New short-time working model

A short working time model has recently been proposed jointly by social partners from the industrial sector. The proposed model, which is supported by both the government and the opposition, will make it possible for companies to retain employees at lower cost during difficult economic times. If implemented, the model would guarantee any employee affected at least 80% of their wages, and the cost would be borne by the employer, employee and the government.

Background

During the financial crisis in 2008 and 2009 social partners in the industrial sector reached agreements at local level that reduced working time and labour costs (SE0904029I, SE0906019I and SE0903019I). These agreements helped industry save between 12,000 and 15,000 jobs, according to the trade union IF Metall.

However, the need for a permanent model that would more effectively help industry avoid mass redundancies during future economic crises has been voiced. As a result, in 2010 a bipartite project between the industrial sector’s social partners examined possible short working time models. This led to the proposed model presented on 16 February 2012.

Proposed model

The proposed model has a set of rules to determine when and how it would be used. The primary principle is that it should be used during a demand-driven crisis in the economy, and not during a structural crisis. For it to be activated, trade unions, employer associations and the government must all agree. Social partners at local level can then negotiate how it should be designed to fit the needs of individual companies.

The short working time model would allow an employer to pay employees less for a maximum of 12 months, although they would be paid at least 80% of their usual wage. Exact income would depend on time worked:

• employees working 80% of their usual hours would receive 90% of their usual wage, 80% of this to be paid by the employer and 10% by the government;

• employees working 60% of their usual hours would receive 85% of their wage, 65% paid by the employer and 20% by the government;

• those working 40% of usual hours would be paid 80% of their wage, 50% paid by the employer and 30% by the government.

The amount that the employer would pay under this model consists of two parts; the first is a wage for the actual time worked, and the second a so-called short-time compensation, which would be exempt from social taxes.

The model is designed to have no effect on the social insurance system. Any social insurance payments made would not be based on reduced working hours. Furthermore, because the short working time model would be in place for such a short period, it would have a minimal effect on pension contributions. Employees would be expected to use their extra free time to undergo relevant training. As it is unrealistic to expect companies to pay for training during an economic crisis, it is proposed that this training be publicly funded. The intention is that both employees and companies would exit the crisis in a stronger position.

Broad support for the model

Shortly after the announcement of the proposed short working time model, representatives from the ruling coalition announced their support in an article in the newspaper DN (in Swedish). ‘This is a system that we would like to have in place if we are hit by a crisis such as the one in 2008,’ Finance Minister Anders Borg commented just after the announcement.

It has also won broad support among trade unions and employer associations in Sweden.

Veli-Pekka Säikkälä, Collective Bargaining Secretary of IF Metall, expressed the widely held views of many about the urgent need for such a model, saying in a press article by DN (in Swedish):

A short working time model would provide security for employees during economic crises as employers would not need to get rid of as many employees.

Commentary

The proposed model has been designed by studying similar short working time models in Finland, the Netherlands and Germany (EU1010021I). It will diminish the competitive disadvantage Swedish companies experienced during previous crises and help them remain competitive during future crises.

The broad support for the model means there is a good chance that it would be successful in the long term. A short-time working model that has governmental support might therefore be the first step towards a system where the government actively collaborates with social partners when dealing with labour market policies.

Mats Kullander and Jon Halling, Oxford Research