Ageing And Employment Policies Germany (Ageing and Employment Policies)

Ageing and Employment Policies (Vieillissement et politiques de l’emploi)

Germany

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT The OECD is a unique forum where the governments of 30 democracies work together to address the economic, social and environmental challenges of globalisation. The OECD is also at the forefront of efforts to understand and to help governments respond to new developments and concerns, such as corporate governance, the information economy and the challenges of an ageing population. The Organisation provides a setting where governments can compare policy experiences, seek answers to common problems, identify good practice and work to co-ordinate domestic and international policies. The OECD member countries are: Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The Commission of the European Communities takes part in the work of the OECD. OECD Publishing disseminates widely the results of the Organisation’s statistics gathering and research on economic, social and environmental issues, as well as the conventions, guidelines and standards agreed by its members.

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Publié en français sous le titre : Titre de l’ouvrage Sous-titre

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FOREWORD –

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FOREWORD

Older people offer tremendous potential value to businesses, the economy and society. Unfortunately, they often represent an untapped and discriminated-against resource, as many public policy measures and private workplace practices pose serious barriers to older workers continuing to work. Many of these policies and practices are relics from a bygone era. There is a need to look beyond traditional stereotypes about ageing in order to benefit from the growing numbers of older citizens, many of whom would, in fact, choose to work longer given appropriate incentives, policies and workplace practices. The OECD has reported extensively on public pension and early retirement systems and the need for reforms of these systems to cope with population ageing. However, these reforms will not be enough to encourage later retirement and to reduce the risk of future labour shortages. Measures are also required to adapt wage-setting practices to greying workforces, to tackle age discrimination and negative attitudes to working at an older age, to improve job skills of older people and their working conditions, and to better “activate” older job seekers. Relatively little is known about what countries have been, or should be doing, in these areas. Therefore, in spring 2001, the OECD Employment, Labour and Social Affairs Committee decided to carry out a thematic review of policies to improve labour market prospects for older workers, covering both supply-side and demand-side aspects. For the purpose of this thematic review, it was decided to define older workers as all workers aged 50 and over. The age of 50 is not meant to be a watershed in and of itself in terms of defining who is old and who is not. Perceptions about being old are inherently subjective and only loosely connected with chronological age. However, in many countries, the age of 50 marks the beginning of a decline in participation rates by age. Moreover, to facilitate international comparisons, it is preferable to refer to the same age group for all countries. Thus, all references to “older workers” in this report should be taken as shorthand for workers aged 50 and over (or in some cases, because of data constraints, workers aged 50 to 64), and should not be seen as implying that all workers in this group are “old” per se. AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

4 – FOREWORD This report on Germany is one in a series of around 20 OECD country reports that will be published as part of the older workers thematic review, which has been developed by Raymond Torres. It has been prepared by Christopher Prinz, under the supervision of Mark Keese (team leader), with input from a consultant, Klaus Schömann, from the International University Bremen. Technical and statistical assistance was provided by Alexandra Geroyannis and Clarisse Legendre. A draft of the report was discussed at a seminar in Germany on 26 April 2005, which was organised by the German Federal Ministry of Economics and Labour. Discussants at the seminar included representatives of the national authorities and the social partners, as well as academics and NGOs. The final report, which incorporates the comments received at the seminar, is published in this volume on the responsibility of the Secretary-General of the OECD. *** This report is based on the proceedings of a seminar and is published in English only. However, a French translation of the Executive Summary and Recommendations has been included in this volume (see page 21).

AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

TABLE OF CONTENTS –

TABLE OF CONTENTS

EXECUTIVE SUMMARY AND POLICY RECOMMENDATIONS................11 The challenges facing Germany........................................................................11 Policy has been exceptionally active in recent years ........................................12 Challenges remain, and careful monitoring of recent reforms is needed ..........14 RÉSUMÉ ET PRINCIPALES RECOMMANDATIONS ........................................21 Les défis lancés à l’Allemagne .........................................................................21 Les pouvoirs publics ont été exceptionnellement actifs ces dernières années .....23 Des problèmes demeurent et un suivi attentif des récentes réformes s’impose ...24 INTRODUCTION ................................................................................................33 CHAPTER 1. THE CHALLENGE AHEAD .......................................................35 1. 2. 3.

The challenge of population ageing.......................................................35 Social and economic implications .........................................................39 Key challenges for the future.................................................................45

CHAPTER 2. OLDER WORKERS IN THE GERMAN LABOUR MARKET..51 1. 2. 3.

Combating high levels of unemployment ..............................................51 Mobilising older workers.......................................................................56 The employment conditions of older workers .......................................63

CHAPTER 3. PROVIDING SOCIAL PROTECTION WHILE ENHANCING WORK INCENTIVES..........................................................................................69 1. 2. 3. 4.

Retirement pathways and retirement behaviour ....................................69 Reform has addressed retirement incentives..........................................77 Alternative pathways for early labour market exit.................................87 Options for reform .................................................................................98

CHAPTER 4. PROGRESS IN REMOVING DEMAND-SIDE BARRIERS ....103 1. 2. 3. 4. 5.

Employer attitudes and employment practices ....................................103 Is there age discrimination in Germany? .............................................106 High wages and high non-wage labour costs.......................................109 Employment protection and the hiring of older workers .....................116 Raising awareness and spreading good-practice solutions ..................121

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6 – TABLE OF CONTENTS CHAPTER 5. SUSTAINING EMPLOYABILITY AND PROMOTING THE JOB SEARCH OF OLDER WORKERS...................................................125 1. 2. 3.

Lifelong learning needs to address the whole population....................125 Activation and placement support to promote job creation .................135 Towards an effective sickness prevention strategy..............................148

CHAPTER 6. CONFRONTING POLICY DILEMMAS AND OBSTACLES .155 1. 2. 3.

Getting the economic fundamentals right ............................................155 Ensuring policy balance, coherence and complementarity..................157 Conclusion ...........................................................................................159

BIBLIOGRAPHY...............................................................................................161

List of Boxes Box 3.1. Box 3.2. Box 3.3. Box 3.4. Box 4.1. Box 4.2. Box 5.1. Box 6.1.

The main retirement pathways in Germany.....................................70 The different viewpoints on actuarial neutrality ..............................83 The German old-age part-time employment act ..............................92 Germany's strong rehabilitation approach: good practice further improved in 2001 .............................................................................96 Differences of treatment allowed on the grounds of age ...............107 Good practice in relation to the ageing of the workforce...............123 Training-related initiatives launched by the government...............132 National ageing strategies in selected OECD countries.................158

List of Figures Figure 1.1. Population trends by broad age groups in Germany, 1970-2050.....36 Figure 1.2. Life expectancy at birth and the total fertility rate in Germany, 1960-2050 ........................................................................................37 Figure 1.3. Demographic dependency ratios in OECD countries, 2000-2050 ...39 Figure 1.4. Public expenditure on old-age pensions in Germany and other OECD countries, 2000-2050............................................................40 Figure 1.5. Labour force growth in Germany, 1950-2050 .................................42 Figure 1.6. Annual labour force growth in selected OECD countries, 1950-2000 and 2000-2050 ...............................................................43 Figure 1.7. Long-term mortality and retirement trends in Germany by gender, 1960-2040 ........................................................................................46 Figure 2.1. Standardised unemployment rates by age group and gender in 28 OECD countries, 2003 ............................................................52

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TABLE OF CONTENTS –

Figure 2.2. The east-west gap in unemployment rates in Germany by gender and age group, 1991-2003................................................................54 Figure 2.3. The education gap in unemployment rates in Germany, 2002.........55 Figure 2.4. Labour force status of older male and female workers in Germany by single years of age, 2003.............................................................56 Figure 2.5. Participation rates by age and gender in OECD countries, 2003 .....57 Figure 2.6. Evolution of participation rates of workers aged 55-64 in OECD countries, 1995-2003........................................................................60 Figure 2.7. Participation rates in Germany by age and gender, 1970-2003 .......61 Figure 2.8. Unemployment rates in Germany by age, 1980-2003......................62 Figure 2.9. Share of older workers in manual occupations in selected OECD countries, 2002 .....................................................................64 Figure 2.10. Decline in the annual number of hours worked by age and gender, Germany and EU-12, 1990-2002 .................................65 Figure 2.11. Average job tenure of employees in selected OECD countries by age and gender, 2002 ..................................................................67 Figure 2.12. Retention rates of employees in selected OECD countries by age and gender, 1997-2002 .........................................................68 Figure 3.1. Changes in the composition of total inflow into retirement by gender, 1960-2003 ......................................................................71 Figure 3.2. Average number of insurance years of new retirees by type of pension and gender, 1960-2003...................................................72 Figure 3.3. Average age at retirement in Germany (East and West) by gender and type of pension, 1960-2003 ......................................74 Figure 3.4. Average effective age and statutory age of retirement in OECD countries, 1997-2002........................................................................75 Figure 3.5. Changes in the composition of the inflow into retirement of civil servants by gender, 1996-2003 ............................................77 Figure 3.6. Stock of pensioners aged 50-64 by type of pension, 1995-2003 .....78 Figure 3.7. Retirement incentives by age in Germany and selected other OECD countries ...............................................................................80 Figure 3.8. The relationship between retirement incentives and labour supply across the OECD, 2002 ........................................................81 Figure 3.9. Past and future increases in early retirement ages in Germany through pension reform over the 1990s, by type of pension............82 Figure 3.10. The number of people on an old-age part-time employment contract by age and gender, 1999-2003 ...........................................93 Figure 4.1. Age discrimination at the workplace in selected OECD countries, 2000...............................................................................108 Figure 4.2. Age-earnings profiles in selected OECD countries, early 2000s ...111 Figure 4.3. Age-earnings profiles in Germany by educational attainment and gender, 2002............................................................................112

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8 – TABLE OF CONTENTS Figure 4.4. Incidence and distribution of temporary employment by age group, 2003 ....................................................................................120 Figure 5.1. Educational composition of the labour force aged 50-64 in selected OECD countries, 2000 and 2025 .................................126 Figure 5.2. Workers having participated in further education and training in selected OECD countries, second quarter 2004.........................128 Figure 5.3. Participation in vocational training in Germany by age group and region, 1979-2000 ...................................................................129 Figure 5.4. Participation in training in Germany by age group and skill level, 2003......................................................................................130 Figure 5.5. Purpose of last training measure and participation in online learning offers by gender and age group, Germany, 2003 .............130 Figure 5.6. Outflow from unemployment into work by age and region, 2000 ...............................................................................................137 Figure 5.7. Jobseekers and ALMP participants by type and age, 2000-2003...139 Figure 5.8. Post-programme employment rates by type of ALMP, age group and region, 2002 ..................................................................142 Figure 5.9. Trend in sickness absence of workers in Germany by region, 1991-2003 ......................................................................................150 Figure 5.10. Sickness absence of workers in Germany by age, 1990-2003 .......151 Figure 6.1. More jobs for older workers do not mean fewer jobs for younger workers .......................................................................156

List of Tables Table 1.1. Table 1.2. Table 1.3. Table 2.1. Table 2.2. Table 2.3. Table 3.1. Table 3.2. Table 3.3.

Projected growth of the German labour force under different scenarios, 2000-2040 .......................................................................42 Labour force composition by age groups under two scenarios, Germany, 2000-2050 .......................................................................45 Migration flows between the New and Old Länder, 1989-2003......49 The incidence of long-term unemployment in selected OECD countries by age group and gender, 2003.........................................53 Participation rates by level of education, age and gender in selected OECD countries, 2002 ...................................................58 Part-time work by age and gender in OECD countries, 2003 ..........66 Actual and actuarial adjustment of public pensions in Germany by age of retirement .........................................................................84 Older unemployed and inactive unemployment benefit recipients aged 58 and over in Germany, 1999-2004 .......................................89 Disability benefit inflow and completed non-medical rehabilitation measures by age, 2003 .....................................................................97

AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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Table 4.1. Table 4.2. Table 4.3. Table 4.4. Table 4.5. Table 5.1. Table 5.2.

German companies’ views of older workers, by share of older workers in the company, 2000 .......................................................104 Workplace measures offered to older workers in Germany, by company size, 2002...................................................................105 Non-wage labour costs in the manufacturing industry, 2003.........114 The tax wedge for childless singles and married couples with two children, 1979-2003 ........................................................115 The strictness of employment protection, 2003 .............................117 Jobseekers and ALMP participants by type and age, 2003............138 Work accidents and new work-injury benefit recipients in Germany, 1992-2002 .................................................................149

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EXECUTIVE SUMMARY AND RECOMMENDATIONS –

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EXECUTIVE SUMMARY AND POLICY RECOMMENDATIONS

The challenges facing Germany Germany, like many other OECD member countries, faces a dual demographic challenge in the coming decades: considerable ageing of the working-age – and indeed the total – population; and a shrinking of working-age population numbers. Until 2020, the share of people over age 50 is likely to increase from 30% to almost 40% of the population in the 20-64 age range. Subsequently, the number of those of working age is projected to decline from 50 to 40 million people by 2050. The basis for the latest German demographic projection’s main variant is 200 000 migrants per year. If that assumed inflow were to prove even greatly underestimated, the decline in the size of the working-age population would slow down – but there would be hardly any effect on the ageing path. Trends in the employment of older workers will largely determine the extent to which the labour force shrinks. If their labour force participation rates (and those of other currently under-represented groups of workers, especially women) do not increase, demographic trends are likely to lower potential economic growth. At the same time, in response to the projected doubling of the share of the population over age 65 over the next 45 years, public social expenditures will continue to rise. At 12% of GDP, public pension outlays in Germany are already among the highest among OECD countries, and there is likely to be far more spending on pensions, health care and long-term care. Older workers in Germany currently face several serious labour market problems. They have higher unemployment rates than prime-age workers; they are over-represented in declining industries and in manual occupations; and they have a lower level of educational attainment than younger generations. The employment rate for workers aged 55-64 was around 41% in 2004; that places it below both the OECD average and the 50% target set by the EU Lisbon strategy for 2010. Nevertheless, reaching this latter target is still possible: the particularly large size of the birth cohorts 1939-1943, i.e. of those aged 61-65 in 2004, has masked the fact that the increases in employment rates of workers

AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

12 – EXECUTIVE SUMMARY AND RECOMMENDATIONS aged 55-59 and 60-64 recorded since the mid-1990s were larger than on average across the OECD. Those recent increases in employment rates notwithstanding, the average age of retirement has increased much less than the average life expectancy of those retiring. A major challenge for the future will be to align the two more closely. A particular difficulty for German policy makers is that employment rates of older workers need to be increased at a time of very high overall unemployment. In contrast to many other OECD countries, the unemployment rate has remained high over the past decade and drifted up even further over the past few years. At the same time, the government remains committed to improving the situation. The current state of the labour market makes reform difficult – not because an increased supply of older workers would diminish the chances of other groups (evidence in fact suggests that countries with high employment of older workers tend to have lower overall unemployment), but because any further changes to benefit entitlements and rights would be deeply unpopular. Another major challenge for Germany is to tackle east-west differentials in demographic and labour market outcomes, which persist 15 years after reunification. Lower birth rates in the New Länder and high numbers of young and skilled workers emigrating to Western regions with lower rates of unemployment have amplified the problems in the east. Enterprises in the New Länder will thus face the ageing and shrinking of the labour force both earlier and more abruptly than in Western regions, and skill shortages will be more pronounced. Policy has been exceptionally active in recent years While labour market outcomes remain unsatisfactory, the government has initiated comprehensive reforms in the right direction to raise the employment levels of older workers and to contain unemployment more generally. Having implemented early retirement policies before other countries – and subsequently having recognised the negative impact of such policies – the government launched turnaround pension reforms in 1992, gradually introducing actuarial adjustments for early retirement. New legislation was enacted in 1999, 2001 and 2004. The 1999 reform introduced a gradual increase in early retirement age limits and a gradual phasing-out of a number of pathways (including early retirement after long-term unemployment) over the period to 2016. The 2001 Riester reform was a first step toward converting the pension scheme into a multi-pillar system. Gradual reduction of the replacement rate in the first pillar should be compensated by generously subsidised second- and third-pillar AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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entitlements. At the same time, major changes were implemented for disability pensions, including the abolition of own-occupation assessment (Berufsschutz), the introduction of partial disability benefits, and actuarial adjustments between the ages of 60 and 63. A sustainability factor was introduced in the latest pension reform adopted in 2004: in the future, the annual adjustment of pensions will take into account demographic developments as well as changes in labour market participation rates. A decision on the necessity to increase the statutory retirement age from 65 to 67 years was postponed to after 2008. In addition, various measures were taken to help improve the labour market opportunities of older workers. The year 2003 saw changes to their temporary employment arrangements – the age threshold above which temporary contracts can be drawn up without time-limits or justification was lowered to 52. Generous wage subsidies were introduced for employers hiring workers aged 50 and over; these can amount to as much as 50% of the wage, payable for up to three years. Permanent reductions in non-wage labour costs are added if the hired workers are 55 or over. At the same time, unemployed jobseekers aged 50 and over who accept a lower-paid job can receive a temporary wage guarantee – 50% of the difference between the lower and the previous wage, payable until the unemployment benefit entitlement expires. From 2006 onwards, the older unemployed will face a new situation thanks to the reform of the unemployment benefit system: The maximum benefit payment duration will be reduced from 32 to 18 months, and, after the merging of unemployment assistance and social assistance, the long-term unemployed will have to accept any job offer at the risk of losing their benefit. However, there is uncertainty as to whether the exemption from job-search requirements for those aged 58 and over will not be prolonged. Other relevant measures include a reform of employment protection legislation introduced in 2004, the key element of which is the possibility for workers to accept a lump-sum settlement instead of challenging the dismissal in court. Further, people aged 50 and over working in small and medium-sized enterprises (up to 100 employees) who undertake training outside the company can now receive full reimbursement for their individual training costs. The public employment service (PES) is currently undergoing comprehensive restructuring; there will be greater emphasis on placement activities, further improvements in profiling of the unemployed and a new balance of mutual obligations. The Alliance for Jobs, Training and Competitiveness in 1998-2002 marked a first resolution of the social partners on a paradigm change regarding older workers. In recent years, many initiatives have been launched at various government and social partner levels that aim to identify and certify good employment practice, such as the new quality of work initiative (INQA). AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

14 – EXECUTIVE SUMMARY AND RECOMMENDATIONS Currently the administration is aiming to develop a whole-of-government approach to address the low employment rates of the over-55s. Among other things, employment pacts will be concluded – with the Länder, in the regions and with business –to (re)integrate the older unemployed at all levels of society. Challenges remain, and careful monitoring of recent reforms is needed These recent policy changes are important steps in the right direction. Yet, if the attitudes of employers and workers to early retirement are changing, they are doing so very slowly. Survey data suggest that workers still hope to retire at age 60, though today they are much less certain whether this will be possible. Employers continue to use the existing early-exit pathways to reduce and rejuvenate their workforce. Recent reforms have been successful in privatising a larger portion of the costs of early labour market exit. However, they have not yet had sufficient impact on the mind-sets of both workers and managers, in part because these reforms will only be fully in place after very long transition periods, in accordance with constitutional law. With comprehensive changes to pension and unemployment insurance in the pipeline, early retirement practices could well persist during the next ten years. That would seem to call for a reconsideration of the long transition phase of some of these measures. Also, it is important that the recent reforms are monitored and evaluated very carefully and corrections made, should they fail to deliver the desired outcomes. In any case, they are not enough: further reforms and initiatives are needed to secure employability of workers at all ages. This will be a major element influencing demand for older workers in an ageing workforce. Continuing social security reform Although recent pension reforms have started to have an impact, further reform is needed to fully eliminate early retirement incentives in all components of the multi-pillar system, and to prevent the continued use of so-called pre-retirement practices (Vorruhestandsregelungen). The following measures could be envisaged: •

Monitor early retirement incentives. If the labour supply of workers aged 60-64 is to be raised, early retirement incentives have to be fully eliminated. According to the German authorities, the current 3.6% reduction rate for each year of early retirement is likely to be sufficient to ensure actuarial neutrality from the pension system’s perspective. Simulations by the OECD, however, suggest that, from an individual’s point of view, around 5.5-6% a year could be a more appropriate rate. These are complex technical issues, and it is vital to AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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keep monitoring them closely. Much depends on the extent to which workers react to changing work incentives – a factor likely to vary significantly across countries and population groups. If recent reforms fail to raise labour supply to a sufficient level, additional reforms will be needed. Higher reduction rates would also promote gradual retirement and increase the pressure on employers to adapt their workplaces for employees who wish to pursue that option. •

Be prepared if necessary to raise the retirement age in line with rising life expectancy. With the latest pension reform it was, as mentioned above, decided to postpone the decision to increase the statutory retirement age until after 2008, and instead monitor the situation at four-year intervals in order to see if further increases are warranted. This is a welcome initiative. At the same time, regular adjustments of the minimum retirement age in line with rising life expectancy should also be sought.

