Sweden’s surprising rule for time off

The country's unique leave of absence system helps workers launch their own business. Can it be replicated elsewhere?

Jana Cagin had never thought about running her own company until she and her fiancé had “one of those lightbulb moments” while out shopping for a new sofa at Ikea in a Stockholm suburb.

They felt that the range of legs available was too limited. After scouring the internet failing to find suitable alternatives, they came up with the concept of developing their own brand of replacement furniture parts, designed to help buyers put an artistic stamp on new flat-pack furniture purchases or ‘upcycle’ existing home staples.

“We were just struck by this idea and it really made us so passionate,” she explains.

The couple began by running the venture in their spare time. But according to Cagin, it was being able to take a leave of absence from her job as an organisational psychologist that really enabled things to get off the ground.

“We started finding suppliers, getting a lot of press, starting building the website,” she explains. The company was also accepted into an acceleration programme for startups, which offered coaching, workshops and mentoring. “If I were to work during that time I wouldn’t have been able to join, and it really helped us to believe in our idea.”

Meanwhile, knowing that she could return to her old role if things didn’t pan out alleviated some of the financial risk, especially since her partner was a freelancer in the creative industries.

“I’d never seen myself as an entrepreneur, so being able to have that kind of security and something to fall back on, I think that played a pretty big role.”

She didn’t go back to her old job. Six years after that “lightbulb moment”, which happened when Cagin was just 31, the couple’s e-commerce business now offers decorative door knobs and cupboard panels, as well as legs for a range of different furniture types. It operates in 30 countries and has six full-time employees.

A legally enshrined right

While not all new companies become so successful, Cagin’s experience taking time off from fixed employment is far from unique in Sweden.

For the last two decades, full-time workers with permanent jobs have had the right to take a six-month leave of absence to launch a company (or alternatively, to study or to look after a relative). Bosses can only say no if there are crucial operational reasons they can’t manage without a staff member, or if the new business is viewed as direct competition. Employees are expected to be able to return in the same position as previously.

“To my knowledge this is the only country that offers a legally-enshrined right to take a leave of absence for entrepreneurship,” explains Claire Ingram Bogusz, a post-doctoral researcher in entrepreneurship and information systems at Stockholm School of Economics.

“You meet a lot of people who’ve got permission from their employer to start up something in such a way that it doesn’t interfere with their employment, and once that business is up and running, then they take a leave of absence to see if they can actually make a go of it,” she says.

“It’s very common, particularly among highly-skilled entrepreneurs who build high-tech firms.”

Max Friberg, 31, who runs a software platform, is one of them. He chose to take a leave of absence from a global consulting firm rather than quit his job, even though he had been working on the project in his spare time for over a year and says he was confident his idea would take off.

For him, losing the competitive advantage and “social status” he’d worked for years to achieve was as much of a concern as financial insecurity. The possibility of unpaid leave greatly eased some of those worries.

“I had this fantastic job. I had been working very hard throughout university to get it and while at the job to keep it and to advance,” he explains. “I was questioning myself: ‘am I doing something crazy?’ But feeling that I could go back took quite a bit out of that scariness.”

The secret to innovation?

Sweden, with a population of just 10 million, has developed a reputation as one of the most innovative countries in Europe in recent years. The most commonly-cited reasons its start-up scene has grown so quickly include strong digital infrastructure, a culture of collaboration and affordable private unemployment insurance, which provides a larger social safety net than in many countries.

Measuring exactly how much the right to unpaid leave has contributed to this is tricky. While the trend – particularly in the tech scene – has been observed by academics, unions and employers alike, there are no national databases that break down how many people registered to take a leave of absence start a business.

But what the figures confirm is that rising demand for all kinds of leaves of absence (including paid parental leave) coincides with growing numbers of Swedes starting their own companies.

In 2017, 175,000 25- to 54-year-olds on leave were registered, compared to 163,000 in 2007, according to Statistics Sweden. The registration office for Swedish companies, Bolagsverket, says 48,542 limited companies registered in 2017, up from 27,994 in 2007.

So what can the rest of the world learn from Sweden’s unpaid leave system?

According to Claire Ingram Bogusz, the trend for taking leave to start a business needs to be viewed in the context of the Nordic country’s notoriously strict employment laws. These have traditionally made it harder for bosses to fire staff than in many countries. She argues that it might encourage some employees to stay put once they have the security of a substantive role.

“People don’t easily relinquish that [permanent] job once they have it,” she says. “It’s maybe analogous to owning a house or an apartment. Once you own it, you don’t just give it up easily.”

Samuel Engblom, head of policy for the Swedish Confederation for Professional Employees, explains that the government, unions and employers in Sweden have supported the right to take time off as “a way of promoting mobility in the labour market”.

