Refugee crisis threatens famous welfare model
In a Sweden grappling with an unprecedented inflow of refugees, many unthinkable things are becoming thinkable.
The government is now facing pressure to interfere in the sacrosanct labour market, where pay is traditionally set by employers and unions. The argument goes that Sweden needs a lower minimum wage to help create the thousands upon thousands of jobs needed to absorb the record inflow of people seeking refuge.
“The Swedish model was a competitive advantage when Sweden was a homogeneous industrial society,” said 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.”
Several cornerstones of the fabled Swedish model with free education and health care are also being put under the magnifying glass. The government has started a review of rent controls, negotiations that politicians normally stay out of.
Three of the opposition parties have become so worried about the bleak job prospects for migrants that they are prepared to legislate to lower wages. They have so far been rebuffed by the ruling Social Democrats and the largest opposition party, the Moderates. The collectively bargained minimum wages are among the highest in Europe at about 20,000 kronor ($3,200) a month.
The ruling Social Democrats say the model is robust enough to deal with the 250,000 migrants that have flooded into the nation of 9.9 million people over the past two years. But their concern is evident.
In December, they erected border controls, ending an opendoor policy.
“Politicians can’t stand with their arms crossed and do nothing,” said Mats Persson, a parliamentarian for the opposition Liberals. “There’s a high risk that the labour market parties won’t take the general public interest into account and that large groups will continue to be left outside the labour market. The government completely lacks a plan for how newly arrived refugees will be able to enter the labour market.”
Prime Minister Stefan Loefven, the former head of the metal workers’ union, says the opposition’s proposals constitute an attack on the Swedish model. He has vowed to safeguard the wage system and the welfare state. What Sweden needs, he says, is more welfare workers rather than lower salaries.
Strains are also showing in the tightly regulated housing market as the inflow of people exacerbates an acute housing shortage. The government and the opposition are holding talks on how to speed up building. An estimated 700,000 new homes will be needed over the next decade.
Reinhold Lennebo, head of the Property Federation, hopes the talks will be the starting point for a reform of the rent-control model. “We have gigantic demand for housing in Sweden but no one has an incentive to meet this demand,” he said. “Rent control puts a lid on the market.”
The influx of 70,000 children last year will also add to a severe shortage of teachers. Eight out of 10 elementary schools struggle to recruit staff, according to the Swedish Association of Local Authorities and Regions.
To sustain the tax base and pay for these efforts, the overarching concern is getting immigrants faster into the labour market. But if Sweden’s record is anything to go by, it will be tough. Only about 25 per cent of refugees that arrived over the past eight years now have a full-time job.