Printer friendly page
The Swedish Model and Beyond
School of Business
University of Alberta
Based partly on:
Mark Harcourt Relations
Industrielles, 1996, Vol. 51, 1: 177-201
Before reading this document, take a look
at Sweden: General
Low unemployment is the primary goal of the active labour market policy in Sweden,
rather than a secondary effect as it is with lifetime employment in Japan. The importance
of this goal in Sweden reflects the long-governing Social Democratic Party's (S.A.P.)
desire to satisfy the immediate needs of its Swedish Trade Union Confederation (L.O.)
supporters for more jobs and income (Ginsburg, 1983). The S.A.P.
government has also used full-employment to stimulate the
demand for unskilled labour and thereby reduce income inequality and relief dependency,
which together threaten to impose major financial burdens on an already costly welfare
state (Ginsburg, 1983). Note, the Social Democratic Party had an
unbroken run in office from 1932 to 1976 (apart from a three-month
interregnum in 1936), then returned to power in 1982 and lost power
again in the 1991 election, only to regain it in the 1994 election and
keep it in the 1998 election.
In the fight against unemployment, the active labour market policy is the main weapon
in the Swedish government's arsenal. It consists of three sets of interrelated programs
which are used to improve the demand for labour, supply of labour, and matching of supply
and demand for labour. The public costs of these programs are usually in the range of two
to three percent of gross national product per year (Swedish Institute, 1993). The
demand-oriented programs primarily consist of wage subsidies, recruitment subsidies, and
public relief work, which have been used to provide up to sixty thousand additional jobs
per year in occupations, industries, and regions where there are labour surpluses (Swedish
Institute, 1993). The supply-oriented programs incorporate vocational training and
mobility assistance which are used to increase the availability of qualified workers by
more than one hundred thousand people each year in occupations, industries, and regions
where there are labour shortages (Swedish Institute, 1993). The matching programs
encompass guidance counseling, job placement, aptitude testing, occupational
rehabilitation, and job clubs which are used to match more than one million workers per
year with jobs that fit individual needs and abilities (Swedish Institute, 1993). These
programs are available to all job-seekers as part of an attempt to ensure a universal
right to work, even though the active labour market policy caters predominantly to heavy
user groups of female, young, or disabled workers who represent the most employment
disadvantaged people in the work force (Swedish Institute, 1993).
Low unemployment is difficult to ensure in a dynamic capitalist economy where job
opportunities shift as production methods and consumer tastes rapidly change.
Nevertheless, the Swedish labour market policy is 'active' in preparing for, and adjusting
to, labour market changes. The Labour Market Board (A.M.S.), which oversees the policy, is
sufficiently independent of government bureaucratic and financial control to exercise
discretion in rapidly dropping obsolete programs and adopting innovative new ones, even
when major increases in expenditures are at stake (Rothstein 1985). Central government
direction of labour market activities is proscribed by the constitution, except in
narrowly defined circumstances and only then through published, official 'letters' (Rehn,
1984). In fact, the A.M.S. is even encouraged, under the 1966 Labour Market Ordinance, to
undertake rapid and flexible measures in promoting the optimal functioning of the labour
market and in ensuring the elimination of unemployment whenever or wherever it occurs
(Rehn, 1984). This far-reaching trust in the Labour Market Administration has stemmed from
its corporatist governance structure in which all major industrial relations actors
previously participated in an executive capacity. However, the employer and union
federations have assumed a more limited role since 1992 through their membership on the
A.M.S. Advisory Council (Trehorning, 1993).
The Active Labour Market Policy
The preconditions for the active labour market policy were established by the 1938 Saltsjobaden Agreement between the Swedish Trade
Union Confederation, the L.O., and the Swedish Employers' Confederation, the S.A.F. This
accord signified a turning point to a tumultuous relationship between labour and capital
that had been marred by forty years of severe industrial strife. Employers had previously
relied on their superior economic power to dominate unions through the use of mass
lockouts. However, the electoral victories of the social democrats (S.A.P.) in 1932, 1934,
1936, and 1938 provided the labour movement with the political power to counter employer
actions (Korpi and Shalev, 1979; Korpi, 1983). Employers then realized that they were
unlikely to defeat unions through labour market pressure, and so settled on a compromise
as a way of preserving the power they still had (Korpi and Shalev, 1979; Korpi 1983). Both
parties thus agreed to recognize and cooperate with each other in promoting income growth
as an alternative to fighting over income shares (Korpi, 1983). Business declared its
nominal political neutrality with respect to the distributive policies of the welfare
state in exchange for policies that favored capital accumulation and development in the
private sector. The L.O. consented to these arrangements in the belief that greater
industrial concentration, following naturally from increased economic development, would
facilitate the government's intentions to plan the economy and nationalize private
businesses (Korpi, 1983). S.A.P. and L.O. Leaders also regarded business acquiescence as
indispensable to the rapid introduction of policies for redistributing income and
achieving full-employment (Korpi, 1983).
