Unemployment and employment

EHG025, 16 November 2010Erik Bengtsson

Today’s lecture

• I. Definition of unemployment & today’s rights for unemployed in Sweden

• II. Unemployment in a pre-democratic state: the Swedish 1800s

• 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 place.

• 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 hazard)

• 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

Unemployed”.• 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 (Arbetslöshetskommissionen)

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 per-cent• Lundberg’s “the old Swedish Model (of 1965) “

Economic growth in Sweden, 1800-1995Years Average yearly growth

1800-1850 0.4

1850-1890 1.5

1890-1930 2.1

1930-1975 3.2

1975-1995 1.3

1800-1995 1.8 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.

Annual wage growth, male industrial workersYears rate, % 1860–1914 1.6 1922–1939 1.5 1942–1976 4.0 1977–2007 1.2 1860–2007 2.2

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 1976-

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 self-inflicted 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:1. The duration of the benefit2. Demands to look for jobs; sanctions3. Activation policies to test the will to work4. 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”

Expressen, 10 september 2009: ”The secret plan: lower wages”

De-industrialization plus constant increase of capital intensity in industry --> societies like Sweden are increasingly dependent of the service sector to create jobs.

Do societies need to become more unequal to create jobs?