Privatizing the Ghent System, Unions and the Rise of Private, Unemployment Insurance in Sweden

A lot has been written on the relationship between Ghent systems of unemployment insurance and union membership recruitment. In that literature, it is argued that unions' position in the administration of the unemployment insurance functions as a recruitment device. Since the unemployment insurance is voluntary and administered by unions, workers are argued to have incentives to join unions as members. However, such ties are weak since there most often has been no requirement of insurance takers to join the unions as members. In recent years, new private unemployment insurance schemes administered by unions have developed rapidly in Sweden. In these schemes, union membership is obligatory. This development has at least three consequences. First, making membership mandatory can help unions combat the decline in membership rates. Second, this shift could change unions' incentives in relation to the public insurance system moving from support of high quality insurances towards unions being indifferent or supporting retrenchment. Third, this development is likely to exacerbate dualization trends, on the one hand, because private insurance is only likely to cover labour market insiders: private insurance is not likely to emerge in sectors with high unemployment risk and will have stricter qualification requirements due to adverse selection problems, and on the other hand, because the public unemployment insurance is more likely to be cut back if voter support is shifted towards private insurance.