The active labour market policy began as a modest unemployment reduction program in
1947. It was established on the recommendation of the 1944 Myrdal Commission that
employment services, vocational counseling, and incentives for geographical mobility were
needed to successfully redeploy labour from wartime to civilian industries (Jangenas,
1985). A Labour Market Administration was established with policies conceived by the
Labour Market Board (A.M.S.) and executed by several hundred local employment services
(Rothstein, 1985). A full-employment mandate was assigned, but only as a complement to the
Keynesian fiscal and monetary measures used to achieve full-employment. However, this
mandate greatly expanded in the 1950s when the active labour market policy was given the
pre-eminent roles of achieving both full employment and accelerated economic growth in
accordance with the spirit of the Saltsjobaden Agreement.
The trigger for change came with the failure of the social democratic (S.A.P.)
government's Keynesian fiscal policy to generate low unemployment and inflation in the
late 1940s. In 1951, economists Gosta Rehn and Rudolf Meidner of the Swedish Trade Union
Confederation (L.O.) responded by devising the 'Swedish model' to simultaneously achieve
full-employment, moderate inflation, decreased wage inequality, and increased economic
growth. Their comprehensive plan thus promised to fulfill the main aims of the
Saltsjobaden Agreement. The socialists were assured full-employment and reduced income
inequality, while the capitalists were assured a vibrant private-sector economy with the
capacity to fund the socialists' welfare state. However, the S.A.P. government originally
rejected this proposal because of the unpopular taxes required to finance it and because
their Agrarian Party coalition partner feared that any abandonment of Keynesianism would
raise the interests costs of heavily-indebted farmers (Rehn 1984). Instead, the government
chose to continue with a "a high level of overall effective demand to ensure
full-employment", but "in combination with a vast system of regulations (price,
trade, and investment controls) and more or less formalized agreements with the trade
unions on anti-inflationary restraint" (Rehn 1984: 5). These arrangements broke down
when employers, in their desperate efforts to overcome a chronic labour shortage, offered
wage increases in excess of those demanded by the L.O.. At this point, the government
realized that continuing its policies would encourage members to desert their unions in
order to obtain higher wage increases, thereby damaging the S.A.P.'s primary source of
electoral support and financing (Rehn 1984). For this reason, the 'Swedish model' was
eventually endorsed in 1955 by both wings of the labour movement, the S.A.P. and the L.O.,
and implemented in a coordinated effort after 1956.
The two arms of the labour movement divided their responsibilities for achieving the
different goals established by the Saltsjobaden Agreement. The S.A.P. government agreed to
achieve low inflation and unemployment through its active labour market policy. The L.O.
unions agreed to achieve decreased income inequality and increased economic growth through
a wage solidarity policy negotiated centrally with the Swedish Employers' Confederation,
the S.A.F. The L.O.'s wage solidarity policy provided equal pay for equal work in the same
jobs across all industries in addition to fair and reasonable differentials for different
jobs within each industry (Filcher 1991). These measures reinforced other welfare state
efforts to narrow income disparities. Moreover, the equalization of wages for similar jobs
across all sectors raised the labour costs of inefficient firms and lowered those of
efficient firms, thereby forcing the former to rationalize or close and permitting the
latter to retain more of their profits for reinvestment in new machines, equipment, and
facilities (Jangenas 1985). As a result, the policy received strong support from the
S.A.F., which was dominated by large, efficient engineering firms (Filcher 1991). However,
the accelerated pace of structural change displaced many workers from their jobs in
traditional industries, even though it produced more rapid economic growth.
The active labour market policy rectified the unemployment effects of the wage
solidarity policy by hastening the transfer of people from traditional to advanced
industries (Rehn 1985). It therefore fulfilled a crucial supporting role in making faster
economic growth and smaller income differences acceptable to the union members who were
forced to relinquish their jobs. Moreover, the active labour market policy obviated the
need for wage increases to attract new recruits to shortage occupations and industries,
thereby dampening any tendency toward wage and hence price inflation.
following is taken from, Nils Elvander, A New Regime For Collective
Bargaining and Conflict Resolution.
Paper presented at the International Industrial Relations Association
6th European Congress, Oslo, June 25-29, 2001.
to download the paper.
In March 1997 the foundation was laid of the most important innovation of
the rule system for bargaining and conflict resolution on the Swedish
labour market since the Basic Agreement of 1938 between the peak
organizations of capital and labour, the Swedish Employers'
Confederation (SAF) and the Swedish Trade Union Confederation (LO),
better known as the Saltsjobaden Agreement. This was done through the
”Agreement on industrial development and wage formation”, signed
by all the employer associations belonging to SAF and all the national
unions within the industrial sector. The Industrial Agreement (IA) is
unique in its broad extent: it covers by and large the whole
competition-exposed sector in the Swedish economy, it bridges old
class distinctions on the trade union side between blue collar and
white collar workers, and it presents an entirely new model for
collective bargaining and conflict resolution.