•

Harmonise entitlement ages in the first, second and third pillars. Second- and third-pillar pension entitlements remain accessible with full tax advantages from age 60. This is at odds with recent reforms of the first pillar, aimed at raising the average retirement age beyond 60. Given the increasing importance of second- and third-pillar benefits, there is a risk that this situation will encourage early labour market exit at age 60 via occupational and/or private pensions. The age at which full tax advantages can be gained should be raised.

•

Review retirement rules for civil servants. Germany has a special pension scheme for tenured civil servants. Although reforms to the general pension system also apply to this special scheme, differences remain. Benefits are still calculated on the basis of the salary of the last function (rather than lifetime earnings); assessment methods used for disability pensions are different from those used in the case of privatesector employees; and certain groups of public-sector employees, such as policemen and firemen, benefit from lower statutory retirement ages. These costly special rules for civil servants should be brought in line with the regulations for private sector employees.

•

Take further action to prevent widespread use of pre-retirement practices. Recent pension and unemployment benefit reforms will help raise labour supply of older workers once the measures are fully implemented. However, there is a risk that, during the sometimes lengthy transition phase, pre-retirement practices will be used extensively. To address this risk, the following options could be considered:

AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

16 – EXECUTIVE SUMMARY AND RECOMMENDATIONS - A faster phasing out of early retirement because of long-term unemployment, as was done in other countries with a similar constitutional system, such as Austria. - An immediate introduction of job-search requirements for all unemployed, irrespective of age (a change that was planned for 2006 but may be postponed to a later stage). - A contribution to the unemployment benefit programme costs from employers who lay off a disproportionate number of persons, which would replace the current ineffective reimbursement of unemployment benefit payments for dismissed workers aged 55 and over (Erstattungsregelung). •

Remove subsidies for the old-age part-time work scheme. The subsidised part-time work scheme for older workers has become an attractive pre-retirement instrument, through the de facto early exit option chosen by almost nine out of ten users. Though it will be abolished in 2015, as a result of the forthcoming reduction in unemployment benefit payment duration, many more workers are likely to take up the scheme in the meantime. The pension system already provides various possibilities for combining work and pension benefit income, and thus offers a wide range of options for gradual retirement. When subsidies to early labour market exit will have been abolished fully, take-up of such partial pensions (which currently is practically non-existent) has the potential to increase substantially.

•

Strengthen activation of and job placement for partially disabled people. Partially disabled people receive a full disability benefit if they cannot find a part-time job. For those aged 60 and over, it is assumed that such jobs are unavailable and (thus) they are automatically entitled to a full disability benefit. Applying a mutual-obligations philosophy, partially-disabled persons should be required to register at the PES and thus receive a partial unemployment benefit in addition to their partial disability benefit. They should be treated like other unemployed persons but assisted with intensified case management. The current financial transfer from the unemployment to the pension insurance fund is a compensation for the extra costs of the latter, but it does not serve to activate partially disabled workers.

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Changing employer attitudes and practices Collective agreements need to complement reform efforts by the government. It is therefore important to include the social partners when drawing up comprehensive labour market and pension reforms, to avoid a situation whereby agreements counteract legal regulations. Current aims to breathe new life into the Alliance for Jobs through the initiation of an “Action Plan for Older Workers” should therefore be followed through vigorously. Other initiatives could include the following: •

Encourage the social partners to promote best practice. The social partners have a key role to play in raising awareness and spreading good practices, thereby helping to change both worker and employer attitudes. The recent “collective agreement for qualification” in the chemical industry is one example of how collective bargaining can be used to promote vocational training with a particular emphasis on older workers. That kind of good practice should be adopted in other agreements.

•

Promote a close link between the age profiles of earnings and productivity. While seniority wages are much less pronounced in Germany than in many other OECD countries, they are still common in the public sector. Pay regimes in the civil service should be modified gradually by increasing the role of performance-related pay and reducing the seniority component. In addition, the social partners should be encouraged to aim to achieve the closest possible match between wages and productivity so as to level out the employment chances of workers at all ages and all skill levels. With this in view, seniority-related clauses in collective agreements should be reconsidered.

•

Monitor the impact of age-discrimination legislation once implemented, and provide guidance for compliance and good practice. Age-discrimination legislation will send an important signal for changing the behaviour of private and public employers, even if current employees are already protected to some extent by other regulations. To ensure that the signal is received, information about any new legislation in this area should be widely disseminated and its effects on workers should be carefully monitored. However, such legislation will not, on its own, be sufficient to change employer attitudes and practices. Age-diversity programmes should be developed to provide guidance and help make a “business case” for retaining and hiring older workers. Key elements of such programmes

AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

18 – EXECUTIVE SUMMARY AND RECOMMENDATIONS are the promotion of an age-balanced workforce, age-appropriate job design, intergenerational knowledge transfer, the integration of older workers into innovation processes, and greater focus on lifelong learning and health promotion. •

Take a balanced approach to employment protection. In evaluating the impact of recent reform of employment protection legislation, it will be important to analyse its effects on the retention and hiring of older workers. Particular attention should be paid to the continued use of age as a social criterion in the dismissal procedure. Steps towards improving the certainty of legal provisions for employers and employees on regular contracts are another interesting dimension of recent reforms. In this regard more may need to be done, allowing for easier agreements on a mediation procedure and on lump-sum payments as to avoid legal procedures.

Improving the employability of older workers Maintaining the employability of older workers, in particular those with low and medium skills, is becoming a key challenge with the gradual closure of early retirement pathways. To ensure that recent policy does not result in large-scale unemployment and inactivity of these workers, greater focus will need to be placed on updating and upgrading skills and on maintaining the good health of workers of all ages. Important policy objectives in this context are to reach those not accustomed to participating in training, and to develop ageappropriate training tools and methods to promote motivation and thus higher take-up of continued training. It will also be important to ensure that older workers who lose their jobs have access to effective job-search assistance. A comprehensive approach to lifelong learning and lifelong workability is being sought in the context of the government’s Sustainability Strategy. Under the heading “Potentials of older people in the economy and in society”, the government authorities are currently promoting a holistic approach to foster employability and raise the employment levels of older workers. As part of this attempt, the following additional measures should be considered: •

Consider broadening eligibility for wage guarantees. The recently introduced wage guarantee, which involves payment of a temporary in-work benefit, is an attempt to make work pay for older unemployed persons unable to find a new job at their previous wage. The results of an ongoing evaluation are still awaited but so far, take-up of this measure appears to be very low. One way to raise its effectiveness would be to extend eligibility beyond the remaining period of AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

EXECUTIVE SUMMARY AND RECOMMENDATIONS –

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unemployment benefit payment (especially in view of the forthcoming shortening of this payment period). A similar measure may also be useful for the long-term unemployed who will, in principle, be obliged to accept any available job. To avoid the large-scale deadweight loss that could ensue, stricter targeting of the wage guarantee, e.g. to those unemployed for at least six months (similar to the New Deal 50+ programme in the United Kingdom), could also be considered. •

Set risk-group specific placement targets for the PES and intensify profiling for the older unemployed. In determining target agreements between the Ministry of Economics and Labour and the PES, and between the PES and its local labour offices, special emphasis should be given to older and long-term unemployed workers. A complementary policy for the PES would be to use case workers specialised in the problems and placement of older workers. In this context, the recent stronger focus of the PES on identifying skills as a preparation for subsequent qualification measures should continue.

•

Evaluate and optimise the existing training tools. Various tools exist to stimulate workers of all ages to take up training, including for example educational leave (typically five days a year) offered in most of the Länder and the recently introduced full reimbursement of individual training costs for older workers working in small- and medium-sized companies, mentioned above. It is vital to evaluate these measures, and to adjust instruments in line with the findings.

•

Promote lifelong workability at all ages. For a successful strategy that avoids a decline in productivity with age, the focus of sickness prevention should be on healthy workplaces, which will help to maintain the good health of workers. This principle, which is anchored in the new prevention law, should guide the development of prevention instruments. Joint projects at the sectoral and Länder level undertaken by pension, health, accident and care insurance bodies to maintain and improve the health status of workers and of the population at large should, to the extent possible, be supported by the national administration. Better co-operation between the different social insurance branches could help reduce inefficiencies arising from scattered responsibilities for preventive measures. It could also facilitate positive spill-over effects (e.g. good practice of work injury providers in certain occupations).

•

Improve co-ordination between health and pension insurance. Enhanced co-ordination between the health insurance system

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20 – EXECUTIVE SUMMARY AND RECOMMENDATIONS (responsible for preparing patients for rehabilitation) and the pension insurance system (responsible for medical and non-medical rehabilitation) would help to ensure well-timed intervention for people with health problems or disabilities, many of whom are older workers. This would increase the latter’s chances of work retention and labour market reintegration. Implementation of the multi-stage Hartz reform package involved an obligation to comprehensively evaluate the effectiveness of new labour market instruments. Monitoring the impact as well as the proper implementation of new measures (a rather new element in the German context) is vital. It will also be important to extend the evaluation obligation beyond the Hartz reforms to cover all those measures that were introduced in the course of pension and unemployment benefit reform. Monitoring and evaluation should cover Job AQTIV measures – e.g. the new mutual-obligations approach (Fördern und Fordern) of the PES, which involves changing the attitudes of both caseworkers and the unemployed – as well as innovative pilot projects run by many labour offices of the PES. Larger-scale implementation of successful trial projects could be an important way to improve the employability of workers at all skill levels.

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Les défis lancés à l’Allemagne L’Allemagne, comme beaucoup d’autres pays membres de l’OCDE, va se trouver confrontée à un double défi démographique dans les années à venir : le vieillissement considérable de la population en âge de travailler et de la population en général, ainsi qu’une contraction de sa population en âge de travailler. D’ici 2020, le nombre d’individus de plus de 50 ans risque de s’accroître de 30 % pour atteindre pratiquement 40 % de la population de la tranche d’âge 20-64 ans. En conséquence, le nombre de personnes en âge de travailler devrait revenir de 50 à 40 millions en 2050. Les dernières projections démographiques pour l’Allemagne tablent sur 200 000 entrées annuelles d’immigrants. Si ce nombre d’entrées se révélait être nettement supérieur, le déclin de la taille de la population en âge de travailler se ralentirait mais sans véritablement affecter le processus de vieillissement. Les tendances de l’emploi de travailleurs âgés détermineront en grande partie dans quelle mesure la main-d’œuvre diminuera. En l’absence d’augmentation des taux de participation des travailleurs âgés (et également d’autres groupes de travailleurs actuellement sous-représentés, notamment les femmes), l’évolution démographique va probablement ralentir la croissance économique potentielle. Dans le même temps, face au doublement prévu de la part de population de plus de 65 ans au cours des prochaines 45 années, les dépenses sociales publiques continueront de s’accroître. A 12 % du PIB, les dépenses publiques en matière de retraite en Allemagne figurent d’ores et déjà parmi les plus élevées des pays de l’OCDE et l’augmentation future des dépenses pour les retraites, les soins de santé et la prise en charge de la dépendance risque d’être considérable. En Allemagne, à l’heure actuelle, les travailleurs âgés sont confrontés à de sérieux problèmes sur le marché du travail. Ils connaissent des taux de chômage plus élevés que les jeunes ; ils sont surreprésentés dans les secteurs en déclin et dans les métiers manuels ; et ils ont un niveau de formation AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

22 – RÉSUMÉ ET PRINCIPALES RECOMMANDATIONS inférieur à celui des jeunes générations. Avec un chiffre autour de 41 % en 2004, le taux d’emploi des travailleurs âgés de 55 à 64 ans est au-dessous de la moyenne de l’OCDE sachant que 50 % est l’objectif fixé par la « Stratégie de Lisbonne » pour 2010. Néanmoins, il est encore possible d’atteindre ce dernier chiffre. En effet, le nombre particulièrement élevé de naissances des années 1939-43, c’est-à-dire les individus âgés de 61 à 65 ans en 2004, a masqué le fait que les augmentations des taux d’emploi des travailleurs de 55 à 59 ans et de 60 à 64 ans enregistrés depuis le milieu des années 90 ont été plus élevées que la moyenne des pays de l’OCDE. En dépit de ces récentes hausses des chiffres de l’emploi, l’âge moyen de la retraite a nettement moins augmenté que l’espérance moyenne de vie de ceux qui partent en retraite et le défi majeur qui se pose à l’avenir consiste à les rapprocher davantage. Les autorités allemandes se trouvent confrontées à une difficulté particulière, à savoir la nécessité de relever les taux d’emploi des travailleurs âgés alors même que le chômage global est très élevé. Contrairement à de nombreux autres pays de l’OCDE, le taux de chômage est resté élevé au cours de la dernière décennie et a eu tendance à s’envoler encore plus au cours de ces dernières années. Cela étant, le gouvernement entend améliorer la situation. A l’heure actuelle, le marché du travail complique les réformes, non pas parce que l’augmentation du nombre des travailleurs âgés diminuerait les chances d’autres groupes sur le marché du travail (les comparaisons avec d’autres pays montrent que le chômage global tend à être plus faible lorsque le taux d’emploi des travailleurs âgés est élevé), mais parce que toute réforme supplémentaire portant sur les droits à prestations et les droits en général seraient particulièrement impopulaires. Un autre problème épineux pour l’Allemagne consiste à remédier aux écarts entre l’Est et l’Ouest au niveau de la démographie et du marché du travail, disparités qui persistent 15 ans après la réunification du pays. Les taux de natalité inférieurs des Nouveaux Länder et l’importante émigration des travailleurs jeunes et qualifiés vers l’Ouest affichant des taux de chômage inférieurs ont amplifié les problèmes à l’Est. Les entreprises des Nouveaux Länder doivent par conséquent faire face au vieillissement et à la réduction de la main-d’œuvre plut tôt et de façon plus brutale que dans les régions de l’Ouest, et la pénurie d’employés qualifiés se fera davantage sentir.

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Les pouvoirs publics ont été exceptionnellement actifs ces dernières années Même si les résultats obtenus actuellement sur le marché du travail ne sont guère encourageants, le gouvernement a amorcé de vastes réformes allant dans la bonne direction et visant à augmenter l’emploi des travailleurs âgés et à contenir le chômage de façon plus générale. L’Allemagne ayant mis en place des mesures de préretraite avant d’autres pays, et ayant constaté leur impact négatif, le gouvernement a engagé un tournant de la réforme des retraites en 1992, avec l’introduction progressive d’ajustements actuariels pour les retraites anticipées. Les nouvelles réformes des retraites sont entrées en vigueur en 1999, 2001 et 2004. La réforme de 1999 a introduit un relèvement progressif des limites d’âge de la préretraite et un abandon progressif de plusieurs dispositifs de départ en retraite anticipé (notamment la préretraite après un chômage de longue durée) d’ici 2016. La réforme Riester de 2001 a marqué le début de la transformation du régime de retraite en un système à plusieurs piliers. La diminution progressive du taux de remplacement au titre du premier pilier doit être compensée par des droits à prestations généreusement subventionnés au titre des deuxième et troisième piliers. Parallèlement, les pensions d’invalidité ont subi d’importants changements, notamment l’abolition de la notion d’incapacité d’exercer son emploi habituel (Berufsschutz), l’introduction des pensions d’invalidité partielle et des ajustements actuariels des pensions entre 60 et 63 ans. La dernière réforme adoptée en 2004 a introduit un facteur de durabilité de sorte que, à l’avenir, l’ajustement annuel des retraites prendra en compte les évolutions démographiques et les changements des taux de participation sur le marché du travail. Toutefois, la décision sur la nécessité de faire passer l’âge légal de la retraite de 65 à 67 ans a été reportée au-delà de 2008. Par ailleurs, les autorités allemandes ont pris diverses mesures pour améliorer les débouchés professionnels des travailleurs âgés. En 2003, les dispositions concernant le travail temporaire des travailleurs âgés ont été modifées : la limite d’âge au-dessus de laquelle des contrats temporaires sans durée déterminée peuvent être conclus et sans aucune justification a été abaissée à 52 ans. Les employeurs embauchant des travailleurs de plus 50 ans ont bénéficié de généreuses subventions ; elles peuvent aller jusqu’à 50 % du salaire, payable pendant trois années. Des réductions permanentes aux coûts de main-d’œuvre non salariaux s’ajoutent si les travailleurs embauchés ont plus de 55 ans. Dans le même temps, les demandeurs d’emploi au chômage de plus de 50 ans qui acceptent un travail moins rémunéré peuvent recevoir une garantie de salaire temporaire – 50 % de la différence entre leur salaire le moins élevé et

