July 03, 2005

Immigrants and the labor market: The Swedish system at its worst

By Tino

Of Sweden’s population of 9 million, some 12% are born in another country. These are higher numbers than even the USA, at least for legal immigrants. Of these some 300-350.000 are Muslims, although of course many - such as I - are only nominally Muslims.

Sweden’s greatest failure in immigration policy has been massive unemployment. Last year 75% of native Swedes were employed compared toonly 59% of immigrants. An additional 5-7% of each group was in hidden unemployment such as sick-leave or government programs.

Of the immigrants from Asia and Africa, only 47% were employed even according to the exaggerated official data. Generously adjusting for education, total unemployment of immigrants in Sweden is in the range of 30-40%, and more than 50% for some groups.

While 3% of native Swedes received welfare at least once during the year, the figure for all immigrants is 17%. In the US the corresponding figures were 1.6% for native households and 2.3% for immigrants. To be clear, while this is Sweden’s largest social ill; the economical problem cannot be blamed on the immigrants. Four fifth of those outside the labor market are native born Swedes.

1. Natural experiment

In America unemployment among immigrants is lower than the native population. Until the mid 1970s the same was true for Sweden.
The Iranian group illustrates the contrasts. There are many in both countries. It is hard to know how important the selection difference was, but I doubt it very significant.

In Sweden Iranians has one of the highest unemployment figures, above 50% if you include welfare, sickleave and early retirement. The unemployment figure is the US is 3%, well bellow national average.

The average labor income in the years was 12.500 $ per adult Iranian and 20.500 for a native Swede. Average income for adult Iranians in the US is 47.000 $. While 37% of Iranian received some or part of their income from Welfare in Sweden, the corresponding US figure for public assistance was 4.3%.

2. Explanations: Taxes and benefits

One clue is to observe that for those who have jobs there are relatively small labor income differences, only 7% higher for natives. While you might see this as something good, it is likely to be a symptom of the problem.

There are in practice no jobs in Sweden that pay below 17000 $ per year (13.000 kr/month). including employers fees this is 23.000 $ in labor costs, well above what many newcomers can produce for. After taxes you get to keep half, same or less than you would get from welfare or early retirement.

The wage structure is artificially compressed, by a combination of the powerful unions and the welfare system. The high “floor” given by welfare may seem nice, but leads many less skilled workers permanently out of work. No one is willing to pay them before tax to wrok what the state pays them after tax not to work. Instead of the market adjusting with price it adjusts with quantity, in another words you get mass unemployment. This would explain why unemployment among immigrants with academic education is lower.

3. Dilemma Indeed

Most who come to America initially start of with relatively low incomes. By doing this they can quickly accumulating country specific skills (language, culture, market information). The growth in income is rapid the first few years, often surpassing natives after some time.

Immigrants into Sweden face a different situation. Somewhat similar to the Ljungqvist and Sargent story, the incentives of workers who just had a large shock to their human capital (by moving to another country) to re-enter the labor market and build up new human capital is artificially reduced.

4. What Thomas Friedman gets and most Swedes don’t

In addition, the rigid labor regulations create disincentive to hire worker new to the market. In Sweden the employer is by law forbidden to fire workers they do not want to keep. Instead, you have to follow the list by time of entry. This hurts all newcomers, and has the added effect of making employers especially risk averse to hire immigrants whose skills and suitability may be harder to judge to employers.

5. Norms, Living segregation and Dynamic effects

Many midd-easterners and africans live in large concrete ghettos similar to (but not as bad as) US inner cities. This combines with the high unemployment above can lead to permanent problems though the effects on social capital effects. When everyone around you is unemployed the norms can change. Kids do not learn work ethics, and no one considers it a stigma to not work, marketknowlege is not transmittet naturally etc.

To the degree that the quality of school is dependent on the peers segregation creates bad schools (immigrants in ghettos are 3-4 times more likely to drop out of high school). No one has yet done this in Sweden, but the same memechanism is likely at work.

6. Blame the Capitalist

The resentment in these communities is understandably large. Our ruling elite are busy politically exploiting the underclass their own economic policies has created. By presenting the current problems as result of racism by the “Market” the rage is directed against the private sector. After all, you are bound to be grateful to the party that is giving you welfare handouts, and the alternative, a real market job, is quite abstract.

By instilling the identity of oppressed victim dependent on government handouts, the socialists hope to bind the immigrants to them. Recently the Swedish government appointed an unknown Marxists with 1 academic publication as Professors of Sociology. They also gave him the task to investigate integration. Surprisingly enough, he found that the lack of integrating was due to “structural racism”, inherent as we know to capitalism.

Any decent person who is accepted by Sweden as an immigrant should be very grateful. Swedes did not have any obligation to accept us, and yet they have. But this moral gratitude is not to be directed at the Ruling party, but the Swedish nation as a whole. When the interests of the two do not coincide the choice should be clear.

Posted at July 3, 2005 11:09 PM


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