The Perils of Vanguardism: Explaining radical cuts to unemployment insurance in Sweden

The Perils of Vanguardism: Explaining radical cuts to unemployment insurance in Sweden Abstract Over the past 25 years, Sweden has gone from having one of the most generous unemployment benefit systems among the rich democracies to one of the least. This article advances a multi-causal explanation for this unexpected outcome. It shows how the benefit system became a target of successive right-wing governments due to its role in fostering social democratic hegemony. Employer groups, radicalized by the turbulent 1970s more profoundly than elsewhere, sought to undermine the system, and their abandonment of corporatism in the early 1990s limited unions’ capacity to restrain right-wing governments in retrenchment initiatives. Two further developments help to explain the surprising political resilience of the cuts: the emergence of a private (supplementary) insurance regime and a realignment of working-class voters from the Social Democrats to parties of the right, especially the nativist Sweden Democrats, in the context of a liberal refugee/asylum policy. 1. Introduction Sweden has long been known in popular culture as a beacon of social democracy. This is also present in academic work, if perhaps in more nuanced form. For those in the nascent field of comparative political economy in the 1970s and 1980s, the task of explaining how Sweden became the most generous welfare state in the world was foundational. Indeed, one of the most influential theories in the field, Power Resource Theory, took the country’s experience as its main source of inspiration (e.g. Korpi, 1983). If only because it is the largest country in Scandinavia, Sweden has remained the typical representative of the so-called ‘Nordic model’ in ensuing years. Yet, as this article will show, some of the major policy underpinnings of social democracy have been greatly eroded in Sweden. That Swedish social democracy is not what it once was is widely recognized and uncontroversial (e.g. Thelen, 2014; Svallfors, 2015). However, most diagnoses of change in Swedish social democracy have failed to note the dramatic cuts to unemployment benefits in recent years, what these cuts mean for the country moving forward, and how this policy change is poorly captured or explained by the dominant theoretical approaches in comparative political economy. Two waves of reform have turned what was once a highly generous unemployment benefit system into one of the least generous in the advanced industrial world.1 The first wave occurred in the mid-1990s and was largely motivated by the massive budget deficits Sweden faced during its deep recession in the early 1990s. Although the current article will address this reform history, it is reasonably well explained by traditional theories, as outlined in Section 2. It is the second wave of reforms that is more puzzling and the main focus of what follows. This wave of changes took place in the context of a growing economy, low budget deficits and when the unemployment benefit system was no longer particularly generous. Nevertheless, deep cuts were enacted by the incoming government of Fredrik Reinfeldt and his right-wing coalition in 2006–2008. The end result of these reforms is shown in Figure 1, which compares countries in 2010 according to one important measure of policy generosity, ‘unemployment benefit effort’: the share of GDP spent on unemployment benefits divided by the unemployment rate.2Figure 2, similarly, shows the extent of cuts in a comparative context, in this case among the countries with the most generous systems of unemployment benefits in the 1980s. (Section 3 documents the policy changes that led to these outcomes.) Figure 1. View largeDownload slide Unemployment benefit effort, 2010, selected countries. Source: OECD. Figure 1. View largeDownload slide Unemployment benefit effort, 2010, selected countries. Source: OECD. Figure 2. View largeDownload slide Unemployment benefit effort, 1989–2011, selected countries. Source: OECD. Figure 2. View largeDownload slide Unemployment benefit effort, 1989–2011, selected countries. Source: OECD. Two things stand out in these figures. First, in Figure 1, there is the extent to which Sweden is ‘exiled’ from the group of high-generosity countries with which it was traditionally included in welfare state typologies (e.g. Esping-Andersen, 1990; Pontusson, 2005). Second, in Figure 2, while the overall trajectories of reform in the previously high-generosity countries are similar (i.e. retrenchment), the others have been much more resilient in terms of generosity compared to Sweden, with the partial exception of Denmark in the 2000s. If we add a measure of active labor market policy (ALMP) spending to the picture, given the prominence of ALMP in Sweden historically, the overall story remains the same. The motivation behind adding ALMP spending would be that it might compensate for the cuts to unemployment benefits, reflecting a greater shift to an ‘activation’ paradigm. Yet, if anything, the profound cuts to support for the unemployed in Sweden become even more pronounced once we integrate this, as Figure 3 does by adding ALMP spending per unemployed to unemployment benefits, what might be termed ‘Outsider Effort’ (following Gordon, 2015). Figure 3. View largeDownload slide Outsider effort (UB Effort + ALMP Effort), 1989–2011, selected countries. Source: OECD. Figure 3. View largeDownload slide Outsider effort (UB Effort + ALMP Effort), 1989–2011, selected countries. Source: OECD. Something is clearly amiss in Sweden then, at least relative to traditional understandings of the country. One of the most important systems of ‘de-commodification’ historically, unemployment compensation, has been pared back to Anglo-Saxon levels, something previously thought to be highly unlikely. Indeed, from a host of theoretical perspectives, unemployment compensation is an area where we might expect to see the most distinctiveness in policy between the Anglo-Saxon world and the Nordic countries, and Sweden in particular (see Section 2; e.g. Korpi, 1983; Hall and Soskice, 2001; Iversen, 2005; Gordon, 2015). Despite this, the cuts have occurred and are only partly being reversed eight years on (see Section 3). This article seeks primarily to document and explain this puzzling outcome, which has not been widely recognized, and secondarily to explore its theoretical implications. It draws on existing historical accounts in Sweden and other Northern European countries—which act as shadow cases—along with contemporaneous reporting by the European Industrial Relations Observatory (EIRO) and many interviews with officials in major union and employer organizations, government bureaucrats, relevant policy-makers and academic observers. These interviews help to identify the causal mechanisms at work by exploring the motivations of political actors and the debates that surrounded policy reform. The explanation advanced here stresses that the politics of unemployment insurance in Sweden must be seen in the context of the system’s historical role in sustaining union power. While it is widely recognized that Ghent unemployment insurance systems foster high-union density (see below; e.g. Rothstein, 1996; Western, 1997), less appreciated is how this intensely politicizes and, under certain circumstances, renders vulnerable generous systems of benefits. In Sweden, where labor’s radicalization in the 1970s provoked an employer counter-offensive and a major shift in employer preferences—one more profound than other Northern European countries (e.g. Blyth, 2002; Anthonsen et al., 2011; Kinderman, 2016)—the unemployment insurance system became a policy target for successive right-wing, employer-aligned governments. While this pattern of contention has become common in countries with Ghent systems (Bandau, 2017), the cuts went furthest in Sweden largely because corporatist patterns of policy making, which might constrain government reform efforts, were abandoned in the early 1990s. Swedish ‘post-corporatism’ thus represented a new opportunity structure, which left the organizationally powerful union movement to act in merely pluralist and frequently unsuccessful ways in opposition to government initiatives, especially by right-wing governments. Recognizing the dismantling of corporatism in Sweden and its connection to policy development is not novel (see e.g. Jochem, 2003; Lindvall and Sebring, 2005; Thelen, 2014), but this article traces its connection to sharp retrenchment in unemployment insurance more carefully than previous work. Once implemented, two other features of the Swedish political economy have contributed to the political resilience of the cuts. First, the emergence of a private or supplementary ‘income’ insurance regime since the early 2000s has protected many workers from the potential adverse effects of the benefit cuts (Davidsson, 2013). This has somewhat muted political pressure to reverse the cuts at election time, even while the main union confederations maintain a strong and generally united position against the retrenchment. Second, Sweden’s uniquely liberal immigration and refugee/asylum system has contributed to relatively high rates of unemployment or inactivity among recent immigrants (Naurin and Ohberg, 2013). This has set the stage for a shift of working-class voters from the Social Democrats to other parties of the right, particularly the anti-immigration Sweden Democrats as the latter ‘modernized’ (Widfeldt, 2008). Not only has this shift altered the class makeup of Social Democratic support in ways unfavorable to generous unemployment protection (Gingrich and Hausermann, 2015), but it has also weakened the Social Democrats electorally, leaving the center-right Alliance coalition to win successive elections and transform Sweden in intentionally ‘de-social democratizing’ ways. The article proceeds as follows. Section 2 outlines the major theoretical expectations from the established literature on welfare state evolution and shows how they are incapable of straightforwardly capturing the reform history. Section 3 details the policy history in Sweden and shows through process-tracing how the view advanced above can explain the country’s trajectory, noting the comparative experience to the extent possible. Section 4 concludes. 2. Theoretical literature The two dominant theoretical perspectives in comparative political economy, Power Resource Theory (PRT) and Varieties of Capitalism (VOC), do not account well for the Swedish reforms. Other approaches, such as Insider-Outsider theory and the New Politics of the Welfare State (NPWS), also do not provide convincing accounts on their own. While they each contribute to our understanding of the country’s policy history, none of them can adequately explain the particularly dramatic reforms experienced in Sweden, at least as they are classically stated. Let us take them in turn to see why. PRT suggests that countries with successful ‘working class mobilization’ will see more generous welfare states and thus higher levels of decommodification (Korpi, 1983; Huber and Stephens, 2001). While there are many important nuances to the view, in general higher levels of union density and centralization as well as long-term left party government will produce more decommodifying social insurance. This approach has proved quite successful at explaining many welfare state outcomes we see, but the current meagre Swedish (public) system of unemployment benefits is not one of them. The union movement in Sweden remains very strong in comparative perspective, it is relatively unified, and the country has a long history of left-wing, Social Democratic government. It is true that the most significant retrenchment has occurred under right-wing governments, as the theory would predict, and this remains an important insight, one consistent with the broader literature (e.g. Allan and Scruggs, 2004). Indeed, the most obvious proximate answer to why major cuts to unemployment insurance took place in both the early 1990s and 2006–2008 is that a right-wing coalition took power (and that in the latter case the right-wing coalition had ‘won the argument’ around tackling unemployment; for this last point, see Davidsson and Marx, 2013). It is tempting to leave the matter at that. However three points must be made in this connection. First, the cuts that were made in the mid-1990s by a right-wing coalition were not completely undone when the Social Democrats retook power from 1994 to 2006, despite pressure from the union movement to do so. Second, other high generosity countries experienced long spells of center-right government without witnessing nearly the same level of retrenchment (e.g. a center-right coalition governed Denmark from 2001 to 2011). Third, the most powerful versions of the PRT argument relied on long-term Left incumbency to explain policy outcomes (Huber and Stephens, 2001). The fact that Reinfeldt’s center-right government could, in the span of only two years, dramatically retrench an already moderately generous system and not face electoral reckoning the following election is therefore surprising for PRT. In this sense, partisanship can explain certain obvious elements of the policy history, but it cannot on its own account for the severity of the cuts in a comparative perspective, nor their resilience to pressures for reversal. Varieties of Capitalism is arguably even less able to account for the policy trajectory. The two political economic features it emphasizes in explaining generous unemployment insurance in Northern Europe, coordinated employers and strong systems of vocational training, have not changed markedly in Sweden over the past three decades, or at least not sufficiently to account for such a sharp contraction in generosity (Hall and Soskice, 2001; Iversen, 2005). For example, the educational system has not been dramatically reconfigured in the past few decades in a way that would have undermined a relatively industry- and firm-specific skill profile, which VOC sees as underpinning demands for generous insurance.3 In relation to employer coordination, it is true that bargaining has become more decentralized and that multinational corporations play a larger role in the economy. It could be argued that this has weakened employer interests in generous unemployment insurance, though they have never been much interested in such a system, contrary to the expectations of VOC (Gordon, 2012). Yet, while these dis-organizing tendencies undoubtedly exist in Sweden, they have also been present in other Northern European countries and they have not witnessed commensurate cuts (see Figures 2 and 3). More to the point, as Section 3 documents, the employers were the ones leading the push for decentralization and for unemployment insurance cuts. This contrasts starkly with a vision of employers rallying to the defense of Sweden’s ‘comparative institutional advantages’, as hypothesized by early VOC theory (see Kinderman, 2016). Recent theories of dualization, for their part, would seem to have some purchase on the question, since Sweden has witnessed falling generosity to labor market ‘outsiders’ alongside continued strong employment protection legislation (EPL) for ‘insiders’. According to this perspective, strict EPL is the villain of the piece, as it means that employed ‘insiders’ no longer have an interest in generous unemployment protection; the stricter the EPL, the stronger these dualistic dynamics. Indeed, it is striking that the Reinfeldt government did not attempt to alter the existing Employment Protection Act (LAS), even while it radically reformed the unemployment insurance system, given that the former was the highest priority for its allies in the employer organizations (interview with SN official, 2009). In this view, then, both governments of the left and right have tended to side with labor market ‘insiders’, to the detriment of policies that benefit ‘outsiders’ (Rueda, 2007). At a minimum, governments of the left face a strong dilemma in pursuing generous ‘outsider’ policy, even in Sweden, as they risk alienating securely employed supporters (Lindvall and Rueda, 2014). Once again, absent a comparative view, this account might seem to be able to explain the policy trajectory. Yet other countries with equally strong protections of ‘insiders’ (i.e. EPL; see OECD, 2016a), such as Finland, Norway and The Netherlands, have not seen the same degree of radical retrenchment as Sweden (Figures 2 and 3). Moreover, one of the important causal mechanisms in the ‘Insider-Outsider’ account, where unions defend EPL but cease to fight for generous unemployment insurance, is at odds with the empirical record in Sweden: the main union confederations, LO (blue-collar) and TCO (white-collar), have fought intensely to reverse the cuts undertaken in the 1990s and especially in 2006–2008 (see Section 3). Lastly, Insider-Outsider accounts have emphasized diminished partisanship in the area of unemployment insurance (Rueda, 2007), yet partisan differences are obvious in the policy history, especially with regard to the reforms under Reinfeldt (Section 3). In sum, while subtle forms of dualism are a part of the Swedish story, as Section 3 explains, it is not the central explanation of radical retrenchment and it has not occurred in the way expected by the original Insider-Outsider theory of labor market policy. A final major theoretical perspective which is of relevance is the view put forward by Paul Pierson, commonly known as the ‘New Politics of the Welfare State’ (NPWS; Pierson, 1996).4 In this account, welfare state programs are highly resistant to retrenchment, as they come to be protected by their providers and recipients and patterns of voter risk-aversion. We should therefore expect that sharp retrenchment will only occur in specific circumstances: (i) in periods of ‘crisis’, where governments can successfully practice ‘blame avoidance’; (ii) when the benefit recipient population is weak politically; and (iii) when cuts can be made less visible (e.g. through de-indexation, drift). As Section 3 documents, conditions (i) and (iii) were present in the reforms of the mid-1990s, facilitating the sharp cuts seen in that era. They were not present, though, in the reforms of 2006–2007 (with some exception on iii). This makes that later reform experience particularly intriguing, as alluded to above. In the case of unemployment insurance, (ii) normally applies too. However in the Swedish context, the unemployed are effectively represented by a powerful union movement, which is organizationally disposed to defend a generous unemployment insurance system, not least because of its connection to maintaining incentives for union membership (Gordon, 2015). In this sense, Sweden is a least likely case for sharp cuts to unemployment insurance relative to other countries, where union movements are less disposed to fight for generous insurance. 