Labour market outlook, spring 2015 SUMMARY

Labour market outlook, spring 2015 SUMMARY

Ura 2015:4 Labour market outlook Spring 2015 Summary The next few years will be characterised both by continued improvements in job growth and more people entering the labour market. This will cause unemployment rates to fall but at a slow pace. Among 16 to 64-year-olds, unemployment is expected to fall from 8 per cent in 2014 to 7.5 per cent in 2016. To a great extent, those changes in the labour market are due to people born outside Sweden, which is linked to the fact that the number of Swedish-born 16 to 64-year-olds continue to fall. Consequently, our conclusion is that it is necessary to maintain large net immigration in the future. It is a prerequisite for being able to satisfy the future needs of the labour market and for maintaining welfare policies. In an international perspective, the Swedish labour market continues to be strong. In spite of this, there is a risk of continued growth in structural unemployment. Thus, the labour market policy challenges will continue to grow over the upcoming years. This is linked to a large influx of job-seekers that lack second-level education. The share of groups with considerably lower chances of finding employment will grow steadily. This will increase the importance of employment officers being able to provide more time for each job-seeker in that situation. Further improvement of integration is the key to succeed, as the improvements so far have been insufficient. Increasing global growth In spite of a continued expansive monetary policy and a depressed oil price, activities in the global economy only improved at a modest pace in 2014. Global prospects are slowly brightening in 2015 and 2016, but improvements are slow. Global GDP growth is estimated at just shy 3.5 per cent for 2015 and around 4 per cent for 2016. The American economy will be the engine of the world economy. The contributions from emerging economies remain substantial, but will be smaller than previously. Currently, things in the Eurozone are also looking up and we are expecting a more pronounced recovery than what was previously foreseen. The Swedish economy and labour market will benefit from the gradual global-level improvement. Following a marked weakening in Q1 2015, the growth in the American economy is expected to gradually pick up throughout the remainder of the year. Thus, there is much to indicate that the slow-down of the American economy was only temporary. The weakening is linked to the harsh winter weather and dock strikes on the Pacific coast. The American labour market will continue to improve in 2015 and 2016. Unemployment is expected to fall below 5 per cent in 2016, thereby enabling American households and businesses to act as a driver of the global economy. This will also mean that we are getting closer to the point when the Federal Reserve increases the federal funds rate. All in all, the American GDP is expected to rise by 2.1 per cent in 2015 and by 3.0 per cent in 2016. This can be compared to 2.4 per cent in 2014. The recovery in the Eurozone continues and incoming statistics indicate that the trend is stronger than previously expected. The development in the Eurozone benefits from a number of different factors. The continuation of the very expansive monetary

Labour market outlook Spring 2015 2 policy primarily the extensive purchasing of bonds by the ECB has led to increasing granting of credits and growing optimism among both households and businesses. In addition, the low oil price stimulates the economy and the weakening of the euro has increased competitiveness for export companies. However, the situation is still delicate and there are underlying issues, such as high indebtedness, political uncertainty, negligible inflation and very high unemployment, in many countries. Therefore, additional reforms are necessary. The number of people in employment in the Eurozone started growing in the beginning of 2014. This trend will continue during our forecast period. Even though unemployment has culminated, it will remain high in both 2015 and 2016. The current reduction is mainly due to the growing number of new jobs. Unemployment is expected to fall to 10.7 per cent in 2016. This means the unemployment rates in the Eurozone will remain high over the next few years. The composition of unemployment is also very unfavourable. Our assessment is that the GDP in the Eurozone will grow by 1.5 per cent in 2015, compared to 0.9 per cent in 2014. For 2016, growth is estimated to be at around 2 per cent. The households remain the drivers of growth in Sweden After a temporary decline in the beginning of 2015, the growth in the Swedish economy will pick up in the second half of 2015. The relatively weak GDP development in the beginning of 2015 is a consequence of the continued slow recovery in the global economy. Arbetsförmedlingen's employer survey of 10,000 workplaces in private industry, as well as all municipalities and county councils, in the spring of 2015 indicate that people are expecting a stronger growth in demand for goods and services than was recorded in previous surveys. Expectations are also clearly above historical averages. There are also other forward-looking indicators telling us that economic activity will pick up. The picture of the Swedish economy that we painted in the previous forecast remains the same in principle. This means that domestic demand will drive growth. Households will see a continued good revenue trend while their assets will remain strong. Also, households have been unusually thrifty. This thriftiness will remain, but in 2016 we foresee households spending a bit more. Investment activities grew during the second half of 2014, but remained more or less unchanged between the fourth quarter of 2014 and the first quarter of 2015. However, the weak trend during the first quarter is explained by a temporary increase in the fourth quarter of 2014. Housing investments continued to grow apace in the first quarter. They will continue throughout 2015 and 2016, but at a slower rate than in 2014. At the same time, investments in private industry and the public sector is reinforced mainly in 2016. The slow recovery of the global economy will impact Swedish exports. The reinforcement therefore will be relatively modest in 2015, but there are conditions in place for a more distinct export growth in 2016. But imports are growing more than exports did in both 2015 and 2016. This leads net exports contributing negatively to GDP growth for the forecast period. After a growth of 2.5 per cent in 2014, we find that

