Sweden: Effects of unemployment insurance reform examined

At the same time, the government has abolished the tax-deductible status of trade union membership dues. Combined with the loss of tax-deductibility of UIF contributions, it has been calculated that an average union member paying SEK400 (€43) a month in total contributions will pay an extra SEK1,400 (€151) in income tax a year.

Union opposition and fears

The unemployment insurance reforms have met with strong opposition from trade unions, which included protest demonstrations across the country in December 2006, in which hundreds of thousands of people participated. In general, they argue that the cuts mean that unemployment benefit will provide only a subsistence minimum, far from the full-scale income maintenance insurance that unions have always sought to provide. Further, they assert that the changes will be of most harm to those in part-time and temporary jobs, who are mainly women in the private and public service sectors.

On this last point, the white-collar Swedish Confederation of Salaried Professionals (TCO) believes that the changes, particularly the new eligibility requirements for benefit entitlement, affect significantly more women than men and therefore constitute indirect discrimination, in contravention of EU equality legislation. TCO has thus made a complaint to the European Commission, which may lead to a case in the European Court of Justice (ECJ), while planning a case in the domestic courts, which might eventually be referred to the ECJ.

With the differentiation by sector/occupation of employees' UIF contributions, the workers who run the highest risk of becoming unemployed must now pay the highest fee, which breaks with the former solidarity principle of sharing the costs of unemployment risks, unions assert. Now groups such as musicians and actors, who often have long spells of unemployment between periods of employment, have the highest contributions, while well-paid professionals, who run a low risk of becoming unemployed, have very low contributions. Instead of being a social solidarity scheme, unemployment insurance is being run on the same lines as private insurance, it is claimed.

A specific union concern is that the higher employee UIF contributions and the loss of their tax-deductible status will make workers less inclined to be members of UIFs, and thus trade unions, especially coupled with the abolition of the tax-deductibility of union dues. Some analysts have suggested that the effect may be to reduce Sweden's current union density of nearly 80% to as low as 50%.Some union leaders have claimed that the real purpose of the unemployment insurance reform is to weaken the unions.

Effects on membership

Before the unemployment insurance reforms came into effect, there had already been changes in the former close link between membership of a UIF and membership of the trade union that runs it. In 2006, 17% of the 3.6 million members of UIFs (665,000) were not members of the union administering the fund - see the table. This tendency, which especially involves younger workers, was much more pronounced among white-collar and professional UIFs - 18% non-union members among the funds of unions affiliated to the white-collar TCO and 19% in the fund of unions affiliated to the Swedish Confederation of Professional Associations (SACO). The rate among the UIFs run by unions affiliated to the blue-collar Swedish Confederation of Trade Unions (LO) was around 9%. Until the end of 2006, most LO funds required combined UIF and union membership.

The increasing split between UIF and union membership has been cited as one of the reasons for a recent decline in the latter, especially affecting TCO and the LO.

Since the reforms came into effect at the beginning of 2007, many LO unions have started to change their rules to allow membership just of the UIF or just of the union and to separate the contributions to the two, which were formerly generally regarded as a single fee.

The early evidence is that the changes to the unemployment insurance scheme and to the unions' rules have not had the effect of making workers opt to leave unions and remain in UIFs. In fact, it appears there is a tendency for members to remain in the union but to drop out of the UIF. The UIFs reported in late March that up to 335,000 members had not paid their unemployment insurance contributions for January, with signs that the figure might be even higher for February.

There are indications that those people leaving the funds include many low-paid and/or temporary employees, who have to pay full UIF fees although the benefits are very modest. For them, the increased contributions and tax liabilities are particularly difficult to cover, which forces them to make a choice between union and UIF contributions. This extra scrutiny of outgoings is also apparent in the increasing number of workers opting out of paying the "church tax", the 1% wage deduction levied on members of the Church of Sweden. Another group reported to be leaving the UIFs in significant numbers are workers aged 60-65 who feel relatively secure in their employment up to retirement.

The LO described the UIF drop-out figures as "disquieting" and urged members who had not paid their contributions to the funds to do so, so as not to lose unemployment insurance protection. It stated that the main reason for members leaving the funds is probably that the government has made the insurance "less favourable and more expensive".

Supplementary unemployment insurance

The cash cap on the level of unemployment benefits means that higher-paid workers receive a smaller proportion of their former pay in benefit than the lower-paid workers. When the pay ceiling stood at SEK21,000 per month, this mainly affected professional and white-collar workers and most of their unions provided supplementary insurance, purchased from an insurance company, to make up the benefit of their higher-paid members to 80% of their former pay. Now the ceiling has been cut to SEK18,700, which is below the earnings of many blue-collar workers, so the blue-collar unions are seeking a similar arrangement.

The LO had planned to arrange a single supplementary unemployment insurance policy for its members from the union-owned insurance company, Folksam, to guarantee those earning more than SEK18,700 a month, a benefit of 80% of former pay. The aim was that all LO members would pay the same insurance contribution in the form of an SEK20 (€2.20) monthly increase in union dues. Such a scheme would, it was hoped, keep the cost of the insurance down.

However, the LO's affiliated unions were not in favour of a single solidarity-based supplementary insurance scheme and the LO has instead signed a framework agreement with Folksam that guarantees members 80% benefit for the first 100 days of unemployment, with a monthly wage ceiling of SEK34,000 (€3,670). However, it is up to each union to decide if it wants to join the scheme, and members' contributions will vary based on levels of pay and unemployment in the sector concerned. The number of days of cover may also vary. The Food Workers' Union (Livs) has already bought insurance cover that will give unemployed members an 80% benefit for 200 days. Because Livs members work in a low-wage industry, with average monthly pay near the SEK18,700 level, fees will be very low.

Wider debate

The governing coalition stated during the election campaign that it was ultimately in favour of turning the voluntary unemployment insurance system into a mandatory one (like those in most other European countries), though it was not clear if this would mean a complete "nationalisation" of the system, as is already the case with health insurance. In February, the government announced that it was setting up a commission to investigate and report on the issue, but indicated that its brief would not include the abolition of union-administered funds.

The government's policy is for general unemployment insurance (and health insurance) to provide only minimum cover, with individuals and/or trade unions purchasing supplementary insurance. During the 1990s, previous centre-right administrations reduced the maximum cash amount of benefit and cut its rate from 90% of former pay to 80%.

By contrast, the social democrat government that was defeated in autumn 2006 had planned to increase the monthly pay ceiling for unemployment (and health) insurance to SEK33,000 (€3,565), which would have meant that more than 90% of employees received a benefit worth 80% of their former pay. The social democrats (along with the trade unions) are still in favour of a general tax-financed policy of income maintenance at 80% of previous pay in the event of unemployment.

The unions see no reason to change the current voluntary basis of the system, arguing that (including the independent Alfa fund) it has a coverage rate as high as any other unemployment insurance scheme in Europe. Instead, the unions maintain that the aim of high coverage, especially among the temporary employees most likely to be hit by unemployment, would best be served by a low employee contribution and one that is the same across all sectors. The LO hopes that the social democrats will return to power in the 2010 general election and reverse many of the current government's reforms, as well as ensuring that the great majority of employees are entitled to unemployment benefit at 80% of their former pay.

However, the prospects of a return to a single, solidarity-based unemployment insurance system under a future social democrat government may, some commentators argue, be hindered by the fact that individual unions are now introducing supplementary insurance schemes on a relatively piecemeal basis (rather than the joint LO scheme previously envisaged).

This article is based on material submitted by Birger Viklund, European Employment Review correspondent for Sweden

European Employment Review 400 (EER 400) contents