How Sweden affords the world’s best paid parental leave

Employers' fees and taxes fund my paternity leave

As part of the Swedish daddy project I’m undertaking, I talked to Niklas Löfgren, an insurance analyst at the Family Affairs department of Sweden’s Social Insurance Agency, or Försäkringkassan, to learn more about the system.

How are parental benefits funded in Sweden?

“Two-thirds of parental benefits are funded through an employers’ fee and one-third is funded by taxes.

“Employers in Sweden pay a fee to the government that corresponds to 25% of each employees’ salary. The fee covers costs for pension, unemployment, sick leave, widow survival, work injury, and parental benefits. Out of these individual fees, parental benefits account for 2.2% of the 25% fee employers pay to the government.”

How can Sweden afford to pay parents so generously?

“As long as the market is healthy and unemployment is low then we will be able to afford this. We have a high level of transfers in Sweden with high taxes and high insurances and benefits. This in order to redistribute money to individuals in different stages of life or in different situations. If we need to increase or decrease this employers’ fee is more a political discussion, but today it’s financed this way. You can see a rough pattern in Europe where countries with somewhat more generous benefits for families with children also tend to have high fertility rates.

“In order to have a full reproduction rate in a country you have to have a fertility rate of 2.1% and in Sweden today we have approximately 1.9%. That means that we have to rely on immigration in order to have the same or more people living in the country. In order to pay for these insurances, it’s important to have many people out in the labor force, otherwise the financing will be tough to handle.”

Stay tuned for more posts on the daddy project.

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