in prices in the future, the Bank of Sweden (Sveriges Riksbank) raised the national "repo" (repurchase) interest rate twice in 1999, to stand at 3.75%. Between February 1999 and February 2000, consumer prices increased by 1.3 %. The government's economic policy is built on the supposition that the present good times will be long-lasting, and it therefore believes that risks of possible overheating must be fought now. Furthermore, in the tightening labour market, the resources at hand in the form of unemployed people now involved in labour market programmes, as well as the people who left the labour market during the crisis of the 1990s must be mobilised, the government states.

It is also important, according to the government, that wage rises are kept at a level that enables pay to increase smoothly and continuously even at a time of much lower unemployment. To help ensure such a development, the government has set up a the new National Mediation Office (Medlingsinstitutet) which starts operations in June 2000. Its role is to mediate in labour conflicts, work towards satisfactory pay determination and be responsible for the official wage statistics (SE9912110F). During the past three years, the nominal rate of pay rises has gone down in Sweden, while the development of real wage rises is regarded by the government as having been satisfactory. This development has been positive for employment. However, it is difficult to say if the changes so far made in the wage formation process are enough to combine stable, low unemployment with reasonable nominal wage rises.

Private and public sectors

Private sector employment growth accelerated during 1999, especially in services. In February 2000, some 54,000 new jobs were registered at job centres. The creation of new one-person companies has been increasing, with around 55,000 new businesses started in 1999, the same number as in 1998. Special measures have been taken by the government to support women starting their own businesses, with special loan facilities, business consulting and prolonged subsidies. In 1999, the number of company bankruptcies decreased by 30% from the 1998 level to stand at 5,400.

The public sector will have a total of SEK 24 billion from the government to spend from 2002, as a result of a reconstruction of state finances to allow municipalities and city councils more room to improve services, above all in healthcare and the schools system. The need to recruit staff in these sectors is still large: according to calculations from the employers' organisations, the Swedish Association of Local Authorities (Kommunförbundet) and the Swedish Association of City Councils (Landstingsförbundet), 15,000 to 20,000 people may be recruited annually over the coming 10 years. In January 2000, employers and trade unions in healthcare announced that they were united in their aim that "part-time unemployment" in the sector should decrease by 50% over the next year.

Labour market policy

"Labour market policy measures will in future concentrate more on long-term unemployed" people, stated Prime Minister Göran Persson as the spring fiscal policy bill was submitted to parliament in April 2000. This statement referred also to the 2000 national labour market policy programme that was presented to parliament in March 2000 in another government bill on "a renewed labour market policy for participation and growth" (prop.1900/2000:98). This bill deals rather more with the future than the NAP, which involves essentially following up goals set earlier.

Labour market policy in Sweden has three main tasks: to supply jobs to unemployed people and personnel to employers; to prevent labour market bottle-necks; and to help those who have difficulties in finding a job in the regular labour market. The government is therefore now proposing to implement a new form of support, the "activity guarantee" (aktivitetsgaranti), throughout the country. The aim is to give people unemployed for over 24 months, and those who risk becoming so, better preconditions for finding a job. Within the guarantee scheme, a new "special employment support" (särskilt anställningsstöd) measure is proposed for long-term unemployed people.

The activity guarantee has four objectives:

1. giving those involved a stable activity involving employment or education/training, as a step towards proper employment;

2. breaking the "vicious circle", whereby those involved in labour market measures often return to open unemployment;

3. ensuring that unemployed people are active in their job-seeking; and

4. making it easier to develop methods to "activate" people in sparsely populated areas, and immigrants.

The special employment support is a state wage subsidy for companies that employ long-term unemployed people. The subsidy will be given to employers for hiring people who have reached the age of 57, have been registered with the employment service for at least 24 months, and have taken part in the activity guarantee system for at least three months.

Another cornerstone of the government's employment strategy is a focus on education and skill development at all levels. During 2000-2, SEK 2.4 billion will be invested in skill development for employees. Parliament has also decided to allocate special funding for an system enabling workers to save in "individual competence accounts" (SE0001118N). A committee was set up in December 1999 to examine a new system of skill development and make proposals by January 2001.

The Swedish Employers' Confederation (Svenska Arbetsgivareföreningen, SAF) has criticised the labour market policy bill for focusing on activities for unemployed people but not at the recruitment needs of companies. More and more companies complain that they cannot find workers with the right skills, but SAF accuses the government of being little concerned with the problem of labour market bottlenecks. SAF also considers the proposed measures to be too vague and too late. The new support measures also raise the risk of replacing other workers, according to SAF. According to Sture Nordh, the chair of the Swedish Confederation of Professional Employees (Tjänstemännens Centralorganisation, TCO), "the most serious deficiency in the bill is that the government does not focus on university education. Opening up the universities to older and unemployed people is probably the most growth-promoting measure that could be carried out."

Commentary

The Social Democratic government has demonstrated strong confidence when talking about the prospering national economy over the past two years. The country is in a good economic state, the inflation rate is very low, employment is going up and unemployment is going down. However, unemployment is still quite high, with more than 200,000 people in openly unemployment in April 2000, so the government has to continue to give more support for the long-term unemployed. Open unemployment will probably decline to 3.9 % in 2001, according to Ministry of Finance. One of the NAP's goals would then be reached. In a longer-term perspective, however, there is considerable uncertainty regarding the economic situation in 2002 and 2003. The employers have been warning about a shortage of labour in certain branches, which may lead to pay rises. The coming collective bargaining round in 2001 may also be messy, judging from the debate which re-emerged in May 2000 about the huge salaries and bonuses for managing directors, whose pay has in many cases risen by over 100% in recent years. Some people are already talking of Sweden being at risk of finding itself in a "Norwegian situation" and experiencing a bargaining round that results in pay rises higher than is "healthy" for the national economy (NO0005192F). Rising inflation might also narrow the scope for reforms to benefit unemployed people. (Annika Berg, Arbetslivsinstitutet)