Unemployment and employment

and employment
EHG025, 16 November 2010
Erik Bengtsson
Today’s lecture
• I. Definition of unemployment & today’s rights for
unemployed in Sweden
• II. Unemployment in a pre-democratic state: the Swedish
• III. Unemployment in a democratic state, 1920s-1930s
• IV. Post-war employment and unemployment
• V. Rise in unemployment 1975-
I. Definition of unemployment
• To be unemployed you have to be in the labour force in the first
• Economist Cecil Pigou, Theory of Unemployment, 1920: ”A man is
only unemployed when he is both not employed and also desires to
be employed.”
• Is a student unemployed? A housewife?
I. Rights for unemployed in Sweden
today: the facts
• Unemployment insurance (a-kassa)
- Qualification time: you have to have worked 6 out of the latest 12
months, at least 80 hours a month
- For income-related insurance you must have been a member of the
a-kassa at least 12 months
- There are 32 different insurances, run by unions and regulated by
the state (IAF)
- For the first 200 days you get 80% of the income you had in your
qualification time. (days 201-300 70%; days 301- 65%.) Maximum
680 kronor/day.
- If you have been working full time for at least 12 months but
haven’t been member of an a-kassa you get 320 kr/day from
alfakassan. = about 7000 kr/month.
• For people totally without UI: social support (socialbidrag)
I. Rights for unemployed in Sweden
today: the morality and politics of it
• On the one hand, most people want society (=the state)
to guarantee that citizens won’t starve, etc.
• On the other hand, most also agree that the state should
not provide jobless people with such generous benefits
so that those people might not want to work (moral
• So what does a good social insurance system look like?
II. Unemployment in a pre-democratic
state. The Swedish 1600s-1700s
The law made prima facie a difference on what class you belonged to.
Husbonde = master; tjänstehjon = servant; försvar = able to make a living
1600s-1800s: if you did not own enough land to make your living, you were
legally obliged to work.
If you didn’t have a job, you lacked laga försvar. You could be conscripted to
the army or assigned a more or less repressive job.
the economy needed much labour and the land owners wanted to prevent
proletarians from using this for bargaining (Schön 2000, p. 112)
From 1569 on servants of the nobility got laga försvar; from 1664 on also
servants of priests and bourgeoisie as well as miners got it.
Poverty laws forbid poor people to choose where to live; municipalities
didn’t want to welcome poor as they could cost.
Up to 1810 there was a wage roof for the underclass
Olofsson, The Unemployment Question in Historical Light: ”through labour
force policy the property-owning classes and the Crown controlled the
underclass; the property-less and the poor.”
II. Unemployment in a pre-democratic
state. The Swedish 1800s
• Where unemployed could be sentenced to: work houses,
correctional establishments. Together with criminals in general.
• 1819: reform of the försvarslöshet regulation; only beggars and
criminals should be sentenced to work houses, not involuntarily
unemployed people.
• 1819: the first public works; in building channels.
• 1830s: state’s cereals policy now active for poor/unemployed, who
have to work in return for food.
• 1847 new poverty law. Right to help for the poor. Note that the
Swedish Empire era ended in 1814. More support for public works,
in building infrastructure (roads, channels).
• 1871: new poverty law; influenced by market liberalism: less
municipality responsibility for the unemployed.
II. Unemployment in a pre-democratic
state. Late 1800s
1880s and 1890s: a social-policy ”awakening” (Olofsson) in Sweden. Strong
influences from British reformers and German ”Catheder socialism”. The
worker question.
1879 great strike in Sundsvall
1885 försvarslöshet is finally abolished; striking workers cannot be forced to
work/put in prison.
1889 The Social Democratic Workers’ Party is formed.
1891 Social Democrats in Stockholm form ”The Association of the
1893 the first unemployment insurance is created; privately organized by a
trade union
1914 the first central state agency for unemployment policy: the
Unemployment Commission (Arbetslöshetskommissionen, AK)
III. Unemployment in a democratic
state: Sweden, 1920s-1930s
1909: voting rights reform: all men can vote, but weighted to income &
property. 1919: generalized voting right for men and women.