Labour market outlook Spring 2015 3 GDP will grow by 2.5 per cent in 2015 and by 3.0 per cent in 2016, adjusted for calendar year. Over 110,000 more employed in 2016 Progressive indicators tell us there will be a continued high demand for labour in both 2015 and 2016. For example, Arbetsförmedlingen's employer survey in the spring of 2015 indicates that employers will continue increasing the number of employees at fairly brisk rates over the next year or two. As the economy gradually recovers, employment rates are expected to rise. For 2015, the number of employed (among 16-64-year-olds) is expected to grow by 50,000 people (corresponding to 1.1 per cent). In 2016 the number of people in employment is expected to rise by 61,000 people (corresponding to 1.3 per cent) which means the number of people in employment in 2016 will be close to 4.7 million. This can be compared to a job growth of 43,000 people equivalent to 0.9 per cent in 2014. In 2016, the relative employment rate will be 76.6 per cent. The number of employees will grow mainly in the private service sector but in relative terms, the growth is greater in the public sector. According to the National Accounts, the number of worked hours grew by 1.8 per cent in 2014. The number of worked hours is expected to grow at by decent rate in both 2015 and 2016, or by 1.6 and 1.8 per cent respectively, which is a greater increase than the expected growth of people in employment (ages 15-74). This means that average working hours is expected to increase. The productivity in the private sector has had a relatively poor trend for some time. In 2015, GDP productivity is expected to grow by 0.9 per cent, and in 2016, by 1.2 per cent. This can be compared to 0.7 per cent in 2014. Employment rates growing among the young During the forecast period, employment rate is expected to grow for all age groups but young people in particular are benefiting from the strong labour market. This is because a large part of the job growth is taking place in sectors with lower requirements on education and experience. In addition, a large part of the growth in employment, particularly among the young, is attributed to temporary employment. The number of people employed with lower education continues to grow During the forecast period, the number of people employed with third-level education is expected to grow the most, which is enabled by the continued rising labour supply with that education background. The number of people employed with second-level education is not expected to change significantly, while the number with first-level education will continue to fall. The large number of additional job-seekers with thirdlevel education leads to more of them being recruited to second-level education jobs. In Q1 2015, the group with first-level education only (25-64-year-olds) saw an employment rate of 60 per cent. This compares to almost 88 per cent among those with more than two years of third-level education (25-64-year-olds) and 82 per cent among those with second-level education (25-64-year-olds). So there is considerable potential in raising the employment rate among those with lower-level education. However, many of them need extensive skill training if this is to succeed.

