Swedish employment rates of prime-age men and women have not recovered to the level they were at before the deep crisis in the early 1990s. This is problematic because labour supply is crucial for long-run fiscal sustainability and because lower employment rates partly reflect involuntary exclusion generated by factors like taxes, benefits, labour-market institutions and attitudes. Policy reform is therefore needed. This chapter first assesses the ambitious initiatives concerning unemployment benefits, employers’ contribution rebates and in-work tax credits introduced from 2007. It then focuses on immigrants: some come from deprived backgrounds with limited skills while others are highly trained. Better integrating this wide diversity on the Swedish labour market is a key challenge. It requires attention to wage flexibility as well as employment protection rules that make it risky for firms to hire immigrants whose capabilities are often difficult to gauge. Finally, progress on reducing sickness absence is reviewed.