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'Inflexible welfare model keeping young Swedes out of work'

The Local · 5 Mar 2010, 15:15

Published: 05 Mar 2010 15:15 GMT+01:00

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There are those who believe that Sweden has a low level of unemployment. This is far from the truth. The combination of high taxes, generous government benefits and a regulated labour market has led many Swedes to rely on handouts rather than work. The system does succeed in one thing: hiding true unemployment figures.

A few years ago, Swedish economist Jan Edling noted that the number of people on sick leave and early retirement tended to correlate strongly with unemployment figures. The reason, Edling explained, was that many of the unemployed were hidden from the statistics through these measures.

Far from being a right-leaning economist, Edling at the time worked for LO – an influential labour union with strong official and unofficial ties to the then-ruling Social Democratic party. The claim that the Swedish welfare state hid actual unemployment through various measures was unpopular among Swedish socialists. So unpopular in fact that Edling's report was not published, causing him to resign after 18 years faithful service.

Four years ago a centre-right government was elected with the promise to reduce visible and hidden unemployment. The government has had some success in this, at last before the financial crisis hit and again raised unemployment. Tax cuts and reduced generosity of government benefits have promoted work over dependence. However, among one group reliance on government has not decreased: young people who rely on early retirement for their living.

The concept of relying on early retirement among the relatively youthful might sound a bit strange. Swedish politicians have even changed the term “early retirement” into “activity and sickness compensation” to make it sound more acceptable. And it has oddly enough become more or less an accepted fact that many young Swedes who cannot find a job instead rely on early retirement – often on a permanent basis.

Since 2004 close to 70,000 Swedes in the ages 20-39 have been supported by early retirement. This represents close to three percent of the total population among this age group living in the country. In the Stockholm region, where the labour market is strong, two percent of the young population is living on early retirement. In regions where jobs are scarcer, the figure is four percent. Even among the youngest group – those between 20-24 years – more than two percent of Sweden’s population is being supported by early retirement.

One reason for the popularity of early retirement stems the fact that is increasingly difficult for young Swedes to find employment. According to Statistics Sweden, unemployment among those between 15-24 years was fully 24 percent in the beginning of 2009. Although Sweden does not have minimum wages set by the government, the vast majority of employers have to follow labour union contracts and these contracts in turn include very high effective minimum wages.

Not only is the price of youth labour set too high for demand to meet supply, but employers find it too risky to hire inexperienced young people since rigid labour market regulation makes it difficult to fire those who do not perform well on their job.

High unemployment among young people is not only an economic, but also a social issue. Many young people feel depressed since they cannot find a meaningful purpose and cannot contribute to society. This feeling, strong among young people who are not even officially employed, but rather hidden from the statistics through early retirement, sick leave or other systems.

Story continues below…

The OECD measures the percentage of those who are officially declared to be outside of the workforce but view themselves as being unemployed. This group is referred to as “discouraged workers”. In countries such as Denmark, Germany and the United Kingdom only 0.1 percent of the labour force of 15-24 year olds is composed of discouraged workers. In Sweden, the figure is almost a hundred times higher.

The Swedish welfare system is seen by many as a role model. When it comes to creating opportunities for the young however, Sweden could learn much from free-market systems. Or, for that matter, it could learn from neighbouring welfare state Denmark, which has combined welfare mechanisms with a dynamic labour market. The combination, coined by previous Social Democratic Prime Minister Poul Nyrup Rasmusson as “flexicurity”, is far superior to the system of high effective minimum wages and rigid labour regulations introduced by the Social Democrats and their labour union allies in Sweden.

Nima Sanandaji is CEO of Swedish think tank Captus, and author of a report on early retirement among young people for the think tank Timbro. This article has previously been published in The New Geography

The Local (news@thelocal.se)

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Your comments about this article

03:20 March 6, 2010 by eZee.se
I dont get the concept of "early retirement" when you're 20-30's, can someone explain this to me please?

The article does not explain it either.
07:50 March 6, 2010 by Heni
An article written to promote neoliberal interrest in Sweden. This is pure propaganda with the purpose to sell to the general public the dismantlement of the swedish working rights.
10:29 March 6, 2010 by Tiddler
Seagull follows trawler.
14:39 March 6, 2010 by Nemesis
The pre-pension system in Sverige is definately a way to hide a lot of long term unemployed.

I know people who are genuinely not able to work due from birth or accident. However there are those who have absolutely nothing wrong with them who are pre-pensioned. I see a person who is pre-pensioned out jogging every day who apparently is mentally unable to work, but appears to have good physical stamina as he competes in marathons.

