Introduction

What was widely regarded as the ‘Swedish model’ of labour market policy no longer exists. However, it is not the fault of fiscal austerity imposed by the European Union (EU). Rather, it is the product of a long series of reforms that began with another economic crisis: the Swedish financial crisis of the early 1990s. The recurring budget deficits and the growing debt that it produced forced cutbacks in the welfare system, and the unyielding and high levels of unemployment opened the door to labour market reform. These reforms put Swedish labour market policy on a new trajectory more in line with international trends, in particular, with efforts to spur job growth in the low-skill segment of the labour market.

For many decades, it seemed that the Swedish model was immune to change. Welfare scholars saw in Sweden a paragon of an equal society based on a generous welfare state that had withstood the pressures of globalisation. While it is true that some welfare institutions are still intact, that is no longer the case in labour market policy.

This chapter traces labour market reforms in Sweden over the past two decades or so and attempts to answer the questions posed by the present volume: what areas of labour market policy have been retrenched, in what way and who bears the burden of reform? The pattern suggested here is one in which labour market outsiders have borne the brunt of reforms. This can be seen in the manner in which labour market flexibility was introduced, in the fact that many of the unemployed now stand outside the social insurance system, in the declining value of social assistance benefits and, perhaps most strikingly, in the radical cuts to spending on active labour market policy. Taken together, and at odds with the literature (eg Iversen, 2009; Palier and Thelen, 2010; Pontusson, 2011), these reforms have put Sweden on a path towards labour market ‘dualisation’ (Davidsson and Naczyk, 2009; Emmenegger et al, 2012).

Politically, a range of forces have been in play. The Social Democrats, hamstrung by the tight economic conditions and high unemployment that followed the crisis of the early 1990s, conceded budget cuts, but also actively pursued labour market reform.