This chapter examines the unemployment patterns in Sweden over the last 25 years. It does not aim to give a full explanation as to why these patterns have developed the way they have. Such a task would require a thorough analysis of Sweden’s economic history and policies, of international business cycles, the development and globalisation of world markets, and so on. Rather, this chapter examines Swedish unemployment patterns in relation to welfare state protection. It seeks to find out whether or not high unemployment levels can be explained by labour market ‘rigidities’ or ‘sclerosis’ due to welfare state arrangements.

Three types of measure will be examined, all of which are directly related to the problem of unemployment. The first type is employment protection legislation, which intends to protect workers from being too easily dismissed from jobs and, from there, into unemployment. Strict regulation may also have other consequences, however, and is therefore much debated. It is a common argument that severe regulation makes employers unwilling to recruit workers, since they consider it too costly to get rid of them again in case they are not well suited for the job tasks or if the company needs to downsize.

A second type of welfare state intervention provides unemployment benefits for those who cannot find a job to earn their living. A crucial aspect is the generosity of the benefit systems in terms of replacement rates and duration of payments. For one thing, the reservation wage – that is, the lowest wage at which individuals accept a job – may be affected. If the unemployed are well provided for, they may have little incentive to find employment quickly. It is often concluded that generous benefits prolong unemployment spells.

Finally, attention is drawn to active labour market policies, aimed at helping the unemployed to a job. These include public employment services, training programmes, and job creation programmes. Sweden is something of a forerunner here, since this kind of state intervention has been used extensively in the country for a considerable length of time. A critical factor is whether or not active labour market policies help lowering unemployment and, if so, whether they do this to reasonable costs.