The whole system needs to be overhauled from top to bottom.

Sweden needs a minimum wage and to change its labour laws, so as to make them more flexible.

They also need to make civil servants responsible for there own actions, so as to reduce the amount of lunatic decisions made by those same civil servants.

Sweden needs to completely overhaul business law so as to instead of discouraging small business, to actually encourage small business start ups. I know that will interfere with who votes social democrat, but the welfare of an entire country should not be sacrificed so as to maintain one blinkered political party.

Creating an enviroment were small bsuiness start ups are encouraged, will quickly change the face of Sverige and make it a dynamic economy again.

Small to medium sized business´s are what Sverige needs to lift the country back to being a world leader.
15:15 March 6, 2010 by Sjayna

Activity compensation can be paid to people aged 19-29 years, sickness compensation to people aged 30-64 years.The social insurance office, 'Försäkringskassan', may replace the sickness benefit with sickness/activity compensation if the office makes the assessment that the capacity to work due to a illness etc is reduced by at least a quarter for at least a year ahead. The Sickness compensation can also be permanent. Example: Eric,21,started to suffer from depression and got sickness benefit 2 years. After that he got a disability pension (activity compensation) and have now been 'retired' 4 years.
20:07 March 6, 2010 by skatty
Strange country Sweden is! It's not the first time I heard somebody doesn't publish a research because some political parties don't like it; sometimes, I just wonder about the quality of politics in SWE!!
22:28 March 6, 2010 by Greg in Canada
Was his research politcally incorrect or do unions refuse to face reality? I remember hearing about this sort of thing years ago. Seems like not much has changed within the Swedish model. Its easy to hide real unemployment figures if you exclude people on government make work projects or who are "pre-retired".

I don't know how you can give people "retirement" in their 20's or 30's unless they are genuinely seriously disabled. That "disabled" guy training for the marathon is scamming the Swedish tax payer.

There's an old expression that if you're not a socialist at age 20 then you don't have a heart, but if you're still a socialist after the age of 40 then you don't have a brain.

I agree that the engine of growth should be small and medium sized business, not more government jobs or bigger unions. Start giving the entrapreneurs better tax breaks. They're the ones that can create the jobs.
01:47 March 8, 2010 by here for the summer
As an capitalist who loves Sweden and has a residence there and wants to start a company in Sweden but has instead started companies in USA, India and China I can say the employment laws in Sweden make it hard to put a company in Sweden and hire Swedes..
07:33 March 8, 2010 by silly t
true unemployment in sweden is hidden.I can't imagine when i see business graduates work in day care homes.Its weird
17:53 March 8, 2010 by eZee.se

thank you for that explanation.
04:30 March 9, 2010 by för30årseden
The Swedish welfare model can work. No great trick to it. You just have to make sure that every able-bodied person can find a job and support themselves. The only people who collect welfare have to be exclusively the truly and profoundly disabled -- not the goof-offs pretending to be sick. Once the social safety net becomes a hammock, the system starts to self-destruct.

When I was there in the 1970's, the Swedes just went to work. There was really no economic incentive to do so, but Sweden was a cold place and the habit was to work. And the Finance Minister's name was Gunnar Sträng -- Mr. Strict, the Finance Minister -- who always told people that they could have stuff that they didn't have the money for. So the irony was that it was a good, old-fashioned, Protestant work ethic (like the Confucians have in China now) that made socialism work.

Eventually the Swedes must have realized that it wasn't really true that you had to work. You could goof off and not freeze to death. Let somebody else do the work.

Theirs be the labor and yours be the spoil,

Win by their aid and their aid disown,

He travels the fastest who travels alone. -- Kipling

What socialism! The capitalists should exploit the workers -- the lazy and dishonest should.

I left long ago, but I've heard that nobody does most of the jobs like secretary and nurse's aid that used to be done by women. After all that feminist equality, they've all decided that work is too stressful for women (the weaker sex was utbränd) so that women are all home on förtidspension. So I presume that they are now all hemmafruar, but with a government allowance. Everything has come full circle. But I'm just hearing rumors. You who are still there -- is that true?
09:56 March 9, 2010 by johnnyrebel
Like every other society...a sea of contradictions. Somehow, though, it seems to work...so far. I would not care to be a young man entering the work force nowadays. The rapid changes are mind boggling. Because of these changes, I agree with those advocating assessment, evaluation and modification.
13:08 March 9, 2010 by för30årseden
I got'ta stop doing this late in the night.

I meant to say: And the Finance Minister's name was Gunnar Sträng -- Mr. Strict, the Finance Minister -- who always told people that they could NOT have stuff that they didn't have the money for.

and: What socialism!