Deep recession in 1920-21
Economic crisis in 1930s
Innovative policy in the Great Depression: for example ”New Deal” in the
U.S.; first social Democrat-led government in Sweden from 1932 on.
III.Unemployment 1920 - 2000
III. Public works
Ditch dug as public works in
favour of a saw mill in Kalix, 1932
Public works 1928-1940: train line
between Borås and Jönköping
III. Public works
Flaten bath in Stockholm, built by unemployed in 1932-34.
”the Stockholmers’ summer paradise” (Dagens Nyheter)
III. Unemployment insurance reform
• 1935: a new unemployment insurance system is introduced. State
regulation and co-financing of UI. A Ghent system: union-run UI.
- UI next reformed in 1974, including introduction of KAS for people
who aren’t qualified for ”regular” UI. Next reform 1998; KAS
transformed to Alfa.
IV. Employment and unemployment in the
post-war period: Korpi’s ”great trough”
• High point of industrial society in Sweden. Social Democratic
government 1932-1976
• full employment, the unemployment rate varying between 1.5-2.5
• Lundberg’s “the old Swedish Model (of 1965) “
Economic growth in Sweden, 1800-1995
Average yearly growth
Annual wage growth,
male industrial workers
rate, %
Policy: Rehn-Meidner model for low inflation in a high growth economy. Massive
spending on labour force training and active labour market policy. Forcing people to
move to where the jobs were. High pace in economic transformation encouraged.
Solidaristic wage policy.
IV. Rehn-Meidner Model
“in order to stimulate reallocation of labor and
investment towards the most productive industries and companies “
(Dølvik 2008)
• ” the Swedish model: active labour market policy
replaces benefits.” (Jackell, Layard & Nickell 1996)
• ALMPS defined in opposition to passive labour market policies:
- Transfer payments for participation in training or job creation programmes
(passive transfer payments for willingness to job search only)
- Objectif: labour market integration through better employability
• Powerful trade union, LO
- Lundberg 1985: “a leading role of LO - pushing the social democrats of the
government to accept their views.
V. Unemployment and employment
after the oil crises 1973 and 1979
V. Swedish unemployment
V. Competing theories of
unemployment today
• Why did unemployment sky-rocket from the 1970s on? Two
competing approaches:
- 1) Conventional explanation: oil shocks, labour market rigidities, too
high wages in the bottom of the distribution, too strong unions.
Neoliberal/market-friendly/neoclassical approach. ”Eurosclerosis”.
- 2) Korpi (2002): power relations; aggregate demand. Social democratic
/leftist approach. Stressing demand factor: Keynesian analysis.
V. The Swedish case
• Korpi 2002: ”In Sweden, the background was a major economic
crisis precipitated by policy mistakes and a change in
macroeconomic policy stance, where the traditional top priority to
full employment was replaced by top priority for low inflation”
• Holmlund 2009: “the steep rise in unemployment was mainly the
result of a series of adverse macroeconomic shocks, partly selfinflicted by bad policies and partly caused by unfavourable
international developments”
V. Does the generous unemployment
insurance increase Swedish unemployment?
4 questions on UI and unenmployment:
The duration of the benefit
Demands to look for jobs; sanctions
Activation policies to test the will to work
How to finance the benefit
Dølvik 2008: “Although the Swedish economy has showed strong
growth in recent years, the fall in unemployment has been slower
than expected and the inactivity rate remains high in Swedish
terms. In line with the “make work pay” credo of the OECD ,
the new center-right government has thus tried to strengthen
work incentives”
V. The ”reservation wage”
De-industrialization plus constant increase of capital intensity in industry -->
societies like Sweden are increasingly dependent of the service sector to create
Expressen, 10 september 2009:
”The secret plan: lower wages”
Do societies need to become more unequal to create jobs?