Sweden: Major labour reforms ahead
Following the September 2006 general election, Sweden has a new centre-right government that plans significant reforms of labour market policy and industrial relations. Notably, it proposes to allow "opening clauses", whereby individual employers may, in certain circumstances, offer wages below the minimum rates set by sectoral collective agreements.
In the election held on 17 September, the Social Democratic party - which had been in government since 1994 - suffered a major reverse, with its share of the vote slumping from 39.9% in the 2002 election to 35% and losing 14 of its 144 seats in the 349-member parliament. The Left party and the Green party, which had both supported the minority Social Democrat administration, obtained 22 and 19 seats respectively. The former lost eight seats and saw its share of the vote fall from 8.4% to 5.9%, while the latter gained two seats and increased its share from 4.6% to 5.2%.
The main winner was the Moderate party, which increased its share of the vote from 15.2% to 26.2% and its seats from 55 to 97. Prior to the election it had formed a pact, the Alliance for Sweden, with three other centre-right parties: the Centre party, which won 7.9% of the vote (up 1.7 percentage points on 2002) and 29 seats (up seven on 2002); the Liberal People's party, which won 7.5% of the vote (down 5.9 points) and 28 seats (down 20); and the Christian Democrats, who won 6.6% of the vote (down 2.6 points) and 24 seats (down nine). Overall, the four Alliance parties have 178 seats, giving them a majority of seven in parliament.
Following the election, the Social Democrat prime minister, Göran Persson, resigned (and also announced his resignation as party leader) and a new Alliance for Sweden government is being formed, led by Fredrik Reinfeldt, the head of the Moderate party. The new government was due to be presented to parliament in early October.
Background
The Social Democrats have been voted out of office despite a generally impressive economic record. Economic growth stands at around 4% a year, while productivity in industry is growing by 6%-8% annually. There is a substantial budget surplus, steadily increasing employment and very low inflation. The reasons cited by commentators for the defeat include a number related to employment and social issues: a lack of job creation for young people; fears of plant closures and industrial restructuring in the wake of globalisation; increased stress and ill-health caused by rising productivity; and concerns among pensioners about ongoing healthcare privatisation and hospital waiting lists.
A key issue is thought to have been employment and unemployment levels. Earlier in 2006, Persson had stated that jobs were not going to be an election issue. He merely repeated a commitment - maintained since the previous election in 2002, but not yet fulfilled - that the "open" unemployment rate would be reduced to 4%. There was no mention of setting a target of full employment, which had been a feature of previous Social Democrat election campaigns. This omission left the unemployment issue to the Alliance for Sweden, which calculated that, taking account of the figures for sickness absence, early retirement and unemployment, over a million workers were in fact out of a job. It promised to provide jobs for young people, people with disabilities and the long-term unemployed by reducing payroll taxes paid by small enterprises, thus encouraging them to recruit from these groups. The Alliance also promised to reduce unemployment benefits to "make it pay" for workers to take jobs below the minimum rate set by sectoral collective agreements, and to introduce a German-style system of "opening clauses" in sectoral agreements to make it possible for individual employers to offer pay below the industry minimum.
The Swedish Confederation of Trade Unions (LO) has close links to the Social Democrats, and the LO chair, Wanja Lundby Wedin, is a member of the party's executive committee. She has come under fire from union circles for supporting the failed election strategy, and for not promoting the objective of full employment through an active labour market policy and sound economic management as a central issue in the campaign. The consequences for her position remain to be seen.
New government's plans
The joint election platform of the four parties in the Alliance for Sweden will now be implemented in the new government's programme. Previous centre-right coalitions have not always succeeded in making significant changes in employment and industrial relations policy - although the 1991-94 administration did, for example, abolish the "last-in, first-out" seniority system for redundancies in small and medium-sized enterprises. However, the new government has promised radical changes and, if it succeeds in remaining in power for a full four-year term, its policies may bring about a significant shift in Sweden's industrial relations landscape, largely reflecting the agenda of employers' organisations and small businesses. The new minister of industry and labour is likely to be Maud Olofsson, the leader of the Centre party, which has the most decentralised and deregulated labour market and industrial relations policy of the four Alliance parties. She has underlined her wish to create more employment in small enterprises through tax reductions, deregulation and lower wages.
During the campaign, the Alliance promised not to make any fundamental changes to the welfare system, saying it would supplement the existing system with additional measures (election analysts partly attribute the defectionto the Alliance of 8% of usually Social Democrat voters to this commitment). However, some commentators question whether it will be possible to honour this commitment if the new government implements its plans for deregulation and tax breaks. It also intends to privatise some enterprises and services currently owned and run by the state and local government. Most services will still be publicly financed, but the increased use of contracting out to private providers may, according to critics, raise questions about equal treatment and result in increased payments by users. Privatisation will also, of course, reduce employment in the public sector.
