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Cloudy statistics hide Swedish labour market’s strength

Cloudy statistics hide Swedish labour market’s strength

The number of unemployed at the Swedish Public Employment Service is rapidly declining, and demand for labour is growing. The statistics are difficult to interpret due to major changes to the labour force survey at the turn of the year, but the overall picture is one of rapid labour market recovery.

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The weekly statistics of the Swedish Public Employment Service (SPES) are real-time data of the labour market situation. They paint a bright picture of swiftly declining unemployment. We see jobless rates in the weekly statistics falling below 8% this summer. The strong downward momentum should intensify as restrictions are lifted and crisis-hit industries take part in the strong recovery. We expect unemployment as measured by the SPES to drop to 7.5% by year-end. The annual average for 2021 will then be 8.0%.

Indicators suggest growing demand for labour. Hiring plans are increasing rapidly, there are more vacancies and low numbers of layoff notices so far in 2021. The labour shortages are going up. Relatively few new job seekers have registered with the SPES this year.

Find out more about the Nordea Economic Outlook: Unrestricted Growth.

Unemployment should decline further as restrictions are lifted and crisis-hit industries recover.

Susanne Spector, Nordea Chief Analyst

But the figures from Statistics Sweden’s (SCB) Labour Force Survey (LFS) are difficult to interpret after major changes were made in January this year due to new definitions, questions and methods. A key change is the rephrasing of questions about unemployment, resulting in higher unemployment and more discouraged workers. The changes are hard to quantify, but the difference in unemployment based on the new and previous questionnaire was 0.8% point in March. The definition of employment has also been changed. The break in the time series may be as many as 100.000 fewer people employed. The 2021 outcome is thus not comparable to previous years. Therefore we’re not basing our forecasts on LFS data this year but on the SPES and the number of people employed according to the SCB’s data for employment in business and the public sector (short-term employment data, KS). Excluding the LFS time series break, we see employment growth at 1.5% in 2021 in line with our KS forecast.

Despite the labour market recovery, there are large gaps between different groups. The number of short-term unemployed (less than 6 months) is already lower than before the crisis while the number of long-term unemployed is growing.  The increase is moderate compared to the many jobs lost at the onset of the pandemic. About 100,000 people lost their jobs during the first seven weeks of the pandemic. A year later the number of people unemployed for 12-24 months is 7,500 higher than during the year-earlier period, suggesting that most of those who lost their jobs early in the pandemic have found new jobs or taken up studying. When short-term unemployment falls, others move up in the line.

Chart: Lower number of short-term unemployed than before the crisis

The number of people unemployed for 6-12 months is declining rapidly and we see a continued drop to 70,000 by end-2021 versus 110,000 at the beginning of the year. Even those unemployed for more than 12 months stand a good chance of finding work when the economy reopens. Long-term unemployment is not a permanent state. Many entry-level jobs are likely to come back when the restrictions are eased, implying that many long-term unemployed will get new jobs already this year; we expect just under 200,000 long-term unemployed (more than 12 months) by year-end. At the same time we see a total number of registered unemployed of 395,000 – about 60,000 fewer than at the start of the year.

After the financial crisis the population grew rapidly, and labour force participation rose. That is positive. But this combination is a key reason why unemployment remained at high levels after the financial crisis despite strong employment growth. Population growth will be slow in coming years. And the labour force participation rate will not increase as fast, partly due to demographics. This also suggests a fairly rapid decline in unemployment going forward.

 

This article originally appeared in the Nordea Economic Outlook: Unrestricted Growth, published on 11 May 2021.

Author: 

Susanne Spector, Nordea Chief Analyst

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