(Bloomberg) --
Sweden is about to find out just how much of a game changer the coronavirus has been for its economy.
With wage talks for 3 million employees under way, union bosses for public sector workers such as nurses are banking on a lot more popular support to help force through their demands. The upshot could be a hefty increase in pay levels that ends up jump starting inflation and filtering through the entire economy.
“People literally stop and applaud our members, and support galas have been arranged for those who work in welfare,” Tobias Baudin, the leader of the municipal workers union, said in an interview.
Those displays of sympathy suggest unions are entering wage talks in a uniquely strong position, he said. It's a pattern that's likely to play out elsewhere in the world, as emergency workers facing the daily brunt of the coronavirus pandemic emerge as the heroes of the day.
“It will be difficult for most countries not to heed calls for higher compensation of health-care workers amid the pandemic,” said Bloomberg Economics' Johanna Jeansson.
Perhaps surprisingly for a country renowned for its social welfare net, some emergency workers in Sweden are currently struggling to get by. Baudin, who has until Oct. 31 to strike a deal, wants 3.5% in wage increases for his members, which would represent the biggest bump in half a decade.
Sara Nordin, an assistant nurse at an intensive care unit where she's experienced the horrors of Covid first hand, says she can't make ends meet on the $33,600 basic pay she gets a year.
“My monthly salary is nowhere near it should be,” the 36-year-old mother said in an interview. “I don't have the strength to stay and remain positive. It takes so much energy.”
Hoping for Inflation
Unions have some powerful backers. Per Jansson, a deputy governor of the Riksbank, says that the current slow pace of wage growth isn't “at all” good for the Swedish economy.
Jansson says if the existing wage regime persists long term, it would hamper the Riksbank's efforts to reach its price target. Inflation was 0.7% in August, well below the Riksbank's 2% target. SEB, one of Sweden's biggest banks, estimates inflation slowed to 0.5% in September.
It's worth noting that talks for 2.8 million private sector workers collapsed last month, threatening to trigger a government crisis as Prime Minister Stefan Lofven faces pressure to change labor-market laws. Last night, party leaders agreed to give employer and employee groups longer to strike a deal, but Sweden remains in the grip of historic tensions stemming from its labor market.
Mats Kinnwall, an economist at the Association of Swedish Engineering Industries, says a wage bump along the lines being demanded is “completely unrealistic.”
He acknowledges that the pandemic has changed perceptions, but warns that the pay increase unions want would pose “a huge strain” on the domestic economy.
But Jeansson of Bloomberg Economics sees less reason to fear wage hikes in Sweden. “If health workers get pay increases well above the mark that's based on average productivity, of course it could spark inflation,” she said. “But these days, any upside risks to inflation would be welcomed by the central bank.”
For Nordin, it's already too late. She's now decided to quit her job after nine years at the Nya Karolinska Hospital in Stockholm and will instead start working in adult education. The job switch means her monthly salary will go up by nearly a third.
©2020 Bloomberg L.P.
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