Labour market outlook Spring 2015 4 People born outside Sweden account for almost the entire increase in employment Almost the entire rise in the employment rate (16-64-year-olds) assessed in this forecast 111,000 people in 2015 and 2016 is accounted for by people born outside Sweden. But this group represent the entire addition to both population and labour force. The addition mainly comprises people born outside Europe. The future growth in employment rate will be even more dependent on those born outside Sweden, since the number of people born in Sweden is falling. We find that both the number of people employed and the employment rate among those born outside Sweden continue to rise for the period of the forecast. There are indications that some parts of the integration process in the labour market have improved, in spite of the fact that we now have a larger group of immigrants, who have been in the country only briefly, competing for jobs. But the difference in the employment rate between, particularly, those born outside Europe and those born in Sweden remains significant. The difference between the two groups is particularly large for women. The labour force continues to grow Even if the number of people of working age in the population only grew very little over the past few years, the number of people in the labour force has grown considerably This is due to an increase in the labour participation of the population which partly is a consequence of a policy of stimulating supply. Arbetsförmedlingen's introduction assignment has enabled an earlier entry into the labour market for new immigrants. Immigration is expected to remain high over the next few years due to high rates of asylum seekers and immigration of relatives to residents. This provides a valuable addition to the labour force, which without immigration would have shrunk those born outside Sweden account for the entire growth of the labour force since 2008. Consequently, our conclusion is that it is necessary to maintain a large net immigration in the future. Over the next few years, labour force is expected to continue to grow apace. In 2015, it is expected to grow by 42,000 people, and in 2016 by 48,000 people. The labour participation of the population is estimated at 82.7 per cent for 2016. The supply of labour will need to continue to rise at a high rate in order to maintain a healthy and sustainable growth in employment. Strong growth in public sector employment rate Swedish industry has been marked by the global recession of the past few years and industrial production has been weak for some years. In 2014, developments were held back, as both production and order intake fell. But in Q1 2015, industrial production had a slight positive trend. Brighter global prospects and growing global trade benefit export-dependent countries like Sweden. In spite of some positive signs, there are still some concerns about developments in Sweden's industrial sector. Forwardlooking indicators such as the confidence indicator from Konjunkturinstitutet (National Institute of Economic Research) and Arbetsförmedlingen's employer survey indicate a slight weakening of expectations in the industrial sector since the end of 2014. The number of people employed in the industrial sector has fallen markedly

Labour market outlook Spring 2015 5 over the past few years. But in the past few quarters, that decline has slowed down significantly. Even if the number of employees in the industrial sector will be lower in 2015 than in 2014, we expect some job growth in 2016. The building boom continues. Our employer survey indicates that the level of demand in construction companies has grown more over the past six months than was expected last autumn. Their expectations for the future are also stronger than normal. The number of flats under construction continued to grow in Q1 2015. In addition, the number of building permits for residences and summer houses grew throughout all of 2014 and into 2015. Although, in spite of the building boom, employment in the industry has not increased. One important explanation is that many construction companies use more and more staff from employment agencies and foreign labour. The building boom indicates that employment will continue to climb in 2015 and 2016. Our assessment is that employment will grow by 4,000 people in 2015 and the same amount in 2016. The use of staff from employment agencies and foreign labour will continue to hold back job growth in those years as well. The private service sector continues to grow. Our survey indicates that expectations among businesses for the next six months are somewhat stronger than normal. Employment grew at a decent rate in 2014 and in the beginning of 2015. During the forecast period, employment continues to grow considerably. Strong domestic demand, particularly in household consumption, is expected to drive growth for the forecast period. Therefore, primarily services directed at households are expected to see strong developments, but an increase is also expected for b2b services. These employers benefit from a strong trend in the public service sector and construction, as well as growing optimism in the industrial sector. We assess the number of people employed in the private service sector will grow by 30,000 people in 2015 and by an additional 32,000 people in 2016. Job growth continues apace in the public service sector and this is also where we find the strongest relative job growth. Arbetsförmedlingen's employer survey indicates that employers are planning on employing more people in a one-year and two-year perspective as well as an increase in public sector employer activities. Over our forecast period, the economic conditions of employers will not impair their opportunities for expanding operations. Private sector employers are also planning to increase the number of employees for the forecast period. For that reason, Arbetsförmedlingen finds that employment will rise among both public and private sector employers in both 2015 and 2016. However, in certain professions, the growing shortage of labour will impede future employment growth. Cities are growing at a faster rate, but recovery will be country-wide Employment grew widely across the whole country in 2014 and a large number of regions, also outside of the major cities, showed strong employment growth. Employment will continue to grow in both 2015 and 2016 in all counties. The major city regions led by Stockholm are expected to see the strongest job growth even if employment growth is expected to pick up in the other counties by 2016.

