Rebellion Stirs in Sweden Against System That Keeps Wages Down

(Bloomberg) -- Staffan Grondal, a surgeon at the hospital in Stockholm’s wealthy Danderyd suburb, had enough. Unable to offer enough pay to hire a nurse needed to keep his clinic running at full speed he decided to step down.

Grondal’s frustration is a warning of an emerging conflict that’s threatening to unravel the two-decade-old Swedish labor market framework that has kept wages in check to protect the country’s powerful exporters.

“We need to offer market-based wages,” said Grondal, who’s now going back to being a surgeon. “Eventually, we’ll hopefully reach a situation where nurses find that it’s worth coming back to the profession, rather than work at IKEA.”

Nurses, electricians, construction workers and a broad swath of Sweden’s labor market are starting to question the system that has allowed industrial workers to set a benchmark for wage increases, most recently limited to 2% per year. It was put in place to protect jobs and prevent out-sized wage gains that could erode Sweden’s competitiveness and cause financial instability.

They are questioning why they should accept to be lowballed as Sweden is grappling with labor shortages to keep the welfare sector running. Finance minister Magdalena Andersson recently sounded the alarm. Analysis from her ministry shows that the welfare sector, which provides health care, child and elderly care and education, will likely take up more than half of the new jobs over the next nine years, double the share in the past two decades.

‘Moment of Truth’

Critics say the industry benchmark system wasn’t set up to solve the kind of shortages seen today. Teachers, nurses and doctors have seen slightly higher wage increases in recent years, but not enough to solve the situation.

Unions and employers are now gearing up for the next round of collective bargaining talks, which set the wages of nearly 3 million workers in the country of 10 million.

The talks will be a “moment of truth” for the framework, said Tobias Baudin, chairman of municipal worker’s union Kommunal, Sweden’s largest union with more than half a million members.

“If the current model isn’t able to deliver the necessary higher wage increases for professions with shortages in the welfare sector, then maybe we need to discuss a new model, one that takes skills shortages more into account,” he said in an interview.

Other unions in the powerful 6F alliance have already called for the model to be scrapped. The group, which represents construction, electricians and communication workers among others, argues that wage talks should have the central bank’s 2% inflation target as its starting point and take into account productivity. They want to join up with salaried professional workers to push through bigger wage gains.

Riksbank Woes

While the system -- regulated solely between employers and unions -- has kept Sweden’s powerful export industry humming, it has also been seen as part of the problem when it comes to Sweden’s anemic inflation, which forced the central bank to cut rates below zero.

Central bank Deputy Governor Per Jansson last week lent some support to those who want to see changes. He said he doesn’t see it as incompatible that wages could be set both based on productivity and wage developments abroad, but that it would need to be done “carefully and in a well-balanced way.”

But the system has its defenders, in particular among industrial workers. Marie Nilsson, chairman of the industry workers union IF Metall, said the framework have been crucial in creating stable conditions for wage formation. Scrapping the industrial agreement would be “harmful for Sweden,” she said.

It also remains to be seen how the authorities react. While the government has no formal part in wage talks, it does have a big role as an employer and has been jealously guarding its fiscal surpluses in recent years. And it may not matter in the end, but it’s worth noting that Prime Minister Stefan Lofven was once the head of the metal worker’s union.

To contact the reporter on this story: Amanda Billner in Stockholm at abillner@bloomberg.net

To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net

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