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24 – RÉSUMÉ ET PRINCIPALES RECOMMANDATIONS leur salaire précédent, payable jusqu’à l’expiration du versement des prestations de chômage. A partir de 2006, les chômeurs âgés vont se retrouver dans une situation radicalement nouvelle sous l’effet de la réforme du régime des prestations de chômage : la durée maximum du paiement des prestations sera réduite de 32 à 18 mois et après la fusion des régimes d’assistance-chômage et de protection sociale, les chômeurs de longue durée seront dans l’obligation d’accepter n’importe quel emploi sous peine de perdre leurs droits à prestations. Cependant, il n’est pas certain que l’exemption de l’obligation de chercher du travail pour les chômeurs de plus de 58 ans sera abolie. Parmi les autres mesures intéressantes, on retiendra la réforme de la législation sur la protection de l’emploi introduite en 2004, dont l’élément clé est la possibilité pour les travailleurs d’accepter une somme forfaitaire au lieu de porter leur licenciement devant les tribunaux. De plus, les personnes de plus de 50 ans travaillant dans des petites et moyennes entreprises de 100 salariés au plus et démarrant une formation en dehors de l’entreprise peuvent dorénavant bénéficier du remboursement intégral des coûts de formation individuelle. Le SPE (service public de l’emploi) est actuellement en cours de restructuration ; l’accent sera plus porté sur les activités de placement, sur un meilleur « profilage » des chômeurs et un nouvel équilibre des obligations mutuelles. « L’Alliance pour l’emploi, la formation et la compétitivité en 1998-2002 » représente la première résolution adoptée par les partenaires sociaux sur un changement radical d’orientation à l’égard des travailleurs âgés. Au cours de ces dernières années, le gouvernement et les partenaires sociaux ont lancé de nombreux programmes qui visent à identifier et à certifier les bonnes pratiques relatives à l’embauche, par exemple, la nouvelle initiative INQA, programme pour une nouvelle qualité du travail. Actuellement, les pouvoirs publics souhaitent développer une approche impliquant l’ensemble des administrations publiques, destinée à remédier à la faiblesse des taux d’emploi des plus de 55 ans. Entre autres, des pactes pour l’emploi seront conclus – avec les Länder, avec les régions et avec les entreprises – pour intégrer ou réintégrer les travailleurs âgés à tous les niveaux de la société. Des problèmes demeurent et un suivi attentif des récentes réformes s’impose Ces changements récents sont autant d’étapes importantes allant dans la bonne direction. Néanmoins, bien que les comportements des employeurs et des travailleurs face à la retraite anticipée évoluent, les changements ne se font que très lentement. Les résultats des sondages montrent que les travailleurs espèrent encore prendre leur retraite à 60 ans, bien qu’ils soient aujourd’hui beaucoup moins certains de pouvoir le faire. Les employeurs persistent à utiliser les AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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dispositifs de départ anticipé existants pour réduire et rajeunir leur maind’œuvre. Des réformes récentes ont réussi à privatiser une plus grande partie des coûts engendrés par les sorties anticipées du marché du travail. Toutefois, elles n’ont pas encore eu suffisamment d’impact sur la mentalité aussi bien des travailleurs que des dirigeants d’entreprise, en partie parce qu’elles n’entreront pleinement en vigueur qu’après de très longues périodes de transition, comme l’exige le droit constitutionnel. Les modifications globales de l’assurance retraite et de l’assurance chômage étant encore à l’état de projet, les pratiques en matière de retraite anticipée pourraient bien persister durant la prochaine décennie. Il serait donc souhaitable de revoir la longue phase de transition de certaines de ces mesures. Il convient également de procéder à un suivi et une évaluation très soigneuse des réformes récentes, et de les corriger si elles n’atteignent pas les objectifs escomptés. De toutes les façons, d’autres réformes et initiatives sont nécessaires pour assurer l’employabilité des travailleurs à tout âge. Cela constituera un atout fondamental pour influencer la demande de travailleurs âgés au sein d’une main-d’œuvre vieillissante. Poursuite de la réforme de la sécurité sociale Bien que l’impact de certaines réformes récentes commence à se faire sentir, des réformes supplémentaires sont nécessaires afin d’éliminer complètement les incitations au départ en retraite anticipé à tous les niveaux du système à plusieurs piliers et de mettre un terme à l’utilisation permanente des mécanismes réglementaires de préretraite (Vorruhestandsregelungen). Les mesures suivantes pourraient être envisagées : •

Contrôler les incitations au départ en retraite anticipé. Pour accroître l’offre de travail des travailleurs âgés de 60 à 64 ans, il faudrait éliminer toutes les incitations au départ en retraite anticipé. Selon les pouvoirs publics allemands, le taux de réduction actuel de 3.6 % pour chaque année avant l’âge normal de départ devrait suffire à assurer une neutralité actuarielle du point de vue du régime des retraites. Des simulations réalisées par l’OCDE montrent néanmoins que du point de vue de l’individu, un taux plus approprié serait de l’ordre de 5.5 à 6 % par an. Il s’agit de questions techniques épineuses et il est vital de les surveiller étroitement. Tout dépend dans quelle mesure les travailleurs vont réagir au changement des incitations au travail, un élément qui va probablement varier de manière significative suivant les pays et les groupes de population. Si les réformes récentes se révèlent inaptes à accroître suffisamment l’offre de main-d’œuvre à

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26 – RÉSUMÉ ET PRINCIPALES RECOMMANDATIONS un niveau suffisant, des réformes supplémentaires s’imposeront. Un facteur de réduction plus fort encouragerait également un départ en retraite progressif et renforcerait la pression sur les employeurs afin qu’ils adaptent les lieux de travail aux employés désirant prendre progressivement leur retraite. •

Être prêt à relever, si nécessaire, l’âge de la retraite en fonction de l’augmentation de l’espérance de vie. Comme mentionné plus haut, avec la dernière réforme des retraites, il a été décidé de reporter au-delà de 2008 la décision relative à un éventuel relèvement supplémentaire de l’âge légal du départ en retraite et de surveiller la situation tous les quatre ans afin de voir si d’autres relèvements seraient justifiés. Cette initiative est la bienvenue. Dans le même temps, il convient de s’efforcer de procéder à des ajustements réguliers aussi bien de l’âge légal que de l’âge minimum du départ en retraite en fonction de l’augmentation de l’espérance de vie.

•

Harmoniser les âges d’ouverture des droits dans les premier, deuxième et troisième piliers. Les droits à prestations des deuxième et troisième piliers restent accessibles assortis de la totalité des avantages fiscaux dès 60 ans. Ce dispositif est en contradiction avec les récentes réformes du premier pilier, visant à relever l’âge moyen de départ en retraite au-delà de 60 ans. Compte tenu de l’importance croissante des prestations des deuxième et troisième piliers, cette situation encouragera des départs en retraite anticipés à l’âge de 60 ans via des pensions professionnelles et/ou privées. Il serait souhaitable de relever l’âge auquel le retraité bénéficie de la totalité des avantages fiscaux.

•

Revoir les règles du départ en retraite des fonctionnaires. L’Allemagne possède un régime de retraite spécial pour les fonctionnaires titulaires. Même si les réformes destinées au régime général de retraite s’appliquent également à ce régime particulier, des différences subsistent. Les prestations sont encore calculées sur la base du traitement correspondant au dernier poste occupé (plutôt que sur les gains perçus tout au long de la vie) ; les pensions d’invalidité sont évaluées selon des modalités différentes de celles du secteur privé ; et certains groupes du secteur public, tels que policiers et pompiers, bénéficient d’un abaissement de l’âge légal du départ en retraite. Ces règles particulières et onéreuses s’appliquant aux fonctionnaires devraient être alignées sur celles des salariés du secteur privé.

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Prendre des mesures supplémentaires pour empêcher l’utilisation courante des mécanismes de « préretraite ». Les récentes réformes des allocations de retraite et de chômage aideront à accroître l’offre de la main-d’œuvre des travailleurs plus âgés une fois que les mesures seront complètement mises en place. Il existe tout de même un risque que, durant la phase de transition parfois un peu longue, les mécanismes de préretraite ne soient très largement utilisés. Pour éviter ce risque, les options suivantes pourraient être envisagées : -

Un abandon plus rapide de la retraite anticipée pour des raisons de chômage de longue durée, comme cela s’est fait dans d’autres pays dotés d’un système constitutionnel semblable, comme en Autriche.

-

Une introduction immédiate de l’obligation de chercher du travail pour tous les chômeurs, quel que soit leur âge (ce changement était planifié pour 2006 mais sera peut-être reporté à une date ultérieure).

-

Une contribution aux coûts du programme de prestations de chômage de la part des employeurs qui licencient un nombre disproportionné de personnes, ce qui remplacerait l’actuel mécanisme inefficace de remboursement des prestations de chômage, pour les travailleurs licenciés âgés de 55 ans et plus (Erstattungsregelung).

•

Supprimer les subventions dans le cadre du régime de travail à temps partiel des travailleurs âgés. Le régime de travail à temps partiel subventionné pour les travailleurs les plus âgés est devenu un instrument de préretraite intéressant à travers l’option du départ anticipé de facto choisie par presque neuf travailleurs sur dix. Bien qu’il doive être aboli en 2015, suite à la prochaine réduction de la durée du versement des allocations chômage, un plus grand nombre de travailleurs risque de choisir ce régime. Le système de retraite propose déjà plusieurs possibilités permettant de combiner travail et prestations de retraite et offre ainsi un vaste choix de formules de retraite progressive. Quand les subventions aux sorties précoces du marché du travail seront totalement abolies, le recours à ces retraites partielles (qui est actuellement proche de zéro) pourrait se développer de manière considérable.

•

Renforcer l’activation et le placement pour les personnes partiellement handicapées. Les handicapés partiels perçoivent 100 % de la prestation d’invalidité s’ils ne peuvent pas trouver de travail à temps partiel. Pour

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28 – RÉSUMÉ ET PRINCIPALES RECOMMANDATIONS ceux de 60 ans et plus, on suppose que ces emplois ne sont pas disponibles et ils ont donc automatiquement droit à 100 % de cette prestation d’invalidité. Au titre d’une philosophie des obligations mutuelles, on devrait demander aux handicapés partiels de s’inscrire au SPE afin de percevoir une allocation chômage partielle en plus de leur prestation d’invalidité partielle. Ils devraient être traités comme les autres chômeurs tout en bénéficiant d’une gestion de leur situation plus poussée. Le transfert financier actuel de l’assurance chômage à la caisse de retraite compense les coûts supplémentaires supportés par cette dernière mais ne sert pas à activer les travailleurs partiellement handicapés. Changer les comportements et les pratiques des employeurs Les conventions collectives doivent compléter les efforts déployés par le gouvernement en matière de réforme. Il convient donc d’associer les partenaires sociaux au processus global de réforme du marché du travail et des retraites afin d’éviter une situation où les accords iraient à l’encontre de la réglementation. Il est donc essentiel que les objectifs actuels visant à donner un second souffle à « L’Alliance pour l’emploi » grâce au lancement d’un « Plan d’action pour les travailleurs âgés » soient rigoureusement suivis. Les initiatives suivantes pourraient se révéler utiles : •

Encourager les partenaires sociaux à promouvoir les pratiques exemplaires. Les partenaires sociaux ont un rôle fondamental à jouer dans la sensibilisation aux bonnes pratiques et leur diffusion et font ainsi évoluer le comportement aussi bien du travailleur que de l’employeur. La récente « convention collective pour la qualification » adoptée dans le secteur de la chimie illustre bien comment une convention collective peut servir à promouvoir la formation professionnelle en accordant la priorité aux travailleurs âgés. Il faudrait adopter ce genre de bonne pratique dans d’autres accords.

•

Promouvoir un lien étroit entre les profils par âge des gains et de la productivité. Certes les salaires fixés à l’ancienneté sont nettement moins fréquents en Allemagne que dans bien d’autres pays de l’OCDE, mais ils sont encore légion dans le secteur public. Le barème des salaires dans la fonction publique devrait être progressivement modifié en renforçant le rôle des rémunérations liées aux performances et en réduisant la composante de l’ancienneté. En outre, on devrait encourager les partenaires sociaux à renforcer le lien entre AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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salaires et productivité de façon à ce que les possibilités d’emploi des travailleurs soient les mêmes quels que soient leur âge et leurs compétences. A cet égard, une remise en cause des clauses des conventions collectives portant sur l’ancienneté s’imposera. •

Contrôler l’impact de la législation sur la discrimination liée à l’âge une fois mise en place et garantir respect et bonne pratique. La législation sur la discrimination liée à l’âge enverra un signal important au changement de comportement des employeurs des secteurs privé et public, même si les salariés actuels sont déjà protégés dans une certaine mesure par d’autres réglementations. Pour s’assurer que le message a bien été reçu, il faut diffuser largement des informations relatives à toute nouvelle législation dans ce domaine et surveiller étroitement ses conséquences sur les travailleurs. Toutefois, la législation sur la discrimination liée à l’âge ne suffira pas à elle seule à infléchir les comportements et les pratiques des employeurs. Il convient d’élaborer des programmes encourageant la mixité intergénérationnelle afin de leur donner des conseils et les aider à monter un « dossier » pour garder et embaucher des travailleurs âgés. La promotion d’une pyramide équilibrée des âges de la main-d’œuvre, de profils de postes adaptés à l’âge, du transfert de connaissances intergénérationnel, de l’intégration des travailleurs âgés dans des processus d’innovation ainsi que la mise en avant de l’apprentissage tout au long de la vie et de la santé constituent les principaux éléments de ces programmes.

•

Adopter une approche équilibrée de la protection de l’emploi. En évaluant l’impact des récentes réformes sur la législation en matière de protection de l’emploi, il conviendra d’analyser ses conséquences sur le maintien en poste et l’embauche des travailleurs âgés. Une attention toute particulière devra être accordée à l’utilisation continue de l’âge comme critère social dans la procédure de licenciement. Les mesures visant à améliorer la prédictibilité des dispositions légales pour les employeurs et les salariés ayant des contrats réguliers sont une autre dimension intéressante des récentes réformes. A cet égard, il convient d’aller encore plus loin, par exemple en instituant des accords plus simples pour la procédure de médiation et le versement obligatoire de sommes forfaitaires afin d’éviter le recours à des procédures légales.

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30 – RÉSUMÉ ET PRINCIPALES RECOMMANDATIONS Améliorer l’employabilité des travailleurs âgés Maintenir l’employabilité des travailleurs âgés, notamment des moins qualifiés, est en train de devenir un défi majeur face à la disparition progressive des dispositifs de départ à la retraite anticipé. Afin de garantir que cette politique récente ne se traduise pas par un chômage et une inactivité à grande échelle de ces travailleurs, il faudra mettre plus fortement l’accent dans les années à venir sur l’actualisation et l’amélioration des qualifications et sur le maintien de la santé des travailleurs de tous les âges. Dans ce contexte, il s’agit de toucher ceux qui n’ont pas l’habitude d’assister à des formations et de mettre au point des outils et des méthodes de formation adaptés à leur âge pour favoriser leur motivation et une plus grande participation à la formation continue. Il faudra également s’assurer que les travailleurs âgés qui perdent leur travail aient accès à une aide efficace dans la recherche d’emploi. Dans le cadre de la « Stratégie de viabilité » du gouvernement, c’est une approche globale de l’apprentissage tout au long de la vie et de l’aptitude au travail tout au long de la vie qui est visée. Sous le titre « Les potentiels des personnes âgées dans l’économie et dans la société », les autorités publiques encouragent à l’heure actuelle une approche holistique visant à encourager l’employabilité et à accroître les taux d’emploi des travailleurs âgés. Dans ce cadre, il conviendrait d’envisager les mesures supplémentaires suivantes : •

Envisager un élargissement des conditions ouvrant droit aux garanties de salaires. La garantie de salaire récemment introduite, qui comprend le versement d’une prestation temporaire liée à l’exercice d’un emploi, vise à rendre le travail payant pour les chômeurs les plus âgés incapables de trouver un nouvel emploi au salaire qu’ils percevaient précédemment. Les résultats de l’évaluation sont toujours en cours, mais jusqu’à présent rares sont ceux qui bénéficient de cette mesure. Une des façons d’accroître l’efficacité de ce dispositif serait d’envisager d’étendre les conditions d’obtention des prestations au-delà de la période restante des versements des prestations de chômage (notamment compte tenu de la diminution à venir de la période de versement de ces prestations). Une mesure semblable peut également être utile aux chômeurs de longue durée qui, en principe, seront dans l’obligation d’accepter tout travail proposé. Pour éviter que cela n’induise une perte sèche considérable qui s’ensuivrait, on pourrait envisager un ciblage plus strict de la garantie des salaires, par exemple pour les personnes au chômage depuis au moins six mois (semblable au programme New Deal 50+ du Royaume-Uni).

AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

RÉSUMÉ ET PRINCIPALES RECOMMANDATIONS –

31

•

Assigner au SPE des objectifs spécifiques de placement par groupe de risques et intensifier le profilage des chômeurs âgés. Lors de l’établissement des conventions d’objectifs, le ministère de l’Économie et du Travail et le SPE d’une part, et le SPE et ses agences régionales de l’emploi d’autre part, devront accorder une attention particulière aux chômeurs âgés et de longue durée. A titre de mesure complémentaire, le SPE devrait faire appel à des travailleurs sociaux spécialisés dans les problèmes et le placement des travailleurs âgés. Dans ce contexte, le SPE devrait poursuivre sa politique récente consistant à identifier les compétences comme préparation aux mesures ultérieures à prendre en matière de qualification.

•

Évaluer et optimiser les outils de formation existants. Il existe plusieurs outils destinés à stimuler la participation des travailleurs de tous les âges à des formations, comme par exemple le congé de formation professionnelle (normalement cinq jours par an) proposé dans la plupart des Länder et le remboursement intégral récemment introduit du coût des formations individuelles pour les travailleurs âgés travaillant dans des petites et moyennes entreprises, comme mentionné plus haut. Il est vital d’évaluer ces mesures et d’ajuster les instruments en fonction des résultats obtenus.

•

Promouvoir à tous les âges l’aptitude au travail tout au long de la vie. Pour une stratégie réussie qui éviterait que la productivité ne décline avec l’âge, la prévention contre les maladies doit mettre l’accent sur les conditions d’hygiène sur les lieux de travail pour aider à maintenir la bonne santé des travailleurs. C’est ce principe, bien ancré dans la nouvelle loi de prévention, qui devrait guider l’élaboration des instruments de prévention. Des projets communs au niveau des secteurs d’activité et des Länder entrepris par des organismes spécialisés dans les retraites, la santé, les assurances accidents et maladie en vue de préserver et d’améliorer la santé des travailleurs et de la population au sens large, devraient, dans la mesure du possible, être soutenus par le gouvernement. Une meilleure coopération entre les différentes branches des assurances sociales pourrait permettre de réduire les inefficiences dues à une dispersion des responsabilités en matière de mesures préventives. Elle pourrait aussi faciliter les retombées positives (par exemple l’application des pratiques exemplaires dans certains métiers par les entreprises où l’on déplore le plus d’accidents du travail).

AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

32 – RÉSUMÉ ET PRINCIPALES RECOMMANDATIONS •

Améliorer la coordination entre l’assurance maladie et l’assurance retraite. Une meilleure coordination entre le système d’assurance maladie (qui est responsable de la préparation des patients à leur réadaptation) et le système d’assurance retraite (qui est responsable de la réadaptation médicale et non médicale) permettrait de garantir une intervention à point nommé pour les individus souffrant de problèmes de santé ou d’invalidités, dont une bonne partie se compose de travailleurs âgés. Ceci augmenterait ainsi leurs chances de conserver leur emploi et faciliterait leur réintégration dans le marché du travail.

La mise en œuvre échelonnée de l’ensemble des réformes Hartz comprenait une obligation d’évaluer de manière globale l’efficacité des nouveaux instruments du marché du travail. Il est vital de surveiller l’impact ainsi que la bonne mise en œuvre des nouvelles mesures, élément relativement nouveau dans le contexte allemand. Il sera également important d’élargir l’obligation d’évaluation au-delà des réformes Hartz, afin de couvrir toutes les mesures qui ont été introduites durant les réformes sur les pensions de retraite et les prestations de chômage. La surveillance et l’évaluation devraient concerner les mesures Job AQTIV – comme la nouvelle approche sur les obligations mutuelles (Fördern und Fordern) du SPE qui porte sur l’évolution des comportements tant des travailleurs sociaux que des chômeurs, ainsi que les projets pilotes innovants gérés par nombre d’agences de l’empoi du SPE. La mise en œuvre à plus grande échelle de projets expérimentaux ayant fait leurs preuves pourrait constituer un important moyen d’améliorer l’employabilité des travailleurs à tous les niveaux de qualifications.

AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

INTRODUCTION –

33

INTRODUCTION The total population in Germany will age considerably over the next 30 years, and the years after 2020 will see a decline in the size of the working-age population. By 2035, one-third of the population will be over the age of 65. Added to this is the challenge of considerable east-west differentials in demographic as well as labour market developments that continue to exist 15 years after reunification. The rapid decline and ageing of the German population could result in a slowdown in labour force growth and therefore economic activity, increased pressure on the sustainability of social protection systems, and labour shortages in certain occupations. To avoid such outcomes, it is of the utmost importance that labour force participation rates increase further, and that older workers are retained longer in employment – and this despite the current high levels of overall unemployment. Older workers should be given better incentives to remain in employment in terms of pension entitlements, suitable training opportunities and improved working conditions. Employer attitudes towards hiring and retaining older workers will also have to change radically. This report examines the different avenues for improvement that will need to be pursued – in addition to comprehensive pension and labour market reform undertaken recently – so as to meet this objective. Chapter 1 looks at the scale of the challenges ahead. It highlights the importance of improving the employment prospects of older workers as the key to meeting the ageing challenge. Chapter 2 describes the labour market situation for older workers and identifies areas where action is required to improve outcomes for these workers. Chapter 3 discusses the role of supply-side factors in influencing the participation rates of older people, and how incentives to work are affected by benefit levels and eligibility criteria in the welfare system. But removing supply-side barriers to employment is not enough; actions on the demand side are also needed. Thus, Chapter 4 examines the factors that negatively affect employers’ attitudes towards older workers. Chapter 5 looks at barriers formed by workers themselves: what prevents them from gaining access to better jobs and to remaining in these jobs longer? Finally Chapter 6, blending the findings of the previous chapters, argues for a co-ordinated, coherent, comprehensive and balanced policy strategy to address the dilemmas in and obstacles to the employment of older workers in Germany. AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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CHAPTER 1. THE CHALLENGE AHEAD –

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Chapter 1 THE CHALLENGE AHEAD

1.

The challenge of population ageing

Future population trends in Germany will be characterised by two related phenomena: further ageing, for both the total and working-age populations, and a shrinking of the working-age population. According to the medium variant of the 10th co-ordinated population projection of the German Statistical Office (Statistisches Bundesamt, 2003), the size of the working-age population will fluctuate around its current level of 50 million people until approximately 2020, but will decline rapidly thereafter to some 40 million in 2050 (Figure 1.1). Larger immigration flows than those assumed in the medium variant could moderate the decline but would be unlikely to halt it. The total population will start to decline in parallel with the working-age population, but at a much slower pace. Changes in the age structure of the population will occur more irregularly over time than those in population size, and they will be more rapid than in the past. By around 2035, the share of the elderly aged 65 years and over in the total population, for example, is projected to increase from its current 18% to 30%. Despite considerable uncertainty about the future course of fertility, mortality and migration, age structure projections are robust even in a 30-year perspective, because it is the current age structure of the population that primarily determines changes. The increase in the elderly population will be most pronounced in the periods 2002-2009 (due to the ageing of the children born in the period 1937-44) and 2023-2037 (due to the ageing of the baby boom cohorts) (Figure 1.1). The ageing of the total potential workforce will be most pronounced between 2007 and 2020, when the share of those over age 50 will increase from 30% to 39%. Population ageing is neither a new nor an unexpected trend but an inherent and unavoidable long-term consequence of socio-economic development. Due to a rapid decline in fertility and mortality rates since 1870, Germany’s population already started to age after around 1920. The further steep decline in AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

36 – CHAPTER 1. THE CHALLENGE AHEAD fertility after the postwar baby boom in the late 1950s and early 1960s, however, was unanticipated. In Germany, the birth rate fell to sub-replacement level as early as 1971 and never recovered since (Figure 1.2). Consequently, the number of children aged 0-19 declined by one-third over just 15 years (from 1975 to 1990 – see Figure 1.1). Official German population projections assume that birth rates will remain at their current low level of 1.4 children per woman, and that by 2010 the same rates will be reached in the New Länder. Figure 1.1.

Population trends by broad age groups in Germany, 1970-2050 Index (2000=100) 0-19

175

20-49

50-64

Actual

65+

Total

20-64

Projected

150

125

100

75

50 1970

1980

1990

2000

2010

2020

2030

2040

2050

Source: German Statistical Office (Statistisches Bundesamt); figures for the period 2002-2050 are based on the medium variant of the 10th co-ordinated population projection.

Figure 1.2 also shows the notable difference in the development of the total fertility rate between eastern and western Germany. Until the mid-1970s, the two areas had a more or less equivalent decline in birth rates. Afterwards, in the Old Länder, birth rates fluctuated around the new, low level. In contrast, they first increased in the New Länder in response to population and housing policies in the former German Democratic Republic, and then dropped sharply to a low of 0.8 children per woman after the fall of the Berlin wall. Since the mid-1990s, births rates in the New Länder have risen toward the levels in the Old Länder. The course and pattern of future population ageing in Germany will be shaped mainly by the postwar baby boom and the subsequent baby slump in the late 1960s and early 1970s – i.e. by the ageing of the baby boom generation. Currently, the baby boomers determine the large size of the group of prime-age AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

CHAPTER 1. THE CHALLENGE AHEAD –

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workers. Around 2020 they will mark the peak in the number of (potential) older workers (with a 25% increase from 2010 to 2020), and from 2020 to 2030 they will create the largest-ever inflow into retirement. Figure 1.2.

Life expectancy at birth and the total fertility rate in Germany, 1960-2050 Life expectancy in years and number of children per woman

90

Men Old Länder

Women Old Länder

Men New Länder

Women New Länder

Actual

Old Länder 3.0

Projected

Actual

New Länder Projected

2.5

85

2.0

Years

80 1.5 75 1.0

70

0.5

19 60 19 65 19 70 19 75 19 80 19 85 19 90 19 95 20 00 20 05 20 10 20 15 20 20 20 25 20 30 20 35 20 40 20 45 20 50

0.0

19 60 19 65 19 70 19 75 19 80 19 85 19 90 19 95 20 00 20 05 20 10 20 15 20 20 20 25 20 30 20 35 20 40 20 45 20 50

65

Source: German Statistical Office (Statistisches Bundesamt); figures for the period 2002-2050 are based on the medium variant of the 10th co-ordinated population projection.

A second unanticipated demographic development in the past was the rapid decline in mortality rates, especially among older people, since 1975.1 This decline is now expected to continue into the future. In the medium variant of the national population projection, further increases in life expectancy of around 5-6 years are assumed for both men and women (Figure 1.2).2 One consequence of the rapid and continuing mortality declines among older and very old people is a high growth in the number of

1.

Unanticipated at that time because mortality improvements in the 1960s were very modest; it was generally believed that only limited additional gains in life expectancy would be possible.

2.

In its latest long-range population projections to 2300, the UN assumes that the average life expectancy at birth in Germany and other developed countries will gradually increase to more than 105 years, thereby coming much closer to what is considered the biological and physiological upper limit of around 120 years (UN, 2004).

AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

38 – CHAPTER 1. THE CHALLENGE AHEAD people aged 80 years and over – and, consequently, a prolongation of the retirement phase. Again, Figure 1.2 shows a pronounced difference in mortality changes over time between the two parts of Germany. In contrast to the west, mortality rates in the New Länder improved relatively little in the period 1975-90, especially among men – a phenomenon that was also observed at this time in other countries formerly under communist rule, such as Hungary and Poland. Since 1990, with the improved medical and economic conditions, cohort-specific mortality rates in the New Länder dropped quickly at all ages (Scholz and Maier, 2003), and life expectancy started to converge with the level in the Old Länder. Germany’s current population age structure and recent and projected patterns in fertility, mortality and migration rates should lead to a steep increase in the old-age dependency ratio, i.e. the ratio of the population aged 65 and over to the population aged 20 to 64. If the assumptions of the medium variant come true, including a net inflow of 200 000 migrants annually, the ratio will leap from 26% in 2000 to 40% in 2025, and further to 55% in 2050 (Figure 1.3). This is a high level vis-à-vis the OECD average, but close to the EU average. Higher assumed levels of immigration would have only a limited impact: with 300 000 immigrants per year, for instance, the growth in the old-age dependency ratio would be lowered by four percentage points (i.e. to 51%) by 2050.3 It appears that in the coming two decades, the additional economic burden on the working-age population stemming from the growing size of the retired population is partly counterbalanced by the shrinking size of the population aged under 20. After 2025, however, the total dependency ratio – i.e. the ratio of the sum of the population aged less than 20 plus that aged 65 and over to the population aged 20 to 64 – increases in tandem with the old-age dependency ratio, with no further changes in the ratio between the younger and the working-age population.

3.

Illustrative calculations by the UN have demonstrated that around 3.4 million people would have to migrate to Germany each year in order to keep the old-age dependency ratio at its current level. This would amount to a total of 175 million migrants between 2003 and 2050 – more than twice the current size of the German population. AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

CHAPTER 1. THE CHALLENGE AHEAD –

Figure 1.3. 80

Demographic dependency ratios in OECD countries, 2000-2050 Percentages

A. Old-age dependency ratioa Japan

70

B. Total dependency ratiob 110 Greece

100

60

Mexico

EU Germany Japan

50

EU US OECD Sweden Germany

90 OECD

40

30

Sweden EU Germany OECD Netherlands US 20

Sweden EU Germany Netherlands Sweden US Netherlands OECD US Turkey

0 1975

Sweden US OECD

Netherlands

EU Netherlands OECD Germany

Turkey

EU Netherlands Germany 60

Mexico

2000

Finland Sweden US

80

70

Turkey 10

39

Korea

2025

2050

50 1975

2000

Turkey Korea

2025

2050

a) b)

Ratio of the population aged 65 and over to the population aged 20-64. Ratio of the sum of the population aged less than 20 plus the population aged more than 65 to the population aged 20-64. Source: National population projections (medium variant) and UN, World Population Prospects 1950-2050 (2002 Revision) for Ireland, Greece, Hungary, Luxembourg, Mexico and Turkey.

2.

Social and economic implications

Demography will pose new social and economic challenges in the near future. Far more older people will have to be supported by a shrinking number of people of working age – and the working-age population itself is getting older. The social and economic implications are profound. Already with its current age structure, Germany’s public pension outlays – at close to 12% of GDP – are high in relation to OECD area averages (Figure 1.4). Despite a wave of major pension reforms over the past twelve years (Chapter 3) that will help to improve the situation considerably, changes in the population age structure

AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

40 – CHAPTER 1. THE CHALLENGE AHEAD could increase pension spending in 2050 by another 3% of GDP.4 Added to this potential burden is a projected increase in public spending on health and long-term care from roughly 6% today to some 9% of GDP by 2050. Figure 1.4.

Public expenditure on old-age pensions in Germany and other OECD countries, 2000-2050 Levels as a percentage of GDP, changes in percentage points Levels in 2000

Change between 2000 and 2050 Austria Italy Portugal Greece France Germany Finland Poland Denmark Belgium Sweden Spain Netherlands Japan Czech Republic Luxembourg Hungary United Kingdom Canada Norway New Zealand Ireland United States Australia Korea

0

2

4

6

8

10

12

14

16

-4

-2

0

2

4

6

8

10

12

Source: National source for Austria; Werding and Kaltschütz (2005) for Germany; European Commission (2003) for other EU-15 countries; and OECD Economic Outlook (No. 69, 2001) for all other countries.

4.

Data comparability in Figure 1.4 is restricted by differences across countries in the extent to which schemes for public employees and means-tested top-up payments are covered. Differences in the taxation of payments and the lack of information on foregone tax revenues for payments towards second-pillar occupational pension schemes also influence the result. Figures for Germany include the health insurance contribution of retirees paid out of the pension insurance fund. AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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The extent to which the demographic burden will translate into an economic burden depends on a number of additional and often interrelated factors. These include labour force participation rates and the volume of labour in terms of hours worked, the substitutability of other production factors such as capital and technology for (declining) labour, and growth in labour and total factor productivity. A.

Labour performed by fewer and older people

The decline in the size of the working-age population could in fact be compensated by an increase in participation rates or, at constant participation rates, by an increase in individual employment duration in terms of weekly and annual hours worked. For instance, the increase in the number of (prospective) older workers until 2020 could alleviate the decline in the number of prime-age workers during that same period. Between 2020 and 2035, however, the number of people aged 50-64 will decline even more rapidly than the number of those aged 20-49 years. Figure 1.5 shows that demography will most likely have a negative impact on labour force growth. Should participation rates remain constant, the total labour force would start contracting in the next five years and eventually fall sharply to its 1950 level by 2050 – a 20% decline from today’s level (Figure 1.5, Constant scenario). Between 2020 and 2030, the decline would be as much as 300 000-400 000 people annually. The latest official German labour force projection, conducted by the Institute for Employment Research (IAB), is somewhat more optimistic (Fuchs and Dörfler, 2005), especially regarding older workers: the decline in the total labour force is delayed by a few years and the magnitude of the decline is smoother, but even this projection shows a steep decline – 0.36% annually on average during the period 2000-2040, compared with a 0.45% decrease in the Constant scenario (Table 1.1). In the unlikely case that between 2000 and 2030, in each five-year age group, gender-specific participation rates converge to the maximum rate observed across the OECD (implying a very fast increase, especially in the age group 60-64), the total labour force could continue to grow rapidly, much faster than in the past twenty years, by around 0.8% annually on average until 2020. Even in this case, however, the labour force would decline rapidly after 2030 though it would still be 6% higher in 2050 than it was in 2000 (Figure 1.5, Maximum scenario).

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42 – CHAPTER 1. THE CHALLENGE AHEAD Table 1.1.

Projected growth of the German labour force under different scenarios, 2000-2040 a

Average annual percentage change

Constant

National

Maximum

2000-2010

0.07

0.30

1.01

2010-2020

-0.43

-0.33

0.57

2000-2020

-0.18

-0.02

0.79

2020-2040

-0.71

-0.70

-0.16

2000-2040

-0.45

-0.36

0.31

a) On the assumptions for the three scenarios, see Note to Figure 1.5. Source: OECD estimates based on labour force survey and national assumptions.

Figure 1.5. Historical

125 120

Labour force growth in Germany, 1950-2050 a Index (2000=100) Constant

Actual

National

Maximum

Projected

115 110 105 100 95 90 85 80

19 50 19 55 19 60 19 65 19 70 19 75 19 80 19 85 19 90 19 95 20 00 20 05 20 10 20 15 20 20 20 25 20 30 20 35 20 40 20 45 20 50

75

a)

The “Constant” scenario assumes that participation rates by five-year age groups and gender remain constant at their 2000 levels. The “Maximum” scenario assumes that participation rates by age and gender converge by 2030 to the corresponding maximum rate observed across OECD member countries in 2000 and remain constant thereafter. The “National” scenario is the most recent national projection conducted by Germany’s Institute for Employment Research (IAB); it assumes an increase in participation rates of older workers in response to recent pension reform and also a small increase for women aged 25 and over. Source: OECD estimates based on labour force survey and national assumptions.

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These scenarios illustrate how important it will be for Germany’s future economic potential to keep older workers in the labour force longer and to a much larger degree, and to raise participation rates of underrepresented groups, especially women and perhaps also young adults. The Maximum scenario shows how much scope there is for policy and institutional settings that could influence labour force participation rates and retirement behaviour. In the next fifty years and especially after 2020, at constant participation rates, labour force growth is set to be much slower in Germany than in most other (large) OECD economies (Figure 1.6). Figure 1.6.

Annual labour force growth in selected OECD countries, 1950-2000 and 2000-2050 a Average annual percentage growth, projections after 2000 1950-2000

-1.2 Germany

-1.0

-0.8

2000-2020 -0.6

-0.4

-0.2

0.0

0.2

2020-2050 0.4

France

-0.29

-0.15

Netherlands

OECD

1.8

1.63

0.65 0.55 0.61

-0.07

-0.08

1.6

1.24

-0.04 -0.07

-0.46

1.4

0.60

0.17

United States

EU-15

1.2

0.61

0.23 0.17

United Kingdom

1.0

0.60

-0.08

Sweden

0.8

0.55

-0.18

-0.69

0.6

0.39

1.10

a)

The projections of labour force growth over the period 2000-2050 assume that participation rates by five-year age groups and gender remain constant at their 2000 levels. Source: OECD estimates based on labour force surveys.

Another possibility would be to raise the volume of annual hours worked by those in employment to counteract some of the decline in the volume of labour caused by the shrinking labour force (see Chapter 2). There is some scope for this in Germany as most of the recent increase in (primarily female) participation was compensated by a decline in the per-capita volume of work, implying little recent change in the total volume of hourly labour supply. However, this conclusion does not hold for older workers to the same extent. AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

44 – CHAPTER 1. THE CHALLENGE AHEAD B.