3. Social democratic hegemony, ‘post-corporatism’ and emergent dualism The literature review of the major theoretical perspectives in Section 2 is not meant to suggest that they have nothing to add to our understanding of the policy trajectory. The point instead is to show how the policy trajectory cannot be straightforwardly explained with reference to them, and how more subtle variants of those views must be developed. In what follows, I trace the politics of the unemployment insurance system from the 1970s to the present in order to illustrate how the vanguard status of Swedish social democracy left it exposed to radical retrenchment. 3.1 1970s and 1980s: Social democratic hegemony, employer radicalization and the breakdown of corporatism The starting point for a better understanding of Sweden’s policy history is precisely that the country had the most dominant social democratic movement in the world in the postwar era (e.g. Huber and Stephens, 2001). This hegemony was based on several factors, including a fragmented political Right, but one of its crucial supports was the postwar system of labor market policy. This system was indispensable because it created strong selective incentives for workers to join unions, most of which were closely aligned with the Social Democratic Party (SAP). In the case of the unemployment insurance system, it has been run on the basis of a Ghent system: unions de facto administer the unemployment insurance funds (UIFs), while membership is both voluntary and subsidized by the state (Western, 1997; Clasen and Viebrock, 2008). Given that the insurance funds have some discretion over what constitutes a suitable job offer, what sanctions to impose on benefit recipients, and so on, there is a perception among workers that it is best to have union membership when interacting with the UIFs, ‘just in case’. This dynamic is common across Ghent systems, and helps explain their dramatically higher membership rates (Ibid.). ALMP was also run in such a way that those most at risk of unemployment had incentives to be union members—for example, to better requalify for unemployment benefits through ALMP participation (the so-called ‘endless carousel’; see Rothstein, 1996). It was this powerful, institutionalized social democratic hegemony that led the SAP to push for and/or pass reforms that were much more ambitious than what were attempted or achieved elsewhere, even if many of these reforms were paradoxically conceived by union leaderships in a situation of ‘defensiveness’, as they were challenged by rank-and-file unrest (for this history, see Pontusson, 1992; Huber and Stephens, 2001; Blyth, 2002; Schnyder, 2012). Foremost among these ambitious reforms was the ‘wage earner fund’ proposal of the 1970s and early 1980s, which sought to gradually socialize ownership of the Swedish economy. This is rightly viewed as the greatest source of employer resentment and mistrust from the 1970s ‘reform offensive’ period (e.g. Pontusson, 1992; Anthonsen et al., 2011, p. 128–129). Also important were far-reaching measures in the realms of ‘co-determination’ and dismissal law (LAS) in the 1970s, which broke with the cross-class compromise established in the Saltsjöbaden Agreement of 1938 of limited state interference in bargaining and managerial discretion (Schnyder, 2012). During this period the generosity of the unemployment benefit system was sharply expanded as well, even though it had previously played a secondary role relative to ALMP (for this history, see Gordon, 2012). The benefit system that emerged from this period became one of the most generous in the world, as Figure 2 indicates. Its basic elements, as they existed in 1990 following the expansion, are presented in Table 1. Table 1. Swedish unemployment insurance system, main features, 1990–2010 Features of system 1990 2000 2010 Maximum statutory replacement rate (RR) 90% 80% 80% (for first 200 days, then 70) Benefit ceiling Indexed, ∼90% RR for median income worker De-indexed, ∼68% RR for median income worker De-indexed, ∼60% RR for median income worker Waiting days 0 5 7 Eligibility rules Minimum of 4 months work in past 12 month; participation in LMP qualifies for eligibility, as does full-time education 6 months for at least 70 hours per month in past 12 months; participation in LMP qualifies for eligibility, as does full-time education 6 months for at least 80 h per month in the past 12 months; participation in education or LMP no longer qualifies for eligibility Duration Effectively indefinite (‘endless carousel’) Effectively indefinite (‘endless carousel’) 60 weeks for most State subsidization (not covered by membership fees) ∼90% ∼90% ∼55% Strong premium differentiation by sector No No Yes Features of system 1990 2000 2010 Maximum statutory replacement rate (RR) 90% 80% 80% (for first 200 days, then 70) Benefit ceiling Indexed, ∼90% RR for median income worker De-indexed, ∼68% RR for median income worker De-indexed, ∼60% RR for median income worker Waiting days 0 5 7 Eligibility rules Minimum of 4 months work in past 12 month; participation in LMP qualifies for eligibility, as does full-time education 6 months for at least 70 hours per month in past 12 months; participation in LMP qualifies for eligibility, as does full-time education 6 months for at least 80 h per month in the past 12 months; participation in education or LMP no longer qualifies for eligibility Duration Effectively indefinite (‘endless carousel’) Effectively indefinite (‘endless carousel’) 60 weeks for most State subsidization (not covered by membership fees) ∼90% ∼90% ∼55% Strong premium differentiation by sector No No Yes Table 1. Swedish unemployment insurance system, main features, 1990–2010 Features of system 1990 2000 2010 Maximum statutory replacement rate (RR) 90% 80% 80% (for first 200 days, then 70) Benefit ceiling Indexed, ∼90% RR for median income worker De-indexed, ∼68% RR for median income worker De-indexed, ∼60% RR for median income worker Waiting days 0 5 7 Eligibility rules Minimum of 4 months work in past 12 month; participation in LMP qualifies for eligibility, as does full-time education 6 months for at least 70 hours per month in past 12 months; participation in LMP qualifies for eligibility, as does full-time education 6 months for at least 80 h per month in the past 12 months; participation in education or LMP no longer qualifies for eligibility Duration Effectively indefinite (‘endless carousel’) Effectively indefinite (‘endless carousel’) 60 weeks for most State subsidization (not covered by membership fees) ∼90% ∼90% ∼55% Strong premium differentiation by sector No No Yes Features of system 1990 2000 2010 Maximum statutory replacement rate (RR) 90% 80% 80% (for first 200 days, then 70) Benefit ceiling Indexed, ∼90% RR for median income worker De-indexed, ∼68% RR for median income worker De-indexed, ∼60% RR for median income worker Waiting days 0 5 7 Eligibility rules Minimum of 4 months work in past 12 month; participation in LMP qualifies for eligibility, as does full-time education 6 months for at least 70 hours per month in past 12 months; participation in LMP qualifies for eligibility, as does full-time education 6 months for at least 80 h per month in the past 12 months; participation in education or LMP no longer qualifies for eligibility Duration Effectively indefinite (‘endless carousel’) Effectively indefinite (‘endless carousel’) 60 weeks for most State subsidization (not covered by membership fees) ∼90% ∼90% ∼55% Strong premium differentiation by sector No No Yes Indeed, it was precisely because the ties between the unions and the SAP were so strong, and the SAP so dominant electorally, that the unions rarely felt the need to make significant policy concessions and felt emboldened to so fundamentally break with the postwar compromise (see Anthonsen et al., 2011). As a result, Swedish business came to see ‘corporatism’ as a one-sided affair in the 1970s and largely a sham (e.g. Ibid; Lindvall and Sebring, 2005; Pestoff, 2005). When the center-right governments from 1976 to 1982 were unable to effectively challenge social democratic hegemony, the main employer group, SAF, began to invest heavily in an ideological counter-offensive, including the setting up of well-funded think tanks (for this history, see Blyth, 2002). They also undermined the centralized bargaining system, which had empowered the LO politically. By 1990, after these efforts had delivered victories in the ideological and bargaining realms, they unilaterally withdrew from the country’s corporatist machinery (Ibid; Huber and Stephens, 2001; Pestoff, 2005). Given their earlier experience, they never seriously considered re-engaging with the corporatist machinery subsequently (interview with SN official, 2015). It is in this sense that the vanguard nature of social democracy in Sweden, by breaking the cross-class compromise in enduring ways, created unfavorable political conditions for the unions in later decades. While employers have certainly been restless with corporatist structures in other Northern European countries, the rupture in Sweden was more profound (see for e.g. Pestoff, 2005; Anthonsen et al., 2011; Jahn, 2016).5 The particularly radicalizing experience of the 1970s meant that Swedish employers were more neoliberal in outlook and that their allies in the main center-right parties, especially the Moderates, were subsequently less willing to curtail reform initiatives due to union criticism and/or expected opposition (Blyth, 2002; Pestoff, 2005; Kinderman, 2016). 3.2 1990s and early 2000s: Economic crisis, the first wave of retrenchment, and the emergence of private insurance The unemployment insurance system did not experience strong pressures for reform in the 1980s in the context of a comparatively low unemployment rate and SAP rule, despite the mounting frustration of employers. This changed with the deep economic crisis of the early 1990s, the roots of which need not detain us here (for this see Huber and Stephens, 2001; Blyth, 2002). From the start of the recession in 1990 to its depths in 1993, open unemployment quadrupled, while a budget surplus turned into a deficit of 12.3% of GDP (Anderson, 2001). As the crisis gathered steam, there was cross-party agreement on a range of reforms between the newly elected ‘bourgeois’ coalition of Carl Bildt and the SAP (for this period, see Dahlstrom, no date). These included significant cuts to sickness and work-accident insurance, pensions, housing policy, family policy, and tax increases. Given the crisis atmosphere, such austerity measures were less of a political liability than they would have otherwise been, especially since the burdens were designed to be shared widely. More important to note here is that reforms to unemployment insurance were left out of the package agreement. Given the role of the labor market regime in the reproduction of SAP hegemony, it is no mistake that unemployment insurance proved to be the most bitterly contested policy area, and that the Bildt government tried to undermine the Ghent system (see Lindvall and Sebring, 2005; Bandau, 2017). Prior to the 1991 election the center-right parties had vowed to replace the voluntary Ghent system with a mandatory one, along with other reforms (for what follows, see Dahlstrom, no date; Anderson, 2001; Bandau, 2017). In the face of this threat, the SAP refused to negotiate on reforms to unemployment insurance, in contrast to the other areas of policy. Despite this resistance, the Bildt government was able to introduce a series of reforms to unemployment insurance: imposing 5 waiting days, reducing the maximum replacement rate from 90 to 80, increasing membership fees, abolishing the ‘endless carousel’, and cutting (and de-indexing) the benefit ceiling. Most relevant here, the government established a commission to investigate creating a mandatory system, and the SAP and the unions were excluded from the commission. When the commission delivered the intended advice, the government attempted the most controversial change shortly before the 1994 election, a move to a mandatory system, with the support of employer representatives. While it did pass, against vociferous opposition by the unions and SAP, the reform was short-lived as the government lost the election. Tellingly, in the debate around the proposed reforms, the role of the benefit system in fostering union and SAP power was explicitly noted by representatives of the Bildt government (see e.g. Bandau, 2017, pp. 15–16). The incoming SAP government in 1994 quickly moved to re-establish the voluntary Ghent system and the ‘endless carousel’. In other areas, though, the SAP resisted returning to the pre-crisis system. Incurring the LO’s wrath, the party decided to retain the waiting days, to maintain the nominal benefit ceiling, and to tighten eligibility rules somewhat. It was clear that the SAP was intent on re-establishing fiscal balance quickly, in order not to lose the ‘fiscal credibility’ it had gained by participating in the crisis-era budget packages (see e.g., Blyth, 2002). This approach contributed to the defection of the Left Party from an informal coalition with the SAP in 1995, and the need for the SAP to cooperate with the Center Party, which was drawn away from the right-wing bloc and which pressured the SAP to terminate the ‘endless carousel’, among other moves. After two contentious government commissions in the late 1990s, where the unions fought such a move, it was effectively implemented in the early 2000s, along with stricter activation requirements on the unemployed (see Jochem, 2003; Gordon, 2012) What is notable about this period of reforms is that the changes that reduced generosity the most, the cuts to the maximum statutory replacement rate and the benefit ceiling, were concentrated in their effect on upper-income earners. While the SAP did move in 2001 and 2002 to increase the benefit ceiling after pressure from the unions, for most upper-income earners the changes still did not bring them close to the earlier 80% rate—this only occurred for income earners near or below the median. This failure to re-establish earlier replacement rates for higher earners set the stage for the white-collar TCO and the professional union confederation, SACO, to establish their supplementary income insurance schemes in some sectors. At first this supplementary system was quite limited in coverage. It began in 2002 with around 200,000 members being covered. By 2006, there were still only around 500,000 covered, out of total labor force of 4.5 million (Davidsson, 2013). But this institutional infrastructure, and the precedent it set, was to play a key role in the politics of unemployment insurance during the Reinfeldt era, as documented below. It is also important to note that the close connections between the unions and the SAP were not sufficient for the unions to block many of the reforms they disliked. Their participation in the government commissions and the pressure they exerted on the SAP leadership certainly contained the pace and extent of retrenchment, but change occurred nonetheless. As Sven Jochem (2003, p. 129) puts it, in the absence of corporatism, ‘party competition is the major determinant of policy formulation and implementation’. While the LO was able to influence the path of reforms, then, it was only able to alter them subject to the electoral and coalitional imperatives of the SAP. Jochem contrasts this experience with the more corporatist pattern of reform in Denmark, where a more consensual pattern of policy-making still led to reforms, but not nearly as pronounced. This pattern changed somewhat in the 2000s, but a sharp break with consensual reform only occurred following the recession of 2008—and consistent with the argument here, this ushered in deeper retrenchment and a further undermining of the Ghent system (Rathgeb, 2017). The experience of policy reform in The Netherlands can also be contrasted to this increasingly partisan pattern, where corporatist structures allowed for negotiated, and thus mitigated and delayed, cuts to unemployment insurance (e.g. Visser and Hemerijck, 1997; Gordon, 2012). Given the collapse of corporatist structures of consultation and policy development in 1990, such channels of influence were not open to the Swedish unions in the second wave of reforms, when the Alliance took power. 