Nordic Countries Office Stockholm Västmannagatan 4 11124 Stockholm Tel. 004684546592 Fax: 004684546595 email: info@fesnord.se 1- 2007 The Swedish Labour Market Model in a Globalised World By Lars Magnusson ∗ Active labor market policy has been a trademark of Swedish economic politics. Specific institutional features which go way back to the 1930ties help to explain why Sweden and the other‘Nordics’ have been so relatively successful in recent years in combining high welfare with economic growth and high employment levels. A commitment to full employment and to an open economy brought about a proactive attitude towards structural change, thereby creating the famous Swedish‘work line’ which aims at protecting employment as such rather than particular jobs. The institutional framework behind is strong social partners. Even though globalization puts additional pressure on the system and demands ever more skilful political and economic governance, most recent experiences suggest that the model might be sustainable. In the context of a rapidly changing economy in an aging society it might even become more important in the future. Sweden and the Nordic countries are once again regarded as successful in trying to combine economic growth, macro­economic stability, generous welfare schemes for their citizens, equity and relatively high employment. In its Job Study for 2006 the OECD cites the Nordic “model” as a successful attempt to mix security with flexibility, successful activation on the labour market resulting in high employment. Moreover, the Swedish model is often considered a more“socially responsible” alternative to a more liberal model and could perhaps even serve as a blueprint for a future“Social Europe”. Most specifically, the Swedish and Nordic experience seems to cast doubt on a view often stated by orthodox labour market theory that there must exist a trade off between welfare and high wages, on the one hand, and high levels of employment on the other hand. According to this argument, unemployment is necessary where the levels of unemployment benefit as well as other forms of individual income security are very generous. However, Sweden and the other Nordic countries offer living proof that there is no necessary trade off involved here. Hence, Sweden as well as Denmark and Norway have one of the highest participation rates on the labour market in Europe, around 75 to 80 per ∗ Lars Magnusson is Professor at the Department of Economic History at Uppsala University and its Vice-rector. 1