The new government has signalled a major change to state labour market policy, with the system of local job centres, regional offices and the central National Labour Market Board (AMS) to be reorganised and scaled back, and a greater role given to private employment agencies. Active labour market policy as a means of creating jobs for unemployed people will be largely replaced by major tax reductions and reduced unemployment and sickness benefits. Cuts in payroll taxes will, it is suggested, induce employers to recruit more workers; while if sickness and unemployment benefits are reduced sufficiently, people on these benefits will take jobs offered at pay rates below the collectively agreed sectoral minimum. As noted above, the system of minimum pay rates and increases set by national sectoral collective agreements is to be diluted by means of opening clauses, allowing individual employers to deviate from sectoral agreements and, citing high local unemployment, pay lower "local" wages.
As well as the planned changes to the bargaining system, several of the new government's other policies are seen by trade unions to be aimed at weakening them. Notably, workers' contributions to the union-administered unemployment insurance funds (EIRR 392 p.20) are to be doubled, although part of the contribution is tax-deductible. Trade union membership fees will no longer be tax-deductible, in contrast to employers' fees paid for membership of national sectoral federations and the Confederation of Swedish Enterprise (SN), as these are considered to be insurance contributions.
First measures
A number of legislative proposals are likely to be submitted before the end of this year, including:
Jobs. There will be special efforts to provide jobs for the long-term unemployed, people on sickness benefits and social assistance, and people who have already taken early retirement. These measures include: a halving of payroll taxes, which currently account for 40% of pay, in respect of young people aged 19-24; the total abolition of payroll taxes in parts of the service sector; and tax breaks for people who buy household services, for example from childminders and cleaners.
Unemployment insurance. The contributions made by workers to unemployment insurance funds will be doubled, while benefits for long-term unemployed people will be reduced.
Family policy. Local authorities will be allowed to pay families a childcare allowance instead of offering public childcare facilities, while there will be an extra bonus for men who take childcare leave.
Sick pay. The level of sickness benefit, which currently stands at 80% of normal pay - although with a ceiling to its cash value - is to be reduced.
Taxation. Income tax will be reduced, with the overall burden cut by SEK37 billion (€4 billion) in 2007 and then by SEK8 billion (€860 million) a year. The tax on real estate will be cut and then abolished altogether in 2008, while the wealth tax will be halved in 2007 and abolished at a later date. As mentioned above, the tax deduction for trade union membership fees will be discontinued.
Education. Pre-school education will be available to all children from the age of three, while formal assessment will be introduced from the sixth year of school. The government has made a general promise to spend more on education than the previous administration had planned, but state support for voluntary education programmes for workers will be cut.
Dental care. The Social Democrats, after years of pressure from LO, had promised a reform of state dental care that would cut the costs to individual patients (EIRR 391 p.14). However, the new government will instead oblige young people aged 20-24 to pay more out of their own pockets.
Privatisation. The Alliance has promised not to sell - for the time being - the extremely profitable Vattenfall electricity-generation company and the LKAB mining company, which is rapidly expanding. However, it will sell the Swedish state's 40% stake in the Swedish/Finnish bank, Nordea, and its 45% stake in Telia-Sonera, the Swedish/Finnish telecommunications company. It will also privatise the wholly state-owned pharmacy monopoly, Apoteket, the major real-estate company, Wasakronan (which is responsible for most government administrative offices), and the alcohol production and import company Vin&Sprit. Employees are opposed to these privatisation measures.
Effects on forthcoming bargaining round
The election of the new centre-right government comes in the run-up to a major collective bargaining round. More than 500 national sectoral agreements that were concluded in 2004 for three-year terms (EIRR 365 p.29) will expire in March 2007. These accords cover more than 80% of all employees in Sweden.
Under recent social democratic administrations, with trade unions and employers well aware of the government's economic policy plans, it proved relatively easy to agree a long-term pay policy, based on three-year collective agreements, that allowed for a considerable increase in real wages for all employees. The new government has announced many changes that unions deem to be disadvantageous for their members, with more in the pipeline, and in this changed and uncertain climate new three-year agreements seem unlikely.
A specific issue that is likely to be prominent in the bargaining round is sick pay. With the government planning to cut the level of sickness benefit, unions will be seeking to make up the shortfall though collectively agreed supplements. The cost implications, however, may undermine expectations that new agreements will introduce a supplementary pensions system for blue-collar workers similar to that agreed in April 2006 for white-collar workers in industry (EIRR 388 p.16).
Further, unions will be seeking collective solutions to the planned rise in unemployment insurance contributions and the effective increase in union membership fees (as a result of the abolition of their tax deductibility), and this may spill over into the bargaining arena. The unions see these changes as a particular threat to their membership levels, and they will be keen to demonstrate that, with an overall union density still around 80%, they cannot be ignored. Any serious loss of members might sideline unions in pay determination and decision-making on economic and social policy.
