By Nick Mann | 14 November 2012
The UK can learn lessons from how Sweden tackled its financial crisis in the early 1990s as it tries to reduce both unemployment and its budget deficit, the Institute for Public Policy Research said today.
Despite a recent rise in the number of people in work in the UK, unemployment remains ‘stubbornly high’, the IPPR said. According to the latest jobless figures, published today by the Office for National Statistics, the unemployment rate fell to 7.8% in the three months to September, but almost 900,000 people have been out of work for more than a year.In the IPPR’s Saving the Swedish model, also published today, former Swedish finance minister Pär Nuder shows how Sweden tackled a high unemployment rate in the mid-1990s at the same time as reducing its deficit.
Between the summers of 1990 and 1993, the country suffered three years of negative growth, with gross domestic product falling by almost 5% at its worst. Total employment fell by more than 12% between 1990 and 1994. The country’s deficit also increased to 10% of GDP.
A new Social Democratic government embarked on a ‘frontloaded’ programme of cuts when it took office in October 1994, the paper says. But education was one of the few areas relatively protected from budget cuts.
‘The government recognised that cutting down on those public services that improve the ability of people to work would result in less competitive labour markets and slower economic growth,’ Nuder explains.
Instead, the deepest cuts were made to payments such as child benefit, maternity and paternity pay and unemployment insurance. This was based on the reasoning that an adult could live with a lower income for a couple of years but it would be much harder to compensate someone for a poor education.
The government also invested heavily in creating employment, training and work experience opportunities for unemployed people, introducing a range of schemes. Women were encouraged to learn or work through extensive low-cost childcare while a major workforce training programme raised skill levels.
Kayte Lawton, IPPR senior research fellow, said: ‘There are some big lessons for the UK to learn from Sweden’s deficit reduction programme in the second half of the 1990s.’
She explained: ‘Key to the government’s strategy was the drive to raise the employability of the long-term unemployed through innovative employment and training programmes. The Social Democrats prioritised investment in education, training and job subsidies over spending on benefits.
‘These policies improved the skills base of Swedish workers with an eye to the long term and gave unemployed people a chance to gain real, paid experience and a recent reference. The UK can learn a lot from the Swedish experience.’
The IPPR recommended that the coalition government extend its Youth Contract so that everyone who has been unemployed for more than a year is guaranteed a job paid at least the minimum wage – but they should lose their benefits if they refuse to take it up.
