
Field:
Labor and skills shortages
The Swedish labor market is constituted by a major share of white-collar work and the educational requirements are increasing. Sweden is being classified as one of the countries with the highest rate of change in demand for new work skills. Meanwhile, many employers are struggling in their search for desired workers and competences.
In a recent survey targeting small firms in Sweden, the struggle to find desired workers is highlighted as the single greatest barrier to firm growth (Företagarna, 2022). The current situation brings challenges for both workers, whose skills need to be updated, and for employers in their search for the right skills.
The prevalent shortages of labor and certain skills are likely to have negative implications for the process of structural change and for economic growth. The government plays an important role in counteracting such shortages through, e.g., education spending and in continuously promoting supplementary training among workers and employers. The challenges related to labor shortage and skills shortage are highly prioritized within politics but involve multiple knowledge gaps. For example, it is in some instances unclear whether the employers´ perceived shortage refers to the employees´ current skills or to the number of employees, i.e., to the shortage of skills or labor. Furthermore, in some instances, it is challenging to identify policies that are effective in counteracting shortages and knowing in which context these policies should be implemented.
The purpose of this report is to fill such knowledge gaps. Specifically, the report describes, at a general level, Sweden´s current situation regarding skills shortage, labor shortage, shortage occupations, and previous policies related to counteracting shortages. Thus, this report is a general overview on these topics. The report describes (i) how shortage is defined in economic theory, (ii) factors that lead to shortages, (iii) previous research, and (iv) both adopted and suggested policies to counteract shortage situations. This report constitutes the first study within a larger project that focuses on skills shortages, labor shortages and STEM occupations on the Swedish labor market.
The main findings
The main findings regarding how shortage is defined and factors that cause shortages are summarized below.
- Definition of shortage. According to economic theory, a shortage of either labor or skills is created when demand exceeds supply. A shortage of labor is created when the number of employees demanded by an employer exceeds the number of employees available. A shortage of skills occurs when the current skills of employees do not correspond to the skills demanded by an employer.
- Factors that cause shortages. There are multiple factors that can lead to shortage situations on the labor market. A shortage can either be driven by the demand side or the supply side. A demand driven shortage occurs when demand for certain labor or skills increases (in relation to the supply). A supply driven shortage is created by a decreasing supply (in relation to demand), e.g., due to lacking work conditions or insufficient wages. Another factor is the rapid technological development, resulting in a demand for new skills. The structural change that it entails might cause shortages within certain regions or sectors. A third factor is the matching problems present on Arbetskrafts- och kompetensbrist-En kunskapsöversikt 10/44 the Swedish labor market, which are particularly troublesome for unemployed individuals. These matching problems lead to a gap between available and demanded skills, and, thus, to shortages within some areas on the labor market. The report also discusses a number of policies with the aim of counteracting shortages of labor and skills. These policies are briefly described and summarized below.
- Adult education policies – efficiency determined by their design. Policies have been implemented to incentivize employers and employees to provide and participate in adult education, respectively. Previous research finds that employers – especially small firms – might have weak incentives to offer adult education to their employees. In Sweden, both tax reliefs and subsidies have been used to strengthen such incentives. Internationally, individual learning schemes have been introduced to improve the possibility of individuals to participate in adult education. The overall finding from previous research is that the efficiency of these kinds of policies is determined by their design.
- Higher vocational education improves labor market outcomes and is closely linked to labor market demand. A common type of adult education is higher vocational education. The previous research finds positive effects on individuals´ labor market outcomes from participating in such education. In addition, higher vocational education is closely tied to labor market demand, implying it is efficient in counteracting shortages.
- Labor market programs closely connected to employers are particularly successful. The findings from previous research on the effects of participating in labor market programs are somewhat mixed. In particular, labor market programs that are closely linked to employers and their needs seem to be efficient. However, the target group of labor market programs is unemployed individuals, meaning that such policies are unlikely to be successful in counteracting shortages linked to advanced skills.
- A greater supply of standalone courses and distance education. This has been highlighted as a potentially important factor for both low-educated and elderly – for whom longer education spells are not an option – and for those who are already educated but are in need of additional skills development throughout their careers.
- Labor market intermediaries and matching support programs result in shorter unemployment spells, but effects are contingent upon their design. Findings from previous research suggest that these policies lead to shorter unemployment spells, but that the effects are contingent upon how the policies are designed. Labor market intermediaries do not appear to increase the geographical nor occupational mobility of unemployed individuals, suggesting that such policies might not be efficient in counteracting shortages in areas where demand is high. As for labor market programs, the target group of these policies is unemployed individuals, meaning that they are unlikely to counteract shortages linked to Arbetskrafts- och kompetensbrist-En kunskapsöversikt 11/44 advanced skills.
- Labor immigration is increasingly shifted towards shortage occupations. The labor immigration of individuals born outside of Europe to Sweden has increased in recent years. A large – and growing – share of the labor immigration is constituted by occupations in which there is a shortage. Thus, labor immigration is likely to counteract labor shortages on the Swedish labor market. However, previous studies suggest that the labor immigration system could be made more efficient by shortening the evaluation period of new applicants and by improving monitoring to prevent misuse.
- Being able to attract and retain high-skilled labor from other countries. To make Sweden more attractive for high-skilled labor from other countries, numerous policies have been discussed. These include making the work permits for high-skilled labor immigrants both more long-lasting and flexible, and providing support to firms interested in hiring such workers but that lack access to an international network. It has also been discussed that foreign-born students and researchers should be given additional time to find a job in Sweden and that higher education institutions should engage more in establishing them on the Swedish labor market. Also, the process of receiving a Swedish social security number and a population registration certificate could be shortened. Sweden offers a tax reduction for foreign experts, researchers and individuals with key competences. It has been suggested that the effects and potential development of this tax reduction should be evaluated.
- The R&D tax relief can counteract shortages of highly qualified labor. Since 2014, Swedish firms have been offered a payroll tax reduction for employees within research and development (R&D). Findings from previous research suggest that the payroll tax reduction has had positive employment effects among R&D personnel, both in absolute and relative terms. Thus, the R&D tax relief can counteract shortages related to highly qualified labor.
- Student Finance for Transition and Retraining & Introduction Jobs – two new policies with the potential to counteract shortages. At the end of 2022, a policy was introduced that provides student finance for employees in need of transition or retraining on the labor market. The aim of this policy is to incentivize employees to educate themselves throughout their careers. This student benefit is only granted within areas on the labor market in which there is a perceived shortage. Introduction Jobs is a forthcoming subsidized employment policy with the aim of enhancing labor market entrance for newly arrived immigrants and long-term unemployed and, simultaneously, improving firms’ skills supply. Both of these policies could potentially counteract shortages on the labor market, but it is too early to evaluate their effects and efficiency.
A general conlusion
A general conclusion from this report is that there is no panacea for counteracting shortages on the labor market. Instead, a wide range of policies and actions are needed. There are several reasons why this is the case. For instance, the appropriate policy for counteracting shortages depends on whether the shortage concerns labor (number of Arbetskrafts- och kompetensbrist-En kunskapsöversikt 12/44 workers) or certain skills.
In addition, the appropriate policy is also contingent on whether a shortage is driven by an increased demand or a decreased supply, and – also - by the qualification and skills requirements related to a specific shortage. A challenge is the existing mismatch between demanded and available skills on the labor market, resulting in high unemployment rates within some groups while employers experience a shortage both in certain labor and skills. This is further aggravated by the fact that today´s technological development leads to rapid change in the skills demanded on the labor market.
Labor and skills shortages
Serial number: Report 2024:01
Reference number: 2024/85