"It should be worthwhile to work as a teacher," party leader Stefan Löfven said at an elementary school visit in Stockholm.
The opposition leader said that the reform would be financed by extra contributions from the nation's banks.
"We want to increase taxes for banks," added Magdalena Andersson, the party's economy spokeswoman. "We see room for banks to pitch in more to the schools, so that all of our children in Sweden get a good start in life."
Increased bank taxes are expected to bring in an additional 4 billion kronor annually, and Andersson said that about 2.5 billion would be used to increase teacher pay.
The Social Democrats also want to make it more difficult to get accepted into teacher education. Under the current system, students can get accepted into teacher training programmes with the lowest scores possible on college entrance exams - 0.1 points out of 2.0.
Earlier this year the Swedish government suggested that a score of at least 0.5 be required, but the Social Democrat party has insisted the measure is not enough.
The party has suggested that a score of at least 0.9 on exams be a prerequisite for teacher training.
"If you're going to be a teacher you should be above average, in our opinion," Andersson said.
Current Education Minister and Liberal party leader Jan Björklund said that the suggestions were a step in the right direction - but not enough.
"The main problem is that many are accepted into subject-specific teacher programmes without actually having enough knowledge in the area themselves," he said.
The minister said that minimum grade requirements should be instated to ensure that would-be teachers know their subjects.
"Someone who wants to be a teacher in maths must be good at maths," Björklund explained.