3.3 The Reinfeldt years: The second wave of retrenchment, the privatization of insurance and ethnic dualization The election of 2006 was historic in a number of respects (Widfeldt, 2007). For one, the SAP received its lowest total of support since 1914, 35%; meanwhile the Moderates (Conservatives) received their highest share of support since 1928. For another, the center-right parties had negotiated a common election platform, ‘Alliance for Sweden’, after they had set up six distinct working groups in 2004 with this goal in mind. This lent newfound stability and cohesion to the parties, and reassured voters about what they would be getting in the event of an Alliance victory, something lacking on the left, where it was unclear how the SAP might govern with the Left and/or Greens. In order to create this Alliance, the Moderates in particular softened their hard-edged neoliberal outlook, giving the impression of a convergence among the major political parties (e.g., Widfeldt, 2007). While this was largely accurate in relation to some big policy areas such as health care and pensions (and rhetorical commitment to the ‘Swedish model’), labor market policy remained revealingly separate from this apparent convergence. By far the most important election issue was employment (Oscarsson and Holmberg, 2011). This was despite the relatively favorable economy at the time. Economic growth continued to be respectable, if not strong, yet the ‘open’ unemployment rate refused to move below 4%, despite the SAP’s promise to attain just that. More to the point, the very concept of ‘open’ unemployment was challenged by the Alliance, who pointed out that this masked a large number of people in various labor market programs or in sickness insurance, who could and should be working (Davidsson and Marx, 2013). The Alliance promised that their package of reforms, entitled ‘More at work – More to share’, would address this problem of ‘outsiderness’ by ‘making work pay’ in various ways (see Littorin, 2012). This included tax cuts for lower- and middle-income earners, cuts to unemployment insurance, reforms to sickness insurance and various incentives to push people back on the labor market. Lacking a counter-narrative about how to deal with ‘outsiderness’, and unwilling to contemplate similar cuts, the SAP found itself ‘losing the argument’ on its historically most favorable terrain: employment (Davidsson and Marx, 2013). This mandate inspired the Alliance to undertake a far-reaching reform to the unemployment benefit system, among other areas of policy. That the Alliance ‘won the argument’ around employment is plausible, yet the effectiveness of the reforms to unemployment insurance introduced by the Alliance was more debatable, and still is in Sweden. The debate around the determinants of unemployment need not concern us here, though, except to note two things: (a) that some of the reforms were only tangentially related to a straightforward ‘make work pay’ agenda, and (b) that similar arguments had been widely made for over a decade in most of Europe. Noting (a) matters because we can thereby see the strategic component of the Alliance reforms, and (b) matters because emphasizing the apparent influence of the new Alliance discourse is not sufficient to explain Sweden’s particularly radical retrenchment path (cf. Davidsson and Marx, 2013). If other center-right parties in Northern Europe were advancing similar critiques of unemployment insurance, we need to note the distinctive features of the Swedish situation that allowed the Alliance alone to leverage them into deep, politically-resilient cuts: ‘post-corporatism’ and emergent dualism. The Alliance unemployment benefit reforms of 2006–2007 affected four main areas: reducing benefit generosity, tightening eligibility, intensifying work-search expectations, and increasing and differentiating membership fees for the UIFs. Table 1 above captures some of these changes. Among other things, replacement rates were lowered for long-term unemployed; the reference period for benefit rates was extended, hurting seasonal workers; the benefit ceiling was cut and allowed to stagnate; eligibility was cut sharply for part-time workers and students; and recipients were no longer able to confine their job search to their occupation or locality for the first 100 days, as before. In obvious ways these changes made the system much less generous, and would have indeed ‘tightened the screws’ on the unemployed to take a job, any job. This was as intended and advertised. Yet it was the final area of changes that were the most controversial, since they struck at the heart of the existing Ghent system: increasing membership fees and differentiating them by sector. By reducing the state’s subsidization of the UIFs, the government roughly tripled the average monthly membership fee, and by eliminating the obligation of the UIFs to pay into an ‘equalization fund’, which brought fees into relative alignment, the dispersion of fees increased dramatically (for concrete figures see e.g. Clasen and Viebrock, 2008). The official argument on the part of the government was that such a differentiation of fees would encourage wage restraint in sectoral bargaining, since workers would now have to take into greater account the potential costs of their wage increases in the form of increasing premiums/fees (interview with SN official, 2009; Littorin, 2012). However, the unions almost immediately presented a report which showed several ways in which this effect would fail to happen, largely because wage bargaining units and the UIFs did not match up neatly (interview with TCO official, 2015)—and this conclusion was shared by many prominent economists (see Bandau, 2017). Indeed, major figures in the government of the time now acknowledge that the desired effect did not materialize (Sven Otto Littorin, personal communication, 2015). Nevertheless, the government pressed ahead with this reform, along with the others.6 In sum, it is hard to understand this aspect of the reforms without understanding the strategic component implicit within them: undermining union membership, especially for LO. These reforms had been drawn up in the process of determining the Alliance manifesto from 2004 onwards, in small working groups. There was minimal consultation with the unions prior to their announcement, while the employers’ representative, SN, did have some influence on the outcome (interview with SN official, 2015). Certainly the policy ideas that emerged were in line with SN positions, and the SN supported the reforms once they were put in place (Ibid; Svenskt, 2005). Once the Alliance set about passing the reforms, there was massive resistance organized by the unions, including huge protests and petitions. Together, these various protests hurt the government’s popularity substantially over the course of its first year or two: the Alliance was 20% behind the SAP-aligned parties in polls in mid-2007, and government insiders figured that up to half of that deficit was due to the reforms (Sven Otto Littorin, personal communication, 2015). Yet the Alliance was much more cohesive than previously, and it had expected that its reforms would cause it to lose popularity initially, so it pressed on regardless. Absent a defection of one of the governing parties from the coalition, the unions could do little to reverse the reforms, and thus the reforms stood (see Rathgeb, 2017). The unions were successful in resisting another attempt to make the system mandatory, but this was also in part because the SN was now split on the issue, which gave the government pause (interview with SN official, 2009, 2015).7 Gradually the salience of the reforms faded, despite the unions’ best efforts. As one LO official put, ‘there is only so long that you can yell at the top of your voice’ (interview with LO official, 2015). By the time of the 2010 elections, the Alliance had more than caught up with the SAP-led coalition, and the reforms were no longer a significant electoral liability for the Alliance. How is the latter possible? It is here that the subtle shifts in the Swedish political economy mentioned in the introduction are important: the supplementary ‘income’ insurance system operated by several sizable unions and the segregation of unemployment in the Swedish workforce. In short, two novel dualistic patterns weakened the practical impact or import of the reforms. In principle, many Swedes were opposed to the reforms, as surveys continued to show high levels of support for unemployment benefits during this period, despite a longer-term decline in support for ‘employment policies’ (Svallfors, 2011). In practice, however, many Swedes had nothing to fear from them, and their motivation to vote solidaristically was weakened by the geographic and ethnic segregation of the unemployment experience. Let us take each novel development in turn. As noted, the development of a supplementary ‘income’ insurance system was precisely a consequence of the first wave of cuts in the 1990s. When the SAP refused to address ‘policy drift’ and re-establish the earlier replacement rates for high earners, certain unions in the TCO decided to start supplementary (private) ‘income’ insurance funds, which would ‘top up’ benefits to an 80% replacement rate. This was eminently feasible for such unions since many of them operated in sectors of the economy where the risk of unemployment was minimal (as in some parts of the public sector). For unions in the exposed sectors of the economy or certain service industries with high turnover, however, such supplementary insurance was deemed too costly and funds were not established (e.g. blue-collar LO sectors). This varied pattern of coverage is hardly a surprise: in private systems of insurance, those with the highest risk of unemployment cannot afford to insure themselves, while those with little need for protection can. After the Reinfeldt reforms, these supplementary insurance schemes began to expand rapidly, as the cuts to the benefit rates and benefit ceiling began to affect larger swathes of the union movement. From under 500,000 members in 2005, membership roughly doubled from 2006 to 2007 and then continued to rise to 1.65 million in 2010 (Davidsson, 2013). This helped insulate many members of the TCO and SACO from the effects of the benefit cuts/ceiling inertia. In stark contrast, many of the affiliate unions in the LO could not afford to cover their members: in their sectors of work, the risk of unemployment was high enough to make collective private insurance prohibitive (interview with LO official, 2015). Adding insult to injury, the rise in premiums and the differentiation of contributions also led to over 500,000 members leaving the unions, mostly from the LO. In general, the unions were unified in their opposition to the Reinfeldt reforms, with the partial exception of SACO. However when it came to arranging a union-organized mechanism of sharing the increased costs of running the UIFs, negotiations broke down. The main stumbling block was that certain low paid (largely female) public sector unions balked at having to contribute to a fund that would benefit higher paid (largely male) private sector workers, the latter of which had a higher risk of unemployment (Davidsson, 2013; Johan Bo Davidsson, personal communication, 2015). There have been subtle tensions between the LO and TCO, though.8 Because most TCO members can insure themselves cheaply, the TCO has effectively used it as a membership recruitment tool; not surprisingly, TCO membership has increased in recent years (interview with TCO official, 2015). Increases in the general, public benefit ceiling would undermine that selective incentive for membership. Their members will also have seen a net financial gain from the reforms, as tax cuts more than compensated their modestly rising fees. This contrasts naturally with the situation of many LO unions. To this point, the TCO has publicly remained committed to re-establishing most elements of the old system, but this is largely out of a desire to be a force for social justice and a leader in civil society, not necessarily because the immediate financial interests of their members are best served by this (Ibid.). This dynamic has mitigated pressure for reversal; many of the TCO’s members would have voted for the Alliance in 2010. Perhaps of equal significance, the ‘segregation’ of the unemployment experience intensified in this period along with increasing ethnic segregation in residential patterns, which served to morally ‘distance’ those most directly hurt by the Reinfeldt reforms (Andersson and Hedman, 2016).9 To understand this dynamic it is necessary to first grasp the nature of the Swedish immigration system. For a long time, Sweden has had one of the most generous or liberal immigration systems among the rich democracies, and this system was deeply connected to its self-conception as a ‘vanguard’ social democratic nation (see Borevi, 2012). Indeed, it was deemed during this period the most ‘generous’ immigration system in the Migrant Integration Policy Index, which compares 34 countries (Naurin and Ohberg, 2013, p. 77). This is not mainly a product of the number of immigrants it admits, but rather the way they are chosen: they are chosen according to need, not economic suitability, in the sense that asylum seekers/refugees have high priority. In 2010, Sweden had the highest rate of refugees as a share of the population, followed closely by Norway; most other countries have less than half the Swedish rate (Ibid.). This is a worthy humanitarian impulse and criteria. Yet it comes with certain costs for Swedish society, in that many of the immigrants are ill-placed to do well in the labor market upon their arrival. Lacking appropriate language skills and education, they often have difficulty getting a solid foothold in the labor market. Partly as a result, Sweden has one of the highest differences between migrant- and native-born unemployment rates in the rich democracies, one that is even more pronounced for young migrants (see Figure 4; Fredlund-Blomst, 2014; ratios of migrant- to native-born unemployment rates tell a similar story). Immigrant groups are also highly overrepresented in cash benefit recipients (social assistance primarily; Koning, 2011). Figure 4. View largeDownload slide Difference in unemployment rate between foreign-born and native-born workers, select countries, 2011. Source: OECD. Figure 4. View largeDownload slide Difference in unemployment rate between foreign-born and native-born workers, select countries, 2011. Source: OECD. This pattern creates negative stereotypes and feelings of ‘in’ and ‘out’ groups in Swedish society, along with subtly diminished support for redistribution (Eger, 2010). What is more, though, this dynamic has helped create a highly segregated society geographically, where many recent immigrants are confined to suburban neighborhoods and patterns of ‘white flight’ occur (see Andersson and Hedman, 2016). The end result of this process is that many Swedes are divorced from the consequences and reality of unemployment or exclusion (interview with LO official and TCO official, 2015). It is in this specific, ‘ethnic’ context that Johannes Lindvall and David Rueda (2014) have likely seized on