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OECD warning to Sweden on unemployment

| Text: Gunhild Wallin

The OECD praised the Swedish economy in its economic report on 20 January. But there was also a warning about Sweden's high unemployment rate and the risk of a two tier labour market.

Sweden did indeed suffer from the economic crisis, but less than many other countries. And even though unemployment rose, the trend seems to be turning. 

"This report shows how it is possible to handle difficult situations if you are prepared, have carried out the necessary reforms and learnt from previous experience," said OECD's secretary general José Angel Gurría when he presented the organisation's report on Sweden's economy. 

One explanation for Sweden's relative success is that the country saw through many necessary reforms in the wake of the crisis towards the end of the 1990s, and as a result managed relatively well. But a small, open economy will always be vulnerable and it is important not to become complacent. Sweden needs to take special notice of its high youth unemployment and be aware that many are at risk of ending up as social outsiders - particularly young people. 

Mr Angel Gurría said there was room for improvement in the way the Swedish labour market operates. The Swedish labour market model allows society's parties to play an important role, which in turn eases the adjustments needed in times of major macro-economic shocks because the system brings security to workers. 

Yet the social safety net does not catch everyone, and according to the OECD this can damage people on the fringes of the labour market.

OECD has several suggestions to how to prevent unemployment getting a grip. Some cover education systems and apprenticeships. Another suggestion is to lower employers' taxes. There is also a suggestion for slight changes to the welfare model which today gives a lot of protection to older, sometimes not very productive workers to the detriment of young workers. There is also criticism of Sweden's minimum wage levels, which the OECD feels are far too high, making it harder for those without a job to enter the labour market. More could be done to make sure the minimum wages reflect the workers' productivity. The OECD is positive to an independent minimum wage commission which could study the wages' effect and issue advise.

OECD's dilemma

An obligatory unemployment benefit fund with closer ties to the job centre is also recommended. 

"OECD has a dilemma. It embraces the Swedish model and thinks it is good. But the organisation's recommendations attack some of the model's core institutions like the way salaries are agreed, the role of the unions and the right to negotiate," says Senior International Economist at the Swedish Trade Union Confederation, Lena Westerlund. She was one of the commentators during the presentation of the OECD report. 

She feels it is far-reaching it its recommendations to how the Swedish model should change - like changes to the structure of the agreement between the parties, an obligatory unemployment benefit fund, and suggestions which could limit the unions' ability to negotiate labour issues.

"The one thing we can be sure of is that the suggestions in this report would lead to a greater salary gap and weakened unions," she says.  

Deregulation, for instance a weakening of employment protection laws and lower minimum wages, is not the way to go if you want to fight youth unemployment. There is no evidence that this would be the case, says Lena Westerlund.

Young people have trouble entering the labour market, but that has more to do with an unsuccessful education than with wage levels.

Her conclusion is that young people need support and networks and that there must be more focus on discrimination. Lowering wages for all young people is no solution, she feels. This would only lead to greater gaps. 

"The priority rules [people who have worked the shortest period of time are the first to be hit by redundancies] redistribute unemployment between older and younger workers, but they mean we have a higher employment rate among older people than most other OECD countries, and this is important," say Lena Westerlund.

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