Wages and Social Insurance Contributions

• Introduction
• The "Swedish Model" of Wage Formation
• Small Wage Differentials
• Social Insurance Contributions
• Labor Costs of Some Executives and Skilled Personnel
• Swedish Salaries in International Comparisonn

Introduction

Wage levels in Sweden, generally competitive with those of other Northern European countries, have several unique features. One is that skilled workers, engineers and managers are often paid less than their counterparts in the EU. The main features include:

* Wage levels competitive in Northern Europe.

* Salaries of engineers and executives comparatively low.

* Good supply of highly skilled workers.

* Small differences between wages of skilled and unskilled workers.

The "Swedish Model" of Wage Formation
Sweden's system of industrial relations, often called the "Swedish Model", gained considerable international interest in the post-war decades. It had its origins in an agreement between the Swedish Employers' Confederation (SAF) and the Trade Union Confederation (LO), signed in the seaside town of Saltsjöbaden in 1938. This "Saltsjöbaden Agreement" created a system of rules for resolving labor conflicts. The parties demonstrated that through collective agreements they could take responsibility for keeeping industrial peace without government involvement. Thanks to the "Spirit of Saltsjöbaden", the number of labor conflicts remained low in the following decades.

In the early 1950s, LO adopted a solidarity wage policy, calling for equal pay for equal work. Restructuring of Swedish industry was to be facilitated through centrally-directed wage distribution, while the Government was to support an active labor market policy. An economic policy of austerity would dampen demand and press down corporate profits deemed "excessively high".

In the mid-1950s, wage formation became highly centralized. SAF and LO would first agree on a general wage increase recommendation. This would form the basis for collective agreements concluded industry-wide and for local contracts signed at the company level. Contracts carried prohibitions against strikes.

But conditions changed in the 1970s. New labor legislation, wage increases that exceeded growth of productivity and a number of wildcat strikes weakened support for the centralized wage formation model. Supplements for the lowest-paid employees, mandated nationally by LO, resulted in very narrow wage differentials, with little gap between the wages of highly-skilled and unskilled workers. Employers argued that this provided little room to adapt contracts to suit specific industries and companies. The sharpest criticism came from the Mechanical Engineering Employers' Association, which worked out an independent agreement with the Metal Workers' Union in 1983. This set a precedent, and as of 1993 negotiations have been carried out entirely at the specific industrial level, with basic contracts signed by industry employers' associations and their national trade unions.

Small Wage Differentials
As a result of deliberate efforts to raise wages for low-paid employees, the pay structure in the Swedish labor market has become very compressed. There are small differences in wages paid to skilled and unskilled workers in the same industry. At many workplaces, employees reach peak wage levels while still quite young, not infrequently around the age of 30. This applies particularly to blue-collar jobs.

However, because of the recent rise in unemployment, a growing need for highly-skilled labor, and increased international labor mobility due to EU membership, wage distribution is generally expected to widen in the coming years. Nevertheless, the narrow wage differentials and reduced relative costs have made Swedish wages for qualified workers highly competitive by international standards.

Social insurance contributions 1996, percentage of annual wage bill.

By collective agreement

Statutory employee contributions

¹ Approximate figures

Source: Swedish Employers' Confederation

Social Insurance Contributions
Sweden's comprehensive social insurance system covers old age pensions, healthcare, unemployment and disability benefits, maternity payments, and child and youth benefits. The social insurance system is mainly financed through employer contributions.

Employer contributions are a percentage of an employee's annual wages or salary. This includes pay for actual work plus paid vacations and holidays. Employers' statutory social insurance contributions amount to 33.06 percent of total remuneration paid to employees, including all taxable benefits or "perks". Employees do not contribute to these charges. In addition, employers contribute about 6-8 percent of an employee's pay to cover costs of complementary pension schemes according to union agreements.

Employers are also required to contribute to special pension premiums for employees. This charge is equivalent to an increase in total employer contributions of 0.8 percent for blue-collar workers and 1.4 percent for white-collar workers.

Employees themselves pay a health insurance fee of 3.95 percent and a pension fee of 1 percent on gross income up to a ceiling of SEK 276,000. Employee contributions are withheld by the employer at source.

Labor Costs of Some Executives and Skilled Personnel
The table presents statistics on gross salaries and total labor costs for certain positions.
Salaries and wages, except for top executives, are often covered by local union agreements.
There is no legal minimum wage but union agreements may, in effect, stipulate minimum wage rates.
For highly-qualified positions, wage levels are affected by individual competence, type of industry, and other factors.
The figures stated here provide an approximate idea of the cost range for various positions.

Gross salaries and total costs for selected positions in Swedish industry, 1995, all figures in SEK.

1 Head of organization with responsibilities covering production, development, sales/marketing, finance and administration. Normal requirements: University degree with 10-15 years of relevant experience. Organization has annual turnover of USD 75 million.

2 Reports to Managing Director. Responsibilities include budget control, financial policies and procedures, and managing a team of accounting and finance specialists. Normal requirements: University degree with 6-10 years of experience. Organization has annual turnover of USD 75 million.

3 Head of organization, with responsibility covering sales/marketing, finance and administration. Normal requirements: University degree with 10 years of experience. Organization has annual turnover of USD 8 million.

4 Reports to Production Manager. Responsibilities normally include the running of a few production lines and development of production methods and processes. Normal requirements: Degree with 5 years of experience.

5 Reports to IT Manager/department head. Responsibilities include performance of computer programming and modification of existing programs. Provides support to existing systems and assist in systems design and development by conducting feasibility studies. Normal requirements: Degree with 3-5 years of experience.

6 Reports to Managing Director - provides full secretarial support to Managing Director. Plans and organizes MD's schedule, prepares memoranda and correspondence. Handles all incoming mail and correspondence, and formulates systematic follow-up on procedures, maintenance of confidential documents. Requirements: Secretarial certificate with 5 years of relevant experience.

7 Normally reports to function head. Provides full secretarial support to function head. Plans and organizes function/department head's schedule. Handles all departmental incoming mail and correspondence, and formulates systematic follow-up on procedures. Requirements: Secretarial certificate with 2 years of relevant experience.

Source: Corporate Resources Group and Invest in Sweden Agency

Swedish Salaries in International Comparison
As mentioned, the historic policies of trade unions to eliminate low-paid jobs and equalize wages has resulted in relatively small differences between the wage levels of highly-skilled and entry-level workers. Another feature of the Swedish wage structure is that engineers and technicians are paid considerably less than many of their counterparts elsewhere in Europe. This is clearly seen in the graphs below, which compare international labor costs for technical engineers and systems analysts.

Total Annual Cost, 1995

Source: Corporate Resources Group and Invest in Sweden AgencyWages and Social Insurance

As a result of long experience in managing large multinational companies, Swedish management skills have gained considerable international regard. Nonetheless, Swedish managers are relatively low paid by international standards. The graph on p. 31 shows that the top salary of a Swedish managing director in a company with annual turnover of about USD 75 million is about half that of a managing director in Switzerland, Germany or the U.S.

The average labor cost for Swedish industrial workers is also competitive. In the late 1970s, Sweden had the highest labor costs in the industrial world. However, the depreciation of the krona in the early 1990s has led to a marked reduction in Swedish relative wage costs. Combined with strong productivity increases, relative unit labor costs in Sweden fell by 27 percent between 1991 and 1995, with enhanced competitiveness as a result.

© 1996 by Invest in Sweden Agency