21st century
In the 21st century, many of the aspects of the social democratic welfare state continued to function at a high level, due in no small part to the high rate of unionization in Sweden, the independence of unions in the wage-setting and the exemplary competency of the female public sector workforce as well as widespread public support for welfare. The Social Democrats initiated studies on the effects of the neoliberal changes and the picture that emerged from those findings allowed the party to reduce many tax expenditures, slightly increase taxes on high income-earners and significantly reduce taxes on food. The Social Democratic Finance Minister increased spending on child support and continued to pay down the acquired public debt. By 1998, the Swedish macro-economy recovered from the 1980s industrial restructuring and the currency policy excesses. At the turn of the 21st century, Sweden had a well-regarded, generally robust economy and the average quality of life after government transfers was very high, inequality was low and the (Gini coefficient was .28) and social mobility was high (compared to the affluent Anglo-American and Central European countries).
The Social Democratic Party pursues environmentalist and feminist policies which promote healthful and humane conditions. Feminist policies formed and implemented by the Social Democratic Party along with the Green Party and the Left Party (which made an arrangement with the Social Democrats to support the government while not forming a coalition), include paid maternity and paternity leave, high employment for women in the public sector, combining flexible work with living wages and benefits, providing public support for women in their traditional responsibilities for care giving and policies to stimulate women's political participation and leadership. Reviewing policies and institutional practices for their impact on women had become common in social democratic governance.
The Social Democratic Party was defeated in 2006 by the centre-right Alliance for Sweden coalition. Mona Sahlin succeeded Göran Persson as party leader in 2007, becoming the party's first female party leader. Prior to the 2010 Swedish general election, the Social Democratic Party formed a cooperation with the Green Party and the Left Party culminating in the Red–Green alliance. The cooperation was dissolved following another defeat in 2010, throwing the party in to its longest period in opposition since before 1936. Sahlin announced her resignation following the 2010 defeat and she was succeeded by Håkan Juholt in 2011. Initially, his leadership gave a rise in the opinion polls before being involved in a scandal surrounding benefits from parliament which after a period culminated in his resignation. Sahlin and Juholt become the first SAP party leaders since Claes Tholin, who was party leader 1896–1907, to not become Prime Ministers of Sweden.
Stefan Löfvén, elected by the party council, succeeded Juholt as party leader. Löfvén led the Social Democratic Party into the 2014 European Parliament election which resulted in the party's worst electoral results at national level since universal suffrage was introduced in 1921. He then led the party into the 2014 Swedish general election which resulted in the party's second worst election result to the Riksdag since universal suffrage was introduced in 1921. With a hung parliament, Löfvén formed a minority coalition government with the Green Party. On 2 October 2014, the Riksdag approved Löfvén to become the country's prime minister, and he took office on 3 October 2014 alongside his Cabinet. The Social Democratic Party and the Green Party voted in favour of Löfvén becoming Prime Minister while the Left Party, a close ally of the SAP, abstained. The oppositional Alliance-parties also abstained while the Sweden Democrats voted against.
In the 2018 Swedish general election, the Social Democrats' vote share fell to 28.3 percent, its lowest level of support since 1911. Nevertheless, a Social Democrat and Green Party coalition government was formed in January 2019. Relying on support of the Centre Party and Liberals, it was one of the weakest governments in Swedish history.
In August 2021, Prime Minister Stefan Löfven announced his resignation and finance minister Magdalena Andersson was elected as the new head of Sweden's ruling Social Democrats in November 2021. On 30 November 2021, Magdalena Andersson became Sweden's first female prime minister. She formed a minority government made up of only her Social Democrats. Her plan for forming a new coalition government with the Green Party was unsuccessful because her budget proposal failed to pass.
On 18 October 2022, liberal-conservative leader Ulf Kristersson became the new prime minister to succeed Magdalena Andersson, meaning that the Social Democratic Party, although still Sweden's largest party, would be in the opposition.
On 12 June 2025, the Social Democratic Party adopted a new party program that established it as having an anti-capitalist view of society.