“Most employees hesitate to leave a job that they perceive as secure for something as insecure as starting a business,” he says.

“Maybe it’s quite a Swedish view – I mean, you could promote entrepreneurship by making it more profitable, and we do that to some extent, but you can also promote entrepreneurship by making it less insecure.”

Ting Xu, an assistant professor at the University of Virginia whose work focuses on entrepreneurial finance, argues that increasing the right to unpaid leave could play a crucial role in fuelling entrepreneurship, even in countries with much more flexible labour markets.

He cites a 2016 study by Failure Aversion Change in Europe (FACE) Entrepreneurship, a European project designed to help would-be tech entrepreneurs break the barriers generated by fear of failure. It found that while financial risk was the top concern, career risk came a close second.

“The fear of losing a stable professional career if their start-up fails is a major thing holding many people back,” he argues. “Many countries subsidise financing to entrepreneurs. However, reducing career risk can be just as important, and is often ignored by policy makers.”

Although his own research focuses on parental leave, rather than unpaid leave, it provides rare empirical data to back up this idea.

Xu was part of a team that looked at a reform that extended job-protected parental leave in Canada from a few months to a full year in 2001. They found that women eligible for more time off were more likely to be entrepreneurs five years later that those who gave birth before the change.

“This result is strong evidence showing that when we remove career risk it can actually spur entrepreneurship,” he concludes.

Are there any down sides?

Some observers argue it might be more difficult for employers outside Sweden to allow workers to return to their old roles after taking time off to run a business. These workers could face discrimination when it comes to future career prospects or salary. However in Sweden, this kind of prejudice is against the law.

“For someone to have gone out and tried something new and had that opportunity and come back isn’t actually seen negatively. It’s seen neutrally at best, and probably even positively, because then the person has said, ‘oh no, this job is what is actually for me’,” explains Ingram Bogusz.

She argues that Sweden’s entrenched focus on work-life balance is a “huge contributing factor”, which might not be relevant in other places.

“In Sweden, people are expected to have a balance in their employment – not just in terms of balancing their personal lives, but also balancing other things that are of importance to them or mean personal growth for them. Starting a new business could be [part of] that.”

Jessica Petterson is among those currently making the most of this approach. The 30-year-old is wrapping up a period of unpaid leave that she’s spent launching a virtual assistant product for charities. She has decided to return to her permanent job at a non-profit organisation, and to pursue her entrepreneurship more slowly on the side.

“I don’t make enough from my company to support myself, and I want to buy an apartment quite soon. So that’s why I need to go back to my old job to get a steady salary every month,” she explains.

“They [my managers] are really happy with me going back. They’ve given me some other projects to work on so that I won’t feel as ‘stuck’ as I was before.”

However, Samuel Engblom at the Swedish Confederation for Professional Employees points out that while many employers share this positive attitude toward unpaid leave, others can struggle with the administrative and financial challenges linked to covering a worker’s responsibilities while they are taking time off.

“For the employer, it means losing someone who knows the job. Especially in situations where there is a lack of skilled workers in a field, this of course can be problematic,” he says.

He suggests these challenges could be exaggerated in countries with less stable economies than Sweden.

A new future?

Of course, both the advantages and challenges of unpaid leave are only relevant when employees have permanent positions in the first place.

While the vast majority of Swedes are in stable jobs, there has been a shift towards temporary employment and the gig economy in recent years, which has largely affected younger workers.

In 2017, almost 50% of 16- to 24-year-olds and 18% of 25- to 34-year-olds were in temporary work, up from 44% and 14% in 2009 respectively.

“It is a problem that Sweden faces as well as many other countries in the world: this polarisation of people with permanent jobs and those who don’t,” says Ingram Bogarz. “For gig economy workers and freelancers... leaves of absence don’t actually affect them, and it creates additional distance.”

Swedish lawmakers are monitoring the trend closely. A government committee was recently asked to investigate how more security could be provided for these kinds of workers.

Meanwhile, the right to unpaid leave for permanent staff shows no sign of being revoked. Several unions have even struck collective agreements with employers that expand workers’ rights to unpaid leave by offering them 12 months off to try starting a business, instead of the standard requirement of six months.

What is vital for all Swedish entrepreneurs to remember, according to Ingram Bogarz, is that whether or not they have the right to unpaid leave, starting a business remains risky.

“The general downside of moving from permanent employment to entrepreneurship is true here in Sweden as in anywhere else. You go from a stable [job] and often quite decent salary to unstable and probably a much lower amount of money,” she explains.

“But a leave of absence means you can have the best of both worlds: the security of a job that’s not going anywhere, and time off to pursue what’s important to you.”

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