something important: that promising greater support for ‘outsiders’ has negative electoral consequences for the SAP among employed, secure Swedes. Moreover, after many working-class voters abandoned the SAP in 2006 and 2010 for the Moderates and other center-right parties, those same voters now often constitute a major base of support for the nativist Sweden Democrats (Oscarsson and Holmberg, 2011; Oskarson and Demker, 2015). This electoral pattern is certainly not unique to Sweden, but it has been late arriving (for below, see Green-Pedersen and Krogstrup, 2008; Widfeldt, 2008; Naurin and Ohberg, 2013; Gingrich and Hausermann, 2015). For a long time in Swedish politics there was a tacit agreement among the major political parties to not politicize immigration. In addition, this elite consensus was reinforced by the explicitly Nazi heritage of the main anti-immigration party, the Sweden Democrats, which meant that even anti-immigration voters were loath to vote for them. When the Sweden Democrats ‘modernized’ their image in the 2000s, and made an effort to purge the Nazi elements of the party, voting for them became more conceivable and they were finally able to tap into resentment about the country’s generous asylum policy. This new dynamic to Swedish politics has contributed to weakening working-class support for the SAP, its previous core of support. In turn, this meant that the SAP was less able to contest the Alliance in electoral terms, and that it now faced the pronounced internal dilemma noted above (Lindvall and Rueda, 2014): advocacy for generous spending on (immigrant) ‘outsiders’, many of whom voted SAP, now risks alienating its erstwhile working-class base. Furthermore, those most hurt by the reforms (i.e. those who became ineligible in one way or another) will be concentrated in demographics that have lesser political clout: the young, the part-time/temporary worker, the immigrant. The intersection of these demographics, the young precarious immigrant, is perhaps especially hit by the changes; and it is this group that instigated the riots in various suburban neighborhoods in 2013, shocking a nation known for its civility and peace. Figure 5 shows the trajectory of recipiency rates since the Reinfeldt reforms. The impact of the changes is unmistakable. Perhaps controversially, then, the pattern of the cuts has contributed to, and played off of, a new dualistic ‘ethnic’ dynamic in Sweden: to the extent that the cuts have created an even more vulnerable ‘underclass’, perceptions (if not reality) of violence in these immigrant areas has generated hostility towards these groups and further segregation, ‘distancing’ the precarious both geographically and morally and making it harder for leftist parties to mobilize in support of policy reversals. Figure 5. View largeDownload slide Recipiency rates in the Swedish unemployment insurance system, 1999–2014. Source: LO (Sweden), 2015. Figure 5. View largeDownload slide Recipiency rates in the Swedish unemployment insurance system, 1999–2014. Source: LO (Sweden), 2015. This dynamic is apparent in the events of the past few years, after the SAP was able to form a coalition government following the 2014 election. One of the first orders of business for the incoming government was to increase the benefit ceiling from a maximum of 15 000 SEK a month to 20 000 SEK (interview with Ministry of Labor official, 2015; interview with LO official, 2015). This is likely to be a costly proposition, and it will go some way to returning the benefit generosity that existed in 2005, though even here it is only partial. More relevant, however, is that measures to reverse the sharp fall in recipiency seen in Figure 5 are not likely to be passed soon. These reforms/reversals would be even more costly, and they are not on the immediate agenda of the present government, which has had other priorities for revenue gained from modest tax increases. Apart from a very modest change to eligibility rules for part-time workers in 2017, decisions on what to do in relationship to low recipiency rates are thus being put off for the moment, despite pressure from the LO to address it (interview with LO official, 2017). In sum, a confluence of political economic shifts has conspired to dramatically weaken the unemployment insurance system in Sweden. They are not unique to Sweden, but their explanatory power derives from the degree to which they have occurred in the country: in each area, ‘post-corporatism’, supplemental private insurance, and liberal immigration, Sweden has gone farther than other Northern European countries. In a way, then, with the exception of the supplementary insurance schemes, it is precisely the ‘vanguard’ status of Swedish social democracy that left it more exposed to dualistic tendencies subsequently. Perhaps revealing in this latter respect is that Sweden had the highest post-tax and -transfer Gini coefficient among the Nordic countries in 2014, approaching continental European levels—though it remains relatively low among all OECD countries (OECD, 2016b). 4. Conclusion Profound retrenchment of the Swedish unemployment insurance system has taken place in the past 25 years. Some of this retrenchment has been compensated by systems of private ‘income’ insurance, as noted, while some forms of redundancy compensation negotiated between the unions and employers also cushion the blow of unemployment for many Swedish workers (Wadensjö, 2009). However, both types of ‘supplementary’ insurance benefit are skewed towards more secure, older workers. What this means is that the decline of the public unemployment insurance has most hurt those who need it most (OECD, 2015). This dualistic pattern is surprising in a country renowned for its universalistic generosity. The account set out above yields a few important theoretical insights, to be investigated and elaborated in future research. First, generous systems of unemployment insurance in the Northern European countries may be less resilient than previously expected. Or, put another way, they may be more fragile. Considerable theoretical work has gone into explaining enduring patterns of generous unemployment support in these countries; that work may need to be qualified and re-conceptualized in light of the recent Swedish experience. Ghent systems of unemployment insurance, and other variants of union involvement in benefit administration, fostered an ambitious and inclusive vision of unemployment insurance among powerful union movements in these countries (e.g. Gordon, 2015). This helped create generous systems historically, as union movements pressed for their emergence and defended those that came into being. Yet precisely because such systems foster union power, and thus become part of an ambitious union agenda, they also become targets of employer groups, beyond the latter’s usual complaints about work incentive effects and costs. As a result, Ghent insurance systems are likely to witness consistent pressures for reform and retrenchment in coming years if, or as, employer groups seek to weaken their union counterparts—or at least social democratic elements within them (see e.g. Thelen, 2014; Bandau, 2017). In short, we cannot understand the politics of unemployment insurance in these countries without recognizing the role they play in sustaining social democratic union power—and what that means for broader political struggles. Second, and related to this point, corporatist patterns of policy-making remain an important lever for union movements seeking to stave off such strategic, far-reaching reform. In the Swedish case, the institutions and norms around corporatist policy-making were largely abandoned in the field of labor market policy in the early 1990s, and this exposed unemployment insurance to deep cuts. In other Northern European countries, pressures for deep retrenchment were mitigated by norms of consensual reform and corporatist institutions that provided unions with (sometimes intermittent) veto power. Cross-class partisan coalitions, or weak coalitions which involve parties with a base in the union movement, have also served as an important brake on strategically-designed, sharp retrenchment (Rathgeb, 2017; Bandau, 2017). While corporatist institutions may not always be sufficient to restrain retrenchment and/or dualizing strategies, then, they remain valuable to inclusive union movements politically (Gordon, 2015). Third, patterns of ethnic segregation and other challenges associated with immigrant integration pose a new and potent challenge to generous social insurance programs. This has been noted in some recent studies (e.g. Beramendi et al., 2015), but arguably its repercussions have not been fully appreciated. Tensions around immigration and ethnic diversity may have somewhat weakened public support for a generous welfare state, as measured in surveys (e.g. Eger, 2010), but even more important is that they have profoundly changed political coalitions and party systems, by siphoning off working-class voters from social democratic parties and re-orienting such parties towards more cosmopolitan, higher-income voters (e.g. Beramendi et al., 2015; Gingrich and Hausermann, 2015; Oskarson and Demker, 2015). This transformation has ultimately weakened the center-left because the nativist parties tend to side with center-right parties intent on retrenchment in return for immigration reform—at least when the center-right is open to such cooperation. Pronounced ethnic segregation in labor and housing markets, or dualization along ethnic lines, will thus only intensify the dilemmas facing social democratic parties noted by Lindvall and Rueda (2014): that as they promise more to ‘outsiders’, they lose ‘insider’ support. In previous decades, at least in countries like Sweden, this tension was softened by union movements which consisted of both insiders and outsiders, and whose leaderships rallied support for generous outsider support. Yet ethnic dualization or segregation serves to ‘morally distance’ those who receive state support, making that ‘rallying’ more difficult. What this suggests it that sharp insider-outsider tensions of the sort described by Lindvall and Rueda may be contingent on the degree of ethnic dualization in labor and housing markets. It might be hypothesized that where ethnic dualization is more intense, it is more likely that strict employment protection will generate weak systems of ‘outsider’ support—other things equal—as originally predicted by Insider-Outsider theory (see Rueda, 2007). These trends suggest considerable uncertainty for Swedish social democracy moving forward. In Sweden, the destructive patterns of ‘ethnic segregation’ show few signs of abating. With the Sweden Democrats riding high in the polls (presently ∼18% ), the prospects for a sharp expansion of unemployment insurance support to ‘outsiders’ seem dim. The new dualistic system of protection installed by the Reinfeldt governments, both through policy change and policy drift, has led to a starker pattern of ‘ins’ and ‘outs’ and this has resonated politically. In this sense, the seeds of dualism have been planted by, among others, the policy reforms described above, and progressive Sweden is now confronting a new, unsettling reality. Footnotes 1 There are policy changes that took place in 2015 that will restore some of the generosity of the system, but only partially, as discussed in Section 3. As well, this description refers to the public system, as private insurance coverage has emerged (see below). 2 The central advantage of this metric relative to others used in the literature is that it best captures differences in, and changes to, ‘recipiency rates’ (i.e. the share of the unemployed receiving benefits). It also avoids many of the difficult and contentious weighting and classification choices that other metrics (of necessity) involve. As the reader will see (Table 1 and Figure 5), cuts to replacement rates and a near-halving of the ‘recipiency rate’ have created the dramatic transformation of Sweden’s generosity score. 3 A recent influential analysis of institutional and policy change in Northern European countries, from a perspective sympathetic to VOC and the role of skills in comparative political economy, does not make much of changing skill composition (Thelen, 2014). Schnyder (2012) notes important educational reforms, but they do not appear to challenge the longstanding Swedish approach of school-based vocational education (see e.g. Dobbins and Busemeyer, 2015). 4 Thelen (2014) puts forward a Sweden-specific argument, centering on the incapacity of the Swedish state to impose broad social deals on the ‘social partners’: however apart from a few instances in the mid-1980s and early 1990s it does not appear that Swedish governments have ever wanted to impose such deals, in large part because neither the unions nor employers have wanted this outcome. The account in Rathgeb (2017), also casts doubt on Thelen’s interpretation. 5 For a new indicator of corporatism which shows that Sweden’s path was unique in Northern Europe, see Jahn (2016). This depiction of ‘post-corporatism’ in Sweden is not intended to suggest that all elements of corporatism have disappeared. In several areas, patterns of cross-class cooperation persist, including most importantly in collective bargaining. Yet the corporatist structures of policy formulation which persist in other Northern European countries have been largely dismantled, at least in relation to labor market policy. As a result, the ‘norm’ of relatively consensual reform is much weaker in Sweden than elsewhere (see for example, Lindvall and Sebring (2005); Jochem (2003); and Anthonsen et al., 2011). I thank an anonymous reviewer for emphasizing this distinction. 6 They subsequently partly reversed course in 2009, after the recession hit, subsidizing fees by 50 SEK a month; and then further reversing the move in 2013/2014, by putting a limit on fees, after a government commission found that the original rationale was unfounded. 7 Some SN members were concerned with the administrative difficulties of moving from the 30-plus UIFs to a single state-run system (interview with SN official, 2015). The SN had also now began to advocate more competition among the UIFs, as an alternative to a mandatory system, by allowing workers in different sectors to choose among all of the UIFs and potentially new private-company funds, rather than being constrained to their sectoral one or Alfa-kassan (an independent fund set up in 1998). Such a move would likely weaken the unions’ recruitment capacities through the UIFs, while also potentially exacerbating differential insurance costs (the SN advocated raising the insurance fee premium ceiling considerably); in return, the argument was that efficiency in provision would be improved. 8 The more prominent split between white-collar unions and blue-collar unions in Sweden, relative to other Northern European countries, has meant that internal tensions around policy can be more pronounced. Indeed, in recent years, SN has tried to negotiate a new ‘grand bargain’ with the PTK, an umbrella organization of white-collar private sector unions, while excluding the LO (interview with SN official, 2015). This dynamic of marginalizing the LO in policy design has been intentional, as their membership numbers was recognized to be more vulnerable in the Reinfeldt reforms. I thank an anonymous reviewer for emphasizing this point. 9 The ratio of foreign-born to native-born unemployment increased from 2.3 to 2.65 from 2007 to 2011. OECD. Acknowledgments I thank John Richards, John Myles, Jonas Pontusson, Gabriel Arsenault, Anders Widfeldt, Patrik Ohberg and Johan Bo Davidsson for helpful insight and feedback on this work. Any errors or omissions are my responsibility alone. References Allan J. , Scruggs L. ( 2004 ) ‘ Political Partisanship and Welfare State Reform in Advanced Industrial Societies’, American Journal of Political Science , 48 , 496 – 512 . 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( 2011 ) ‘ A Bedrock of Support? Trends in Welfare State Attitudes in Sweden, 1981-2010’, Social Policy and Administration , 45 , 806 – 825 . Google Scholar CrossRef Search ADS Svallfors S. ( 2015 ) Politics as Organized Combat: New Players and New Rules of the Game in Sweden, Max Planck Institute for the Study of Societies, Discussion Paper 15/2. Svenskt N. ( 2005 ) ‘Challenges and Possibilities for Sweden’, Commission Report for Svenskt Naringliv. Thelen K. ( 2014 ) Varieties of Liberalization and the New Politics of Social Solidarity , New York , Cambridge University Press . Google Scholar CrossRef Search ADS Visser J. , Hemerijk A. ( 1997 ) The Dutch Miracle: Job Growth, Welfare Reform and Corporatism in The Netherlands , Amsterdam , Amsterdam University Press . Wadensjö E. ( 2009 ) ‘Sweden’. In De Beer P. (ed) The Labour Market Triangle , Cheltenham , Edward Elgar . Western B. ( 1997 ) Between Class and Market: Postwar Unionization in the Capitalist Democracies , Princeton, NJ , Princeton University Press . Widfeldt A. ( 2007 ) ‘ The Swedish Parliamentary Election of 2006’ , Electoral Studies , 26 , 797 – 837 . Google Scholar CrossRef Search ADS Widfeldt A. ( 2008 ) ‘ Party cChange as a Necessity’, Representation , 44 , 265 – 276 . Google Scholar CrossRef Search ADS © The Author 2017. Published by Oxford University Press and the Society for the Advancement of Socio-Economics. All rights reserved. For Permissions, please email: journals.permissions@oup.com http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Socio-Economic Review Oxford University Press