The capitalists should NOT exploit the workers -- the lazy and dishonest should.

I keep leaving out my negatives. I'm too positive in my outlook.
14:41 March 9, 2010 by glamelixir
And all of us who are back in university because we can't find a job here and are not counted as unemployed because of that activity.

Still. coming from a country where capitalism has destroyed the middle class taking poverty from 2 million inhabitants to 22 million I totally disagree with the article and also think is liberal propaganda.

Things are not working around the world because rich people only think on getting richer by making others more poor, paying lower salaries and making people work more.

New liberalism has probed to be a new form of slavery in many parts of the world.
04:05 March 10, 2010 by JoeSwede
Interesting article. Early retirement! I guess a good question... is how good are the benefits?
15:05 March 10, 2010 by Sjayna
I really don't believe that majority of these young people are lazy, dishonest persons. This is pure neo-liberalistic propaganda and one more weak group to blame on... However I don't think its good solution to 'isolate' young people with diagnosis as ADHD, asperger etc. The idea with the compensations is to get the people to working life /school. Hopefully it works..Full compensation provides you 64 % of your assumed income. If you don't have had income or low income, the full guarantee benefit is around 100 000 SEK per year. It is not so much money...
17:52 March 10, 2010 by here for the summer

The article as i read it doesn't blame the people who take the benefits rather suggest that since the unemployment rate is correlated with the benefits that the government might better address unemployment. the idea of helping people via handouts is perhaps better by lower taxes for people hiring them ..

some suggestions ..

lowered employment tax on new workers

tax credit for training

more flexible rules for employers such as in Denmark

what ever you subsidize you get more of what ever you tax you get less of .. Marxism failed everywhere . not because it doesn't work ,,
17:58 March 10, 2010 by Swedesmith
If the young and able bodied are not working and paying into the system, who will support the old when it is time for them to retire?
20:33 March 10, 2010 by Heni
@ here for the summer

And neoliberalism is succeeding?

@ Swedesmith

Blame the government, the problem is that unemployment is a core goal of neoliberalism hence unemployment will always be more then 7%. Right now we have aprx. 9%.

Second aim, is for the government to cut spending everywhere, that includes retirement.

I also want to add that this article is written by the think thank Timbro which is a kind of PR firm that has as assignment to spread neoliberalism in Sweden.
07:54 March 11, 2010 by Douglas Garner
I agree that a modification of the system is in order. I believe that the solution, and means of transition will lie in

requiring the early disabled to attend workshops or jobs programs for which they are qualified,

requiring those who have physical disabilities, but not mental impariments to perform appropriate work with proper accomodation,

and changing the system to eliminate the severe penalty for those who can work part time or occasionally (current a-kassa takes dollar for dollar after 8 hours worked in a month.)
11:08 March 11, 2010 by Streja
för30årsedan is wrong. Women are not home on benefits. They work.

Some people have abused the system but youth unemployment is actually not that high in Sweden as people said. They count young people at uni as unemployed.
13:24 March 11, 2010 by för30årseden

Obviously some women work and are pulling the cart. But how many are CHOOSING to ride the cart now. A few years ago the % of the Swedish workforce that was either on förtidspension (disability) or out "sick" was 20%. Then I understand that the government cracks down and the percentage of abusers declines. What is the % today? What percent of those who are out "sick" represents women?

Women certainly worked when I was there in the 1970s. They were collectively as responsible for the successes of the original Swedish welfare system as Tage Erlander. They kept all the paper work moving incredibly efficiently. They had every piece of paper in the country cross-indexed three ways. God knows what they are capable of doing with a computer hard drive. But are they working as hard today or is the incentive to goof off too strong?
01:55 March 12, 2010 by Luke35711
Sweden is the second most Americanized country in the world, after the US. It's essentially the US, the Democrats would like to have. Sweden could only recover if the US recovers. Where else could the new jobs come from? Instead, it looks like Asia will be shaping this century, and Sweden is totally and absolutely unprepared for this new reality. There are no adults in charge, culturally this is becoming an increasingly frightening rereading of "Lord of the Flies".
17:18 March 13, 2010 by Streja
30årsedan, 69% of Swedish women work, which is the highest in Europe.


20% were not on förtidspension. That's false.
07:00 March 14, 2010 by för30årseden

Please read carefully. I said:

"A few years ago the % of the Swedish workforce that was either on förtidspension (disability) or out "sick" was 20%. Then I understand that the government cracks down and the percentage of abusers declines. What is the % today? What percent of those who are out "sick" represents women? "

I can't remember where I read the 20% number. It may have been in an OECD report a few years ago.
09:41 March 14, 2010 by ameribrit
@Luke35711 You obviously don't get out much if you really think Sweden is the most Americanized country next the US itself.

