Mention Sweden to the average American and an idyllic image of a society with high levels of education, low levels of inequality, and homes decorated with stylish mid-century furniture is likely to come to mind. This isn’t entirely misleading. For much of the last century, Sweden wasn’t just prosperous; it was one of the most equal societies in the world — possibly ever.

Today one of the trends defining Swedish society is a rapid growth in inequality. In terms of ownership of both financial and real assets, the Scandinavian nation is now the sixth-most-unequal country in the world, ranking even higher than the United States. Sweden has more dollar billionaires per capita than the US, and these wealthy individuals control a larger share of national GDP than billionaires in other major economies.

What has kept the Swedish social contract from fraying entirely is that the country’s overall levels of inequality are relatively low. This is largely because income equality has, until recently, remained fairly stable among wage earners. But there are signs that this is changing and that inequality is now increasing among workers. How did this happen?

A Divide Among Wage Earners

Throughout the 2000s, the dominant narrative for thinking about rising inequality was that an increasingly wealthy 1 percent was exercising an outsize influence over politics and the economy, at the expense of the 99 percent. While this divide is central to understanding the rise of inequality in most Western countries, it obscures inequalities within the rest of the population and as a result can be deeply misleading. One reason for this is that inequalities among the majority of citizens of advanced capitalist democracies are key to understanding growing inequality within society as a whole.

The defining feature of capitalist states is that the vast majority of their inhabitants must work, rather than live off the labor of others or rents accruing from capital, in order to survive. Although this large group is united in its opposition to the tiny segment of society that employs workers, growing inequalities within the majority have recently weakened their cohesion and blurred their shared interests.

In everyday speech, we often categorize wage earners as belonging to either the middle or working class. The distinction between these two groups is obviously not clear-cut. But one of the key differences between the middle and working class is the relative value of their labor, which affects the bargaining power that they have. If there is a high demand or low supply of a particular form of labor, then this will increase the bargaining power of workers capable of performing this labor. One of the key factors that determine the supply and the value of labor is the level of skill or education required for a particular occupation.

Because the working class is often located in low-skill industries, it is highly dependent on government regulations, collective agreements, labor unions, and political power to maintain or raise its bargaining position. In contrast, the middle class enjoys a strong bargaining position in the market because their high levels of education allow them to operate in a more closed labor market, reducing competition. Over the past few decades, the weakening of collective bargaining, union strength, and other means through which working-class power has been maintained has worsened the conditions of the Swedish working class.

The Deteriorating Conditions of the Swedish Working Class

In the early 2000s, real wages for full-time workers in Sweden increased by an average of 2.1 percent per year, which was strong by international standards. But after the global financial crisis, wage growth became more uneven. Since 2017, real wage increases have slowed markedly, averaging just 0.8 percent per year — until inflation surged in 2022 and 2023, causing real wages to fall by 5.8 percent and 4.8 percent, respectively.

Worryingly, the pattern of wage growth and decline has not been uniform across social groups. Among the working class, real wage growth effectively stopped in 2017. During the inflation surge of 2022, the Swedish working class lost the equivalent of seven to nine years of wage increases, while the middle class lost just two to three years. This widened an already significant wage gap.

Another major divide has emerged thanks to changes in the labor market. In Sweden — as in many other Western countries — there has been an ongoing debate about insecure work. For more than a decade now, people have become increasingly aware of rising job insecurity, but it is generally taken for granted that this trend affects both the working and middle classes equally.

As in other countries, the share of temporary employment in Sweden has increased. In the 1990s, around 10 percent of Swedish workers were in temporary employment, but by the 2020s that figure rose to 15 percent. This development has affected wage earners very differently depending on their class. Since the early 2000s, the proportion of middle-class workers in temporary employment has actually declined, while it has surged among the working class. Today one in three members of the unskilled working class are in temporary employment. Among middle class workers, the figure is 10 percent.