The Perils of Vanguardism: Explaining radical cuts to unemployment insurance in Sweden

Socio-Economic Review , Volume Advance Article – Nov 22, 2017

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Abstract

Abstract Over the past 25 years, Sweden has gone from having one of the most generous unemployment benefit systems among the rich democracies to one of the least. This article advances a multi-causal explanation for this unexpected outcome. It shows how the benefit system became a target of successive right-wing governments due to its role in fostering social democratic hegemony. Employer groups, radicalized by the turbulent 1970s more profoundly than elsewhere, sought to undermine the system, and their abandonment of corporatism in the early 1990s limited unions’ capacity to restrain right-wing governments in retrenchment initiatives. Two further developments help to explain the surprising political resilience of the cuts: the emergence of a private (supplementary) insurance regime and a realignment of working-class voters from the Social Democrats to parties of the right, especially the nativist Sweden Democrats, in the context of a liberal refugee/asylum policy. 1. Introduction Sweden has long been known in popular culture as a beacon of social democracy. This is also present in academic work, if perhaps in more nuanced form. For those in the nascent field of comparative political economy in the 1970s and 1980s, the task of explaining how Sweden became the most generous welfare state in the world was foundational. Indeed, one of the most influential theories in the field, Power Resource Theory, took the country’s experience as its main source of inspiration (e.g. Korpi, 1983). If only because it is the largest country in Scandinavia, Sweden has remained the typical representative of the so-called ‘Nordic model’ in ensuing years. Yet, as this article will show, some of the major policy underpinnings of social democracy have been greatly eroded in Sweden. That Swedish social democracy is not what it once was is widely recognized and uncontroversial (e.g. Thelen, 2014; Svallfors, 2015). However, most diagnoses of change in Swedish social democracy have failed to note the dramatic cuts to unemployment benefits in recent years, what these cuts mean for the country moving forward, and how this policy change is poorly captured or explained by the dominant theoretical approaches in comparative political economy. Two waves of reform have turned what was once a highly generous unemployment benefit system into one of the least generous in the advanced industrial world.1 The first wave occurred in the mid-1990s and was largely motivated by the massive budget deficits Sweden faced during its deep recession in the early 1990s. Although the current article will address this reform history, it is reasonably well explained by traditional theories, as outlined in Section 2. It is the second wave of reforms that is more puzzling and the main focus of what follows. This wave of changes took place in the context of a growing economy, low budget deficits and when the unemployment benefit system was no longer particularly generous. Nevertheless, deep cuts were enacted by the incoming government of Fredrik Reinfeldt and his right-wing coalition in 2006–2008. The end result of these reforms is shown in Figure 1, which compares countries in 2010 according to one important measure of policy generosity, ‘unemployment benefit effort’: the share of GDP spent on unemployment benefits divided by the unemployment rate.2Figure 2, similarly, shows the extent of cuts in a comparative context, in this case among the countries with the most generous systems of unemployment benefits in the 1980s. (Section 3 documents the policy changes that led to these outcomes.) Figure 1. View largeDownload slide Unemployment benefit effort, 2010, selected countries. Source: OECD. Figure 1. View largeDownload slide Unemployment benefit effort, 2010, selected countries. Source: OECD. Figure 2. View largeDownload slide Unemployment benefit effort, 1989–2011, selected countries. Source: OECD. Figure 2. View largeDownload slide Unemployment benefit effort, 1989–2011, selected countries. Source: OECD. Two things stand out in these figures. First, in Figure 1, there is the extent to which Sweden is ‘exiled’ from the group of high-generosity countries with which it was traditionally included in welfare state typologies (e.g. Esping-Andersen, 1990; Pontusson, 2005). Second, in Figure 2, while the overall trajectories of reform in the previously high-generosity countries are similar (i.e. retrenchment), the others have been much more resilient in terms of generosity compared to Sweden, with the partial exception of Denmark in the 2000s. If we add a measure of active labor market policy (ALMP) spending to the picture, given the prominence of ALMP in Sweden historically, the overall story remains the same. The motivation behind adding ALMP spending would be that it might compensate for the cuts to unemployment benefits, reflecting a greater shift to an ‘activation’ paradigm. Yet, if anything, the profound cuts to support for the unemployed in Sweden become even more pronounced once we integrate this, as Figure 3 does by adding ALMP spending per unemployed to unemployment benefits, what might be termed ‘Outsider Effort’ (following Gordon, 2015). Figure 3. View largeDownload slide Outsider effort (UB Effort + ALMP Effort), 1989–2011, selected countries. Source: OECD. Figure 3. View largeDownload slide Outsider effort (UB Effort + ALMP Effort), 1989–2011, selected countries. Source: OECD. Something is clearly amiss in Sweden then, at least relative to traditional understandings of the country. One of the most important systems of ‘de-commodification’ historically, unemployment compensation, has been pared back to Anglo-Saxon levels, something previously thought to be highly unlikely. Indeed, from a host of theoretical perspectives, unemployment compensation is an area where we might expect to see the most distinctiveness in policy between the Anglo-Saxon world and the Nordic countries, and Sweden in particular (see Section 2; e.g. Korpi, 1983; Hall and Soskice, 2001; Iversen, 2005; Gordon, 2015). Despite this, the cuts have occurred and are only partly being reversed eight years on (see Section 3). This article seeks primarily to document and explain this puzzling outcome, which has not been widely recognized, and secondarily to explore its theoretical implications. It draws on existing historical accounts in Sweden and other Northern European countries—which act as shadow cases—along with contemporaneous reporting by the European Industrial Relations Observatory (EIRO) and many interviews with officials in major union and employer organizations, government bureaucrats, relevant policy-makers and academic observers. These interviews help to identify the causal mechanisms at work by exploring the motivations of political actors and the debates that surrounded policy reform. The explanation advanced here stresses that the politics of unemployment insurance in Sweden must be seen in the context of the system’s historical role in sustaining union power. While it is widely recognized that Ghent unemployment insurance systems foster high-union density (see below; e.g. Rothstein, 1996; Western, 1997), less appreciated is how this intensely politicizes and, under certain circumstances, renders vulnerable generous systems of benefits. In Sweden, where labor’s radicalization in the 1970s provoked an employer counter-offensive and a major shift in employer preferences—one more profound than other Northern European countries (e.g. Blyth, 2002; Anthonsen et al., 2011; Kinderman, 2016)—the unemployment insurance system became a policy target for successive right-wing, employer-aligned governments. While this pattern of contention has become common in countries with Ghent systems (Bandau, 2017), the cuts went furthest in Sweden largely because corporatist patterns of policy making, which might constrain government reform efforts, were abandoned in the early 1990s. Swedish ‘post-corporatism’ thus represented a new opportunity structure, which left the organizationally powerful union movement to act in merely pluralist and frequently unsuccessful ways in opposition to government initiatives, especially by right-wing governments. Recognizing the dismantling of corporatism in Sweden and its connection to policy development is not novel (see e.g. Jochem, 2003; Lindvall and Sebring, 2005; Thelen, 2014), but this article traces its connection to sharp retrenchment in unemployment insurance more carefully than previous work. Once implemented, two other features of the Swedish political economy have contributed to the political resilience of the cuts. First, the emergence of a private or supplementary ‘income’ insurance regime since the early 2000s has protected many workers from the potential adverse effects of the benefit cuts (Davidsson, 2013). This has somewhat muted political pressure to reverse the cuts at election time, even while the main union confederations maintain a strong and generally united position against the retrenchment. Second, Sweden’s uniquely liberal immigration and refugee/asylum system has contributed to relatively high rates of unemployment or inactivity among recent immigrants (Naurin and Ohberg, 2013). This has set the stage for a shift of working-class voters from the Social Democrats to other parties of the right, particularly the anti-immigration Sweden Democrats as the latter ‘modernized’ (Widfeldt, 2008). Not only has this shift altered the class makeup of Social Democratic support in ways unfavorable to generous unemployment protection (Gingrich and Hausermann, 2015), but it has also weakened the Social Democrats electorally, leaving the center-right Alliance coalition to win successive elections and transform Sweden in intentionally ‘de-social democratizing’ ways. The article proceeds as follows. Section 2 outlines the major theoretical expectations from the established literature on welfare state evolution and shows how they are incapable of straightforwardly capturing the reform history. Section 3 details the policy history in Sweden and shows through process-tracing how the view advanced above can explain the country’s trajectory, noting the comparative experience to the extent possible. Section 4 concludes. 2. Theoretical literature The two dominant theoretical perspectives in comparative political economy, Power Resource Theory (PRT) and Varieties of Capitalism (VOC), do not account well for the Swedish reforms. Other approaches, such as Insider-Outsider theory and the New Politics of the Welfare State (NPWS), also do not provide convincing accounts on their own. While they each contribute to our understanding of the country’s policy history, none of them can adequately explain the particularly dramatic reforms experienced in Sweden, at least as they are classically stated. Let us take them in turn to see why. PRT suggests that countries with successful ‘working class mobilization’ will see more generous welfare states and thus higher levels of decommodification (Korpi, 1983; Huber and Stephens, 2001). While there are many important nuances to the view, in general higher levels of union density and centralization as well as long-term left party government will produce more decommodifying social insurance. This approach has proved quite successful at explaining many welfare state outcomes we see, but the current meagre Swedish (public) system of unemployment benefits is not one of them. The union movement in Sweden remains very strong in comparative perspective, it is relatively unified, and the country has a long history of left-wing, Social Democratic government. It is true that the most significant retrenchment has occurred under right-wing governments, as the theory would predict, and this remains an important insight, one consistent with the broader literature (e.g. Allan and Scruggs, 2004). Indeed, the most obvious proximate answer to why major cuts to unemployment insurance took place in both the early 1990s and 2006–2008 is that a right-wing coalition took power (and that in the latter case the right-wing coalition had ‘won the argument’ around tackling unemployment; for this last point, see Davidsson and Marx, 2013). It is tempting to leave the matter at that. However three points must be made in this connection. First, the cuts that were made in the mid-1990s by a right-wing coalition were not completely undone when the Social Democrats retook power from 1994 to 2006, despite pressure from the union movement to do so. Second, other high generosity countries experienced long spells of center-right government without witnessing nearly the same level of retrenchment (e.g. a center-right coalition governed Denmark from 2001 to 2011). Third, the most powerful versions of the PRT argument relied on long-term Left incumbency to explain policy outcomes (Huber and Stephens, 2001). The fact that Reinfeldt’s center-right government could, in the span of only two years, dramatically retrench an already moderately generous system and not face electoral reckoning the following election is therefore surprising for PRT. In this sense, partisanship can explain certain obvious elements of the policy history, but it cannot on its own account for the severity of the cuts in a comparative perspective, nor their resilience to pressures for reversal. Varieties of Capitalism is arguably even less able to account for the policy trajectory. The two political economic features it emphasizes in explaining generous unemployment insurance in Northern Europe, coordinated employers and strong systems of vocational training, have not changed markedly in Sweden over the past three decades, or at least not sufficiently to account for such a sharp contraction in generosity (Hall and Soskice, 2001; Iversen, 2005). For example, the educational system has not been dramatically reconfigured in the past few decades in a way that would have undermined a relatively industry- and firm-specific skill profile, which VOC sees as underpinning demands for generous insurance.3 In relation to employer coordination, it is true that bargaining has become more decentralized and that multinational corporations play a larger role in the economy. It could be argued that this has weakened employer interests in generous unemployment insurance, though they have never been much interested in such a system, contrary to the expectations of VOC (Gordon, 2012). Yet, while these dis-organizing tendencies undoubtedly exist in Sweden, they have also been present in other Northern European countries and they have not witnessed commensurate cuts (see Figures 2 and 3). More to the point, as Section 3 documents, the employers were the ones leading the push for decentralization and for unemployment insurance cuts. This contrasts starkly with a vision of employers rallying to the defense of Sweden’s ‘comparative institutional advantages’, as hypothesized by early VOC theory (see Kinderman, 2016). Recent theories of dualization, for their part, would seem to have some purchase on the question, since Sweden has witnessed falling generosity to labor market ‘outsiders’ alongside continued strong employment protection legislation (EPL) for ‘insiders’. According to this perspective, strict EPL is the villain of the piece, as it means that employed ‘insiders’ no longer have an interest in generous unemployment protection; the stricter the EPL, the stronger these dualistic dynamics. Indeed, it is striking that the Reinfeldt government did not attempt to alter the existing Employment Protection Act (LAS), even while it radically reformed the unemployment insurance system, given that the former was the highest priority for its allies in the employer organizations (interview with SN official, 2009). In this view, then, both governments of the left and right have tended to side with labor market ‘insiders’, to the detriment of policies that benefit ‘outsiders’ (Rueda, 2007). At a minimum, governments of the left face a strong dilemma in pursuing generous ‘outsider’ policy, even in Sweden, as they risk alienating securely employed supporters (Lindvall and Rueda, 2014). Once again, absent a comparative view, this account might seem to be able to explain the policy trajectory. Yet other countries with equally strong protections of ‘insiders’ (i.e. EPL; see OECD, 2016a), such as Finland, Norway and The Netherlands, have not seen the same degree of radical retrenchment as Sweden (Figures 2 and 3). Moreover, one of the important causal mechanisms in the ‘Insider-Outsider’ account, where unions defend EPL but cease to fight for generous unemployment insurance, is at odds with the empirical record in Sweden: the main union confederations, LO (blue-collar) and TCO (white-collar), have fought intensely to reverse the cuts undertaken in the 1990s and especially in 2006–2008 (see Section 3). Lastly, Insider-Outsider accounts have emphasized diminished partisanship in the area of unemployment insurance (Rueda, 2007), yet partisan differences are obvious in the policy history, especially with regard to the reforms under Reinfeldt (Section 3). In sum, while subtle forms of dualism are a part of the Swedish story, as Section 3 explains, it is not the central explanation of radical retrenchment and it has not occurred in the way expected by the original Insider-Outsider theory of labor market policy. A final major theoretical perspective which is of relevance is the view put forward by Paul Pierson, commonly known as the ‘New Politics of the Welfare State’ (NPWS; Pierson, 1996).4 In this account, welfare state programs are highly resistant to retrenchment, as they come to be protected by their providers and recipients and patterns of voter risk-aversion. We should therefore expect that sharp retrenchment will only occur in specific circumstances: (i) in periods of ‘crisis’, where governments can successfully practice ‘blame avoidance’; (ii) when the benefit recipient population is weak politically; and (iii) when cuts can be made less visible (e.g. through de-indexation, drift). As Section 3 documents, conditions (i) and (iii) were present in the reforms of the mid-1990s, facilitating the sharp cuts seen in that era. They were not present, though, in the reforms of 2006–2007 (with some exception on iii). This makes that later reform experience particularly intriguing, as alluded to above. In the case of unemployment insurance, (ii) normally applies too. However in the Swedish context, the unemployed are effectively represented by a powerful union movement, which is organizationally disposed to defend a generous unemployment insurance system, not least because of its connection to maintaining incentives for union membership (Gordon, 2015). In this sense, Sweden is a least likely case for sharp cuts to unemployment insurance relative to other countries, where union movements are less disposed to fight for generous insurance. 3. Social democratic hegemony, ‘post-corporatism’ and emergent dualism The literature review of the major theoretical perspectives in Section 2 is not meant to suggest that they have nothing to add to our understanding of the policy trajectory. The point instead is to show how the policy trajectory cannot be straightforwardly explained with reference to them, and how more subtle variants of those views must be developed. In what follows, I trace the politics of the unemployment insurance system from the 1970s to the present in order to illustrate how the vanguard status of Swedish social democracy left it exposed to radical retrenchment. 3.1 1970s and 1980s: Social democratic hegemony, employer radicalization and the breakdown of corporatism The starting point for a better understanding of Sweden’s policy history is precisely that the country had the most dominant social democratic movement in the world in the postwar era (e.g. Huber and Stephens, 2001). This hegemony was based on several factors, including a fragmented political Right, but one of its crucial supports was the postwar system of labor market policy. This system was indispensable because it created strong selective incentives for workers to join unions, most of which were closely aligned with the Social Democratic Party (SAP). In the case of the unemployment insurance system, it has been run on the basis of a Ghent system: unions de facto administer the unemployment insurance funds (UIFs), while membership is both voluntary and subsidized by the state (Western, 1997; Clasen and Viebrock, 2008). Given that the insurance funds have some discretion over what constitutes a suitable job offer, what sanctions to impose on benefit recipients, and so on, there is a perception among workers that it is best to have union membership when interacting with the UIFs, ‘just in case’. This dynamic is common across Ghent systems, and helps explain their dramatically higher membership rates (Ibid.). ALMP was also run in such a way that those most at risk of unemployment had incentives to be union members—for example, to better requalify for unemployment benefits through ALMP participation (the so-called ‘endless carousel’; see Rothstein, 1996). It was this powerful, institutionalized social democratic hegemony that led the SAP to push for and/or pass reforms that were much more ambitious than what were attempted or achieved elsewhere, even if many of these reforms were paradoxically conceived by union leaderships in a situation of ‘defensiveness’, as they were challenged by rank-and-file unrest (for this history, see Pontusson, 1992; Huber and Stephens, 2001; Blyth, 2002; Schnyder, 2012). Foremost among these ambitious reforms was the ‘wage earner fund’ proposal of the 1970s and early 1980s, which sought to gradually socialize ownership of the Swedish economy. This is rightly viewed as the greatest source of employer resentment and mistrust from the 1970s ‘reform offensive’ period (e.g. Pontusson, 1992; Anthonsen et al., 2011, p. 128–129). Also important were far-reaching measures in the realms of ‘co-determination’ and dismissal law (LAS) in the 1970s, which broke with the cross-class compromise established in the Saltsjöbaden Agreement of 1938 of limited state interference in bargaining and managerial discretion (Schnyder, 2012). During this period the generosity of the unemployment benefit system was sharply expanded as well, even though it had previously played a secondary role relative to ALMP (for this history, see Gordon, 2012). The benefit system that emerged from this period became one of the most generous in the world, as Figure 2 indicates. Its basic elements, as they existed in 1990 following the expansion, are presented in Table 1. Table 1. Swedish unemployment insurance system, main features, 1990–2010 Features of system 1990 2000 2010 Maximum statutory replacement rate (RR) 90% 80% 80% (for first 200 days, then 70) Benefit ceiling Indexed, ∼90% RR for median income worker De-indexed, ∼68% RR for median income worker De-indexed, ∼60% RR for median income worker Waiting days 0 5 7 Eligibility rules Minimum of 4 months work in past 12 month; participation in LMP qualifies for eligibility, as does full-time education 6 months for at least 70 hours per month in past 12 months; participation in LMP qualifies for eligibility, as does full-time education 6 months for at least 80 h per month in the past 12 months; participation in education or LMP no longer qualifies for eligibility Duration Effectively indefinite (‘endless carousel’) Effectively indefinite (‘endless carousel’) 60 weeks for most State subsidization (not covered by membership fees) ∼90% ∼90% ∼55% Strong premium differentiation by sector No No Yes Features of system 1990 2000 2010 Maximum statutory replacement rate (RR) 90% 80% 80% (for first 200 days, then 70) Benefit ceiling Indexed, ∼90% RR for median income worker De-indexed, ∼68% RR for median income worker De-indexed, ∼60% RR for median income worker Waiting days 0 5 7 Eligibility rules Minimum of 4 months work in past 12 month; participation in LMP qualifies for eligibility, as does full-time education 6 months for at least 70 hours per month in past 12 months; participation in LMP qualifies for eligibility, as does full-time education 6 months for at least 80 h per month in the past 12 months; participation in education or LMP no longer qualifies for eligibility Duration Effectively indefinite (‘endless carousel’) Effectively indefinite (‘endless carousel’) 60 weeks for most State subsidization (not covered by membership fees) ∼90% ∼90% ∼55% Strong premium differentiation by sector No No Yes Table 1. Swedish unemployment insurance system, main features, 1990–2010 Features of system 1990 2000 2010 Maximum statutory replacement rate (RR) 90% 80% 80% (for first 200 days, then 70) Benefit ceiling Indexed, ∼90% RR for median income worker De-indexed, ∼68% RR for median income worker De-indexed, ∼60% RR for median income worker Waiting days 0 5 7 Eligibility rules Minimum of 4 months work in past 12 month; participation in LMP qualifies for eligibility, as does full-time education 6 months for at least 70 hours per month in past 12 months; participation in LMP qualifies for eligibility, as does full-time education 6 months for at least 80 h per month in the past 12 months; participation in education or LMP no longer qualifies for eligibility Duration Effectively indefinite (‘endless carousel’) Effectively indefinite (‘endless carousel’) 60 weeks for most State subsidization (not covered by membership fees) ∼90% ∼90% ∼55% Strong premium differentiation by sector No No Yes Features of system 1990 2000 2010 Maximum statutory replacement rate (RR) 90% 80% 80% (for first 200 days, then 70) Benefit ceiling Indexed, ∼90% RR for median income worker De-indexed, ∼68% RR for median income worker De-indexed, ∼60% RR for median income worker Waiting days 0 5 7 Eligibility rules Minimum of 4 months work in past 12 month; participation in LMP qualifies for eligibility, as does full-time education 6 months for at least 70 hours per month in past 12 months; participation in LMP qualifies for eligibility, as does full-time education 6 months for at least 80 h per month in the past 12 months; participation in education or LMP no longer qualifies for eligibility Duration Effectively indefinite (‘endless carousel’) Effectively indefinite (‘endless carousel’) 60 weeks for most State subsidization (not covered by membership fees) ∼90% ∼90% ∼55% Strong premium differentiation by sector No No Yes Indeed, it was precisely because the ties between the unions and the SAP were so strong, and the SAP so dominant electorally, that the unions rarely felt the need to make significant policy concessions and felt emboldened to so fundamentally break with the postwar compromise (see Anthonsen et al., 2011). As a result, Swedish business came to see ‘corporatism’ as a one-sided affair in the 1970s and largely a sham (e.g. Ibid; Lindvall and Sebring, 2005; Pestoff, 2005). When the center-right governments from 1976 to 1982 were unable to effectively challenge social democratic hegemony, the main employer group, SAF, began to invest heavily in an ideological counter-offensive, including the setting up of well-funded think tanks (for this history, see Blyth, 2002). They also undermined the centralized bargaining system, which had empowered the LO politically. By 1990, after these efforts had delivered victories in the ideological and bargaining realms, they unilaterally withdrew from the country’s corporatist machinery (Ibid; Huber and Stephens, 2001; Pestoff, 2005). Given their earlier experience, they never seriously considered re-engaging with the corporatist machinery subsequently (interview with SN official, 2015). It is in this sense that the vanguard nature of social democracy in Sweden, by breaking the cross-class compromise in enduring ways, created unfavorable political conditions for the unions in later decades. While employers have certainly been restless with corporatist structures in other Northern European countries, the rupture in Sweden was more profound (see for e.g. Pestoff, 2005; Anthonsen et al., 2011; Jahn, 2016).5 The particularly radicalizing experience of the 1970s meant that Swedish employers were more neoliberal in outlook and that their allies in the main center-right parties, especially the Moderates, were subsequently less willing to curtail reform initiatives due to union criticism and/or expected opposition (Blyth, 2002; Pestoff, 2005; Kinderman, 2016). 3.2 1990s and early 2000s: Economic crisis, the first wave of retrenchment, and the emergence of private insurance The unemployment insurance system did not experience strong pressures for reform in the 1980s in the context of a comparatively low unemployment rate and SAP rule, despite the mounting frustration of employers. This changed with the deep economic crisis of the early 1990s, the roots of which need not detain us here (for this see Huber and Stephens, 2001; Blyth, 2002). From the start of the recession in 1990 to its depths in 1993, open unemployment quadrupled, while a budget surplus turned into a deficit of 12.3% of GDP (Anderson, 2001). As the crisis gathered steam, there was cross-party agreement on a range of reforms between the newly elected ‘bourgeois’ coalition of Carl Bildt and the SAP (for this period, see Dahlstrom, no date). These included significant cuts to sickness and work-accident insurance, pensions, housing policy, family policy, and tax increases. Given the crisis atmosphere, such austerity measures were less of a political liability than they would have otherwise been, especially since the burdens were designed to be shared widely. More important to note here is that reforms to unemployment insurance were left out of the package agreement. Given the role of the labor market regime in the reproduction of SAP hegemony, it is no mistake that unemployment insurance proved to be the most bitterly contested policy area, and that the Bildt government tried to undermine the Ghent system (see Lindvall and Sebring, 2005; Bandau, 2017). Prior to the 1991 election the center-right parties had vowed to replace the voluntary Ghent system with a mandatory one, along with other reforms (for what follows, see Dahlstrom, no date; Anderson, 2001; Bandau, 2017). In the face of this threat, the SAP refused to negotiate on reforms to unemployment insurance, in contrast to the other areas of policy. Despite this resistance, the Bildt government was able to introduce a series of reforms to unemployment insurance: imposing 5 waiting days, reducing the maximum replacement rate from 90 to 80, increasing membership fees, abolishing the ‘endless carousel’, and cutting (and de-indexing) the benefit ceiling. Most relevant here, the government established a commission to investigate creating a mandatory system, and the SAP and the unions were excluded from the commission. When the commission delivered the intended advice, the government attempted the most controversial change shortly before the 1994 election, a move to a mandatory system, with the support of employer representatives. While it did pass, against vociferous opposition by the unions and SAP, the reform was short-lived as the government lost the election. Tellingly, in the debate around the proposed reforms, the role of the benefit system in fostering union and SAP power was explicitly noted by representatives of the Bildt government (see e.g. Bandau, 2017, pp. 15–16). The incoming SAP government in 1994 quickly moved to re-establish the voluntary Ghent system and the ‘endless carousel’. In other areas, though, the SAP resisted returning to the pre-crisis system. Incurring the LO’s wrath, the party decided to retain the waiting days, to maintain the nominal benefit ceiling, and to tighten eligibility rules somewhat. It was clear that the SAP was intent on re-establishing fiscal balance quickly, in order not to lose the ‘fiscal credibility’ it had gained by participating in the crisis-era budget packages (see e.g., Blyth, 2002). This approach contributed to the defection of the Left Party from an informal coalition with the SAP in 1995, and the need for the SAP to cooperate with the Center Party, which was drawn away from the right-wing bloc and which pressured the SAP to terminate the ‘endless carousel’, among other moves. After two contentious government commissions in the late 1990s, where the unions fought such a move, it was effectively implemented in the early 2000s, along with stricter activation requirements on the unemployed (see Jochem, 2003; Gordon, 2012) What is notable about this period of reforms is that the changes that reduced generosity the most, the cuts to the maximum statutory replacement rate and the benefit ceiling, were concentrated in their effect on upper-income earners. While the SAP did move in 2001 and 2002 to increase the benefit ceiling after pressure from the unions, for most upper-income earners the changes still did not bring them close to the earlier 80% rate—this only occurred for income earners near or below the median. This failure to re-establish earlier replacement rates for higher earners set the stage for the white-collar TCO and the professional union confederation, SACO, to establish their supplementary income insurance schemes in some sectors. At first this supplementary system was quite limited in coverage. It began in 2002 with around 200,000 members being covered. By 2006, there were still only around 500,000 covered, out of total labor force of 4.5 million (Davidsson, 2013). But this institutional infrastructure, and the precedent it set, was to play a key role in the politics of unemployment insurance during the Reinfeldt era, as documented below. It is also important to note that the close connections between the unions and the SAP were not sufficient for the unions to block many of the reforms they disliked. Their participation in the government commissions and the pressure they exerted on the SAP leadership certainly contained the pace and extent of retrenchment, but change occurred nonetheless. As Sven Jochem (2003, p. 129) puts it, in the absence of corporatism, ‘party competition is the major determinant of policy formulation and implementation’. While the LO was able to influence the path of reforms, then, it was only able to alter them subject to the electoral and coalitional imperatives of the SAP. Jochem contrasts this experience with the more corporatist pattern of reform in Denmark, where a more consensual pattern of policy-making still led to reforms, but not nearly as pronounced. This pattern changed somewhat in the 2000s, but a sharp break with consensual reform only occurred following the recession of 2008—and consistent with the argument here, this ushered in deeper retrenchment and a further undermining of the Ghent system (Rathgeb, 2017). The experience of policy reform in The Netherlands can also be contrasted to this increasingly partisan pattern, where corporatist structures allowed for negotiated, and thus mitigated and delayed, cuts to unemployment insurance (e.g. Visser and Hemerijck, 1997; Gordon, 2012). Given the collapse of corporatist structures of consultation and policy development in 1990, such channels of influence were not open to the Swedish unions in the second wave of reforms, when the Alliance took power. 