Obama Could Learn From Sweden’s Labor System

Wednesday, 06 Apr 2011 09:48 AM

By Ronald Kessler

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Sweden has long been considered the ultimate socialist country. But unlike the United States, Sweden has been moving more toward capitalism, with bullish results.

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A key architect of those policies is Sven Otto Littorin, who was the minister of employment for four years. He was appointed after the center-right Moderate Party won a majority in parliament in 2006.

“Prior to the party taking over in 2006, 1 out of every 5 people who were of working age was either outside of the regular labor market or working less than he or she would like to,” Littorin tells Newsmax.

“We had 12 percent of our labor force in either early retirement or disability pension. The government was forcing people out of the labor market and into early retirement or disability pensions to basically cover up the problems in the labor market,” Littorin says.

That was not only costly, it was a drag on the economy, says Littorin, who is now a visiting scholar at Stanford University.

“If you look at demographics, we needed every single hand on deck to be able to afford pensions and all of the other good stuff that people would like to have,” he says.”So basically our main task was to get people back into jobs.”

The tax structure, which included marginal tax rates that penalized citizens for working more, discouraged people from finding work.

“If you combined the taxes and the social insurance and unemployment insurance, they would actually lose money from moving from unemployment and social exclusion and into the labor market,” Littorin says.

“So we implemented a huge tax reform, which was basically geared towards lowering taxes, especially among lower and middle income earners, so it would pay them to work more.”

The change took the form of a tax credit, which lowered the individual tax burden by 10 percentage points.

“That was a huge shift,” Littorin says. “We had almost a 4 percent increase in labor supply — people moving back into the labor force.”

On top of that, in 2008 the government reduced unemployment insurance payouts so that the longer a worker had been out of work, the less he received. The government also required those on unemployment to take job offers and imposed other mandates in return for collecting unemployment insurance.

“The combination of that reform and the tax reform had a huge effect on unemployment, which was 10 percent,” Littorin says. “Right now it’s about 7 percent, and we’re looking at going down to 5 percent in the next 4 years.”

Helped in part by increased exports, “Sweden’s GDP is 4.8 percent, and we have a budget surplus, compared with a deficit previously,” Littorin says.

So, Littorin says, “I think that the lesson to be learned is that a combination of fiscal stringency by reducing unemployment benefits and having policies in place to make it worthwhile for people to work does the trick.”

Sounds self-evident, but it’s a lesson that President Obama has yet to learn.

Ronald Kessler is chief Washington correspondent of  Newsmax.com. View his previous reports and get his dispatches sent to you free via e-mail. Go here now.





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