MNI INTERVIEW: Swedish Unemployment To Rise After Improvement

Swedish unemployment is set to start rising again as new Covid restrictions hit sectors such as hotels and restaurants which had powered a recent labour market recovery, particularly among young workers, Sara Schanberg, an economist at the government's National Institute of Economic Research told MNI.

It is too early to start "jumping for joy" over unemployment, which fell to 8.6% in October from 8.9% in September having peaked in June, Schanberg said in an interview, pointing to November's new social distancing rules. Employment's 1.2% rise October relative to July was mainly driven by workers aged between age 19 and 24, she noted.

"The younger age group are more likely to go in and out of employment and in and out of the labour force. So it is a bit of a dangerous age group to rely on for substantial labour market growth," Schanberg said.

An extension to June of the government's income support through its shorter working scheme is likely to mainly benefit the services sector, she said. When it was first launched manufacturers were swift to take it up but manufacturing exports now appear to be holding up.

SECOND WAVE

"With this second wave of Covid we don't think the manufacturing industry will be as affected. It seems as though exports will be less affected, so the need for income support in manufacturing industries is likely to adjust," she said.

Employment protection under Sweden's social democratic model can obscure what is going on in the labour market, with lengthy redundancy periods delaying recorded rises in unemployment.

"The glory of the Scandinavian model … is that the labour market is extremely sticky, so always expect longer lags between economic activity and labour market response," Schanberg said.

In its most recent, September, forecast round, NIER projected unemployment would peak at close to 10% in the fourth quarter of this year.

Schanberg said that she believes that "the jobless rate is likely to increase again in November and December. But the question is will it get that much worse than it cancels out the strong outcome that we got for October? And that is what I am not really sure about."

Schanberg warns against premature triumphalism over vaccines, with the labour market set to take time to heal.

"If we are still restricted to working from home and limiting social contacts and all that then I think that is an important aspect to weigh in with the optimism on the vaccine front," she said.