Social partners in motor industry seek to bring back layoff pay

The social partners and the car industry in Sweden have tried to convince the government to reintroduce layoff pay as a measure to deal with workforce dismissals resulting from the current economic crisis. However, so far, the government has expressed little interest in doing so. Among the proposals to avoid redundancies are payments towards vocational training. In fact, the government has added some training investment measures to its budget plans for 2009.


In some European countries, layoff pay is an alternative option to dismissal; this is when the employer and the state pay the employee while there is no work for them. In Sweden, this measure was abolished in 1995. During the economic downturn in the 1990s, layoff pay amounted to an average of SEK 75 million (€6.52 million as at 3 March 2009) a year. For example, in 1992 – when the economic downturn was at its worst during that period – 58,000 workers, about half of whom were within the manufacturing sector, received layoff pay. The workers received 100% of their salary: the company paid 45%, the state paid 45% and the rest was paid collectively by the employer organisations. This layoff payment could be provided for a maximum of 30 days a year and it was only meant to be used in times of temporary downturn.

The politically conservative government in 1995 discontinued the fund for layoff pay, where companies and the state collectively set aside money to be used in difficult times. By closing the fund, the government aimed to lower the state’s deficits; it hoped to save SEK 300 million (€26 million) a year. However, trade unions have argued that the amount saved was only about SEK 50 million (€4.34 million), according to an article in a paper for trade unions in the manufacturing sector, Dagens Arbete, in January 2009. The social partners protested loudly against the decision to discontinue the fund; the Landsorganisationen (LO, Swedish Trade Union Confederation) was particularly opposed to the move.

Although the fund does not exist any more, layoff pay is still regulated by the 1938 central agreement between the social partners (Saltsjöbadsavtalet) (SE0811029I). Because this form of pay has been discontinued, now companies have to dismiss or give notice to workers. This makes it expensive to recruit workers again when times get better and economic activity increases. Therefore, the social partners have recently relaunched the debate on layoff pay in order to address the economic crisis.

Social partners seek alternatives to dismissal

IF Metall (Union of Metalworkers) has proposed a new model for layoff pay, in the form of vocational training at the workplace, as an alternative to dismissals. IF Metall’s strategy suggests that unemployment funds should pay part of the workers’ salary and that the companies should pay the rest in order to make it possible for employers to retain their employees.

The Head of the negotiation team in the Teknikföretagen (Association of Swedish Engineering Industries), Anders Weihe, has stated in an article (in Swedish) in the trade union weekly magazine LO Tidningen that employers are open to reintroducing layoff pay in order to keep their human capital.

Companies seek state support for training funds

In these times of economic crisis and turbulence in the labour market, the car industry has also raised the issue of layoff pay again and asked the government for a similar model. Car manufacturers want to reintroduce this form of pay and are inviting the government to share the costs of retaining employees by investing in vocational education and training (VET). In this way, the employees are offered an alternative to losing their job. Volvo, which is part of the Ford Motor group – also suffering severely under the economic crisis – has suggested that the government should pay for about 70% of the salary and the companies pay the rest.

According to Dagens Arbete, not many employers will be able to invest in VET for their workers without state support. Although companies have had high profits, many of them are not in a position to fund training because they are experiencing negative cash flows and the profits have already been paid out to the shareholders or have been invested.

Merits of protecting human capital

Dagens Arbete has been debating the advantages of layoff pay and compares how other countries in Europe are coping with the economic crisis and the different systems of layoff pay, seeking a model that will be able to protect human capital. The paper demands that companies should take responsibility by not paying profits to shareholders and investing the money in VET for the employees instead.

The actors within the Swedish Industry Agreement (Industriavtalet) encourage other trade unions to closely monitor the big companies and their payments to shareholders. These participating organisations include IF Metall, Unionen (Union of white-collar workers) and the Skogs- och Träfacket (Trade Union for Forestry and Wood). The Industry Agreement has a normative role in the Swedish collective bargaining model, and sets the standard for other sectors. The participating actors in the agreement also expect the government to invest more money in VET in order to maintain skills in industry and help people from becoming unemployed.

Government reaction

The social partners in the manufacturing sector agree on the need to reintroduce layoff pay and create a new model to address the ongoing challenges. However, the government considers that large companies should be able to pay for the workers’ training themselves. According to a feature (in Swedish) on Sveriges Radio (SR, Swedish Radio), Prime Minister Fredrik Reinfeldt recently rejected a proposal from the car industry to introduce layoff pay.

Although the government does not want to reintroduce this form of pay in order to support education, amendments were made to the government budget bill for 2009 in December 2008, with extended investment in different kinds of education (SE0812019I, SE0810029I). The purpose of this investment is to help unemployed people to find employment, encourage new forms of occupational training and reduce employment tax for companies hiring long-term unemployed persons.

Karolin Lovén, Oxford Research

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