But now there seems to be a chance for a break-through concerning this issue. The negotiating secretary from LO, Per Bardh, suggested that the two main organizations LO and Svenskt Näringsliv (Confederation of Swedish Enterprise) should settle these questions in a working group in order to reach a mutual understanding.
This indicates that LO wants to reach a solution or a compromise with the employers to eliminate this issue from the political agenda thereby hopefully stop the politicians from deregulating the employment protection. One may wonder why this statement comes at this moment. It is not farfetched to think that LO have reasons to believe that changes in the LAS, although minor, will come during the next four-years by the newly re-elected conservative government. Therefore LO act proactive by reaching out a hand to the employers. The strained relations after March 2009 may also be improved by such talking and this could in the longer run lead to new negotiations on a new agreement in the style of Saltsjöbaden 1938.
However, there is no easy way to reach a compromise in this issue. The thing with the LAS-rules is that the two sides have diametrically different images of how the legislation really works. The employers in Svenskt Näringsliv claim that LAS is draining the companies of competence and that it hurts marginal groups at the labour market – young people and immigrants mainly. LO, on the hand, claim that LAS gives the already employed workers a necessary protection from dismissal and that employers could negotiate with the unions in order to have exceptions from the priority rules for example.
These opinions are of course to a large extent colored by the divergent interests in this issue. Both sides know perfectly well that this is a question of power balance at the labour market. When the Employment Protection Legislation (LAS) was implemented in Sweden during the 1970s, the unions gained in influence at the expense of the employers. Now, employers want to turn things around again and the unions have, so far, had no intention to give up their resistance.
If you take the glasses of an economist and judge this legislation it seems that LAS have some negative effects indeed. Employment Protection Legislation leads, according to theory and empirical evidence, to a segmentation in the labour market between the so-called insiders, the workers with a protected job, and the outsiders (mostly youngsters and immigrants). The outsiders are unemployed or employed with a temporary contract and face substantial difficulties to find a job covered by the legislation because of the firms’ reduced propensity to hire. This type of legislation may however not increase the total unemployment since it reduces both job creation and job destruction, so that the net effects are not easy to identify.
The third player in this game is the legislators and in the Parliament there is at this point no majority for a more substantial liberalization of LAS, let alone to abolish or overturn the legislation completely. Among the non-socialist parties Moderaterna has promised to keep the Swedish Model intact and also strongly resisted all attempts to fundamentally change LAS.
Nevertheless, LO has hinted with this bold move that they may settle for some kind of compromise in this issue. This offer must look interesting form the perspective of the employers. It will be hard for them to refuse such an offer.
Henrik Lindberg is researcher at the Ratio Insitute.