published Aug 22nd 2016, 5:01 pm, by Amanda Billner

(Bloomberg) —
The lid that has kept Swedish wages in check for decades is starting to crack.

Many fast-growing technology companies are refusing to play by the rules, eschewing the traditional collective bargaining agreements that have helped deliver moderate pay increases and high minimum wages in the Nordics’ largest economy.

“The Swedish model needs to be modernized,” said Anna Karin Hatt, a former government minister who’s now the chief executive officer of employers’ group Almega. “If you look at the service sector today, it’s under fierce international competition. The more centralized agreements there are, the more difficult it is for companies to handle them.”

As many as two thirds of firms operating in Sweden’s IT sector don’t sign collective agreements because they don’t find them flexible or attractive enough. That’s increasing tension in a labor market that since the 1990s has used industrial workers’ salaries as a benchmark for wage increases across the board.

The problem is that manufacturing jobs have been disappearing for years, falling by about 22 percent to below 600,000 since 1996. Services jobs, by contrast, are playing a bigger and bigger role, rising 43 percent — to 2.2 million — over the same period.

It’s one of the many cornerstones of the Swedish model that are now being challenged as the Scandinavian country adjusts to an aging population and a record flow of immigrants in a post-industrial, more dynamic and diverse society.

Turbulence in the labor market was evident last year, when shortages resulting from a booming economy prompted construction workers and nurses to demand a bigger raise than their industry colleagues.

Members of LO, the country’s main union umbrella group, also disagreed among themselves on evening out gender wage differences, eventually issuing separate demands.

Messy Future?

“It risks becoming messy,” Jonas Frycklund, acting chief economist at the Confederation of Swedish Enterprise, said of wage talks due later this year. “LO doesn’t have order on its side.”

At the same time, a large influx of immigrants in recent years means the country now has a pool of new workers, many of whom may need additional training to match the requirements of an increasingly specialized labor market. That, in turn, has led to a debate about Sweden’s entry wages, which are relatively high by international standards.

Stefan Loefven, who used to head Sweden’s largest industrial union before becoming prime minister, believes the benchmark status of industrial wages still serves a useful purpose. He has reminded Swedes of the days when a lack of coordination led to excessive wage increases and job losses.

“The Swedish model has delivered a lot throughout the years,” he told reporters last week. “We have a low share of industrial conflicts compared to many other countries. That’s built on the idea of leaving responsibility with labor market parties. It’s good for the country.”

Byggnads, the main construction workers’ union, went on strike in April after demanding a 3.2 percent raise for its members amid a construction boom and a shortage of skilled workers. Eventually, however, most wage agreements, including Byggnads’, ended up being in line with the industry norm of 2.2 percent.

Because of their impact on inflation, wage negotiations are closely followed by economists and the Riksbank. According to Nordea economist Torbjoern Isaksson, the main scenario in this fall’s wage process sees unions agreeing to stick to the industry norm.

That may not last long, however.

“The labor market is tight, there’s a shortage of workers, and companies in many sectors are struggling to recruit,” Isaksson said. “I think there will be more tension, and the probability that the industry benchmark won’t be kept has increased.”

To contact the reporter on this story: Amanda Billner in Stockholm at abillner@bloomberg.net To contact the editors responsible for this story: Jonas Bergman at jbergman@bloomberg.net Nick Rigillo

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