Sweden’s economic recovery is facing a critical challenge: nearly 470,000 citizens remain unemployed despite recent growth in the private service sector. This disconnect-where businesses report labor shortages even as joblessness persists-highlights deep structural issues within the Swedish labor market. As policymakers debate potential solutions, including reforms too training programs and the benefits system, the future of Sweden’s economic trajectory hangs in the balance.
Sweden is facing a period of economic uncertainty, with sluggish growth, stagnant productivity, and persistent unemployment. Approximately 470,000 people were out of work in November, representing 9.0 percent of the nation’s workforce. The situation is particularly concerning as businesses across the country report difficulty expanding due to a shortage of skilled labor.
Joblessness Remains Stubborn
For years, policymakers have attributed high unemployment to slow economic growth. However, recent indicators suggest the Swedish economy is beginning to improve. According to Almega’s latest service sector indicator, production in the private services sector increased by 2.6 percent year-on-year, and that upward trend is expected to continue. This positive shift is also reflected in employment numbers, with over 12,000 new jobs added in the private services sector over the past year.
The growth of the service sector is a key driver of the Swedish economy. Since the turn of the millennium, production in the sector has nearly doubled, now accounting for over half of the country’s GDP and nearly half of all jobs. In fact, three out of every four new jobs created since 2000 have been in the service sector. It’s a crucial entry point for new workers, attracts top talent, and is where new technologies like artificial intelligence are having the biggest impact on productivity.
Despite the economic recovery, unemployment remains stubbornly high. The issue isn’t a lack of demand – companies want to hire – but rather a lack of qualified candidates. Too few unemployed individuals have access to effective training programs that lead to employment, the cost of hiring remains high, and incentives for skills development are insufficient. This results in a double failure: people remain unemployed while businesses are forced to decline opportunities, postpone investments, and limit growth.
Low Participation in Job Training Programs
To fully capitalize on the economic recovery, Sweden needs a new approach to employment. Reforms are needed to equip people with the skills for available jobs and provide businesses with the right conditions to expand. The current situation highlights the need for proactive labor market policies.
It must always pay to move from benefits to work
Currently, too few unemployed people participate in labor market training programs. These programs need to be better tailored to match unemployed individuals with training that provides them with the skills employers need. Resources for active labor market policies must also be increased. Simultaneously, barriers to employment must be lowered through a combination of incentives and requirements.
Employer contributions should be reduced, potentially through a reduction in the general payroll tax. The job tax credit should also be expanded, particularly for low- and middle-income earners. A reform of the benefits system is also necessary to ensure a clear message: it must always pay to move from benefits to work.
Cut the State Income Tax in Half
A sustainable labor market policy requires a multifaceted approach. It’s not enough to focus solely on those currently outside the workforce. Those already employed must also be equipped to develop their skills throughout their careers – a particularly important consideration given the rise of digitalization and AI. To that end, Almega proposes a 50 percent tax deduction for companies investing in employee training. Similarly, effort and education should be rewarded through a halving of the state income tax.
Sweden is at a crossroads. The country can continue with incremental adjustments and short-term solutions, or it can choose a reform agenda that prioritizes jobs and growth. The service sector holds the key to the future, offering jobs, innovation, and the potential to reverse current trends. Almega will advocate for jobs and growth to be central to next year’s political debate. The service sector – and Sweden – cannot afford to wait.