Labour market outlook Spring 2015 6 Even if employment is expected to rise throughout the country during the forecast period, the counties of Gävleborg, Jämtland, Södermanland and Västernorrland are the antitheses of the rest of the regions. The weak trend in those counties is primarily explained by unfavourable economic structures. In some instances, job growth is also impeded by falling population in the age bracket of 16-64-year-olds. The previous pattern of stronger employment growth in regions with a more diversified economic structure is expected to remain. But in 2016, we expect a gradual increase in operations in the industrial sector, which will benefit employment rates in other traditionally more industry-heavy regions as well. Unemployment falls to 7.5 per cent in 2016. Unemployment has only shifted slightly over the past few years and averaged 8.0 per cent in 2014, corresponding to 400,000 people, from 16-64 years of age. It will continue to fall slowly in both 2015 and 2016, but the share of structurally unemployed people will increase further. In 2015, Unemployment is expected to be 7.8 per cent, and in 2016, 7.5 per cent. The fact that unemployment in spite of strong job growth is not falling more markedly is due to the continued strong growth of the labour force. It is important to map unemployment, especially to describe the groups with particular difficulties in finding employment. Full-time students applying for jobs are rarely a labour market policy issue, since many of them see their studies as their main occupation. Of the unemployed in 2014, 130,000 were part-time students actively looking for work, corresponding to 2.6 per cent of the labour force. That figure is somewhat down from 2013. The number of unemployed in 2014 who were not full-time students was 270,000, corresponding to 5.4 per cent of the labour force, which is unchanged from 2013. Unemployment among people born in Sweden has fallen, and that trend continues. On the other hand, unemployment among those born outside Sweden will only change marginally. This is linked to the fact that the entire addition to the labour force is contributed by people born outside Sweden, while the number of people born in Sweden continues to fall. Unemployment is primarily falling among young people, which is due to their benefiting from the continued strengthening of the labour market. Fewer registered as unemployed with Arbetsförmedlingen The number of people registered as unemployed with Arbetsförmedlingen i.e. openly unemployed and jobseekers in programmes with activity grants is expected to continue to fall, but at a slow rate. Of the unemployed, primarily those closest to the labour market will gain employment when the labour market strengthens. The composition of those who are registered as unemployed has changed significantly, as the number of people far from the labour market i.e. vulnerable groups continues to grow. The wide-ranging employment growth in the country is reflected in falling unemployment numbers the number people registered as unemployed as a share of the register-based labour force in most regions in both 2015 and 2016. The previously

Labour market outlook Spring 2015 7 described division, between more industry-heavy and more service-intensive labour markets, remains, which means sustained high unemployment levels in the counties of Gävleborg, Blekinge and Södermanland. Those counties are expected to see unemployment levels in excess of 10 per cent in Q4 2016. At the same time, we are expecting low unemployment levels to continue in the counties of Uppsala, Stockholm and Halland. Among the major city regions, the county of Skåne is expected to have the highest unemployment level. Focusing on matching in 2015 and 2016 The essence of Arbetsförmedlingen's remit is to match job-seekers with the needs of employers. In 2015 and 2016, Arbetsförmedlingen will be affected by the fact that labour demand will primarily benefit job-seekers with second and third-level education while the number of job-seekers with lower-level education is rising. The structure of unemployment in 2015 is markedly different compared to previous economic situations. There is a good supply of job-seekers with lower-level education or professional skills for which there is only limited demand. The number of unemployed with difficulties finding work will thus increase during the forecast period. Consequently, the challenges to Arbetsförmedlingen's matching process will grow. In order to maintain the supply of demanded labour over the next few years, our work on strengthening the position of the unemployed in the labour market will be especially important. Transitioning and mobility in the labour market must be high and it is important to work actively, targeting the unemployed who have difficulties finding a solution to their labour market problems. It is important to counteract structural unemployment, i.e. the unemployed who have a level of education or skill set for which there is low demand, irrespective of the economic situation. If we fail in this, the NAIRU (Non-Accelerating Inflation Rate-of-Unemployment) will increase. Konjunkturinstitutet estimates the Swedish NAIRU at 7 per cent. Matching difficulties have not increased from an employer perspective Labour demand has continued to grow over the past year. Such a trend normally increases the shortage of trained and experienced labour. The shortage of labour has also increased in the private sector, but only to a relatively limited extent. The shortage of labour is still also lower than at corresponding previous demand situations. Even if shortages in the private sector are expected to increase during the forecast period, there are no indications that they will have a negative impact on the economy in 2015 and 2016. There are probably more contributing factors to the continued limited recruitment problems. One important factor is that labour demand is almost recovered in private service sectors with less requirements for education. Also, demand in the private service sectors is primarily found in the three major cities, where access to labour is good. Another contributing factor to the labour shortage only increasing to a limited extent is the growing number of foreign entrepreneurs, particularly in certain sectors such as construction and transport. It has also become more common to outsource jobs to companies in other countries, e.g. in IT and technology. There is also some influx of

