‘Inflexible welfare model keeping young Swedes out of work’

An excessively rigid labour market is at the root of Sweden's high youth unemployment and helps explain the recent proliferation of young people in early retirement schemes, argues Nima Sanandaji, CEO of the Captus think tank.

'Inflexible welfare model keeping young Swedes out of work'

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.

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

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OPINION: Will the Sweden Democrats play nice or will they seek ‘revenge’?

A row over Swedish public television suggests that the room for compromise between the Swedish Democrats and their partners in a possible new coalition government will be limited, argues David Crouch.

OPINION: Will the Sweden Democrats play nice or will they seek ‘revenge’?

On Tuesday evening, SVT’s flagship news magazine Aktuellt included a seven-minute segment about the Sweden Democrats (SD). They invited Willy Silberstein, head of the Swedish Committee Against Antisemitism, and PM Nilsson, the respected political editor of business daily Dagens Industri

This was an example of what TV journalists do all the time – get two sensible people with different views to explain and argue their positions. The approach allows viewers to be exposed to different opinions and make up their own minds.  

Silberstein said it was “frightening” that a party with Nazi roots had so much support in Sweden and expressed a concern that the SD’s strong showing at the polls would encourage racists. 

“I do not mean that the Sweden Democrats in any way call for violence against immigrants, but I think there is a risk that a climate will arise where many people who have racist attitudes feel a greater freedom to say things and possibly also act violently against minorities,” he said.

Nilsson respectfully and sympathetically argued that the SD kick extremists out of the party, and that the experience with similar parties in power in other Nordic countries is that they fail to make any fundamental changes to these liberal democracies. In some ways, it felt like the conversation I had with my Jewish relative that I described in my last column, although Nilsson failed to answer the real fear among ethnic minorities that the election result encourages racists. 

This innocuous bit of television provoked a furious outcry from the Sweden Democrats. Björn Söder, one of the SD’s top leaders and their candidate to become the new speaker in parliament, accused SVT of broadcasting “pure propaganda”. The public service broadcaster should be reported for bias and “fundamentally reformed”, he said.

Barely 48 hours after the polling stations closed, here was the SD with the gloves off, gunning for one of the party’s traditional enemies – journalists. 

In 2016, Linus Bylund, now the party’s chief of staff, called journalists “enemies of the people”. On election night, Bylund joked that he was looking forward to “a lot of what we like to call ‘journalist rugby’” – pushing journalists around, he explained. When Aftonbladet columnist Peter Kadhammar visited the SD stronghold of Hörby in 2020 and asked to read the town council’s official diary – a legal democratic right – two SD goons followed him and sat, arms folded, to intimidate him while he worked.

SD critics of the mainstream media have supporters inside the other right-wing parties that make up the loose electoral bloc that is on the verge of taking power. On Tuesday morning, Gunnar Axen, a venture capitalist and for 16 years a member of parliament for the Moderate party, tweeted: “A piece of advice to the Moderates and SD before the government negotiations regarding ‘public service’: A cancerous tumour is operated on completely, you leave nothing behind because then it starts to grow again.”

Söder’s outburst against the media should be a concern to anyone who consumes journalism in Sweden and relies on journalists to provide them with accurate information on which to lead their lives. But it also raises a bigger issue: to what extent will the party be prepared to compromise in the event that negotiations take place with the three other right-wing parties about forming a new government?

The Financial Times was one of the few foreign media allowed into the SD’s valvaka election vigil party on election night (The Local’s application for press accreditation was rejected). Its reporter Richard Milne wrote: “One word was on the lips of many Sweden Democrats MPs who spoke to the Financial Times: ‘It is revenge,” said Henrik Vinge, deputy leader. Linus Bylund, its chief of staff, added: ‘It is revenge because the other parties have treated us badly — even the three [rightwing] parties on our side.’”

It is easy to forget what it has cost SD politicians personally to get where they are today, and therefore how determined they are to pursue their ideological goals. Leading members have made sacrifices, they were in the movement when it was acceptable to make fun of them and even beat them up. Some have lost their positions or even their jobs for being SD members. Whether you think this was right or not, they have been isolated and bullied by the media and other Swedish institutions.

“These are investments that they have made, and they will not immediately become politically fatigued in negotiations, they are in it for the long term,” one experienced SD-watcher told me this week.

However, the SD have also seen what has happened to other, similar parties in the Nordic countries, and particularly the Danish People’s Party, whose role in propping up a minority conservative government has seen its support fall through the floor.

At the same time, in the municipalities it has controlled, the SD have behaved responsibly and generally stayed away from enacting hardcore policies. Moreover, this approach has seen its share of the vote grow by between 4 and 10 percentage points in all of these towns, which might have taught it that the softly softly approach works.

The election literature I received from my local SD was all about cuddly local issues and mentioned immigration only once – in sharp contrast to the election leaflet from the SD’s national arm.

Will the party take a similar softly, softly approach now it has the chance for power on the national stage, or will it want to show the full extent of its new political power and throw its weight around? If that includes taking revenge on the mainstream political parties and the media, be prepared for fireworks.

David Crouch is the author of Almost Perfekt: How Sweden Works and What Can We Learn From It. He is a freelance journalist and a lecturer in journalism at Gothenburg University.