Sickness and disability is a key economic policy concern for many OECD countries. Medical conditions, or problems labelled as such by societies and policy systems, are proving an increasing obstacle to raising labour force participation and keeping public expenditure under control. More and more people of working age rely on sickness and disability benefits as their main source of income, and the employment rates of those reporting disabling conditions are low. There is now an urgent need to address this “medicalisation” of labour market problems. In the current economic downturn, there is a risk that countries may be tempted to revert to using sickness and disability schemes to massage politically sensitive unemployment figures. The current context makes the reforms in Sweden especially important, but potentially more challenging to manage politically.

Sweden is currently undertaking a series of extensive reforms to address long-term structural problems with its sickness and disability policies. A new sick-leave process with a much stricter timeline for work-capacity assessment has been put in place to facilitate the return to work. The changes are far-reaching and in the right direction but given the breadth of reform and the size of the problem, implementation remains a big challenge. More could and needs to be done to ensure that the reforms live up to their promise. In particular, financial incentives remain weak for most players, particularly employers and the health system. Co-operation among the key institutional actors also needs to be strengthened in some areas.

In Sweden, the 1970s and 1980s were a period of relatively stable economic growth characterised by very high and increasing rates of employment, reaching 90% for the population aged 25-54, and very low rates of unemployment, fluctuating at 2-3% (OECD, 1996). However, even then inactivity due to worker incapacity was a major labour market issue. Sickness absence was very high with shortterm absence fluctuating significantly (OECD, 2005). Disability benefit recipiency was also comparatively high and growing, from 5% of the working-age population in the mid 1970s to 7% in 1990, mostly as a consequence of the increased take-up by women, though this was partly a byproduct of their rising participation in the labour force.

The current Alliance for Sweden government was elected in 2006 with a mandate to restore the work-first principle and address labour market exclusion arising from long-term benefit receipt. This vision is at the heart of its proposed theme of Social Europe starts with a job for Sweden’s upcoming presidency of the European Union in the second half of 2009. When the government came into office in 2006, almost 30% of the working-age population was unemployed, underemployed or receiving other social benefits, and its initial reforms focused on unemployment. Some 200,000 people have joined the labour market since then. More recent changes have been concerned with advancing employment possibilities for those affected by sickness and disability.

The breadth of institutional and sickness and disability policy change in Sweden has been considerable and impressive. Success of the latest reforms, however, will hinge on the actual implementation of the new system and the effectiveness of its various incentives. Given the pace of reform, the fact that the new approach may appear to be a harsh and radical departure from the past for some, and that reform is being implemented during a period of rising unemployment and falling labour demand, its success is not assured.