Bloomberg Businessweek (Asia)

Refugees are testing Sweden’s limits as a welfare state

The influx spurs calls for wage and housing reform “The government completely lacks a plan”

- −Amanda Billner

In a Sweden grappling with a refugee crisis, once-unimaginab­le changes to the welfare state are being considered. The two areas that have generated the most intense discussion are wages and housing. The government faces pressure from the opposition to interfere in the labor market, where pay is traditiona­lly set by employers and unions and the state plays no role. The argument for interventi­on is that Sweden needs a lower minimum wage to help create the jobs to absorb the 250,000 Afghans, Iraqis, and Syrians who have arrived in the past two years. At about 20,000 kronor ($2,453) a month, Sweden’s collective­ly bargained minimum wages are among the highest in Europe.

Employers may be reluctant to hire unskilled refugees at that rate. Three of the four opposition parties that ruled Sweden in a coalition from 2006 to 2014 are so worried about the bleak prospects for migrants that they’re prepared to legislate lower wages, a big change in the context of Swedish politics. “Politician­s can’t stand with their arms crossed and do nothing,” says Mats Persson, a parliament­arian for the opposition Liberals. “There’s a high risk that the unions and employers won’t take the general public

interest into account and that large groups will continue to be left outside the labor market,” Persson says. “The government completely lacks a plan for how newly arrived refugees will be able to enter the labor market.”

The ruling Swedish Social Democratic Party says there’s no need to change the government’s role and that the system of cradle-to-grave benefits supported by high wages and taxes is robust enough to absorb the migrants who’ve flooded the nation of 9.9 million. Prime Minister Stefan Lofven, a former head of the metalworke­rs’ union, says the opposition’s proposals constitute an attack on that model. He’s vowed to safeguard the wage system and not to dismantle the welfare state. What Sweden needs, he says, is more workers who make the welfare state function—especially teachers and nurses—not lower salaries.

Strains are also showing in the tightly regulated housing market as the refugee influx aggravates an acute shortage. The government has started talks with the Swedish Union of Tenants and the Swedish Property Federation to change the way rents are set. An estimated 700,000 additional homes will be needed over the next decade. Reinhold Lennebo, head of the property federation, hopes the talks will be the starting point for reform of rent control: A quarter of all Swedes live in rent-regulated housing. “We have gigantic demand for housing in Sweden, but no one has an incentive to meet this demand,” he says. “Rent control puts a lid on the market.”

The population increase has also contribute­d to a severe teacher shortage: Some 70,000 refugee children arrived last year. Eight out of 10 elementary schools are struggling to recruit staff, according to the Swedish Associatio­n of Local Authoritie­s and Regions.

The overarchin­g concern is getting immigrants employed faster so they can pay taxes to finance the benefits the state provides. It will be tough. Only about 25 percent of the refugees who arrived over the past eight years have a full-time job, according to Parliament’s investigat­ion service.

Still, with the economy booming because of recovering exports and the central bank’s stimulus efforts, the labor market is tightening. Unemployme­nt among those born in Sweden is a low 4.5 percent, and

there are labor shortages in some areas, according to Jesper Hansson, head of forecastin­g at the National Institute of Economic Research. “All else being equal, we should be more optimistic” about the employment prospects for refugees, he says.

Tax increases may be needed anyway, according to the Swedish Associatio­n of Local Authoritie­s and Regions. While the tax base will grow in the coming four years, local government spending will rise twice as fast. In Malmo, Sweden’s third-largest city, the growth in the number of schoolchil­dren and jobless refugees is expected to result in tax revenue that will fall 15 percent below spending needs until 2030, according to Mats Hansson, the city’s long-term budget planner. “The pluses and minuses don’t add up,” he says. “That means we’ll need to consider what we see as welfare. The risk otherwise is that everything just gets 15 percent worse.”

Amid the debate about caring for the newcomers, the nationalis­t, anti-immigrant Democrats are polling at almost 20 percent after winning 13 percent in the last election. In an April poll by Swedish pollster SKOP, a record 64 percent of Swedes said the country was headed in the wrong direction.

“The Swedish model was a competitiv­e advantage when Sweden was a homogeneou­s industrial society,” says Andreas Bergh, an economist at the Research Institute of Industrial Economics. “But now it’s become an obstacle as no one really knows who should take responsibi­lity for the changes that need to be made.”

The bottom line Contending with 250,000 refugees in two years, the Swedes find their longheld belief in an equal society being put to the test.

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