Possible effects of a shortage and ageing of labour

It is highly likely that labour services in Germany will soon be offered by fewer people. If this occurs, there could be several important implications. For instance, the decline in the size of the total population from around 2030 onwards could eventually result in a gradual decline in the domestic demand for goods and services, thereby leading to a decline in labour demand. The latter would partly go hand-in-hand with the decline in labour supply, although the different timing of the decline of the total and of the working-age population suggests that labour-supply decline may well precede labour-demand decline. Shortage of labour supply brought on by demographic change could also lead to an increase in real wages for successively smaller cohorts – as has been argued, for example, in the case of” the United States (Macunovich, 1999 and 2000). This could in turn contribute to higher labour supply in terms of persons and/or numbers of hours worked – thereby counterbalancing the demographic effect. Faster growth in capital inputs and/or technological improvements could compensate for slower or even negative labour force growth. The same also holds for faster growth in total factor productivity. In theory, scarcity of labour should imply capital-deepening i.e. (some) substitution of capital for labour. The larger capital stock could in turn increase labour productivity – thereby also alleviating the impact of labour shortage. Börsch-Supan (2001) concludes that the lack of labour could reduce per-capita wealth in Germany by some 15% until 2035 – because the working-age population shrinks earlier and more rapidly than the total population – and that capital-deepening is only likely to compensate half of this potential decline. Additional gains in labour productivity and/or more rapid technological advancement would be needed to compensate the remaining gap. Looking at the size of the total labour force and at total numbers of hours worked, however, is insufficient. A shrinking labour force is likely to lead to especially severe labour shortages in certain labour-intensive occupations and, in the case of Germany, a shortage of highly skilled workers (with a tertiary degree). Lack of qualified labour in the nursing and long-term care sector, in which labour demand will also increase as a consequence of population ageing, will be another challenge. Improving qualification levels of current and future workers will be a key priority to help overcome these shortages. AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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Finally, it is highly likely that in Germany (additional) labour services will soon be offered by older people. Depending on how participation rates of older workers develop in the coming decades, the share of workers aged 50 and over will increase from the current 23% to between 32% (constant participation rates) and 41% (maximum participation rates), and the average age of the labour force will increase by two to five years (Table 1.2). Table 1.2. Labour force composition by age groups under two scenarios, Germany, 2000-2050 Percentages and mean ages in years Constant rates scenario

a

Maximum rates scenario

15-29 30-49 50+ 55+ 60+

2000 21.1 55.4 23.5 13.3 4.0

2020 20.6 47.2 32.2 17.3 4.5

2050 21.1 49.1 29.8 16.6 5.2

2000 21.1 55.4 23.5 13.3 4.0

2020 20.1 40.9 39.0 25.8 13.0

2050 19.8 39.1 41.1 30.1 19.1

Average age

40.3

41.9

41.7

40.3

44.1

45.4

a) On the assumptions for the two scenarios, see note to Figure 1.5. Source: OECD estimates based on labour force survey.

Theoretically, the ageing of the labour force and the decline in the number and share of younger workers – caused by demographic change as well as the increased participation rates of older workers – could imply a reduction in the innovation potential of Germany and thus reduce labour productivity. However, there is no hard evidence available that older workers are any less productive than younger workers (see Chapter 4). Arnds and Bonin (2002a), modelling macroeconomic labour productivity in an ageing society through alternative (and rather extreme) age-productivity profiles, conclude that the extent of decline in Germany’s production potential in the coming decades is predominantly driven by the shrinking of the working-age population; the ageing of this group plays a comparatively small role. 3.

Key challenges for the future

A.

Living longer but retiring early

Not only are Germans living longer, but they also live in a state of good health longer than ever before – a great opportunity. According to WHO estimates, for instance, between 2000 and 2002, healthy life expectancy has AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

46 – CHAPTER 1. THE CHALLENGE AHEAD increased twice as fast as life expectancy itself (WHO, 2003 and 2001). The problem for society arises from the fact that living longer and remaining in good health longer has not translated sufficiently into working longer. From the mid-1960s to the early 1980s, the average age of retirement has fallen despite the increase in life expectancy, and the expected retirement duration, therefore, increased by four years for men and three years for women until 1985. Since then, retirement ages of both genders are slowly increasing, but not enough to compensate the fast increase in life expectancy at age 60 since the mid-1980s. The average expected retirement duration has therefore continued to increase, though at a much slower pace: by one year for men and 1.5 years for women between 1985 and 2000 (Figure 1.7).5 Figure 1.7.

Long-term mortality and retirement trends in Germany by gender, 1960-2040 Remaining life expectancy at age 60 and average retirement age Women

Men

90 85

90 85

Life expectancy at age 60

80

80

75

Life expectancy at age 60

75

22.5

17.8 70

70

65

65

19.1

13.7

60

60 Retirement age

Retirement age

55 1960

1970

1980

1990

2000

2010

2020

2030

2040

55 1960

1970

1980

1990

2000

2010

2020

2030

2040

Source: German Statistical Office (Statistisches Bundesamt), German Pension Insurance Authority (VdR) and Secretariat estimate based on Rürup (2003).

Had the actual retirement age increased together with life expectancy throughout the period 1965-2000, the average German worker would now retire at age 65. Such massive change in behaviour will be difficult to bring about, despite the many efforts of the German government in recent years to reduce early retirement incentives and to stimulate participation of older workers. The latest national labour force projection assumes an increase in the average retirement age in response to recent reform of less than two years until 2040. 5.

Data on the average duration of benefit receipt of ended pensions speak a similar language: between 1980 and 2003, the average payment duration in (West) Germany increased by five years for women and by four years for men. AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

CHAPTER 1. THE CHALLENGE AHEAD –

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That increase will be insufficient in view of the further expected increase in life expectancy at age 60 of about four years for men and women alike (Figure 1.7). That is the minimum increase in retirement ages required in the longer run to keep the retirement duration constant. This would bring the average retirement age close to the statutory age of 65 and, thus, above the current OECD average – although the average retirement age of men is already 65 years (or higher) in one-third of all OECD countries, including for instance Switzerland, Portugal, Denmark and Ireland. B.

Intergenerational population challenges

Population ageing in Germany emerging from the ageing of the baby-boom cohort will create specific challenges. Today, the youngest members of the baby-boom cohorts have reached age 30. Hence, the group of prime-age workers is larger than ever before and almost certainly larger than it will ever be in the future. This has probably created some “generational crowding” against older workers, whereby firms have opted to take on better-educated prime-age workers instead. Thus, demography has probably had a negative impact on the labour market outcomes of older workers in recent years, and will continue to be a barrier to any real improvement in older workers’ participation rates for the next fifteen years or so. Therefore, a first major challenge is to keep the large baby-boom cohorts in the labour market longer once they themselves approach the retirement age. Subsequent generations will not be large enough to support such a large group of early retirees, nor will the labour market fifteen years from now easily adapt to such a sudden outflow of workers. As these cohorts entered the labour market at a much later age than previous cohorts on average (due to prolonged education), in principle it should not be a problem to expect them to work until a later age.However, even if this goal is achieved, there is a second intergenerational challenge that cannot be ignored. If the members of the large baby-boom cohorts remain in work until age 65 in great numbers, they will stay in their career jobs longer and thus potentially hamper the career progression of the subsequent, much smaller baby slump generation. If the pattern of age-wage profiles were to adapt to the changing demographics – i.e. if the baby-boom generation were to experience flatter wage growth and the baby slump generation steeper growth – this would facilitate labour market adjustment and career progression. Designing career paths that facilitate sideways mobility and allow for a gradual labour market exit will also be an important priority.

AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

48 – CHAPTER 1. THE CHALLENGE AHEAD C.

Tackling east-west differentials

To a varying degree, these first two key challenges are also found in several other OECD countries. In addition, Germany has still not fully digested the large social and economic problems related to the reunification of the country 15 years ago. That third challenge makes this country’s situation unique, and also particularly difficult. One-and-a-half decades after the fall of the Berlin wall, demographic and labour market developments in eastern and western Germany remain very different. Lower birth rates in the New Länder during the last 15 years amplify future demographic problems, especially because mortality rates are converging very quickly. The flow of new, young and skilled workers into the labour market will soon decline very rapidly simply as a consequence of low fertility since 1989. More than this, however, (labour) emigration from the east to the west of Germany adds to a rather gloomy outlook for the New Länder. Between 1991 and 2003, on balance more than 700 000 Germans living in the east have left for the west – predominantly for labour market reasons. Most of the lost labour is young people, typically in the 18-25 age range, and the majority is female.6 The negative balance of east-west migration was gradually approaching zero until 1997, but has increased again to much higher levels in recent years (Table 1.3). The result is that the New Länder have to do more than tackle low economic output, lower rates of economic growth and higher, growing unemployment (Chapter 2). In addition, enterprises there will face the ageing of the labour force and the shortage of young and skilled workers both earlier and more abruptly. It will be difficult to break this negative spiral. If under such pressure, however, innovative and future-oriented age diversity management practices are developed beforehand (Chapter 4), and if measures to keep older workers productive and employable are implemented more vigorously (Chapter 5), there is a chance that the immediate disadvantage in the coming years could be turned into a long-term benefit.

6.

Only in the years 1989 and 1990 did more men than women leave for the west. The gender gap in the balance of east-west migration is to a large extent caused by the fact that west-east migration is predominantly male. The net loss of young women in childbearing ages also implies that the number of annual births in the Eastern parts of Germany was falling even more rapidly than the number of births per woman. AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

CHAPTER 1. THE CHALLENGE AHEAD –

49

Table 1.3. Migration flows between the New and Old Länder, 1989-2003 Outflow, inflow and balance in persons (rounded to 1 000) Outflow from East to West

Inflow from West to East

Balance for the New Länder

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

388 395 250 199 172 163 168 166 168 182 196 214 192 177 155

5 36 80 111 119 136 143 152 157 152 152 153 94 96 97

-383 -359 -170 -88 -53 -27 -25 -14 -11 -30 -44 -61 -98 -81 -58

Sum 1989-2003 Sum 1991-2003

3 185 2 402

1 683 1 642

-1 502 -760

Source: German Statistical Office (Statistisches Bundesamt).

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CHAPTER 2. OLDER WORKERS IN THE GERMAN LABOUR MARKET –

51

Chapter 2 OLDER WORKERS IN THE GERMAN LABOUR MARKET

In the future, it will be important for Germany to align the employment rates of older workers with both the growing life expectancy at age 60 and the changing age composition of the workforce. The long-held belief that older workers hamper young people’s employment opportunities has been abandoned as a fallacy. However, labour market behaviour and policy have not yet fully adopted this fresh perspective. The purpose of this chapter is to identify those areas where action will be needed most to improve the labour market situation of older workers. Before examining trends in the participation rates of older workers (in Section 2) and the current employment conditions of older workers (in Section 3) in more detail, the discussion opens on the general key labour market problem in Germany: the high rate of overall unemployment, and the extent to which this is age-related. 1.

Combating high levels of unemployment

There is no doubt that Germany has an unemployment rate that is both high and persistent compared with both OECD and EU averages. The current standardised unemployment rate of around 10% is one of the highest in the OECD area, among both men and women (Figure 2.1).7 While levels of unemployment tend to be lower among older than among prime-age workers in most OECD countries, the opposite is true in Germany. Furthermore, a considerable share of the country’s unemployment is structural, i.e. caused by skill mismatches and by work disincentives in the social protection system (see, e.g., OECD, 2004c), or frictional, i.e. caused by a lack of occupational and regional mobility (compare, e.g., Arnds and Bonin, 2002a). That at least partly explains the particularly high rate of unemployment of older workers. 7.

Poland and the Slovak Republic have aggregate unemployment rates that are significantly higher than in any other OECD country: 19% and 17%, respectively. They are also the only OECD countries for which no comparable age-specific unemployment rates are available (OECD, 2004a).

AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

52 – CHAPTER 2. OLDER WORKERS IN THE GERMAN LABOUR MARKET Figure 2.1.

Standardised unemployment rates by age group and gender in 28 OECD countries, 2003 a Percentages Men aged 50-64

Men aged 25-49 DEU TUR FRA EU-19 FIN ESP BEL CAN OECD ITA HUN SWE USA GRC PRT CZE DNK JPN AUS IRL NOR GBR NLD AUT CHE KOR NZL ISL MEX LUX

0

2

4

6

FIN FRA EU-19 CAN TUR JPN ESP SWE OECD AUT CZE USA PRT GBR AUS DNK HUN IRL NZL ITA BEL GRC NLD ISL NOR CHE KOR MEX LUX

8 10 12 14 16 18

0

0

2

4

6

6

8 10 12 14 16 18

ESP DEU FRA CZE FIN EU-19 CAN GRC OECD ITA AUT DNK PRT USA AUS JPN SW E NZL HUN NLD CHE BEL IRL GBR TUR ISL NOR LUX KOR MEX

ESP GRC

8 10 12 14 16 18

4

Women aged 50-64

Women aged 25-49 ITA FRA EU-19 CZE DEU TUR BEL FIN PRT OECD CAN DNK HUN JPN USA AUS SW E NZL CHE NLD AUT NOR IRL GBR LUX ISL KOR MEX

2

DEU

0

2

4

6

8 10 12 14 16 18

a) 2002 data for Iceland and Luxembourg. Source: National labour force surveys.

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CHAPTER 2. OLDER WORKERS IN THE GERMAN LABOUR MARKET –

53

Not only is unemployment more widespread today in Germany than in most other OECD countries – long-term unemployment is also particularly frequent. One in two unemployed persons aged 25-49 years, and even two-thirds of those aged 50-64 years, have been unemployed for at least one year; there is no difference in this regard between men and women (Table 2.1). Only Belgium, France and the Slovak Republic have comparably high proportions of long-term unemployed older workers. Moreover, Germany is one of the few countries that has not seen long-term unemployment decline in recent years (OECD, 2005a). Table 2.1. The incidence of long-term unemployment in selected OECD countries by age group and gender, 2003 a Percentages Total Belgium Slovak Rep. Germany France Czech Rep. Greece Poland Italy Hungary Portugal Netherlands Austria Ireland Denmark Australia United Kingdom Turkey Sweden New Zealand Norway Korea EU-19 OECD

Men

25-49 50.1 64.8 48.6 43.7 53.9 59.3 52.3 59.7 44.0 34.0 32.4 22.5 39.6 17.8 24.8 26.4 25.9 16.8 15.5 7.2 0.7

50-64 66.4 66.3 64.1 62.2 59.4 59.4 59.1 55.9 53.3 52.5 50.5 45.8 45.6 45.0 41.6 35.4 34.4 34.3 26.8 17.4 0.3

25-49 48.6 63.8 47.1 43.6 52.6 50.2 51.1 59.8 44.5 30.8 31.9 20.0 46.4 19.9 29.8 31.0 23.4 18.0 17.2 7.8 0.8

50-64 70.8 64.6 62.9 64.4 57.3 55.5 57.5 55.4 52.8 47.2 47.2 49.3 52.2 42.3 48.7 38.9 34.5 36.3 32.9 16.0 0.4

47.8 41.3

58.4 54.2

46.7 38.5

57.6 52.5

Women 25-49 50-64 51.7 57.8 65.9 69.1 50.5 65.5 43.8 59.9 54.7 61.3 64.2 63.9 53.4 61.4 59.6 56.7 43.4 54.0 36.4 61.9 32.9 56.3 25.7 38.2 28.1 31.2 15.8 48.2 19.3 30.6 19.4 27.5 34.3 33.3 15.3 30.9 13.8 19.3 6.4 20.3 0.4 0.1 48.9 44.6

59.5 56.9

a) The countries are ordered by the total incidence for the age group 50-64. Source: National labour force surveys.

Unemployment in Germany is unevenly distributed across different groups of the population, and especially across regions. As Figure 2.2 shows, it is particularly frequent in the New Länder where, despite high spending on structural funds and major infrastructural investments since reunification, the level of unemployment is approaching 20% among men and women alike. For women, this high level was already reached in 1992, and the rate has been fluctuating around it ever since. For men, the upward trend was more gradual in the beginning, and has not been halted. AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

54 – CHAPTER 2. OLDER WORKERS IN THE GERMAN LABOUR MARKET Figure 2.2.

The east-west gap in unemployment rates in Germany by gender and age group, 1991-2003 Unemployment rate in percentage Men

Women

24

24

20

20

Old Länder 16

16

12

12

8

8

New Länder

0

0

15-24

25-34

32

19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03

4

19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03

4

35-44

45-54

55-64

32

28

28

Old Länder 24

24

20

20

16

16

12

12

8

8

4

4

0

0 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03

19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03

New Länder

Source: European Union Labour Force Survey.

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CHAPTER 2. OLDER WORKERS IN THE GERMAN LABOUR MARKET –

55

At 8% in 2003, the average aggregate unemployment rate in the Old Länder is less than half that in the New Länder.8 The rapid increase in rates in the past two years (that continued into 2004) has affected workers of all ages to a similar extent, in the west as much as in the east, and men as much as women. A striking feature is the very rapid increase in the unemployment rate of older workers aged 55-64 in the New Länder during the period 1991-1998. These rates peaked at over 30% (compared to a peak of 11% in the Old Länder), with some decline in the subsequent years. This reflects the unfavourable labour market situation of older workers in the course of economic transition, as well as the widespread use of pre-retirement through the unemployment insurance system. As in many other OECD countries, there is a strong “education gap” in unemployment rates in Germany. Workers with less than secondary education are two to five times more likely to be unemployed than those with tertiary education (Figure 2.3). The relative labour market disadvantage of low-skilled workers declines with age: their (high) unemployment rates remain the same while those of medium- and high-skilled workers increase with age. To a certain extent, this suggests that the labour market disadvantage arising from increasing age is even stronger than that resulting from low skills. Figure 2.3. The education gap in unemployment rates in Germany, 2002 Unemployment rates in percentage by age and educational attainment Less than secondary

Secondary

Tertiary

24 20.0

20 16

16.2

15.9

15.4

14.6

13.9

12 8.6

8 5.1

4

4.1

9.5

8.3

7.6

7.5

3.5

13.1

7.3 3.8

4.6

0 20-24

25-29

30-34

35-44

45-54

55-64

Source: OECD (2004b), Education at a Glance – OECD Indicators, Paris.

8.

Of the 254 NUTS-2 regions of the EU-25, less than 10% had unemployment rates exceeding 18% (i.e. twice the EU-average in 2003), including six regions in the east of Germany. All of the 11 NUTS-2 regions in the New Länder have unemployment rates exceeding 16% (EUROSTAT, 2004).

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56 – CHAPTER 2. OLDER WORKERS IN THE GERMAN LABOUR MARKET 2.

Mobilising older workers

A.

Early labour market exit is still common

A second key labour market issue for Germany in the years to come will be to mobilise the supply of older workers. The challenge is a difficult one at a time of very high unemployment, not because increased labour supply of older workers would diminish the labour market chances of other groups (cross-country evidence in fact suggests that countries with high employment of older workers tend to have lower overall unemployment rates), but because further reforms are particularly unpopular at the moment. Employment and participation rates of German workers decline abruptly from age 60 onwards, dropping at age 63 to 25% for men and 10% for women. The gender difference is predominantly due to the difference in the activity rate level at age 50 rather than to a distinct difference in the age pattern of labour market exit (Figure 2.4). Labour force status of older male and female workers in Germany by single years of age, 2003 Women

75

73

71

67

65

Inactives

63

59

57

55

53

Unemployed

51

75

73

71

69

67

0% 65

0% 63

20%

61

20%

59

40%

57

40%

55

60%

53

60%

51

80%

49

80%

47

100%

45

100%

49

Employed

47

Inactives

45

Unemployed

69

Men Employed

61

Figure 2.4.

