In the purpose to inform our non Swedish speaking readers, we have been given the permission to translate and publish this article, written by Stina Bengtsson.
The government's new wage floor slows down business growth
The government's recent imposition of a wage floor is putting the brakes on business growth, inflame competence gaps, disrupting wage negotiations, causing welfare losses, and reducing tax revenues. The issues stemming from significantly restricted labor immigration are manifold. "The expertise simply isn't available in Sweden," says Massive Entertainment’s, a game developing company, representative Magdalena Schultze.
Jonas Öhlin, from the Strategy Council, Erik Holmgren from the Migration Agency, and Magdalena Schultze from Massive Entertainment, were at the Swedish Business Association's seminar on how foreign labor is excluded when the government chooses to limit labor immigration. Foto credit: Stina Bengtson
The upcoming years will see Swedish companies needing to recruit 175,000 new employees, with an additional 90,000 required in the public sector. The workforce is projected to increase by 144,000 individuals.
"Those quick at mental arithmetic have now realized that we are short of 120,000 employees," stated Karin Johansson, Vice President of the Confederation of Swedish Enterprise, at the start of the seminar "Foreign Labor Excluded - Why and How Does it Impact the Labor Market?", recently organized by the Confederation of Swedish Enterprise.
In recent years, Swedish policymakers have chosen to restrict opportunities for labor immigration. Last autumn saw the introduction of a wage floor set slightly above SEK 27,000 or 80% of the median wage – a level exceeding the collectively agreed wages in many sectors. Shortly, a state inquiry will be unveiled, aiming to address how the wage floor could be raised to 100% of the median wage.
This entails problems in the Swedish labor market and for the Swedish economy. Studies show that labor immigration generates added value of 43 billion SEK in Sweden and results in tax revenues of 14 billion SEK. There are also comparisons between companies that employ labor immigrants and those that do not.
"It's abundantly clear that companies hiring labor immigrants grow significantly faster in the long run than those that don't. Labor immigration enables access to expertise unavailable in Sweden," remarked Jonas Öhlin, analyst at the Strategy Council during the seminar.
One of the companies heavily reliant on expertise from other countries is Massive Entertainment. The company specializes in game development and has experienced substantial growth in recent years. Currently, the company boasts around 900 employees of over 50 nationalities in Sweden, disclosed HR Director Magdalena Schultze.
"It's quite evident that in other parts of the world, there have been university programs for game developers in various fields for quite some time. Hence, they possess slightly higher expertise," she explained, citing one of the reasons why the company needs to recruit from other countries.
"In the rest of the world, they have had university education for game developers in various fields for quite some time, so therefore they have a slightly higher level of expertise," she said as one of the explanations for the company's need to recruit from other countries.
"The expertise simply isn't available in Sweden."
Even before the government introduced the wage floor, Massive Entertainment encountered difficulties in recruiting third-country nationals, particularly due to processing times at the Migration Agency.
"We have two full-time employees solely dealing with permit issues."
Despite the Migration Agency expanding its workforce and promising to keep processing times down to 30 days, Massive Entertainment has given up. The company has ceased recruiting people from third countries.
"It restricts our search area, but it takes too long and is too cumbersome," remarked Magdalena Schultze, noting that it also impacts the company's productivity.
Enriching Expertise
Hotel AtSix in Stockholm is part of the Strawberry Group. Like many other companies in the hospitality industry, the hotel relies on labor immigration.
"We need it to operate our business. We need it from an economic perspective. But we also want it because it enriches our expertise. It enriches our culture and enhances employee satisfaction," said HR Manager Nellie Elmér.
At the Stockholm hotel, 18 employees are affected by the new wage floor. Across the group, it amounts to 150 employees, who, according to Nellie Elmér, are crucial for guests to feel comfortable and at home, particularly due to the employees' broad language skills.
"There's a significant loss of expertise," she added.
"You pull the rug out under the model.
One argument used by those advocating for restricting labor immigration is that people can move from one part of the country to another for job opportunities. This is a solution that Jonas Grafström, researcher and Vice President at Ratio, doesn't believe in.
"It's quite rare for people to move in Sweden. They don't leave their labor market region; instead, the vast majority move within a municipality or a county," he stated.
However, Jonas Grafström also observed that even if people did move, it wouldn't make much of a difference. According to his calculations, only about 25 of Sweden's municipalities have a median wage above the Swedish median wage.
"There's quite a large swath of counties that aren't even close," he remarked, highlighting the absurdity of setting a wage floor at the median wage.
Critics also argue that labor immigration contributes to increased fraud. However, this argument is heavily contested. There are more effective methods, noted by many, especially by the special investigator, Ann-Jeanette Eriksson, who will shortly present her findings in the inquiry "Needs-based Labor Immigration".
"I believe that controls and collaboration between authorities provide support – which may be more effective," she commented.
Disrupting Wage Formation
The fact that the new wage floor creates problems for individual companies has been apparent for some time. Company after company, like Hotel AtSix, has sounded the alarm that it will entail losses of expertise that may be challenging to replace, particularly due to deficiencies in the Swedish education system. But the issues are not confined to individual companies. It also impacts the Swedish wage formation model, noted Irene Wennemo, Director-General at the National Mediation Office.
“There are several reasons for this. Firstly, we have a tradition that politics should not interfere with wage formation – and this is an intervention," she said, continuing:
"But there's also insensitivity regarding how wage formation operates."
She emphasized that most minimum wages in collective agreements are below the wage floor's level.
"This doesn't mean that people receive that wage, or that they have it for a period. Or they may not have a minimum wage at all because many agreements don't have one."
"But then they work and their wages increase quite quickly."
According to Irene Wennemo and many other experts, the Swedish wage formation model works well. Therefore, it becomes particularly problematic when politicians now choose to intervene with a wage floor, especially when it exceeds the collectively agreed wages.
"They're pulling the rug from under the model," she remarked, continuing:
"The idea is indeed to reduce hiring. They want to reduce the proportion of immigration."
The original aticle,, which is in Swedish, is published on the website of the Convederation of Swedish Enterprice. You can read the original article in Swedish here.
We have been given the permission to translate and publish this article, written by Stina Bengtsson.
