Photographer: David Ramos/Getty Images

Here's How the Refugee Crisis Threatens Swedish Social Model

  • Taxes could rise to cover costs from record refugee inflow
  • Labor market, housing regulations come under the loupe

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 labor 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.

Job Prospects

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 ($2,468) a month.  

The ruling Social Democrats say the model is robust enough to deal with the 250,000 migrants that have flooded into the 9.9 million-people nation over the past two years. But their concern is evident. In December, they erected border controls, ending an open-door 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 labor market parties won’t take the general public interest into account and that large groups will continue to be left outside the labor market. The government completely lacks a plan for how newly arrived refugees will be able to enter the labor market.”

Housing Hopes

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 labor market. But if Sweden’s record is anything to go by, it will be tough. Only about 25 percent of refugees that arrived over the past eight years now have a full time job.

Still, with the economy booming, fueled by negative interest rates and recovering exports, the labor market is showing greater demand. Unemployment among those born in Sweden is already low and there’s an increasing labor shortage in some sectors, according to Jesper Hansson, head of forecasting at the National Institute of Economic Research.

“The current employment numbers are a result of a quite deep downturn over the past 10 years,” said Hansson. “All else being equal, we should be more optimistic” about the employment prospects for refugees, he said.

Even so, the current wave is unprecedented and so is the political fallout. The nationalist, anti-immigration Sweden Democrats are polling at nearly 20 percent after winning 13 percent in the last election. A SKOP poll on Friday showed that a record number Swedes, or 64.4 percent, said that the country is going in the wrong direction.

In the end, tax increases may be needed. While the tax base will grow in the coming four years, costs will rise twice as fast, according to the Swedish Association of Local Authorities and Regions, SKL.

In Malmoe, Sweden’s third-largest city, population growth of especially school-aged children is expected to crimp tax revenue in relation to the population by 15 percent until 2030, according to the city’s long-term budget planner Mats Hansson.

“The pluses and minuses don’t add up,” he said. “That means we’ll need to consider what we see as welfare. The risk otherwise is that everything just gets 15 percent worse.”

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