Source: National labour force survey.

The consequence of this age-specific employment pattern is that labour force participation rates of older workers in Germany are relatively low in international comparison, especially for men. The 66% rate for men aged 50-64 is the ninth lowest among the 30 OECD countries, 8 percentage points below the OECD average and well behind the current lead countries in Europe, Iceland, Sweden, Norway and Switzerland (Figure 2.5). At close to 50%, participation rates of women aged 50-64 are closer to the OECD average, but at the same time further away from those of the lead countries.

AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

CHAPTER 2. OLDER WORKERS IN THE GERMAN LABOUR MARKET –

Figure 2.5.

Participation rates by age and gender in OECD countries, 2003 a Percentages Men aged 50-64

Men aged 25-49

20

40

60

80 100

0

0

20

40

20

80 100

40

60

80 100

0

0

20

40

60

80 100

20

40

60

80 100

Women aged 65-69

ISL SWE NOR DNK NZL FIN CHE USA CAN GBR JPN AUS PRT FRA CZE KOR DEU NLD IRL HUN SVK POL AUT GRC MEX ESP BEL LUX ITA TUR

ISL SVK SWE FIN DNK NOR PRT CAN AUT FRA CHE CZE POL DEU NLD GBR BEL USA NZL AUS HUN IRL ESP LUX JPN GRC ITA KOR MEX

60

ISL MEX KOR JPN TUR PRT USA NZL NOR CHE IRL CAN AUS GBR DNK GRC SWE POL CZE NLD ITA FIN DEU AUT ESP HUN LUX BEL FRA SVK

Women aged 50-64

Women aged 25-49

TUR

Men aged 65-69

ISL JPN MEX CHE NZL SWE NOR KOR DNK USA CAN GBR IRL PRT ESP CZE AUS GRC NLD FIN SVK DEU FRA ITA AUT LUX BEL POL TUR HUN

ISL MEX JPN LUX CHE CZE GRC SVK AUT FRA NLD PRT DEU ESP ITA CAN DNK BEL KOR GBR IRL USA FIN NZL POL NOR TUR SWE AUS HUN

0

57

ISL KOR JPN USA PRT MEX NOR TUR NZL CHE DNK GBR SWE CAN POL AUS IRL GRC CZE NLD DEU AUT FIN ITA HUN ESP SVK FRA LUX BEL

0

20

40

60

80 100

a) 2002 data for Iceland and Luxembourg. Source: European Labour Force Survey (Austria, Netherlands and Switzerland) and national labour force surveys.

AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

58 – CHAPTER 2. OLDER WORKERS IN THE GERMAN LABOUR MARKET In line with these findings, OECD calculations indicate that Germany still has a relatively high rate of so-called “mobilisable labour resources” (when measured relative to international benchmarks), amounting in 2001 to 11.7% of its working-age population (OECD, 2003a). The untapped resources are a result of both excess inactivity and excess unemployment (noting that the latter has further increased by 1.5 percentage points since 2001). Two-thirds of the total is attributable to excess non-employment of older workers, i.e. primarily early labour market exit. This is among the highest shares attributable to this age group across the OECD, significantly higher than the 46% unweighted OECD average and the 27% population-weighted average. Table 2.2. Participation rates by level of education, age and gender in selected OECD countries, 2002 Percentages Men Primary Secondary Germany Tertiary Primary France Secondary Tertiary Primary Netherlands Secondary Tertiary Primary Sweden Secondary Tertiary Primary United Kingdom Secondary Tertiary Primary United States Secondary Tertiary Primary OECD Secondary Tertiary

25-49 88.8 93.5 97.4 91.0 96.6 95.4 88.0 95.5 97.9 84.1 91.6 91.5 74.0 93.3 96.9 82.7 89.9 94.4 87.7 92.2 94.7

50-64 55.4 63.9 77.8 55.7 67.5 81.6 60.5 71.1 81.4 73.2 80.0 88.1 57.4 76.0 79.6 59.3 73.8 84.3 63.8 71.0 81.8

Women 25-49 50-64 62.8 35.9 80.9 50.5 88.5 67.7 67.7 44.3 82.5 57.5 88.5 68.9 60.5 32.0 81.2 51.9 89.5 65.9 72.2 60.3 86.7 76.8 88.6 87.0 51.6 49.6 77.5 72.6 89.0 80.8 57.1 38.8 76.5 62.5 82.5 74.6 49.0 38.0 75.0 57.4 82.3 71.7

Total 25-49 74.0 87.2 93.6 78.9 89.9 91.6 74.1 88.4 94.0 79.1 89.2 89.9 61.4 85.7 93.0 71.0 83.2 88.2 67.8 83.8 88.4

50-64 42.2 57.2 74.5 49.3 63.0 75.5 43.5 62.8 75.6 67.3 78.4 87.5 53.5 74.7 80.1 48.6 67.6 79.7 50.0 64.3 77.4

Source: OECD (2004b), Education at a Glance – OECD Indicators, Paris.

Early labour market exit is particularly widespread among low-skilled workers, many of whom had long work careers in physically demanding jobs. The participation rate of women aged 50-64 years with primary education, for instance, is only 36%, compared with 68% for those with tertiary education (Table 2.2). For men, the difference is slightly less pronounced. In other words, AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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59

lower skills are adding to the disadvantage of older workers. Improvements in the average skill level of older workers in the future – as a result of the education expansion in the past – should help close the large age gap in participation rates. However, there is increasing concern in Germany that the trend of rising average levels of educational attainment will come to an end, due to the recent declining skill levels of younger workers (Chapter 5). B.

Long-term trends in participation and unemployment rates

The economic and labour market policies of the past decade have been highly successful in curbing unemployment and raising employment across the OECD, especially among older workers (OECD, 2005a). Among the 28 countries for which comparable data are available, 19 have seen increases, at times substantial, in the participation rates of the entire 55-64 age group during the period 1995-2003, irrespective of the initial level in 1995. Four countries, including Germany, have seen only a very mild increase, and in four countries participation has declined (Figure 2.6, Panel A). It would thus appear that Germany faces a major challenge: meet the Stockholm and Barcelona targets on employment and participation recently approved by the European Council. In line with its “Lisbon process”, the EU aims at raising the average employment rate of 55- to 64-year-old men and women to 50% by 2010 (Stockholm target, agreed in March 2001) and the effective average age at which people stop working by about five years, also by 2010 (Barcelona target, agreed in March 2002). For Germany to meet the Stockholm target would require an additional 11 percentage point increase in the employment rate over its 2003 level. To put this target into perspective, the increase in the employment rate for the 55-64 age group was only 1.5 percentage points over the period 1995-2003. Figure 2.6, Panel B) shows that the limited increase in participation rates of older German workers since 1995 is partly a consequence of the shift in age composition within this group (the same conclusion holds for the trend in employment rates). By 2003, the large birth cohort 1939-43 has reached age 60-64, thereby dampening any gains for the entire group of older workers. Among both workers aged 55-59 and those aged 60-64, participation and employment rates have in fact increased considerably even more than on average across the OECD. Without changes in the composition of the group of workers aged 55-64, gains in participation and employment rates in the period 1995-2003 would have reached 6.5 percentage points.

AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

60 – CHAPTER 2. OLDER WORKERS IN THE GERMAN LABOUR MARKET Figure 2.6.

Evolution of participation rates of workers aged 55-64 a in OECD countries, 1995-2003 Percentages for the age group 55-64 and changes for the groups 55-59 and 60-64 Panel A: 1995 vs. 2003 level of the participation rate for the 55- to 64-year-olds

2003 75

SWE

70

NOR NZL JPN

65 DNK

60

CAN FIN

55

IRL

50 NLD

45

ESP CZE

40

USA KOR

GBR MEX

PRT AUS

GRC

EU19

DEU

FRA

35 ITA

HUN

30

LUX

TUR

POL AUT

SVK BEL

25 20 15 15

20

25

30

35

40

45

50

55

60

65

70

75 1995

Panel B: Change in participation rates 1995-2003 for the 55-59 and 60-64 groups 60-64

55-59

25 20

NZL HUN

NLD

15 10 5

AUS CAN

FIN

DEU SWE PRT USA ESP

IRL

DNK

OECD EU-19

CZE GBR

SVK MEX

LUX

NOR BEL

ITA

GRC ISL

0 -5

FRA JPN

AUT KOR POL

-10

TUR

-15

a) 2002 data for Luxembourg. Source: European Labour Force Survey and national labour force surveys.

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61

Similarly, participation and employment rates for the 55-64 age group will improve by 5 percentage points by 2010, even without further change in actual labour market exit behaviour. The 50% Stockholm employment target could therefore be achieved if progress in the coming few years is at least as large as in the past few years, provided the high level of unemployment is also reduced somewhat. Given the substantial recent reform efforts (see Chapters 3-5), this does not seem impossible. Long-term trends since 1970 illustrate the steep decline in labour force participation rates of men aged 60-64, from 70% in 1970 to 35% in the late 1980s; the decline was reinforced by the economic crises in 1974/75 and 1981/82 (Figure 2.7). Participation rates for women show an upward trend ever since 1970 – except for the age group 60-64 – although the increase almost halted for women aged 50-59 during the period 1975-1990, when early retirement was encouraged.

15-24

25-49

50-54

Men

19 70 19 73 19 76 19 79 19 82 19 85 19 88 19 91 19 94 19 97 20 00 20 03

100 95 90 85 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0

Participation rates in Germany by age and gender, 1970-2003 Percentages 55-59 100 95 90 85 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0

60-64

65+

Women

19 70 19 73 19 76 19 79 19 82 19 85 19 88 19 91 19 94 19 97 20 00 20 03

Figure 2.7.

Source: National labour force survey.

German reunification in 1990 resulted in a sudden drop in the participation rates of older men and a sudden increase in the rates for women up to age 55. Since the mid-1990s, participation rates have been rising for all groups of older workers, despite rather sluggish economic growth. The increase was more AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

62 – CHAPTER 2. OLDER WORKERS IN THE GERMAN LABOUR MARKET pronounced for women than for men, and more rapid for workers aged 55-59 than for those aged 50-54 and 60-64. The turnaround in trends in the mid-1990s indicates a gradual change in the behaviour of employers and employees in response to policy change. Long-term trends in unemployment rates tend to echo economic developments. In 1980, following the economic boom of the late 1970s, unemployment rates were very low, especially among men. In the first half of the 1980s, when economic growth stagnated and was even negative for four years in a row, unemployment rates increased very rapidly, up to 7-8% for prime-age and older workers alike, and to over 10% for young workers (Figure 2.8). Subsequently, unemployment fell until 1990, in line with the cyclical upswing. Then, with the economic problems eventually encountered in the aftermath of German reunification, unemployment climbed very rapidly and reached hitherto unknown levels in 1997. The increase was most pronounced among older workers, and among them it was the age group 55-59 that was hit hardest. The rapid increase in participation rates for the latter age group during the same period, partly in response to policy change, has therefore translated into higher unemployment to a very large extent. Figure 2.8.

Unemployment rates in Germany by age, 1980-2003 Percentages

15-24 16 15

25-49 16

Men

15 13

12

12

11

11

10

10

9

9

8

8

7

7

6

6

5

5

4

4

3

3

2

2

1

1

0

0

Women

19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02

14

13

19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02

14

50-64

Source: National labour force survey.

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63

More specifically, ever since 1990 unemployment rates of older workers aged 50-54 and 60-64 developed very much in line with those for prime-age workers, especially among men. For workers aged 55-59, on the contrary, until 1997 the unemployment rate increased to 16% for men and 19% for women. Much of this increase concerned workers aged between 58 and 60 and took the form of quasi-retirement through the unemployment insurance system. This was made possible thanks to very long unemployment benefit payments of up to 32 months and special pre-retirement regulations in the New Länder – and was thus a shift in retirement pathways rather than an actual increase in unemployment. Similarly, much of the rapid decline in the unemployment rates of older workers since 1997 is concentrated among those aged 55-59, again largely in response to policy changes – such as the 1996 introduction of the oldage part-time employment scheme – and the rapid increase in the number of “inactive unemployed”, i.e. those unemployed over age 58 who are exempted from job-search requirements and thus no longer counting as unemployed (see Chapter 3 for more details). 3.

The employment conditions of older workers

Just as important as labour market status are the occupational mix and conditions under which older workers are employed, and how these conditions – e.g. working hours and stability – differ from those for prime-age workers. A.

Restructuring and occupational segregation

The structure of the German economy is changing rapidly. In 2003, 71% of all employees worked in the service sector – up from around 55% in 1980. The total number of employees in the service sector is continuing to grow rapidly, while the work force in both industry and agriculture continues to decline. Such a development requires substantial reallocation of labour between sectors and industries. The distribution of workers across economic sectors, industries and occupations varies with age. Older male workers in Germany in particular are still to a large extent engaged in manual occupations (Figure 2.9). At a more detailed level, the age distribution across occupational groups shows that older workers are overrepresented in elementary occupations as well as in high-level management positions, among professionals and in the public administration, education and health services more generally. There is significant gender segmentation by occupation. Older male workers tend to be overrepresented in high-status occupations, and older female workers in low-status ones.

AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

64 – CHAPTER 2. OLDER WORKERS IN THE GERMAN LABOUR MARKET Share of older workers in manual occupations in selected OECD countries, 2002 a,b Percentages

Figure 2.9. Men

Women

Portugal

Portugal

Slovak Rep.

Spain

Spain

Greece

Hungary

Czech Rep.

Czech Rep.

Slovak Rep.

Poland

Austria

Greece

Hungary

Ireland

Luxembourg

Austria

Italy

Finland

Poland

Average

France

46.0

Germany

Average

UK

Finland

France

Belgium

Women

Italy Denmark

UK

Sweden

Netherlands

Iceland

Ireland

Switzerland

Denmark

Luxembourg

Switzerland

Belgium

Norway

Netherlands

Iceland

Norway

Sweden

0

5

10

15

20

25

30

21.0

Germany

35

40

45

50

55

60

65

0

5

10

15

20

25

30

35

40

45

50

55

60

65

a)

Persons having manual occupations are defined as those working as skilled agricultural and fishery workers, craft and related trades workers, plant and machine operators and assemblers and in elementary occupations. b) Weighted average of the countries shown on the figure. Source: European labour force statistics.

B.

Diminishing lifetime and full-time employment

Lifetime employment is gradually losing ground in the various industries in Germany, as is full-time employment. According to national data supplied by the IAB, the average German employee worked 1 446 hours in 2003, the third-lowest number across the OECD above only the Netherlands and Norway (OECD, 2004a). This is almost 20% below the current OECD average of over 1 700 hours per year. Over the past three decades, the number of hours worked per worker declined by 25% – more than in any other OECD country. Since 1990, the decline in hours worked per employee was 6%, compared to an average decline of 2% across the OECD. More than 60% of the decline in Germany in the past decade was due to an expanding share of part-time workers in the total labour force. But the number of hours worked by part-time as well as full-time workers also declined, especially among women. As in most other OECD countries, older employees in Germany work slightly fewer hours than prime-age workers. However, the difference is not very large: 0.8 hours a week among men and 1.4 hours among women in 2002. Moreover, the largest part of the overall decline in annual average hours worked AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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65

in Germany since 1990 can be attributed to the changing work patterns of young and prime-age workers (Figure 2.10). There was almost no change in the annual hours of female workers aged 45-59, and male workers of that age put in even longer hours in 2002 than they did in 1990. The average annual number of hours worked declined considerably only for older workers in the 60-64 age group (whose employment rates are very low) – again, more among women than men. This is related to the introduction of the old-age part-time employment scheme in 1996 (almost all of the decline for the 60-64 age group shown in Figure 2.10 occurred after that year). The age pattern of change in annual hours worked was quite similar in other EU countries for which comparable data are available for that period. However, the decline in annual working hours in Germany since 1990 was particularly marked among both women of childbearing ages and men and women aged 60-64. Decline in the annual number of hours worked by age and gender, Germany and EU-12, 1990-2002 Change in average annual hours worked Men

50

50

0

0

-50

-50

-100

-100

-150

-150

-200

-200

-250

-250

60-64

55-59

50-54

45-49

40-44

30-34

EU-12 25-29

20-24

Germany 15-19

all ages

60-64

55-59

50-54

45-49

40-44

35-39

30-34

EU-12 25-29

20-24

15-19

all ages

Women Germany

35-39

Figure 2.10.

Source: European Union labour force survey.

Germany now belongs to the OECD countries with large shares of women in part-time work, prime-age (42%) and older (46%; see Table 2.3). In contrast, part-time work for men is slightly less frequent than the average across the OECD at all ages. Further stimulating gradual retirement could be one way of raising participation rates of older workers (see Chapter 3). Employment dynamics over the life cycle also differ significantly between groups of workers and industries. Some workers are affected by frequent episodes of unemployment while others stay with the same employer for most of their working lives. An indication of the latter is given in Figure 2.11. It shows that average job tenure for older workers in Germany is high in comparison to AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

66 – CHAPTER 2. OLDER WORKERS IN THE GERMAN LABOUR MARKET countries like the United Kingdom and the United States, but broadly similar to that in most European countries. On average, men over 55 (i.e. close to retirement) have worked for the same employer for around 21 years. The lower figure for women, around 17 years at the same age, is a reflection of their different labour market behaviour in connection with childrearing. Table 2.3. Part-time work by age and gender in OECD countries, 2003 a,b Percentage of total em ployment in each group Both Switzerland Netherlands Australia Germany Iceland Norway Japan United Kingdom Belgium Austria New Zealand Sweden Turkey France Denmark Ireland Luxembourg Canada Mexico Italy United States Finland Spain Poland Portugal Korea Czech Rep. Greece Hungary Slovak Rep. Unweighted average

Men

25-49 30.7 26.6 23.5 21.6 21.4 21.2 21.1 20.6 19.9 19.6 19.1 18.3 16.6 15.3 15.3 13.7 12.6 12.4 11.5 8.8 7.9 7.8 7.5 6.6 6.3 5.4 3.7 3.5 2.8 1.8

50-64 34.3 31.6 27.5 23.5 18.8 25.0 27.3 28.6 23.4 17.6 21.9 21.5 31.0 16.4 16.8 20.3 9.9 16.0 14.4 6.8 9.4 14.4 6.6 14.3 16.0 9.6 6.6 3.8 5.3 4.3

25-49 7.7 4.5 7.7 4.4 6.1 7.0 8.5 4.0 4.1 3.5 5.9 7.0 11.8 3.7 5.8 2.9 1.5 4.8 4.2 2.7 2.8 3.8 2.0 4.3 2.2 3.1 0.9 1.4 1.3 0.7

50-64 9.3 11.7 12.8 6.3 4.4 8.5 14.8 11.6 10.1 4.0 9.9 10.5 25.8 5.4 6.5 6.6 1.0 7.8 6.6 3.2 4.7 11.1 1.5 11.6 8.2 7.9 3.7 1.8 3.8 2.3

14.1

17.4

4.3

7.8

Women 25-49 50-64 58.6 66.6 53.7 63.7 42.8 47.9 42.4 46.6 38.8 34.3 37.2 43.7 39.8 45.8 41.2 49.8 39.5 45.7 39.7 38.6 34.4 36.8 30.6 33.1 31.3 43.1 29.1 29.8 26.4 28.9 27.8 44.7 28.4 27.5 21.1 26.2 24.4 33.0 18.3 13.8 13.5 14.1 12.2 17.8 15.7 17.7 9.3 17.7 10.9 25.9 9.1 12.0 7.3 10.6 6.6 7.8 4.4 6.9 3.0 7.1 26.6

31.2

a)

2002 data for Austria, France, Iceland, Korea, Luxembourg, Mexico and the United States. b) The countries are ordered by the total share for workers aged 25-49. Source: OECD database on part-time work.