The new model aims at avoiding industrial action as long as possible. This
is done by the introduction of a kind of private mediation institute
("impartial chairmen" appointed by a joint steering committee).
The rules are to be used in place of the legal stipulations on
mediation. So far, the IA has turned out to be a great success. It has
been strengthened in daily work through intensified co-operation
between the parties on a number of important issues, such as energy
and tax policies. In a very successful way it went through the ordeal
of the first industry-branch negotiations according to the new rules
around the turn of the year 1997-98. The next, and much more arduous,
ordeal of this kind comes with the bargaining round of 2001. Finally,
the IA has become a model for the rule systems on other parts of the
labour market in two ways. On the one hand, it has to a large extent
inspired the government bill on a new and stronger mediation institute
which was accepted by parliament in spring 2000. On the other hand, it
has recently been followed by similar negotiating agreements within
the whole public sector. In these ways, a new Swedish labour market
regime is emerging; more than half the Swedish labour market is
covered by the new functions of ”private mediation”, and the
new public mediation institute is adapted to this development.
negotiating agreement’s point of departure is that new industry-wide
agreements within the different industrial branches shall be reached
before current agreements have expired. This is a great improvement
compared with previous protracted bargaining procedures. One month
before the day of expiration the parties shall be supported by an
impartial chairman, who shall intervene in the negotiations on his own
initiative and take measures necessary to bring negotiations to an end
in due time. An impartial chairman may order the parties to analyze or
define special bargaining issues, put forward his own proposals for
resolving a negotiating issue, and postpone industrial action for a
maximum of two weeks after the day of notice. Obviously, the powers of
an impartial chairman are much more extensive than those of an
ordinary mediator. The IA has in fact introduced a kind of strong
private mediation institute in the industrial sector: "The tasks and
powers of an impartial chairman under the terms of this agreement
apply throughout the duration of the negotiations and set aside the
provisions of the Mediation Act."
The Early 2000s
New collective bargaining procedures.
On 14 April
2000, trade unions and employers in the various parts of local
government - country councils, local authorities and parishes -
concluded an agreement on new procedures in future pay bargaining
rounds, effective from 1 May 2000. The parties state that the
agreement will contribute to preserving the national economic
balance in future pay agreements without any party having to resort
to strikes or lock-outs.
The new agreement contains practical regulations on
timetables, mediation and industrial action during collective
bargaining. Negotiations should start three months before an
agreement expires. The mutual aim should be to finish the
negotiations before the previous agreement expires. In the event of
industrial action, notice shall be given to the other party and to a
mediator appointed beforehand by both parties. The mediator's role
will include a duty to postpone notified industrial actions for up
to 14 days. From 1 June 2000, the Co-Determination Act (medbestämmandelagen)
has been amended to create a new Mediation Authority to mediate in
labour conflicts and work towards satisfactory pay determination (SE9912110F).
By registering agreements on bargaining procedures - such as the new
local government agreement - the bargaining parties in a sector may
follow their own agreed rules instead of the statutory rules on
mediation. It is believed that the parties themselves are best
placed to agree how bargaining should be conducted.
Read the full story.
Figures on industrial action in Sweden in
2002, published in January 2003, confirm that labor conflicts are at
a low level in historical terms. Changes in legislation, new
bargaining procedures and economic factors seem to be the main
reasons for the decline in action.
Read the full story.
trends. Statistics published in March 2003
indicate differing membership trends for the three main Swedish
trade confederations in 2002, continuing the pattern of recent
years. The largest confederation, the blue-collar LO, lost 1.4% of
its members, while the white-collar TCO grew by 1.2% and the
professional SACO by 4.5%.
Read the full story.
In 2003, the membership of Sweden's
blue-collar LO trade union confederation fell, continuing the trend
of recent years. It lost about 1.4% of its members, with only the
Commercial Employees' Union, which organizes in the services sector,
registering an increase. SACO, which groups professional workers'
unions, grew by 3.5% in 2002, while the membership of the
white-collar TCO confederation remained stable.
Read the full report (2004).
Read the full record (2005).
European Union Working Time Directive implemented in the Swedish
Working Time Act. The Swedish Parliament (Riksdag)
approved 16 February 2005 the Social Democrat Governmental proposal
of making changes in the Swedish Working Time Act in order to
implement the European Union Working Time Directive (93/104/EC) in a
'clearer way' . The new rules contain, in short, that the average
weekly working time should be at the most 48 working hours. The
night/day rest should be at least 11 continuous hours. Some
exceptions will be allowed for public tasks, for example in the
police force and the armed forces.
Read the full report.