Unemployment Is Haunting Sweden Years After the Immigration Boom

(Bloomberg) -- Sweden has an unemployment problem.

Even amid the longest expansion in four decades, unemployment in the largest Nordic economy still hasn’t got back to pre-financial crisis levels. The jobless rate is hovering at more than 6 percent, far above the level in its Scandinavian neighbors and in global economic powerhouses such as Germany and the U.S.

“Sweden stands out,” said Robert Bergqvist, chief economist at lender SEB AB. “If you look at unemployment, the curve in Sweden has actually pointed upward, while in many other comparable countries it is falling to levels we haven’t seen in maybe 40 or 50 years.”

Unemployment Is Haunting Sweden Years After the Immigration Boom

That spells trouble as domestic and European economic growth is showing signs of cooling. At the same time, the country is in the midst of a full-blown political crisis with no viable government almost two months after an inconclusive election.

Sweden has been running large surpluses, but its government finances are vulnerable to growing unemployment given its generous benefit system.

Finding Jobs

Even as it prepares to raise interest rates for the first time in seven years, the central bank is now predicting that the unemployment rate has almost bottomed out, and expects it to rise to 6.6 percent by 2021. It blames the increase on difficulties for people to find jobs.

“At present, a relatively large percentage of those unemployed are persons who, on average, have a lower job-finding rate, for example, persons born outside Europe,” the bank said in its most recent Monetary Policy Report. “This proportion of the labor force is expected to increase in the near future.”

The country of just 10 million people became a haven for migrants fleeing war and has also been importing labor to fill jobs, accepting about 600,000 immigrants in total over the past five years. The labor force has grown by 7.8 percent since early 2014, compared with 4.7 percent in Denmark and 4.9 percent in Norway.

Record Employment

Sweden can to a degree thank the immigration boom for the hefty economic growth rates over the past few years, though looking at it per-capita the country is now a laggard. But foreign-born workers have helped fill many jobs, in particular in health and elderly care. Employment levels are at records, hitting 68 percent of the population. This is also thanks to many Swedes choosing to stay in the labor force at a later stage in life.

While unemployment among native Swedes is at 4 percent, the figure for foreign born is more than 15 percent. According to economists the big mismatch between the needs of employers and the skills of job seekers has increased the risk of unemployment turning structural.

Reality for the foreign born, which now make up about 20 percent of the working age population, may also be worse than the official statistics suggest.

“The newly arrived are required to register at the employment service in order to get their welfare benefits,” said Roger Josefsson, chief economist at Macrobond. “After registering they are considered to be part of the labor force.”

Labor Programs

Many of the asylum seekers that arrived in 2015 are today involved in labor market programs at the Public Employment Services. In September, the total number of people that are registered as employment seekers in Sweden were roughly 611,000. Of those, 343,000 were considered unemployed while about 290,000 job seekers were in some sort of subsidized program.

Ylva Johansson, who has been minister for employment and integration over the past four years, said claims that the labor market strength is on shaky ground just aren’t true.

“There are fewer people in subsidized employment today than there were when I took over as minister,” she said. “The whole increase in employment, the 325,000 new jobs that have been added during this government period, have been non-subsidized jobs.”

But she does agree that it’s crucial to improve the skills of the newly arrived so that they can be integrate into the labor market before the next economic downturn.

”How serious a downturn gets depends completely on the policy, on how active the government is in its efforts to soften the effects,” she said. “The economic downturn isn’t here yet, we still have a strong labor market, now is the time to prepare and educate people for the jobs that are actually there.’’

Jobs have been plenty, but the pace of hiring could be slowing. An index measuring the expected employment at Swedish businesses slid to 13 in the third quarter, down from a peak of 23 last year.

This has economists worried.

“When economic growth slows down and we go into a recession then Sweden will be less well prepared than other countries due to structural unemployment,” Bergqvist said.

©2018 Bloomberg L.P.