This means that growing inequality is not entirely a story of the 1 percent pulling away from the 99 percent. Looking at how the billionaire class has surged ahead won’t give the full picture if we want to understand rising inequality. We also have to pay attention to how the working class has fallen behind. The main reason for this is changes within Swedish society that have driven up inequality and undermined worker power.

The Decline of Workers’ Power Resources

In the 1970s and ’80s, the Swedish sociologist Walter Korpi, who died last year, developed what became known as power resource theory, outlined in his books The Working Class in Welfare Capitalism (1978) and The Democratic Class Struggle (1983). This theory sought to explain how the balance of power between capital and labor shapes the welfare state, and how the welfare state, in turn, can strengthen the power of labor.

The success of Swedish society, measured by its ability to reduce inequality and empower labor, was thanks to its capacity to strengthen workers’ bargaining positions — what Korpi called structural power resources. Crucially, these structural powers are themselves products of what he termed collective power resources: trade unions, mass political parties, and popular movements organized by and for the working class.

In the early 1990s, Sweden and its Social Democratic Party — like many Western countries — began making a path toward neoliberalism. Deregulated capitalism and austerity measures that downsized and privatized the public sector soon followed. Soon many of the key power resources that had helped the Swedish working class resist market pressures began to break down.

Notably, Social Democrats abandoned the goal of full employment in favor of focusing on reducing inflation. Unemployment in Sweden had remained between 1 and 3 percent between the 1950s and early 1990s, but then it surged to 12 percent and has since remained high. Today unemployment in Sweden hovers at around 9 percent, making the Scandinavian nation home to one of the highest jobless rates in the European Union.

Starting in the 1990s and continuing into the 2000s, the Employment Protection Act was gradually undermined. In the early 1990s, Sweden had some of the strictest regulations on temporary employment in the OECD. These protections were introduced by Olof Palme’s Social Democratic government in the 1970s as a safeguard against the economic instability caused by rising energy prices. By the 2010s, however, Sweden had some of the weakest protections for temporary workers in the OECD.

Changes to unemployment insurance during this period also weakened employees’ structural power resources. Generous unemployment benefits help limit the downward pressure that unemployed workers can exert on wages and working conditions. Sweden operates under a so-called Ghent system, where unemployment protection is administered by unions (though primarily funded by taxes), creating a strong link between unemployment benefits and labor unions.

In the 2000s, the right-wing government led by Fredrik Reinfeldt significantly increased fees for unemployment insurance in sectors with high unemployment rates. Since the working class experienced the highest unemployment, they faced substantial cost increases. This led many to give up both their insurance and their union membership, a change that weakened the working class’s structural power resources as well as their collective power and had dramatic effects on industrial relations. In the 1990s, unionization rates among the working class were around 85 percent, but today only about 55 percent of Sweden’s working class is unionized. Among the middle class, the situation is quite different: 74 percent is unionized today.

Another important aspect of the deterioration of the working class’s collective power resources has been the shift within the Social Democratic Party. Since the 1990s, it has taken a neoliberal turn that has alienated large sections of its base.

For much of the postwar era, Sweden’s Social Democrats either held majorities or were in government, but by 2006 a right-wing majority had formed in the parliament. After losing the 2006 election, the Social Democrats conducted a postelection analysis. Its conclusion was that their defeat was due to insufficient focus on the middle class. The party decided to prioritize capital and middle-class issues, viewing the working class as a shrinking group that would soon disappear. When they lost again in 2010, they repeated the same approach.

Both in their rhetoric and in actual policies, the Social Democrats abandoned the working class, and as a consequence, the working class also abandoned them. In 1994, 70 percent of the working class voted for the Social Democrats. But by 2022, that number had dropped to only 35 percent.

The decline of Swedish social democracy offers warnings and lessons for the Left. Paying attention to how Sweden’s social contract was unraveled can help to explain why the working class and the parties that have traditionally represented them are drifting apart — and how this trend might be reversed.