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CHAPTER 2. OLDER WORKERS IN THE GERMAN LABOUR MARKET –

Average job tenure of employees in selected OECD countries by age and gender, 2002 a Years Sweden

20

20

18

18

16

16

14

14

-5 9

-5 4

-4 9

-4 4

-6 4 60

55

50

45

-3 9

-2 4 20

-5 9

-5 4

-6 4 60

55

50

45

40

35

30

-4 9

0 -4 4

2

0 -3 9

4

2

-3 4

6

4

-2 9

8

6

-2 4

10

8

25

US

12

10

-3 4

12

35

Years

22

UK

Women

24

22

-2 9

24

Years

Netherlands

40

France

Men

30

Germany

25

Figure 2.11.

20

67

a) 2000 data for the United States. Source: European Union Labour Force Survey; Job Tenure supplement to the US Current Population Survey.

A drawback of average job tenure as an indicator of job stability is its masking of compositional effects (and changes). Five-year job retention rates that take the proportion of all workers who are still working with the same employer five years later are a better indicator of job security.9 A comparison of retention rates across selected OECD countries shows comparatively high job stability in Germany up to age 55. Some 70-75% of all workers in the age range 35-54 in 1997, men and women alike, were still working for the same employer in 2002 (Figure 2.12). This is a lower proportion than in France but higher than in the other countries shown in this figure. For older workers in Germany, just like their French counterparts who also tend to retire early, job retention rates very quickly drop below those in other OECD countries. Only one in four female and one in three male German workers aged 55-59 in 1997 were with the same employer five years later, largely because many of those workers had already retired by 2002. 9.

Retention rates used in this chapter are estimated using cross-sectional data on job tenure, not from directly observing job retention. They are calculated by taking the ratio of the number of workers in any given five-year age group with at least five years of job tenure to the total number of workers in the preceding age group five years earlier.

AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

68 – CHAPTER 2. OLDER WORKERS IN THE GERMAN LABOUR MARKET Retention rates of employees in selected OECD countries by age and gender, 1997-2002 a,b Percentages Netherlands

Sweden

90

10

0

0

60 -6 4

10

55 -5 9

20

50 -5 4

20

45 -4 9

30

US

Women

35 -3 9

30

20 -2 4

40

60 -6 4

40

55 -5 9

50

50 -5 4

50

45 -4 9

60

40 -4 4

60

35 -3 9

70

30 -3 4

70

25 -2 9

80

20 -2 4

80

UK

40 -4 4

France

Men

30 -3 4

Germany 90

25 -2 9

Figure 2.12.

a) b)

1995-2000 for the United States. Retention rates refer to the proportion of workers in 1997 who were still in the same job five years later in 2002. The age groups refer to a worker’s age in 1995. The data are based on labour force surveys covering all workers. Source: European Union Labour Force Survey; Job Tenure supplement to the US Current Population Survey.

To a certain extent, high job security (at least to age 55) may give rise to an insider-outsider problem. While the retained older workers profit, the older unemployed face a very real barrier to work re-entry. This trade-off is difficult to resolve through labour supply policies, which is why they have to be complemented by policies for action on the demand side. These issues are discussed in depth in Chapters 4 and 5.

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CHAPTER 3. PROVIDING SOCIAL PROTECTION WHILE ENHANCING WORK INCENTIVES –

69

Chapter 3 PROVIDING SOCIAL PROTECTION WHILE ENHANCING WORK INCENTIVES

Old-age pension schemes and other social transfer programmes – disability, unemployment benefit, early labour market exit – are important factors behind decisions whether to participate in or leave the labour market. A key policy challenge facing all OECD countries is to provide an adequate income for older people while not undermining work incentives for older workers. This chapter discusses the extent to which the retirement decision, and thus the employment rate of older workers in Germany, is influenced by institutional arrangements, particularly benefit levels and conditions of access to early retirement. It looks at what has been done in recent years to improve the situation, and discusses options for the future. 1.

Retirement pathways and retirement behaviour

The chapter will only briefly touch on issues such as the long-term financial sustainability of the pension scheme and the fairness of the system and recent reforms across different population groups (e.g. high and low income). The main emphasis is on work incentives and on how the retirement age has been steered by existing regulations and is likely to be influenced by recent and forthcoming changes. A.

Pathways into retirement are gender-specific

Retirement patterns differ strongly for men and women, owing to the different pathways available to them (Box 3.1). Over the 1990s, around four in every ten women retired through the special old-age pension for those who have reached age 60 (Figure 3.1) with, on average, an accumulated 35 insurance years. A similar fraction retired at the statutory retirement age of 65. The latter group are women who, typically, have not collected sufficient insurance years for earlier retirement (Figure 3.2). Most of the remaining women retired on the grounds of disability; other (early) retirement pathways AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

70 – CHAPTER 3. PROVIDING SOCIAL PROTECTION WHILE ENHANCING WORK INCENTIVES played only a minor role.10 Reunification of Germany in 1990 altered the composition of inflows into retirement. Women in the New Länder used to have much longer, typically uninterrupted work careers. This helps explain why the trend of women retiring at age 60 rose until the late 1990s. In recent years, the share of women retiring at the statutory age is again increasing. Box 3.1.

The main retirement pathways in Germany

The statutory retirement age in Germany is 65 years for men and women. As in many other OECD countries, however, a range of alternative early retirement pathways has been introduced, especially in 1973 (see e.g. Arnds and Bonin, 2002b). Following a series of pension reforms during the past decade, however, access to several of these pathways will be changed considerably. Benefit reductions have already been phased in for all paths, and some will be phased out entirely (see also Section 2).

10.

•

Early retirement for older unemployed from age 60 (available with 15 insurance years, eight years of activity in the last ten years, and a period of unemployment of at least one year). This scheme was introduced in 1957, when the pension system was converted into a pay-as-you-go programme. Use of this scheme increased greatly in the late 1980s in response to the unemployment benefit payment reform, whereby the older unemployed could receive their benefit for 32 months. Between 2006 and 2008, the minimum retirement age for this scheme will be increased (in monthly steps) to 63 years. The scheme will de facto come to an end by 2016 (the birth cohort 1951 will be the last one eligible).

•

Early retirement for women from age 60 (available with 15 insurance years and ten years of insured earnings after age 40). This scheme was introduced in 1957. Its path effectively subsidises the short employment careers of women. It too will be phased out by 2016 (again, the birth cohort 1951 will be the last one eligible).

•

Early retirement for long-term insured from age 63 (available with 35 insurance years). This scheme was introduced with the 1973 pension reform and had a major impact on male retirement behaviour. For cohorts born in 1945 and subsequent years, the minimum age will be lowered to 62 years as from 2010.

•

Early retirement for severely disabled persons from age 60 (available with 35 insurance years). This scheme was also introduced in 1973, to enable retirement from age 60 for workers (de facto mostly men) with a recognised

The sudden change for women in 1984 from disability pensions to (normal) old-age pensions is related to reform that reduced the minimum required number of insurance years for an old-age pension entitlement. This was lowered from 15 years to five years. At the same time, the requirements for a disability pension were increased: there had to be at least three years of compulsory insurance within a five-year period prior to the beginning of disability. AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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71

severe disability (i.e. 50% loss of the earnings capacity). Since 2003, retirement through this scheme is still possible without benefit deductions from age 63, or with benefit deductions from age 60.

•

Early retirement after old-age part-time work from age 60 (available with 15 insurance years, eight years of activity in the last ten, and under an old-age part-time work contract for at least two years). This scheme was first introduced in 1988 and was further adapted in the course of its reintroduction in 1996. In line with early retirement for the older unemployed, the minimum age will be raised to 63 years by 2008, and the scheme will de facto come to an end by 2016 (yet again, the birth cohort 1951 will be the last one eligible).

•

Early retirement for miners from age 60. This scheme was introduced in 1980. It is not going to be reformed because its importance is minimal (since its introduction, in total less than 8 000 workers have retired through this special regime).

•

Disability pension irrespective of the worker’s age (available with five insurance years, three years of activity in the last five, and a medical condition that reduces the work capacity). This scheme has always existed. Disability pensions can be an attractive exit option for workers with health problems (or will become so after the abolition of the other pathways), because partially disabled workers aged 60 and over automatically receive a full disability pension as it is assumed that there is no part-time work available for them. (The conditions are similar for partially disabled workers below age 60, but then the full benefit is not paid automatically.)

Changes in the composition of total inflow into retirement by gender, 1960-2003 a Percentages Unemployed or old-age part-time

100%

a) 1960-1992 Old Länder, 1993-2003 Germany. Source: Pension insurance authority (VdR).

AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

2002

1999

1996

1993

1990

1987

1981

1978

1972

1963

2002

1999

1996

1993

1990

0% 1987

10%

0% 1984

20%

10% 1981

30%

20%

1978

40%

30%

1975

50%

40%

1972

60%

50%

1969

70%

60%

1966

80%

70%

1963

80%

1960

WOMEN

90%

1969

MEN

90%

Women aged 60

1960

100%

Long insurance

1966

Severly disabled

Normal retirement

1975

Disability

1984

Figure 3.1.

72 – CHAPTER 3. PROVIDING SOCIAL PROTECTION WHILE ENHANCING WORK INCENTIVES For men, the story is different. Only one in four retire at the statutory age of 65, a proportion that was even lower during the early 1980s, the boom years of early labour market exit, and in the mid-1990s in the aftermath of German reunification. Of those retiring early, 40% do so on the grounds of unemployment or after a period of old-age part-time work (typically at age 60). Another 40% leave the labour market on the grounds of disability (either through the disability benefit scheme or the special early retirement scheme for severely handicapped people). The remaining 20% leave on the grounds of long-term insurance at age 63 (Figure 3.1). Many of those retiring due to unemployment or after a phase of old-age part-time work will effectively have stopped working long before age 60, typically two and a half years before. As with women, men retiring at age 65 tend to be those with shorter insurance records (Figure 3.2). For men, the reunification of Germany has led to a pronounced shift of early retirement pathways; those leaving because of unemployment rose from 15% to 35% within only a few years (Box 3.1). This change is related to the special pre-retirement regulations introduced for workers in the New Länder in 1990 (see Section 4). In the past three years, in parallel with the decline in the unemployment of older workers, that share is again declining. Figure 3.2.

Average number of insurance years of new retirees a by type of pension and gender, 1960-2003 Men

Women Normal retirement

Normal retirement Disability pension

Disability pension

Unemployed or old-age part-time

45

40

40

35

35

30

30

25

25

20

20

15

15

10

10

Women aged 60

19 60 19 63 19 66 19 69 19 72 19 75 19 78 19 81 19 84 19 87 19 90 19 93 19 96 19 99 20 02

45

19 60 19 63 19 66 19 69 19 72 19 75 19 78 19 81 19 84 19 87 19 90 19 93 19 96 19 99 20 02

50

50

a)

Data refer to the Old Länder; until 1991; from 1992 onwards they represent the sum of contributory and non-contributory insurance years. Source: Pension insurance authority (VdR).

Lately, for men and women alike, retirement through the disability benefit scheme is on the decline, even if some of that decline has been compensated by an increase in the numbers exiting through the special early retirement scheme for severely handicapped persons. The distribution between normal and early

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73

retirement has been relatively stable since the mid-1980s, for men as well as women.11 Significant shifts in retirement transitions are expected for the coming years. As noted in Box 3.1, three of the existing early retirement schemes will be phased out by 2016 (see also Figure 3.9). Retirement will increasingly occur on the grounds of long-term insurance – and thus, after 2010, in many cases at age 62. Pressure on the disability pathway is also likely to increase in the future, both regarding pensions (in particular from people aged 60 and over who can receive a full disability benefit even if only partially disabled) and special early retirement for severely disabled persons. The latter will be the only early retirement path for older workers with health problems accessible from age 60. B.

The male retirement age continues to increase

Following the introduction of new early retirement options in 1973 designed to cushion rapidly rising unemployment and facilitate workforce restructuring, the average retirement age declined; indeed in the subsequent decade the drop was very rapid. For men it fell by almost four years, from 62.2 years in 1973 to 58.4 years in 1981 – the lowest level ever in modern German history (Figure 3.3). During the 1980s, the retirement age trended upwards and reached an average of 60 years in 1993. It then dropped slightly in the Old Länder and sharply in the New Länder, when retrenchment of older workers through unemployment into early retirement was extensively used as a means to soften the impact of economic restructuring. Since 1999 the average retirement age has again been climbing, and in 2003 the average male retirement age across Germany surpassed its 1993 level.12 The average new entrant into the disability pension scheme also became younger during the 1970s, because an increasing share of the potential older entrants left the labour market through other early retirement pathways (Figure 3.3). The mean age of new entrants has fallen again in the past few years following disability pension reform (see Section 3) that made it more difficult to access the scheme. 11.

For men, this contrasts sharply with the situation before the 1973 pension reform, when the early retirement menu was extended considerably.

12.

In part, the decline and subsequent increase in the average retirement age in the past decade, for men as well as women, is demographically induced: the large cohorts born in 1939-1943 have moved into retirement and, owing to their size, dragged the average age first downwards and then upwards. However, policyinduced factors have probably played a larger role.

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74 – CHAPTER 3. PROVIDING SOCIAL PROTECTION WHILE ENHANCING WORK INCENTIVES The pattern for women only partially matches that of men. Between 1973 and 1981 the average retirement age also declined, but less than it did for men. The changes in contribution requirements for old-age as well as disability pensions in 1984 (see footnote 10 above) led to a sudden increase in the average age of retirement and a corresponding sharp decline for those women entering the disability benefit scheme. Ever since 1975, and with a peak after the 1984 reforms, the average retirement age of women has been higher than that of men, although the difference has been declining recently. This is an unusual gender difference not found in many other OECD countries; it is related to the long career breaks of (older cohorts of) women after childbirth. Average age at retirement in Germany (East and West) a by gender and type of pension, 1960-2003

Figure 3.3.

Men

Women

02

99

20

96

19

93

19

19

19

19

19

19

19

19

19

19

19

60

19

19

99

02

20

96

19

93

19

19

19

19

19

19

19

19

19

19

19

19

19

90

48 84

50

48 87

52

50

81

54

52

78

56

54

75

58

56

69

60

58

72

62

60

66

64

62

63

64

60

66

90

Disability pension (East)

66

87

Disability pension (West)

84

Disability pension (East)

81

Old-age pension (East)

Disability pension (West)

78

All pensions (East)

75

Old-age pension (East)

69

Old-age pension (West)

All pensions (East)

72

All pensions (West)

66

Old-age pension (West)

63

All pensions (West)

a) 1960-1992 for Old Länder; 1993-2003 for Old and New Länder (separately). Source: Pension insurance authority (VdR).

Workers tend to retire earlier in the New Länder than in the Old Länder, largely reflecting the different labour market situation prevailing in the two parts of the country. There are also significant differences in retirement paths (Ruland, 2004). In 2003, throughout the country only one in five new old-age pensioners moved from insured employment into retirement; 10% claimed their pension after an old-age part-time work phase (in most cases with a non-work phase before retirement, see below); and another 15% came from other, less frequent statuses (including the voluntary insured and self-employed, as well as sickness benefit recipients). Of the remaining 55%, in the New Länder the large majority moved from unemployment into retirement. On the contrary, the greater part of that 55% group in the Old Länder were “passively” insured people, primarily women, “waiting” for their entitlement to occur at age 65.

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Despite recent increases in the retirement age, workers retire earlier in Germany than in the majority of OECD countries. Calculated on the basis of cohort-specific participation rates rather than measured on the basis of actual ages of entry into retirement, for men the difference to the OECD average is more than two years and for women around one year (Figure 3.4).13 There are several, primarily non-European OECD countries in which the average effective retirement age (which this indicator attempts to measure) is higher, sometimes considerably, than the respective statutory age. Average effective age and statutory age of retirement a in OECD countries, 1997-2002

Figure 3.4.

Effective age

Statutory age

75

Men

OECD average = 63.3

70

65

60

55

Hungary

France

Belgium

Austria

Slovak Republic

Luxembourg

Poland

Finland

Germany

Italy

Netherlands

Spain

Czech Republic

Turkey

Greece

Canada

United Kingdom

Australia

Norway

Sweden

New Zealand

Ireland

United States

Portugal

Denmark

Korea

Switzerland

Japan

Iceland

Mexico

50

75

Women 70

OECD average = 61.4 65

60

55

Hungary

Belgium

Slovak Republic

Czech Republic

Poland

Austria

Netherlands

France

Finland

Luxembourg

Germany

Italy

Australia

Greece

United Kingdom

New Zealand

Spain

Canada

Turkey

Sweden

Denmark

Norway

United States

Portugal

Switzerland

Japan

Ireland

Korea

Mexico

Iceland

50

a)

The average effective age of retirement is derived from the observed decline in participation rates over a five-year period for successive cohorts of workers (by five-year age groups) aged 40 and over. Source: OECD estimates derived from the European and national labour force surveys.

13.

With a somewhat different calculation approach leading to slightly different results for some of the countries, EU data on average retirement ages confirm this finding.

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76 – CHAPTER 3. PROVIDING SOCIAL PROTECTION WHILE ENHANCING WORK INCENTIVES C.

Civil servants have a different scheme

Like many other countries, Germany has a special pension scheme for tenured civil servants, who make up around 7% of the labour force and who are not included in the statistics discussed so far. Broadly speaking, pension entitlements for civil servants tend to be more generous than those in the general pension scheme because, according to constitutional law, their scheme offers first-pillar basic benefits and second-pillar supplementary, occupational benefits. Importantly, for civil servants it is the last salary in the last function held for at least three years that is used as a reference, rather than lifetime earnings. De facto, a large proportion of civil servants reach the maximum replacement rate by age 54 (Börsch-Supan and Wilke, 2004); they thus have strong incentives to retire early. Working beyond this age will not increase the entitlement unless the person subsequently gets another promotion and keeps this new function for at least three years. Civil servants also have a slightly different range of early retirement options. As in the general pension scheme, the statutory retirement age is 65 – but they can also opt to retire at age 63 (until 1997 age 62) without any particular contribution requirements, though they now receive a reduced benefit in this case. For several higher-stress occupations (e.g. firemen, policemen), there are special retirement ages, typically 60. There is currently under discussion a proposal to increase these age limits. In addition there is the option to retire on grounds of disability, again with a special scheme for severely disabled people who have reached age 60 and again, again only with a reduced benefit. Disability-related retirement is more frequent than for workers in the private sector. In 2003, one in three civil servants retired on the grounds of disability. This share is much higher for women (more than 50%) than for men (roughly one-quarter), largely because the latter more often avail themselves of special retirement age limits (Figure 3.5). As in the general scheme, however, disability-related retirement has been declining recently in the aftermath of the latest disability pension reform (see below). Retirement at age 65 is even less frequent for civil servants than for other workers. Overall however, the average age of retirement of civil servants, at 60 years in 2002, is little different from that for workers insured in the general private-sector pension scheme.