Labour market outlook Spring 2015 8 labour to some professions with a shortage of skilled employees. Other explanations may be that employers are finding it easier to reach the labour they wish to recruit, for example through social media, and that there are still large numbers of people applying for the available vacancies. Growing strains on recruitment to public sector jobs Within parts of the public sector, the recruitment situation is strained and shortages will become more pronounced over the next few years. The shortage of skilled labour is expected to increase gradually and employers will find it difficult to maintain services in their operations. The shortage of labour risks slowing down the overall employment growth in the sector. The shortage of skilled labour is particularly great in professions requiring third-level education, but there is also a clear trend towards an increasing shortage in healthcare professionals with second-level education. The increasingly problematic recruitment situation is connected to several factors. One important factor is the fact that many professions are seeing a structural deficit in the number of graduates. The reason is that the number of places in appropriate education programmes is too low and, in many instances, there are too few applicants. Another contributing factor to the increasing shortage of skilled labour is that the generation change still affects recruitment in many regions outside the three major cities. Shortage of labour in some industries The shortage of labour in the private sector is expected to increase slightly by the end of 2016. The increase is limited to certain industries. The public service sector will continue to have recruitment problems. The shortage is expected to most apparent in the following professions: Healthcare providers Teachers IT and technology Construction Qualified jobs in industry Some individual service sector professions More and more of those registered as unemployed have a vulnerable position in the labour market Arbetsförmedlingen has been given more extensive responsibilities through the introduction assignment and the health insurance reform. This has led to the composition of those who are registered as unemployed having changed considerable. A growing share of those who are registered with Arbetsförmedlingen belong to groups who have more difficulties finding work than others and who therefore run the risk of long-term unemployment. These groups include people with first-level education only, people born outside Europe, people aged between 55 and 64, as well as people

Labour market outlook Spring 2015 9 with functional impairments leading to a reduced work capacity. These groups are designated as vulnerable. The group with first-level education only include young people with insufficient education. Although, young people are not generally considered being in a vulnerable position in the labour market. It is important to stress that those who are considered to be vulnerable on average have more difficulties finding work than other groups in the labour market, but there are individual differences in each group which means that not everyone have difficulties finding work. The job opportunity, i.e. the share of the unemployed every month that transition into employment, is twice as great for groups in a stronger position in the labour market compared to those in a vulnerable group. In Q1 2015, job opportunity was rated at around 5 per cent for vulnerable groups compared to around 11 per cent for those in a stronger position in the labour market. Rising unemployment among disadvantaged groups In April 2015, a total of 366,000 people were registered at Arbetsförmedlingen as unemployed. Of those, 68 per cent or 250,000 people belonged to groups considered disadvantaged. And more than half of them have been unemployed for more than a year. The falling number of people registered as unemployed that is expected for 2015 and 2016 will entirely come from groups with a stronger position in the labour market. At the same time, the number of disadvantaged unemployed is expected to rise throughout these two years. The main reason is a continued influx of new immigrants to the introduction assignment. This is a consequence of the large number of refugees, primarily from Syria, but also from other countries with political instability. Another factor contributing to the rising number of disadvantaged unemployed people, but to a lesser extent, is the transfer of people to Arbetsförmedlingen from Försäkringskassan (the National Insurance Agency). Unemployment is mainly rising among men in a disadvantaged position. This is primarily due to the fact that more men than women migrate. But we are also seeing a trend of growing unemployment among women in disadvantaged groups as well. But unemployment is falling among both men and women with stronger positions in the labour market. The share of unemployed with a disadvantaged position is expected to reach 70 per cent by the end of 2015. In 2016, the share is expected to continue to rise and exceed 75 per cent in the second half of the year. The share of disadvantaged groups is growing partly due to a continued rise in the number of unemployed in disadvantaged groups and partly due to a fall in unemployment among other groups. The number of unemployed born outside Europe is steadily increasing People born outside Europe are currently the largest disadvantaged group. The number of people born outside Europe that are registered as unemployed has grown steadily, from 40,000 people in 2008, to 130,000 people in April 2015. The sharp rise is explained by the large influx of people to the introduction assignment after its inception in 2010. As refugee migration is expected to be substantial in 2015 and 2016, this group will grow further over the next few years. In the past year, unemployment among people with first-level education has fallen. That decrease has now

