SWEDEN ROAD BACK TO FULL-EMPLOYMENT

The article reviews the Swedish model in the context of international evidence on the determinants of unemployment. There are three main det erminants. (1) How unemployed people are treated. Unemployment benefit s available for long periods tend to encourage long-term unemployment. The humane alternative is to replace benefits for long-term unemploye d people by a guarantee of work or training. This policy has served Sw eden well, despite frequent arguments to the contrary. (2) How wages a re determined. Where unions are strong, centralized is better than dec entralized bargaining because it takes into account the common interes t in low unemployment. Countries like Sweden which have strived for wa ge consensus have benefited. (3) High minimum levels of skill. Unless these are achieved, the solidaristic wage policy advocated in the Swed ish model is bound to increase unemployment. Other proposed remedies f or unemployment, such as lower employers' payroll tax, less employment protection, more work sharing and early retirement are unlikely to ha ve much effect on unemployment.