I think looking back through the posts that it was Nemisis that first broached the idea of changing some of the laws relating to starting a business in Sweden. I have started two successful companies in my life. One in Canada and one in the US. After moving to Sweden 16 months ago I looked at starting a company here also. Starting a company in Sweden is on first appearance not a whole different process compared to both the US and Canadian models. Actually almost identical to Canada. The big difference hits when you look at what in N.America is commonly known as "payroll tax". At 40% of total payroll it is an almost insurmountable obstacle to most start ups. Many start ups begin as a sole proprietorship which then expands as required. With the sudden addition of just one employee on the expected 15-18000 SEK per month, you are forking out an additional 7200 SEK every month just in payroll taxes. This is on top of other employee related expenses like Unemployment contributions and the employers share of social security premiums. This may also be one of the reasons "black" work is so prevalent in Sweden. Not on the books, not forking out that extra 60-70% in employee related expenses. I know it can be done and it is being done. My point is that there is not much of an incentive to risk your capital here when it can be done with less risk than elsewhere. So in conclusion, I would have to agree that the present system is starting to hold Sweden back on the international stage.
02:16 March 16, 2010 by GLO
Well said..I have the same experience. Except, I wouldnt even think of owning a business in Sweden. Better to just visit and enjoy before reality sets in and no ones left at work.

Well, I might buy a Skog and leave it to my kids. That way I have a good reason to visit. You dont risk good money on a business with increasing risk and very good chance for out of control debt and weak public leadership. Spring is comming do people really care about the future? This is NUTS....
09:03 March 16, 2010 by Streja
för30årsedan, it's still not true. Plus you need to show proof. I did for my comment, you didn't.
23:23 March 16, 2010 by pjtaipale
And "liberal" or "neoliberal" are somehow bad?

If the system is seriously flawed, I don't think it goes away by labeling anyone "liberal" if he says the emperor is naked.

Sweden is not alone here, though. Many European countries have similar problems.
03:30 March 17, 2010 by för30årseden

Please read carefully. Your comment is off topic. Your internet reference showing that women have a high rate of labor force participation does not disprove my concern about widespread abuse of the Swedish social safety net. Someone can be counted as "working" for statistical purposes while taking sick leave. (In fact, the internet, can be promiscuously used to prove anything including that Elvis is still alive, see: http://www.elvissightingbulletinboard.com/)

As someone who first traveled to Sweden many years ago to personally witness Sweden's system of social protection, I have long been dismayed by the abuse of that system. Cheating by people who do not wish to work undermines the ability of the welfare system to take care of the truly misfortunate. When a country with an excellent medical system has such a high percentage of people supposedly "sick" it should be pretty obvious that something is wrong.

The reason that I mentioned women is not that I'm not singling women out. I'm against anyone who abuses the system is because statically and anecdotally, it appears they are heavier abusers. The social incentive system is different. Old friends of mine visited and told me that all but the sickest patients in Swedish hospitals had to make their own beds because all the nurse's aids were on förtidspension. According to my friends, entire professions that had previously been predominantly female had been abandoned. Upon a little further investigation, I was shocked at the statistical evidence. According to Sweden's Strategy Report for Social Protection and Social Inclusion 2006-2008 (http://ec.europa.eu/employment_social/social_inclusion/docs/2006/nap/sweden_en.pdf) 64% of those on sick leave were women. I don't think women are lazier or really the weaker sex. My guess is that the temptation to stay home and become an old-fashioned hemmafru is too strong. Now don't get me wrong, it may be politically incorrect, but I support a woman's right to choose to keep house. But the decision should be left up to her and her husband and not subsidized by a bogus claim of illness.

Actually, when I was there in the 1970s, I could see the temptations. I was surprised that more people didn't succumb. The great paradox was that Swedish Socialism was made possible by Sweden's strong traditional work ethic. If that goes, the system collapses. The Swedes shouldn't be shy about cracking down. I can't think of anything more offensive than taking aid meant for the misfortunate when you could look after yourself.
22:29 March 17, 2010 by here for the summer
I was really worried about this term neoliberalism is really a marxist derived term.
07:15 April 21, 2010 by homestead
@glamelixr, "Things are not working around the world because rich people only think on getting richer by making others more poor, paying lower salaries and making people work more."

If this is how you think people become rich then you will never become rich yourself.
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