3.3 The Reinfeldt years: The second wave of retrenchment, the privatization of insurance and ethnic dualization The election of 2006 was historic in a number of respects (Widfeldt, 2007). For one, the SAP received its lowest total of support since 1914, 35%; meanwhile the Moderates (Conservatives) received their highest share of support since 1928. For another, the center-right parties had negotiated a common election platform, ‘Alliance for Sweden’, after they had set up six distinct working groups in 2004 with this goal in mind. This lent newfound stability and cohesion to the parties, and reassured voters about what they would be getting in the event of an Alliance victory, something lacking on the left, where it was unclear how the SAP might govern with the Left and/or Greens. In order to create this Alliance, the Moderates in particular softened their hard-edged neoliberal outlook, giving the impression of a convergence among the major political parties (e.g., Widfeldt, 2007). While this was largely accurate in relation to some big policy areas such as health care and pensions (and rhetorical commitment to the ‘Swedish model’), labor market policy remained revealingly separate from this apparent convergence. By far the most important election issue was employment (Oscarsson and Holmberg, 2011). This was despite the relatively favorable economy at the time. Economic growth continued to be respectable, if not strong, yet the ‘open’ unemployment rate refused to move below 4%, despite the SAP’s promise to attain just that. More to the point, the very concept of ‘open’ unemployment was challenged by the Alliance, who pointed out that this masked a large number of people in various labor market programs or in sickness insurance, who could and should be working (Davidsson and Marx, 2013). The Alliance promised that their package of reforms, entitled ‘More at work – More to share’, would address this problem of ‘outsiderness’ by ‘making work pay’ in various ways (see Littorin, 2012). This included tax cuts for lower- and middle-income earners, cuts to unemployment insurance, reforms to sickness insurance and various incentives to push people back on the labor market. Lacking a counter-narrative about how to deal with ‘outsiderness’, and unwilling to contemplate similar cuts, the SAP found itself ‘losing the argument’ on its historically most favorable terrain: employment (Davidsson and Marx, 2013). This mandate inspired the Alliance to undertake a far-reaching reform to the unemployment benefit system, among other areas of policy. That the Alliance ‘won the argument’ around employment is plausible, yet the effectiveness of the reforms to unemployment insurance introduced by the Alliance was more debatable, and still is in Sweden. The debate around the determinants of unemployment need not concern us here, though, except to note two things: (a) that some of the reforms were only tangentially related to a straightforward ‘make work pay’ agenda, and (b) that similar arguments had been widely made for over a decade in most of Europe. Noting (a) matters because we can thereby see the strategic component of the Alliance reforms, and (b) matters because emphasizing the apparent influence of the new Alliance discourse is not sufficient to explain Sweden’s particularly radical retrenchment path (cf. Davidsson and Marx, 2013). If other center-right parties in Northern Europe were advancing similar critiques of unemployment insurance, we need to note the distinctive features of the Swedish situation that allowed the Alliance alone to leverage them into deep, politically-resilient cuts: ‘post-corporatism’ and emergent dualism. The Alliance unemployment benefit reforms of 2006–2007 affected four main areas: reducing benefit generosity, tightening eligibility, intensifying work-search expectations, and increasing and differentiating membership fees for the UIFs. Table 1 above captures some of these changes. Among other things, replacement rates were lowered for long-term unemployed; the reference period for benefit rates was extended, hurting seasonal workers; the benefit ceiling was cut and allowed to stagnate; eligibility was cut sharply for part-time workers and students; and recipients were no longer able to confine their job search to their occupation or locality for the first 100 days, as before. In obvious ways these changes made the system much less generous, and would have indeed ‘tightened the screws’ on the unemployed to take a job, any job. This was as intended and advertised. Yet it was the final area of changes that were the most controversial, since they struck at the heart of the existing Ghent system: increasing membership fees and differentiating them by sector. By reducing the state’s subsidization of the UIFs, the government roughly tripled the average monthly membership fee, and by eliminating the obligation of the UIFs to pay into an ‘equalization fund’, which brought fees into relative alignment, the dispersion of fees increased dramatically (for concrete figures see e.g. Clasen and Viebrock, 2008). The official argument on the part of the government was that such a differentiation of fees would encourage wage restraint in sectoral bargaining, since workers would now have to take into greater account the potential costs of their wage increases in the form of increasing premiums/fees (interview with SN official, 2009; Littorin, 2012). However, the unions almost immediately presented a report which showed several ways in which this effect would fail to happen, largely because wage bargaining units and the UIFs did not match up neatly (interview with TCO official, 2015)—and this conclusion was shared by many prominent economists (see Bandau, 2017). Indeed, major figures in the government of the time now acknowledge that the desired effect did not materialize (Sven Otto Littorin, personal communication, 2015). Nevertheless, the government pressed ahead with this reform, along with the others.6 In sum, it is hard to understand this aspect of the reforms without understanding the strategic component implicit within them: undermining union membership, especially for LO. These reforms had been drawn up in the process of determining the Alliance manifesto from 2004 onwards, in small working groups. There was minimal consultation with the unions prior to their announcement, while the employers’ representative, SN, did have some influence on the outcome (interview with SN official, 2015). Certainly the policy ideas that emerged were in line with SN positions, and the SN supported the reforms once they were put in place (Ibid; Svenskt, 2005). Once the Alliance set about passing the reforms, there was massive resistance organized by the unions, including huge protests and petitions. Together, these various protests hurt the government’s popularity substantially over the course of its first year or two: the Alliance was 20% behind the SAP-aligned parties in polls in mid-2007, and government insiders figured that up to half of that deficit was due to the reforms (Sven Otto Littorin, personal communication, 2015). Yet the Alliance was much more cohesive than previously, and it had expected that its reforms would cause it to lose popularity initially, so it pressed on regardless. Absent a defection of one of the governing parties from the coalition, the unions could do little to reverse the reforms, and thus the reforms stood (see Rathgeb, 2017). The unions were successful in resisting another attempt to make the system mandatory, but this was also in part because the SN was now split on the issue, which gave the government pause (interview with SN official, 2009, 2015).7 Gradually the salience of the reforms faded, despite the unions’ best efforts. As one LO official put, ‘there is only so long that you can yell at the top of your voice’ (interview with LO official, 2015). By the time of the 2010 elections, the Alliance had more than caught up with the SAP-led coalition, and the reforms were no longer a significant electoral liability for the Alliance. How is the latter possible? It is here that the subtle shifts in the Swedish political economy mentioned in the introduction are important: the supplementary ‘income’ insurance system operated by several sizable unions and the segregation of unemployment in the Swedish workforce. In short, two novel dualistic patterns weakened the practical impact or import of the reforms. In principle, many Swedes were opposed to the reforms, as surveys continued to show high levels of support for unemployment benefits during this period, despite a longer-term decline in support for ‘employment policies’ (Svallfors, 2011). In practice, however, many Swedes had nothing to fear from them, and their motivation to vote solidaristically was weakened by the geographic and ethnic segregation of the unemployment experience. Let us take each novel development in turn. As noted, the development of a supplementary ‘income’ insurance system was precisely a consequence of the first wave of cuts in the 1990s. When the SAP refused to address ‘policy drift’ and re-establish the earlier replacement rates for high earners, certain unions in the TCO decided to start supplementary (private) ‘income’ insurance funds, which would ‘top up’ benefits to an 80% replacement rate. This was eminently feasible for such unions since many of them operated in sectors of the economy where the risk of unemployment was minimal (as in some parts of the public sector). For unions in the exposed sectors of the economy or certain service industries with high turnover, however, such supplementary insurance was deemed too costly and funds were not established (e.g. blue-collar LO sectors). This varied pattern of coverage is hardly a surprise: in private systems of insurance, those with the highest risk of unemployment cannot afford to insure themselves, while those with little need for protection can. After the Reinfeldt reforms, these supplementary insurance schemes began to expand rapidly, as the cuts to the benefit rates and benefit ceiling began to affect larger swathes of the union movement. From under 500,000 members in 2005, membership roughly doubled from 2006 to 2007 and then continued to rise to 1.65 million in 2010 (Davidsson, 2013). This helped insulate many members of the TCO and SACO from the effects of the benefit cuts/ceiling inertia. In stark contrast, many of the affiliate unions in the LO could not afford to cover their members: in their sectors of work, the risk of unemployment was high enough to make collective private insurance prohibitive (interview with LO official, 2015). Adding insult to injury, the rise in premiums and the differentiation of contributions also led to over 500,000 members leaving the unions, mostly from the LO. In general, the unions were unified in their opposition to the Reinfeldt reforms, with the partial exception of SACO. However when it came to arranging a union-organized mechanism of sharing the increased costs of running the UIFs, negotiations broke down. The main stumbling block was that certain low paid (largely female) public sector unions balked at having to contribute to a fund that would benefit higher paid (largely male) private sector workers, the latter of which had a higher risk of unemployment (Davidsson, 2013; Johan Bo Davidsson, personal communication, 2015). There have been subtle tensions between the LO and TCO, though.8 Because most TCO members can insure themselves cheaply, the TCO has effectively used it as a membership recruitment tool; not surprisingly, TCO membership has increased in recent years (interview with TCO official, 2015). Increases in the general, public benefit ceiling would undermine that selective incentive for membership. Their members will also have seen a net financial gain from the reforms, as tax cuts more than compensated their modestly rising fees. This contrasts naturally with the situation of many LO unions. To this point, the TCO has publicly remained committed to re-establishing most elements of the old system, but this is largely out of a desire to be a force for social justice and a leader in civil society, not necessarily because the immediate financial interests of their members are best served by this (Ibid.). This dynamic has mitigated pressure for reversal; many of the TCO’s members would have voted for the Alliance in 2010. Perhaps of equal significance, the ‘segregation’ of the unemployment experience intensified in this period along with increasing ethnic segregation in residential patterns, which served to morally ‘distance’ those most directly hurt by the Reinfeldt reforms (Andersson and Hedman, 2016).9 To understand this dynamic it is necessary to first grasp the nature of the Swedish immigration system. For a long time, Sweden has had one of the most generous or liberal immigration systems among the rich democracies, and this system was deeply connected to its self-conception as a ‘vanguard’ social democratic nation (see Borevi, 2012). Indeed, it was deemed during this period the most ‘generous’ immigration system in the Migrant Integration Policy Index, which compares 34 countries (Naurin and Ohberg, 2013, p. 77). This is not mainly a product of the number of immigrants it admits, but rather the way they are chosen: they are chosen according to need, not economic suitability, in the sense that asylum seekers/refugees have high priority. In 2010, Sweden had the highest rate of refugees as a share of the population, followed closely by Norway; most other countries have less than half the Swedish rate (Ibid.). This is a worthy humanitarian impulse and criteria. Yet it comes with certain costs for Swedish society, in that many of the immigrants are ill-placed to do well in the labor market upon their arrival. Lacking appropriate language skills and education, they often have difficulty getting a solid foothold in the labor market. Partly as a result, Sweden has one of the highest differences between migrant- and native-born unemployment rates in the rich democracies, one that is even more pronounced for young migrants (see Figure 4; Fredlund-Blomst, 2014; ratios of migrant- to native-born unemployment rates tell a similar story). Immigrant groups are also highly overrepresented in cash benefit recipients (social assistance primarily; Koning, 2011). Figure 4. View largeDownload slide Difference in unemployment rate between foreign-born and native-born workers, select countries, 2011. Source: OECD. Figure 4. View largeDownload slide Difference in unemployment rate between