ABSTRACT
How resilient will the Swedish welfare state be in the face of further rapid technological change? In other countries, labor markets have become more polarized while in Sweden the effects have so far been limited. The country also benefits from having in place a safety net for its citizens and well-endowed structural funds for retraining of displaced workers. The institutions built up during in the aftermath of Sweden’s crisis in the 1990s further helped in containing the fallout from the Great Recession two decades later. On the surface, Sweden thus seems well prepared. But outside of the main urban areas, municipalities are at risk from digitalization affecting almost all sectors at the same time. With high taxes also on middle-income earners and a shortage of skilled labor in key segments of the labor market, tax bases could begin to erode. Automation and platform-based labor markets open additional possibilities to substitute away from labor to machines. The result is further labor-market polarization and more strained financing of comprehensive social welfare. Upholding the social contract in the welfare state is already becoming a challenge.
