The Swedish Model: Revival after the Turbulent 1990s?

Abstract

The main objective of this paper is to analyse the major transformations of the Swedish model, its welfare regime, employment and production systems. Until the end of the 1980s Sweden was remarkably successful in combining low unemployment with high and growing employment rates and also with a high degree of income equality and small gender disparities. However, most economists and many policymakers were aware that the unprecedented activity level and the extreme labour market tightness during the second half of the 1980s were not sustainable in the long run. For many years inflation had been alarmingly high and in 1990 it reached 11 per cent, presaging a crisis that became dramatic. In just three years, from 1990 to 1993, the rate of employment fell by 10.5 percentage points and the rate of open unemployment quintupled from less than two to more than 8 per cent of the labour force.¹ Furthermore, the annual government deficit reached 14 per cent of gross domestic product (GDP), in spite of repeated ‘reform packages aimed at reducing public expenditure and increasing government revenues. The cutbacks in public spending, which principally took the form of lowering income replacement rates in various social insurance systems and reducing public sector employment, were considered by many citizens as a painful’ rolling-back of the welfare state .