Making Government Work

What Can We Learn From Sweden About Long-Term Unemployment?

April 21, 2014
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What Can We Learn From Sweden About Long-Term Unemployment?
Perhaps the U.S. government should explore the option of subsidizing worker's wages.

From New York to Oregon, politicians and voters have been engaging in discussions about raising the minimum wage as a way to fight the growing inequality in the United States. But policy makers in Sweden have a new idea that they say could be much more effective in putting a dent in income inequality.

The European country went through a financial crisis that left the country with high rates of long-term unemployment — a problem that continues to plague the U.S., too. In the early 2000s, according to CNN Money, the U.S. had a pretty low rate of long-term unemployment. But since the financial crisis, more than 35 percent of unemployed Americans have been unemployed for six months or more. Long-term unemployment is a vicious cycle: Employers are less likely to hire someone who has been out of work for more than six months, making it’s harder and harder for someone who is unemployed to get a job.

To combat long-term unemployment, Sweden tried six social programs and found one that really works. It’s called a wage subsidy program, and it’s pretty straightforward: The government pays part of a worker’s wages, giving companies an incentive to hire workers that were previously unemployed.

In Sweden, the government paid half of a worker’s wages for the first six months of a job. This meant that companies who were hiring unemployed people didn’t have to take on a huge risk — they could get a six month trial period for half the cost.

This idea has actually been batted around in the United States before, as an alternative both to raising the minimum wage and to reforming the earned income tax credit. Politically, however, wage subsidy programs have some obstacles to overcome. Democrats are committed to raising the minimum wage, and this type of program might appear to be a sort of welfare program for the unemployed.

But Sweden is the home of a number of excellent ideas, including IKEA, Absolut Vodka, and Pippi Longstocking. With that kind of track record, maybe the U.S. should give wage subsidy programs a try.

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