foreign-born and native-born workers, select countries, 2011. Source: OECD. This pattern creates negative stereotypes and feelings of ‘in’ and ‘out’ groups in Swedish society, along with subtly diminished support for redistribution (Eger, 2010). What is more, though, this dynamic has helped create a highly segregated society geographically, where many recent immigrants are confined to suburban neighborhoods and patterns of ‘white flight’ occur (see Andersson and Hedman, 2016). The end result of this process is that many Swedes are divorced from the consequences and reality of unemployment or exclusion (interview with LO official and TCO official, 2015). It is in this specific, ‘ethnic’ context that Johannes Lindvall and David Rueda (2014) have likely seized on something important: that promising greater support for ‘outsiders’ has negative electoral consequences for the SAP among employed, secure Swedes. Moreover, after many working-class voters abandoned the SAP in 2006 and 2010 for the Moderates and other center-right parties, those same voters now often constitute a major base of support for the nativist Sweden Democrats (Oscarsson and Holmberg, 2011; Oskarson and Demker, 2015). This electoral pattern is certainly not unique to Sweden, but it has been late arriving (for below, see Green-Pedersen and Krogstrup, 2008; Widfeldt, 2008; Naurin and Ohberg, 2013; Gingrich and Hausermann, 2015). For a long time in Swedish politics there was a tacit agreement among the major political parties to not politicize immigration. In addition, this elite consensus was reinforced by the explicitly Nazi heritage of the main anti-immigration party, the Sweden Democrats, which meant that even anti-immigration voters were loath to vote for them. When the Sweden Democrats ‘modernized’ their image in the 2000s, and made an effort to purge the Nazi elements of the party, voting for them became more conceivable and they were finally able to tap into resentment about the country’s generous asylum policy. This new dynamic to Swedish politics has contributed to weakening working-class support for the SAP, its previous core of support. In turn, this meant that the SAP was less able to contest the Alliance in electoral terms, and that it now faced the pronounced internal dilemma noted above (Lindvall and Rueda, 2014): advocacy for generous spending on (immigrant) ‘outsiders’, many of whom voted SAP, now risks alienating its erstwhile working-class base. Furthermore, those most hurt by the reforms (i.e. those who became ineligible in one way or another) will be concentrated in demographics that have lesser political clout: the young, the part-time/temporary worker, the immigrant. The intersection of these demographics, the young precarious immigrant, is perhaps especially hit by the changes; and it is this group that instigated the riots in various suburban neighborhoods in 2013, shocking a nation known for its civility and peace. Figure 5 shows the trajectory of recipiency rates since the Reinfeldt reforms. The impact of the changes is unmistakable. Perhaps controversially, then, the pattern of the cuts has contributed to, and played off of, a new dualistic ‘ethnic’ dynamic in Sweden: to the extent that the cuts have created an even more vulnerable ‘underclass’, perceptions (if not reality) of violence in these immigrant areas has generated hostility towards these groups and further segregation, ‘distancing’ the precarious both geographically and morally and making it harder for leftist parties to mobilize in support of policy reversals. Figure 5. View largeDownload slide Recipiency rates in the Swedish unemployment insurance system, 1999–2014. Source: LO (Sweden), 2015. Figure 5. View largeDownload slide Recipiency rates in the Swedish unemployment insurance system, 1999–2014. Source: LO (Sweden), 2015. This dynamic is apparent in the events of the past few years, after the SAP was able to form a coalition government following the 2014 election. One of the first orders of business for the incoming government was to increase the benefit ceiling from a maximum of 15 000 SEK a month to 20 000 SEK (interview with Ministry of Labor official, 2015; interview with LO official, 2015). This is likely to be a costly proposition, and it will go some way to returning the benefit generosity that existed in 2005, though even here it is only partial. More relevant, however, is that measures to reverse the sharp fall in recipiency seen in Figure 5 are not likely to be passed soon. These reforms/reversals would be even more costly, and they are not on the immediate agenda of the present government, which has had other priorities for revenue gained from modest tax increases. Apart from a very modest change to eligibility rules for part-time workers in 2017, decisions on what to do in relationship to low recipiency rates are thus being put off for the moment, despite pressure from the LO to address it (interview with LO official, 2017). In sum, a confluence of political economic shifts has conspired to dramatically weaken the unemployment insurance system in Sweden. They are not unique to Sweden, but their explanatory power derives from the degree to which they have occurred in the country: in each area, ‘post-corporatism’, supplemental private insurance, and liberal immigration, Sweden has gone farther than other Northern European countries. In a way, then, with the exception of the supplementary insurance schemes, it is precisely the ‘vanguard’ status of Swedish social democracy that left it more exposed to dualistic tendencies subsequently. Perhaps revealing in this latter respect is that Sweden had the highest post-tax and -transfer Gini coefficient among the Nordic countries in 2014, approaching continental European levels—though it remains relatively low among all OECD countries (OECD, 2016b). 4. Conclusion Profound retrenchment of the Swedish unemployment insurance system has taken place in the past 25 years. Some of this retrenchment has been compensated by systems of private ‘income’ insurance, as noted, while some forms of redundancy compensation negotiated between the unions and employers also cushion the blow of unemployment for many Swedish workers (Wadensjö, 2009). However, both types of ‘supplementary’ insurance benefit are skewed towards more secure, older workers. What this means is that the decline of the public unemployment insurance has most hurt those who need it most (OECD, 2015). This dualistic pattern is surprising in a country renowned for its universalistic generosity. The account set out above yields a few important theoretical insights, to be investigated and elaborated in future research. First, generous systems of unemployment insurance in the Northern European countries may be less resilient than previously expected. Or, put another way, they may be more fragile. Considerable theoretical work has gone into explaining enduring patterns of generous unemployment support in these countries; that work may need to be qualified and re-conceptualized in light of the recent Swedish experience. Ghent systems of unemployment insurance, and other variants of union involvement in benefit administration, fostered an ambitious and inclusive vision of unemployment insurance among powerful union movements in these countries (e.g. Gordon, 2015). This helped create generous systems historically, as union movements pressed for their emergence and defended those that came into being. Yet precisely because such systems foster union power, and thus become part of an ambitious union agenda, they also become targets of employer groups, beyond the latter’s usual complaints about work incentive effects and costs. As a result, Ghent insurance systems are likely to witness consistent pressures for reform and retrenchment in coming years if, or as, employer groups seek to weaken their union counterparts—or at least social democratic elements within them (see e.g. Thelen, 2014; Bandau, 2017). In short, we cannot understand the politics of unemployment insurance in these countries without recognizing the role they play in sustaining social democratic union power—and what that means for broader political struggles. Second, and related to this point, corporatist patterns of policy-making remain an important lever for union movements seeking to stave off such strategic, far-reaching reform. In the Swedish case, the institutions and norms around corporatist policy-making were largely abandoned in the field of labor market policy in the early 1990s, and this exposed unemployment insurance to deep cuts. In other Northern European countries, pressures for deep retrenchment were mitigated by norms of consensual reform and corporatist institutions that provided unions with (sometimes intermittent) veto power. Cross-class partisan coalitions, or weak coalitions which involve parties with a base in the union movement, have also served as an important brake on strategically-designed, sharp retrenchment (Rathgeb, 2017; Bandau, 2017). While corporatist institutions may not always be sufficient to restrain retrenchment and/or dualizing strategies, then, they remain valuable to inclusive union movements politically (Gordon, 2015). Third, patterns of ethnic segregation and other challenges associated with immigrant integration pose a new and potent challenge to generous social insurance programs. This has been noted in some recent studies (e.g. Beramendi et al., 2015), but arguably its repercussions have not been fully appreciated. Tensions around immigration and ethnic diversity may have somewhat weakened public support for a generous welfare state, as measured in surveys (e.g. Eger, 2010), but even more important is that they have profoundly changed political coalitions and party systems, by siphoning off working-class voters from social democratic parties and re-orienting such parties towards more cosmopolitan, higher-income voters (e.g. Beramendi et al., 2015; Gingrich and Hausermann, 2015; Oskarson and Demker, 2015). This transformation has ultimately weakened the center-left because the nativist parties tend to side with center-right parties intent on retrenchment in return for immigration reform—at least when the center-right is open to such cooperation. Pronounced ethnic segregation in labor and housing markets, or dualization along ethnic lines, will thus only intensify the dilemmas facing social democratic parties noted by Lindvall and Rueda (2014): that as they promise more to ‘outsiders’, they lose ‘insider’ support. In previous decades, at least in countries like Sweden, this tension was softened by union movements which consisted of both insiders and outsiders, and whose leaderships rallied support for generous outsider support. Yet ethnic dualization or segregation serves to ‘morally distance’ those who receive state support, making that ‘rallying’ more difficult. What this suggests it that sharp insider-outsider tensions of the sort described by Lindvall and Rueda may be contingent on the degree of ethnic dualization in labor and housing markets. It might be hypothesized that where ethnic dualization is more intense, it is more likely that strict employment protection will generate weak systems of ‘outsider’ support—other things equal—as originally predicted by Insider-Outsider theory (see Rueda, 2007). These trends suggest considerable uncertainty for Swedish social democracy moving forward. In Sweden, the destructive patterns of ‘ethnic segregation’ show few signs of abating. With the Sweden Democrats riding high in the polls (presently ∼18% ), the prospects for a sharp expansion of unemployment insurance support to ‘outsiders’ seem dim. The new dualistic system of protection installed by the Reinfeldt governments, both through policy change and policy drift, has led to a starker pattern of ‘ins’ and ‘outs’ and this has resonated politically. In this sense, the seeds of dualism have been planted by, among others, the policy reforms described above, and progressive Sweden is now confronting a new, unsettling reality. Footnotes 1 There are policy changes that took place in 2015 that will restore some of the generosity of the system, but only partially, as discussed in Section 3. As well, this description refers to the public system, as private insurance coverage has emerged (see below). 2 The central advantage of this metric relative to others used in the literature is that it best captures differences in, and changes to, ‘recipiency rates’ (i.e. the share of the unemployed receiving benefits). It also avoids many of the difficult and contentious weighting and classification choices that other metrics (of necessity) involve. As the reader will see (Table 1 and Figure 5), cuts to replacement rates and a near-halving of the ‘recipiency rate’ have created the dramatic transformation of Sweden’s generosity score. 3 A recent influential analysis of institutional and policy change in Northern European countries, from a perspective sympathetic to VOC and the role of skills in comparative political economy, does not make much of changing skill composition (Thelen, 2014). Schnyder (2012) notes important educational reforms, but they do not appear to challenge the longstanding Swedish approach of school-based vocational education (see e.g. Dobbins and Busemeyer, 2015). 4 Thelen (2014) puts forward a Sweden-specific argument, centering on the incapacity of the Swedish state to impose broad social deals on the ‘social partners’: however apart from a few instances in the mid-1980s and early 1990s it does not appear that Swedish governments have ever wanted to impose such deals, in large part because neither the unions nor employers have wanted this outcome. The account in Rathgeb (2017), also casts doubt on Thelen’s interpretation. 5 For a new indicator of corporatism which shows that Sweden’s path was unique in Northern Europe, see Jahn (2016). This depiction of ‘post-corporatism’ in Sweden is not intended to suggest that all elements of corporatism have disappeared. In several areas, patterns of cross-class cooperation persist, including most importantly in collective bargaining. Yet the corporatist structures of policy formulation which persist in other Northern European countries have been largely dismantled, at least in relation to labor market policy. As a result, the ‘norm’ of relatively consensual reform is much weaker in Sweden than elsewhere (see for example, Lindvall and Sebring (2005); Jochem (2003); and Anthonsen et al., 2011). I thank an anonymous reviewer for emphasizing this distinction. 6 They subsequently partly reversed course in 2009, after the recession hit, subsidizing fees by 50 SEK a month; and then further reversing the move in 2013/2014, by putting a limit on fees, after a government commission found that the original rationale was unfounded. 7 Some SN members were concerned with the administrative difficulties of moving from the 30-plus UIFs to a single state-run system (interview with SN official, 2015). The SN had also now began to advocate more competition among the UIFs, as an alternative to a mandatory system, by allowing workers in different sectors to choose among all of the UIFs and potentially new private-company funds, rather than being constrained to their sectoral one or Alfa-kassan (an independent fund set up in 1998). Such a move would likely weaken the unions’ recruitment capacities through the UIFs, while also potentially exacerbating differential insurance costs (the SN advocated raising the insurance fee premium ceiling considerably); in return, the argument was that efficiency in provision would be improved. 8 The more prominent split between white-collar unions and blue-collar unions in Sweden, relative to other Northern European countries, has meant that internal tensions around policy can be more pronounced. Indeed, in recent years, SN has tried to negotiate a new ‘grand bargain’ with the PTK, an umbrella organization of white-collar private sector unions, while excluding the LO (interview with SN official, 2015). This dynamic of marginalizing the LO in policy design has been intentional, as their membership numbers was recognized to be more vulnerable in the Reinfeldt reforms. I thank an anonymous reviewer for emphasizing this point. 9 The ratio of foreign-born to native-born unemployment increased from 2.3 to 2.65 from 2007 to 2011. OECD. Acknowledgments I thank John Richards, John Myles, Jonas Pontusson, Gabriel Arsenault, Anders Widfeldt, Patrik Ohberg and Johan Bo Davidsson for helpful insight and feedback on this work. Any errors or omissions are my responsibility alone. References Allan J. , Scruggs L. ( 2004 ) ‘ Political Partisanship and Welfare State Reform in Advanced Industrial Societies’, American Journal of Political Science , 48 , 496 – 512 . 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Published: Nov 22, 2017

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