source: https://www.cnbc.com/crystal-ball/
It’s perhaps hard to imagine now, but back in the 30’s Sweden had the highest number of labor conflicts in Europe. It did not jibe well with “the people’s home” or folkhem concept that the social democratic prime minister Per Albin Hanson was trying to establish. In that home, everyone was to work together and look after each other. Labor conflicts were disrupting that effort. The government pressured the Swedish Trade Union Confederation and the Confederation of Swedish Enterprise to sit down at a hotel in Saltsjöbaden and get an agreement done to stop the disputes. It was the beginning of “the Swedish Way.”
The Saltsjöbaden Agreement, and the agreements that have been negotiated every few years since, regulate and set the norm for wages and work environment conditions across all sectors, from hospital workers to painters to welders. It takes months to hash out every time, and it’s never been easy. This year will likely be rough. The formal meetings between representatives of workers and employers won’t be until 2023, but the two sides are organizing even now.
First shots, fears and worries
The first shot over the bow was by the workers’ umbrella union, LO, just the other day. The fourteen different unions that make up LO have agreed to coordinate their demands and present a united front. In addition, they have agreed to recommend a cash raise for workers making less than 27,100 sek/month, and to ask for a percent raise for better paid workers.
In response, the employers’ unions claimed the usual – that business isn’t that great these days, and it will only get worse. The chorus is One, businesses can’t afford to raise anyone’s wages; Two, it would make inflation worse; Three, it might make them have to let people go.
These threats and fears aren’t just being raised by business though. The Swedish Fed is worried about a wage-price spiral, in which rising prices cause workers to demand higher wages, causing prices to rise, causing demands for higher wages, causing prices to rise… on and on in a worsening spiral. The Swedish National Debt Office (Riksgälden), the country’s financial manager, stated on Thursday that it, too, expects a pretty moribund economy next year, as well as higher joblessness.
Other events may also have an effect on negotiations over the next couple of months. One is the recent announcement that the government will retroactively reimburse some energy costs for households in energy areas 3 and 4. This will be money in the pocket for consumers, but it may also have a negative effect on inflation. In addition, the government has announced a gas tax abatement as well as measures to reduce the required amount of biofuel that is mixed in with regular gas. Although neither nor both of these will dramatically lessen the price at the pump, it may reduce the pressure on employers to raise wages.
Interest, inflation, and expectation
Eclipsing these developments is, of course, interest rates. To help get inflation down, the European Central Bank just raised its interest rate to 1.5%. The hope and plan is that when money gets more expensive, people and businesses will save more. They’ll reduce consumption, demand will lessen, and prices will stop rising so fast. Not any less important, this action will also hopefully reduce inflation expectations. Psychology is big here: if the ECB acts like it takes inflation seriously by raising rates, it gives the impression that it is steadfast in its aim to reduce inflation. This is presumed to calm business down so that they keep their prices stable and workers keep their wage demands in check. Cause and effect wrapped up in a neat package.
It never works out exactly this way, of course, and it takes time, and there are lots of critical voices along the way. This is the idea, though, and everybody hopes it works.
It isn’t really likely that an effect of these factors will be seen in time for the final round in the Swedish wage negotiations. But it sure would be nice if we were in a better place by then.