Although unions are under pressure all over the world, they still carry a lot of weight in some countries. Sweden, the largest Nordic nation with a population of about 10 million, is a preeminent example due to its strong unions and well-functioning industrial relations system.

A recent report authored by the leading Swedish labor scholar Anders Kjellberg, emeritus professor of sociology at Lund University, provides exhaustive statistics about recent developments in Sweden. For full disclosure, I have edited the report.

One key finding is that overall union density (the share of workers who are members of a union) in Sweden currently stands at 69 percent, nearly seven times the 10 percent reported for the US by the Bureau of Labor Statistics.

However, if we disaggregate today’s headline figure of 69 percent, we find that union density for blue-collar workers is only 59 percent, while it is 73 percent for white-collar workers. The report also highlights a downward trend: union density peaked at 85 percent in the mid-1990s, and has fallen almost every year since then, except during the pandemic (2020-2021), when it increased slightly.

Union membership has dropped in particular among foreign-born, young workers, and temporary employed. The declining union membership among foreign-born workers is especially concerning, as that they have grown from 16 to 32 percent of the workforce over the last 15 years.

The fact that a rapidly growing part of the workforce is becoming less organized should be taken as a serious challenge to the Swedish labor market model, and one that unions urgently need to address. Union density among foreign-born employees now stands at 59 percent overall and 51 percent for foreign-born blue-collar workers, which is considerably lower than for their Swedish born colleagues.

It may seem surprising that the negative trend in union density has not (yet) affected collective bargaining coverage, which has remained stable at almost nine out of ten employees for at least 20 years. That headline figure breaks down into eight out of ten private sector employees, and all employees in the public sector.

This extremely high collective bargaining coverage relates to another important difference between the Swedish industrial relations system and that of US, namely sectoral bargaining (a topic on which the Center for Labor and a Just Economy has done important work). Contrary to American labor unions, Swedish unions generally do not negotiate collective agreements with individual employers, but with employer associations at the sectoral level (for example the manufacturing industry, the retail sector, or municipalities).

In the Swedish system, all employees of a company are covered by a collective agreement – regardless of whether they are union members or not – if the company is a member of an employer association. In other words, Swedish employers play a crucial role in upholding collective bargaining coverage. Hence, for sectoral bargaining to be sustainable, organizing must be seen as beneficial by employers – not only by employees.

Sectoral bargaining and highly organized employers also contribute to the stability in outcomes of Swedish industrial relations, which is evident when it comes to key issues like wage bargaining and labor peace.

Labor conflicts are exceedingly rare, even compared to other Nordic countries. The mere threat of collective action such as strikes by strong unions, paired with an institutional and legal framework that underpins worker power and organizing, are enough to induce employers to enter collective agreements with unions without the need to resort to industrial strife. When strikes do happen, they are usually short and targeted to key employee groups. This stability is attractive for businesses, especially the export-dependent and just-in-time-operating Swedish manufacturing industry.

Stability has also characterized wage formation in the past decades. Until the current inflationary period, wages have grown consistently in real terms. Since 1997, wage bargaining has been highly coordinated through what is sometimes called the Industrial Norm System. Put simply, the system is based on the principle that unions and employers in the manufacturing industry negotiate a wage increase every 1-3 years, which is then largely followed by all other sectors.

On average, the Industrial Norm System has delivered a wage increases of around two percent per year, providing Swedish employees with a real wage growth of around 60 percent over 25 years, and maintaining a tight link between wage and productivity growth. As a comparison, American real wages have been decoupled from productivity growth, shifting more of the surplus value to employers, and for low to medium wage workers in the US, real wages have grown very slowly or not at all (at least before the pandemic).

But there are drawbacks. One is that the industry-led wage bargaining has made it difficult to reduce the gender wage gap by raising the wages of female-dominated professions in the public sector. Another concern is that coordinated Swedish wage formation, while fostering real wage growth and relatively small wage disparities among employees in different earnings percentiles, has also made it impossible for wages to keep pace with current levels of inflation.

The latest bargaining rounds have resulted in wage increases of 2.2 percent for 2022 and 4.1 percent for 2023. With inflation at around 10 percent these years, real wages have dropped substantially for the first time in over two decades. The major Swedish bank Nordea has termed the current period “a lost decade”, estimating that Swedish employees’ purchasing power has regressed to its 2013 level.

The long-term and short-term tensions caused by wage moderation may pose threats to the future of the much-heralded Swedish labor market model. If inflation does not subside in the near term, it will be difficult for unions to continue supporting the Industrial Norm System.

Furthermore, representatives of both unions and employers have repeatedly expressed that the decline in union density could pose an existential threat for the Swedish model in the long term. As mentioned, collective bargaining has not budged – yet. But it may well be that threshold effects can lead to a tipping point when declining union density will push down collective bargaining coverage. Scholars and union representatives have pointed to Germany, where a similar downward trend in union density eventually caused employers to defect from employer associations and hence sectoral collective agreements, causing a substantial drop in collective bargaining coverage.

To sum up, although Sweden still boasts a well-functioning industrial relations system with strong labor market actors, a supportive institutional setting, and constructive cooperation between unions and employers, there are a number of signs that point in the overall direction that many other countries have been headed for some time: eroding labor power.

German Bender is chief analyst at Arena Idé, a PhD candidate at Stockholm School of Economics, and visiting research fellow at Harvard Law School during Spring term 2023.