The changed role of the state in connection with major workplace closures
Over the past fifty years, the role of the state in connection with major workplace closures and workforce reductions has changed. However, what role the state will take in the future is not obvious. In this study, we investigate how the role of the state in restructuring has changed over time.
What role the state will take in connection with major workplace closures in the future is not obvious. Therefore, the main objective of this report is to investigate:
- How has the role of the state in restructuring changed over time?
- How is restructuring managed in other European countries?
- How can the Swedish restructuring system be adapted to new challenges such as globalization, new technology, and climate change?
How has the role of the state in relation to restructuring changed?
A central observation is that the role of the state in conjunction with restructuring gradually has been transformed to support and complement restructuring measures financed and administrated by the social partners. Through the collective agreements, the social partners have created independent organizations, the so-called job security councils, offering transition support to dismissed workers. Within the Swedish context, the development of active labour market policies occurs within the framework of the collective agreements as instituted by the social partners. In addition, the government overtime has encouraged the social partners to extend the reach of the collective agreements to new uncovered areas. Thus, the role of the state evolved in the direction of supporting, supplementing and cooperating with the social partners instead of directly directing and implementing active labour market policies.
There are several possible explanations for this development. The first are the limitations that EU membership puts on the scope of the state's actions in order to maintain fairness and competitiveness of the EU common market. A second possible explanation relates to the changing nature of structural transformation. In recent years, layoffs has become more common but in the same time layoffs are not seen as crises in the same way as they used to be, but instead as an opportunity for the reallocation of the labour force to more productive activities. Moreover, owing to the gradual transformation towards a service- and knowledge-based economy the demand for restructuring measures tailored for highly skilled workers increased substantially in recent years. Hence, it is widely believed that the decentralized job security councils are better equipped to deliver these services in a more appropriate way, compared with the centralised governmental actors.
How do other European countries manage restructuring?
An international comparison with other European countries shows that the Swedish restructuring policy is unique. In no other country is there a restructuring policy with as clear and well-defined focus on offering support for redundant workers to new employment through a decentralised system based on the commitment of the social partners. The comparative analysis suggests quite a large spectrum of variation in terms of the state’s role in the restructuring policy. This can vary from frameworks where the state’s role is minimal and relies on free-market mechanisms to heavy state intervention where the aim is the maintenance of existing industrial structures. Moreover, in recent years, we observe that more countries are shifting towards a more decentralised system where the social partners are the primary drivers of the restructuring policy.
The analysis shows as well that there are advantages and disadvantages with different types of measures to manage restructuring as it is difficult to identify the best policy mix in terms of active labour market policies. For instance, we have found that some measures have been used more commonly in other European countries compared to Sweden (e.g. wage cuts, early retirement and short-term work). A country's restructuring policy is dependent on the goals of the dominant actors, the historical context, and the needs of structural change in the economy. Hence, taking into considerations these preconditions is primordial in order to develop an effective restructuring policy.
What does the reform of the European Globalisation Fund mean?
Currently, the rules of eligibility to apply for financial support from the European Globalisation Adjustment Fund (EGF) are under revision for the next budget period 2021-2027. The new rules will most probably require that countries provide strong evidence that a large downsizing or bankruptcy occurs due to globalization, technological disruptions, such as automation or digitization, or is part of the transformation towards a fossil-free society. Support from the fund will also in the future require that the Swedish government approves the application and co-finances parts of the measures directed to redundant workers. The government therefore has a role to decide which redundancies should be eligible for support and, if so, what type of measures to co-finance.
Our analysis shows that there are several difficulties associated with discerning the reasons for a company's decision to terminate employees or to close down a business. The causal relationships are often complex due to the presence of several factors at work simultaneously. Hence, the earmarking of state funds for financial aid to dismissed workers based on predefined causes is difficult. However, it may be possible to identify specific cases of restructuring where it is appropriate for the government to offer such support, for example if the closure or the dismissals occur due to EU policies.
In this context, applying for the financial support from the EGF ought to occur in combination with the restructuring measures provided by the social partners. However, in the case where the EGF measures are not effective, the state needs to support other measures to address the adaptation needs of businesses. A prime example where the EGF support is potentially ineffective is when dealing with immediate and short-term transformation pressures, such as production disruptions or demand reductions owing to extreme weather conditions or pandemics.
The Swedish restructuring policy: A way forward
The study points to several possible future policy options for the state in relation to restructuring and industrial change. A return to the transformation policies of the 1970s is neither possible nor desirable. An alternative is that the state continues in the already established direction, where the state gradually phases out its role in connection with restructuring, while the scope of measures organized and financed by the social partners is expanding. This strategy is, however, limited and dependent on development among the social partners. A third alternative is to rely more on market mechanisms where the private players manage the restructuring policy. However, and given the central role of restructuring policy for the competitiveness, growth and welfare of society, a complete surrender appears to entail major risks. An obvious risk is that large groups of companies and employees will be left without support in major crises.
Yet another alternative is to develop the role of the state as a complementary actor in relation to the social partners. In other words, the state would ensure the availability and access to relevant measures in the event that other actors fail to do so. These measures must be in line with the goal of increasing productivity, societal prosperity and stable growth. This means that the role of the state is to strike a balance between complementing the measures offered under the joint agreements between the social partners and the measures offered, for example, by the EU globalization fund.
Based on the historical analysis, the review of the scientific literature, as well as the international outlook, we conclude that the Swedish restructuring system functions quite well. Consequently, there are no obvious reasons to change the current model where the social partners administer and finances a large part of the restructuring measures. The government should continue to support collaboration between the parties within areas where the social partners not yet have developed joint solutions. One such example could be efforts in sectors where the social partners have not yet reached an agreement.
As already mentioned, the Swedish government should also consider the possibility to apply for support from the EGF, under certain conditions. These can include for instances cases of major closures and workforce reductions that are clearly associated with decisions of the EU Commission regarding for example trade policy, economic sanctions and climate policy. Another issue to consider is how the state's efforts in connection with restructuring should be organized in the future. Currently, the state's arsenal in terms of restructuring policy is distributed across several authorities.
The changed role of the state in connection with major workplace closures
Serial number: PM 2020:11
Reference number: 2020/060