Government report raises need for foreign workers

Sweden must actively seek immigration by foreign workers in order to meet the coming needs of the labour market and welfare system, with an ageing population requiring more services than ever. This is among the key findings of the government's "Long-term survey", issued in February 2000.

The population of Sweden is ageing, and more employees than ever will retire shortly. As a result, a shortage of labour threatens in about 10 years' time, and the welfare system will not be able to render all the services that will be required. Therefore, as the proportion of the population in work decreases, it will be necessary to attract immigrants to Sweden in an active manner. This is the main conclusion drawn in the 1999/2000 Long-term survey (långtidsutredningen), a regular government report on the economic situation of the country, seen in a longer-term perspective. The latest report was published on 14 February 2000.

A central theme of the 1999/2000 survey is a discussion of the prospects of maintaining ambitious and universal publicly financed welfare systems in the future. According to the report, to be able to preserve welfare systems and achieve the level of growth and employment required to do this, it will be particularly important to take account of developments in three areas:

• demographic change in the form of an ageing population;

• the importance of achieving ambitious environmental policy objectives; and

• continued internationalisation of the Swedish economy.

Developments in these three areas will have an impact on, among other areas, labour market conditions. Here we focus on the challenges presented by demographic change.

Three scenarios up to 2015

Since 1970, economic growth has been lower in Sweden than in other EU countries, partly because of the deep recession in the early 1990s. However, entering the new millennium, Sweden's economy is functioning better in many respects. The conditions for investment in real capital, education and skill development are better than they have been for a long time. The economy is at present experiencing a boom, with a good rate of growth and falling unemployment.

Three different scenarios for economic developments up to 2015 - prepared by the National Institute of Economic Research (Konjunkturinstitutet, KI) - are presented in the survey. The "baseline" scenario is based on a prediction of moderately good economic growth over the next 15 years, with Swedish GDP rising by an average of 1.9% per year. In the first few years, growth will be higher as a result of a rapid improvement in resource utilisation as the labour supply and employment increase, and unemployment falls. However, thereafter demographic factors will be critical in the moderation of growth. The working-age population is initially expected to grow at a slower rate, while at the same time the average age of those in the labour force will rise. Then, beginning in 2008, the size of the working age population will shrink in absolute numbers. Together with a gradual drop in the average time worked per employee, this means that labour's contribution to growth will be negative in the latter part of the period.

The two alternative scenarios presented in the survey are each based on different labour market developments. In the first of the alternative scenarios, the assumption is made that the average time worked will fall more rapidly than in the baseline scenario. The result will be slower growth, it is predicted, even though both the number of people employed and productivity will develop more positively. Furthermore, with fewer hours worked (and thus a smaller tax base) it will become more difficult for the public sector to finance its activities. In the second alternative scenario, the labour market is assumed to function better than it does in the baseline scenario. In this scenario, Sweden will manage, in spite of the unfavourable long-term demographic developments, to keep expanding labour supply for the whole period up to 2015. As a result, economic growth will decline only marginally in the latter part of the period and the scope for public activities will be considerably greater.

More welfare services

With more old people in the population there will be an increased demand for publicly financed welfare services, especially geriatric care and healthcare. Population changes expected in the next few decades will put pressure on the financing of the welfare systems. The largest part of publicly supplied services will probably continue to be financed by the tax system in the future, the survey states. However, the increasing internationalisation of the economy will place restrictions on how high taxes can be set, and thereby limit the possibilities of increasing the tax ratio in order to finance the increased demand for welfare services. Production capacity will probably exceed the expected increase in the demand for welfare services until 2017.

The public sector is dependent on the number of hours worked in the private sector for an increase in tax revenues. It is therefore important, states the survey, to conduct a policy that promotes high growth and efficient resource utilisation in the economy. High labour force participation and high employment, even among the older part of the labour force, is important. A flexible retirement age, together with a tax system aimed at stimulating growth, will improve the conditions for achieving this aim. Under these circumstances it is also seen as important to maintain the number of hours worked in the long term by keeping up the average working hours. The welfare gains brought by reduced working time have to be weighed against the resulting poorer prospects of financing the various welfare services through necessary changes in the tax system, it is stated.

Active immigration

Another possible way of making it easier to finance the welfare systems is to make better use of the "reserve of labour" that exists in the immigrant population, many of who currently have a weak foothold in the labour market, the survey states. From a long-term perspective, when current reserves of labour have been more fully utilised, labour immigration may also be considered. It will then be a question of actively trying to attract people with specific knowledge and skills in demand on the labour market to come to Sweden.

Commentary

It may be noted that, by promoting the maintenance of average working hours around current levels, the Long-term survey makes a contribution, albeit low-key, to the Swedish present public debate on possible legislation to cut working time - the report of a governmental working group on the subject is eagerly awaited in spring 2000. The 1999/2000 survey has been criticised in Sweden for being too tame and lacking concrete ideas on new projects. However, the idea of seeking actively to attract immigrants has attracted interest. (Annika Berg, Arbetslivsinstitutet)