STOCKHOLM: “There are no jobs to find,” said 56-year-old Lars as he left an unemployment office in downtown Stockholm after another failed attempt to find work. “Companies that are making things are going abroad,” said the former marketing manager.

On the face of it, Lars, who blames his two years of unemployment on his age, is one of the unlucky few.

Unemployment was 5.2 percent in May, half France’s 10 per cent and Germany’s 12 per cent.

The government of Prime Minister Goran Persson, whose Social Democratic Party has ruled for six of the last seven decades, aims for full employment, defined as a jobless rate of 4 per cent.

Even though this has not been met, the job statistics are healthy compared to the rest of Europe.

But for more than a year the issue of how to get more people to work has dominated the political debate and is seen as one of the key factors in deciding whether Persson will retain power in elections next September.

The central bank, which cut interest rates by 50 points on June 21 to historic lows of 1.5 per cent, faced a barrage of criticism for not cutting rates sooner to help boost jobs.

For critics of the government, the official unemployment figures tell less than half the story.

They point to people on early retirement, in job schemes and on sick leave, which brings the total to between 10 and 20 per cent of the workforce, perhaps not far from 800,000 people.

The government says critics have got it wrong. Industry Minister Thomas Ostros said unemployment would fall to around 4 Per cent by the election, thanks to government initiatives.

“Our labour market policy is to equip people and economic policy is to see to it that they can get more jobs,” he told Reuters. The government expected to announce more job-boosting measures in the budget, due in September, he added.

He rejected the idea that Sweden had hidden unemployment.

“Whatever measure you take into account we have a much stronger occupation rate in Sweden than in almost all other European countries. In Sweden, the pension age is 61, in a lot of European countries it is 55,” he added.

Despite a slowdown at the start of the year, Sweden is growing faster than most of Europe. Productivity gains have dampened job growth, but it is only a matter of time before companies start investing in new workers, many forecasters say.

The country’s biggest union organisation, LO, also sees the business cycle as the problem. It blames the central bank for not cutting interest rates quickly enough.

“Monetary policy has been out of step for three years,” Dan Andersson, chief economist at LO said.

A clear statement that interest rates will stay low and some tax cuts by the government could cut unemployment by around 2 percentage points, he said.

Despite a spate of decisions to shut factories in Sweden and move jobs to cheaper countries like China, top companies still see hopes for domestic industry.

“The production we have in Sweden is one of the most efficient in the world today,” said Leif Johansson, chief executive of Volvo, the country’s largest private employer and second largest truck maker in the world.

“Jobs are being created in Sweden. It’s just the focus is on jobs that are going abroad.”

The government’s critics take a different view. They blame structural factors for keeping people out of the job market, such as rigid labour laws for low-skilled jobs, which make it too costly to employ Swedish workers.

They say that unless more people get jobs, the future of Sweden’s cradle-to-grave welfare model is at stake.

“The debate is not about unemployment or growth ... it is about whether we can support the welfare state with 20 per cent of the working population not working,” said Nils Karlson, head of the Ratio Institute think tank.

Sickness and disability payments, unemployment benefit and money for those on work schemes cost the government over 100 billion Swedish crowns ($13.15 billion) last year out of a budget of 870 billion, official figures show.

The International Monetary Fund says Sweden should cut benefits and income taxes for the low paid and privatise more industries in order to boost employment.

More flexibility in wages and making hiring and firing easier would also help, particularly in creating service sector jobs, the Confederation of Swedish Enterprise said.

The right-of-centre opposition, led by the Moderate Party, has overtaken Persson’s party in the polls, partly due to popular dissatisfaction with the job situation.

Moderate leader Fredrik Reinfeldt says that cutting payments to the unemployed and sick and reducing taxes will create jobs and make it pay better to work than receive welfare.

His message seems to be getting through to some voters.

“Not all the unemployed can find a job in public service. Someone has to make money,” said Lars. “The problem with Sweden is that the government has been looking after us so well, we have forgotten how to look after ourselves.”—Reuters