Implementing Flexicurity in Sweden?

Sammanfattning: Flexicurity, the term used to describe the Danish labour market regime, combines employment flexibility with income security and active labour market programmes. In recent years the model has received international recognition for its abilities to fight unemployment. The purpose of this thesis is to analyze if it would be possible to implement such a model in Sweden and investigate what would happen to the unemployment rate. In order to examine the different components of Flexicurity and their effect on the unemployment rate we apply a general equilibrium model on unemployment as well as an empirical analysis. Further, we study a possible implementation in Sweden by running a theoretical model and reviewing what the literature has to say on exporting Flexicurity. Our results indicate that relaxing the employment protection legislation in Sweden would not yield a significant effect on overall unemployment but rather redistribute employment from incumbent workers to youth. Also, increasing spending on active labour market programs could decrease the adverse effects of generous benefit levels, thus lowering unemployment. However, we conclude that the implementation seems unlikely due to a combination of vote maximizing politicians and Sweden’s institutional setup.