Labour market outlook Spring 2015 10 stopped and the numbers are growing again. Overall, this group comprised 116,000 people in April 2015. Nearly half of them, or more than 50,000, have not finished first-level education. People aged 55-64 years as well as people with functional impairments have seen unemployment fall over the past year. But the rate of decrease has slowed down, especially for 55-64-year-olds. The number of people aged 55-64 years registered as unemployed was 55,000 in April 2015. The corresponding number for people with functional impairments was 75,000.

Labour market outlook Spring 2015 11 Chosen indicators Source: SCB, Arbetsförmedlingen 123 Percentage change Forecast 2012 2013 2014 2015 2016 GDP, at market price -0,3 1,3 2,3 2,7 3,2 GDP, working day adjusted 0,1 1,3 2,5 2,5 3,0 Hours worked, working day adjusted 0,7 0,3 1,8 1,6 1,8 Productivity growth -0,6 1,0 0,7 0,9 1,2 CPIF, inflation, year average 1,0 0,9 0,5 1,0 1,6 Hourly wage 1 3,0 2,5 2,9 2,9 3,2 Households' actual disposable income 2 3,8 2,1 2,6 2,7 2,3 Private spending 0,8 1,9 2,4 2,2 2,6 Savings ratio, incl. contractual pension 3 15,2 15,6 15,8 16,2 15,9 Key figures 4 Thousands/per cent Change, thousands/percentage points Outcome Forecast Outcome Forecast 2013 2014 2015 2016 2013 2014 2015 2016 Labour force (ages 16-64) 4 948 4 988 5 030 5 078 53 40 42 48 Employed (ages 16-64) 4 545 4 588 4 638 4 699 43 43 50 61 Unemployed (ages 16-64) 403 400 392 379 9-3 -8-13 Unemployment rate (ages 16-64) 8,1 8,0 7,8 7,5 0,1-0,1-0,2-0,3 Relative labour force numbers (ages 16-64) 82,2 82,6 82,8 82,7 0,7 0,4 0,2-0,1 Employment levels (ages 16-64) 75,5 76,0 76,3 76,6 0,6 0,5 0,3 0,3 Registered unemployed people (ages 16-64) 5 404 379 367 347 11-25 -12-20 Labour market policy programmes (ages 16-64) 6 201 191 197 205 14-10 6 8 Employed (ages 15-74) 4 705 4 772 4 840 4 919 48 67 68 79 Unemployed (ages 15-74) 411 411 406 395 8 0-5 -11 Unemployment rate (ages 15-74) 8,0 7,9 7,7 7,4 0,0-0,1-0,2-0,3 Source: SCB, Arbetsförmedlingen 56 1 Relates to wage development statistics. 2 Relates to households and not-for-profit organisations. 3 Per cent of disposable income. 4 The sums are not always correct due to rounding off. 5 Arbetsförmedlingen s operational statistics. 6 Arbetsförmedlingen s operational statistics.

URA 2015:4 Arbetsförmedlingen 2015-06. Photo: Scandinav, Fotograf: Thomas Adolfsén 113 99 Stockholm Phone 0771-60 00 00 www.arbetsformedlingen.se