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Changes in the composition of the inflow into retirement of civil servants by gender, 1996-2003 Percentage of the total inflow into retirement

Figure 3.5.

Men

Women

10%

0%

0% 2003

20%

10%

2002

30%

20%

2003

40%

30%

2002

50%

40%

2001

60%

50%

2000

70%

60%

1999

80%

70%

1998

90%

80%

1997

100%

90%

1996

100%

2001

Other (including pre-retirement)

2000

Normal retirement at age 65

1999

Entitlement at age 63

1998

Entitlement at age 60

1997

Special age limit (under age 60)

1996

Disability

Source: German authorities.

2.

Reform has addressed retirement incentives

Having implemented early retirement policies before most other OECD countries, policy makers began to roll them back in the early 1990s in response to negative effects they perceived. Introduction of actuarial adjustments for early retirement in 1992, phased in between 1997 and 2004, marked a significant policy change, as did the introduction of gradual increases in early retirement ages over the 1990s – especially with the 1999 reform. Furthermore, in 1996 the revised old-age part-time employment scheme was reintroduced so as to stabilise employment and not to encourage labour market exit. However, to comply with constitutional law, existing pathways are being phased out very slowly – i.e. not until 2016 – so that there is a great risk that the demand for older workers will also improve very slowly. Also, lowering the minimum age for early retirement for the long-term insured from 63 to 62 years partly is at odds with the other reform measures aimed at delaying retirement. A first result of recent pension reforms is the increasing share of new retirees receiving a reduced old-age pension benefit. In 2003 this was already the case for 56% of all new retirees (excluding disability pensions), up from only 2% in 1998. Not only is this exerting upward pressure on the retirement age; it also is reducing entitlements and thus, total public pension outlays. A second, related outcome is the 12 percentage point decline over the same five-year period in the proportion of 60- to 64-year-old people receiving a AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

78 – CHAPTER 3. PROVIDING SOCIAL PROTECTION WHILE ENHANCING WORK INCENTIVES disability or early retirement pension (Figure 3.6). Three-quarters of this decline is accounted for by changes in the early retirement regimes, and the remainder by the more stringent access to disability pensions. Figure 3.6. Stock of pensioners aged 50-64 by type of pension, 1995-2003 Percentage of the total population in the respective age group A. Proportion by type of pension and single-year of age, 2003

B.Proportion by type of pension and five-year age group, 1995-2003

Disability pension

Disability pension 50-54

Early retirement pension

Disability pension 55-59 Disability pension 60-64

Normal retirement pension

Early retirement 60-64 Total 60-64

Early retirement after old-age part-time 70%

70%

60%

60%

50%

50%

40%

40%

30%

30%

20%

20%

10%

10%

0%

0% 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64

1995 1996 1997 1998 1999 2000 2001 2002 2003

Age

Calendar year

Source: Pension insurance authority (VdR).

The extent to which the pension reforms adopted during the past decade will have a long-lasting impact on effective retirement ages remains to be seen. Changes in the coming decade are difficult to anticipate in view of the current difficult labour market situation. Recent survey data suggest that workers continue to plan their retirement for around age 60, although they are much less certain today whether this will be possible (Engstler, 2004). There is little doubt that after 2010 more and more people will retire at age 62 – the new minimum age of retirement for the long-term insured – while the current peak inflow ages of 60 and 63 will become less frequent. The extent to which disability-related retirement will replace other early retirement pathways also remains to be seen. The lack of such substitution effects in recent years is

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certainly no indication that the disability pathways will resist increasing pressure from workers with health problems once other alternative pathways are closed.14 A.

Replacement rates and work incentives

In view of the recent adjustments for early retirement, what are the retirement incentives offered German workers compared to workers in other OECD countries? Ever since the mid-1970s, average net replacement rates fluctuated around 70% for the “standard” retiree. High replacement rates provide a greater incentive to retire or to retire early, other things being equal, than low replacement rates. Taking a worker with average earnings as an example, net replacement rates in Germany are much higher than in the United States and the United Kingdom, but comparable to those in many other European countries (Figure 3.7, Panel A). The retirement decision will depend on whether staying in the labour market pays vis-à-vis leaving on retirement. This can be measured by looking at the total pension benefit that is gained or lost if retirement is postponed one year – the so-called accrued pension wealth. Based on this indicator, it emerges that in Germany work generally pays until age 63, but beyond that age additional work does not raise total pension wealth any further (Figure 3.7, Panel B). With recent reform, the turning point at which additional work barely pays will fall to 62 years. Until the phasing out of other early retirement schemes is completed by 2016, however, many older workers face low work incentives from age 60 onwards (compare Börsch-Supan and Schnabel, 1999). Across the OECD it has been shown that participation rates of older workers – or rather, labour market withdrawals from one age group to the next – are related to work disincentives (Duval, 2003). The larger the implicit tax rate on continued work over the next five years (yet another indicator of retirement incentives), the larger will be the decline in the labour force participation rate from age 55-59 to age 60-64 (Figure 3.8).15 14.

Büttner and Knuth (2004) speculate that the current upward trend in the average retirement age could be halted or even reversed, at least temporarily. “Waiting” for an unadjusted retirement benefit is becoming more costly as a result of the recent reductions in benefit levels for the long-term unemployed when unemployment assistance is merged with social assistance. Bearing in mind the large share of people retiring via a phase of unemployment, this is not implausible.

15.

It appears that the actual decline in participation rates in Germany from ages 55-59 to ages 60-64 is, at over 70%, even larger than the implicit tax rate of 45% would suggest (Figure 3.8).

AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

80 – CHAPTER 3. PROVIDING SOCIAL PROTECTION WHILE ENHANCING WORK INCENTIVES Figure 3.7.

Retirement incentives by age in Germany and selected other OECD countries a Percentages A. Net replacement rates

110

110

100

100

90

90

80

80

70

70

60

60

50

50

40

40

30

30

20

20

10

10 0

0

55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 Age

55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 Age Germany

Netherlands

UK

Germany

France

Sweden

US

Italy

B. Change in pension wealth from working an additional year 110

110

90

90

70

70

50

50

30

30

10

10

-10

-10

-30

-30

-50

-50

-70

-70 -90

-90 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 Age

Germany

Netherlands

UK

France

55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 Age Germany

Sweden

US

Italy

a)

For single male workers earning the equivalent of average production worker (APW) earnings in each country (due to gender differences in life expectancy, retirement incentives are somewhat greater for single men than for women and for couples in general). Net replacement rates give the ratio of net pension earnings relative to net wages at the time of retirement. Change in pension wealth is the share of the total pension value gained or lost by working an additional year. Source: OECD estimates.

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Figure 3.8.

The relationship between retirement incentives and labour supply across the OECD, 2002

Percentage change in labour force participation between 50-54 and 55-59

0

ISL SWE NOR USA CHE JPN KOR

-10 -20

NZL CAN

-40

ITA

0

ISL

2

= 0.26

FIN GBR

DEU IRL FRA

-20

PRT ESP

NZL

-30

NLD

NOR USA

SWE

-40

PRT

JPN IRL

CAN

LUX BEL AUT

-50

-60

-70

-70 2

R = 0.37

ESP CHE GBR

-50

-60

-80

R

KOR

-10

AUS

-30

Percentage change in labour force participation between 55-59 and 60-64

AUS

LUX

FRA AUT

DEU

-80

-90

NLD

FIN

ITA

BEL

-90 0

20

40

60

80

100

Implicit tax on continued work in "early retirement route", 55-59, per cent

0

20

40

60

80

100

Implicit tax on continued work in "early retirement route", 60-64, per cent

Source: OECD estimates based on Duval (2003).

B.

Actual and actuarial neutrality in Germany

Adjustments to the level of pension benefits for those retiring early were eventually introduced with the 1992 pension reform. The way this was done deserves attention, for three reasons. First, it was decided to postpone the beginning of the phasing-in by several years. While the reform itself was already agreed in 1989, phasing-in of benefit adjustments did not start before 1997. Secondly, phasing-in was rather smooth and varied according to early retirement route. Adjustment-free early retirement for the long-term unemployed, for instance, was eliminated between 1997 and 2001, but for women with sufficient insurance years at age 60 only between 2000 and 2004 (Figure 3.9). Finally, the ultimate adjustment factor was set at a much lower level than in most other OECD countries: 3.6% per year of early retirement, whereas 5-6% per year is the most commonly used reduction factor. Germany’s current low adjustment factor contrasts with its much higher 6% benefit increase for each year retirement is postponed beyond age 65. This, together with further pension reforms during the past decade, means that several early retirement pathways will de facto be phased out by 2016 (see note to Figure 3.9). In the long term, German older workers’ only choice will be between retiring with a full benefit from age 65 or, provided they have an insurance record of at least 35 years, retiring with an adjusted, lower benefit from age 62. For severely disabled workers, the respective age limits will be two years lower (i.e. 63 for full and 60 for adjusted benefit). The adjustments for those entitled to the special old-age benefit on the grounds of severe AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

82 – CHAPTER 3. PROVIDING SOCIAL PROTECTION WHILE ENHANCING WORK INCENTIVES disability will be identical to those for recipients of an ordinary disability pension.There is much controversy over the adequacy of and justification for the choice of a 3.6% benefit reduction factor (see Box 3.2 for a discussion on different ways to determine actuarial neutrality). The ultimate adjustment factor and its impact on actual retirement behaviour are critical. First, not only is early retirement with reduced benefit payment maintained but the minimum age is also reduced, from 63 to 62 years after 2010. Second, the level of the reduction factor will determine the extent of substitution into disability pensions and, even more so, into old-age pensions for severely disabled people once alternative early retirement pathways are phased out. Figure 3.9. Past and future increases in early retirement ages in Germany through pension reform over the 1990s, by type of pension a Minimum ages with and without benefit adjustment Without benefit adjustment

With benefit adjustment

Long insurance record Severe disablement

66

66

59

59 20

20

20

20

20

20

20

20

20

19

19

19 96 19 98 20 00 20 02 20 04 20 06 20 08 20 10 20 12 20 14 20 16

60

16

60

14

61

12

61

10

62

08

62

06

63

04

63

02

64

00

64

98

65

96

65

Unemployment or old-age part-time Women aged 60

a)

All regulations on the phasing-in of benefit adjustments and the phasing-out of early retirement pathways refer to birth cohorts rather than ages, which therefore result indirectly. Early retirement for women aged 60, for instance, will still be available for those born in 1951 but not for those born in 1952. Women of the 1951 cohort can therefore choose to retire via this path at age 60 in 2012, at age 61 in 2013, and so forth. Source: German authorities (illustration adapted from Börsch-Supan and Wilke, 2004).

Current retirement trends in Germany indicate that adjustment factors are starting to bite, and that workers increasingly wait (though waiting does not necessarily mean working) until age 65 to apply for a pension. This is consistent with findings that financial incentives play a key role in determining actual retirement behaviour. Börsch-Supan (1992), for instance, concluded that the lack of actuarial adjustments following the 1973 pension reform was responsible for around half of the four-year decline in the male retirement age AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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that occurred after the reform. Similarly, Berkel and Börsch-Supan (2003) estimate that the various changes introduced over the 1990s will, in the long run, increase the retirement age of men by 1.8 years and of women by 0.7 years. They also estimate that a further increase in the adjustment factor to 6% for each year of early retirement would, other things being equal, increase that age by another 1.9 years for men and 0.8 years for women.16 Box 3.2.

The different viewpoints on actuarial neutrality

There are at least two different ways of looking at actuarial neutrality. One is to take the position of the pension insurance system and consider the public finance implications. Here the objective would be to determine the deduction in such a way that advance pension payments received before age 65 are balanced against pension payments obtained after that age. Pension payments would then be neutral, and the costs to the public purse would be independent from the insured person’s decided age of retirement. A different approach is through the eyes of the insured who tries to maximise gains by choosing the optimal retirement age. In this case, the objective would be to ensure an identical lifetime pension value irrespective of the age of entry into retirement. (In addition, benefit adjustments could be determined to set incentives for a particular retirement behaviour – be they in the form of higher than actuarially neutral adjustments to promote later exit, or lower adjustments to make early exit attractive.) The key difference between the two perspectives – the system’s and the individual’s – relates to the parameter values that ought to be used. Technically, determining an adequate or actuarially neutral reduction rate is a rather complex matter. The three key parameters involved in such a calculation are (future) mortality rates, the discount rate, and the rate of pension indexation. The lower the mortality rates, the longer the benefit payment duration will be – and therefore, the lower the correct adjustment factor. That factor necessarily rises with the discount rate. And the higher the benefit indexation, the higher the lifetime pension value will be and thus, the lower the required correction factor. Agreeing on mortality rates is relatively easy, but to determine an adequate discount rate is far more complex; it is this parameter that differentiates the two approaches to actuarial neutrality. From the pension system’s perspective, the current 3.6% reduction factor has been shown to be roughly actuarially neutral if, and only if, the long-run discount rate is set at or even below 1% (Ohsmann et al., 2003). Already with a 1.5% discount rate – which roughly corresponds to the long-term real growth rate of the pension contribution sum over the past decades (which seems an appropriate proxy to take) – an adequate adjustment would probably be above 4%. From the point of view of an insured individual, however, a 1% discount rate is extremely low. With a 3% discount rate, for instance, which corresponds to the long-run capital market interest rate, an actuarially neutral adjustment would be at least 50% higher, at around 5.5% (Börsch Supan, 2004).

16.

The much smaller impact of these measures on the retirement behaviour of women is explained by the large but declining proportion of women who currently have to wait to age 65 to become eligible for a pension.

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84 – CHAPTER 3. PROVIDING SOCIAL PROTECTION WHILE ENHANCING WORK INCENTIVES This marked impact highlights the key role of such labour supply policies. Given the reforms of the 1990s, and assuming a 40-year insurance record irrespective of age, retiring at 69 would raise the entitlement by almost 40% over that with retirement at 62. This compares with a mere 14% increase prereform (until 1997), and a more than 70% increase in a system which would take the individual perspective on actuarial neutrality [compare columns (1), (3) and (5) in Table 3.1]. Assuming that workers remain in the labour market longer and thus increase the number of insurance years, the actual impact of delayed labour market exit is even more pronounced. By delaying retirement from age 62 to age 65, for instance, the pension entitlement would increase by 22% (compared to only 8% before the reforms), and by as much as 37% in an individual actuarially neutral system [compare columns (2), (4) and (6) in Table 3.1]. Thus, much has been achieved in terms of setting financial incentives, but more can be done to prolong careers and avoid large-scale substitution into disability-related retirement pathways in the years to come. Table 3.1. Actual and actuarial adjustment of public pensions in Germany by age of retirement a

Percentage of the pension that would be obtained upon retiring at age 65

Actuarially neutral adjustment from point of view of an individual (5) (6) 80.5 73.0 86.3 81.3 92.8 90.3 100.0 100.0 108.1 110.6 117.2 122.2 127.4 134.9 139.1 149.1

62 63 64 65 66 67 68 69

Actual adjustment before reform (valid until 1997) (1) (2) 100.0 92.5 100.0 95.0 100.0 97.5 100.0 100.0 107.2 109.7 114.4 119.4 114.4 121.9 114.4 124.4

Ratio 65 over 62

1.00

1.08

1.12

1.22

1.24

1.37

Ratio 69 over 62

1.14

1.34

1.39

1.64

1.73

2.04

Actual adjustment after reform (phased in until 2004) (3) (4) 89.2 81.7 92.8 87.8 96.4 93.9 100.0 100.0 106.0 108.5 112.0 117.0 118.0 125.5 124.0 134.0

a)

The actuarially neutral adjustment from the point of view of the individual is based on the 1992/94 mortality risks of men in the Old Länder, and assuming an annual increase in net pensions of 1% and a 3% discount rate. Columns 1/3/5 are based on a working life of 40 years irrespective of age, while columns 2/4/6 assume a working life of 40 years at age 65 and, correspondingly, of 37-44 years at age 62-69. Source: Adapted from Börsch-Supan and Schnabel (1999).

C.

Occupational pensions and the Riester reform

The second key element of pension reform in recent years was the gradual shift to a multi-pillar scheme, initiated with the 2001 pension reform and further AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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strengthened with reform in 2004. Germany still has a relatively generous public pay-as-you-go pension system, in particular for middle- and higherincome workers; and while occupational pensions have long existed, the majority of current pensioners receive most of their retirement income from first-pillar pension insurance. With the Riester reform in 2001, important steps were taken to stimulate coverage in the second pillar (occupational pensions) and in the third pillar (private pensions). The key objective of this reform was to stabilise contribution rates to the public pension scheme, thereby limiting further increases in non-wage labour costs that were projected to continue to rise in response to population ageing, with a negative impact on labour demand. To achieve this goal, the “standard” net replacement rate of the first pillar will gradually be reduced from its current 70% level to around 64% or less.17 This reduction in the replacement rate will also affect retirement incentives. It is accomplished by a rather complex pension indexation adjustment formula, which originally was designed to take into account changes in the contribution rate to the first pillar, assumed changes in the rate of contributions to private pensions, plus a somewhat arbitrarily defined sensitivity factor aimed to reduce the replacement rate as desired (see e.g. Börsch-Supan and Wilke, 2004). Under the latest pension reform, the sensitivity factor was replaced by a more complex sustainability factor, designed to encompass future demographic developments as well as changes in labour market behaviour. By taking into account the ratio of the number of contributors to the number of benefit recipients, this new element has effectively removed a weakness of the Riester adjustment formula. It is hoped that the gradual reduction of the replacement rate in the first pillar will be compensated in the long run by growing (but still voluntary) second and (especially) third-pillar entitlements. According to Börsch-Supan and Wilke (2004), for the 1985 birth cohort (retiring around 2050), the second and third pillar could account for as much as 35% of total retirement income. For this to be the case, however, their coverage will have to be raised considerably. To this end, the 2001 pension reform introduced generously subsidised supplementary private pension plans. Workers contributing to a Riester-certified private pension plan can either receive a direct retirement savings subsidy or deduct qualifying retirement savings from their income tax. In addition, the framework for existing 17.

The “standard” net replacement rate in Germany is defined as the ratio of the pension of a worker with 45 earnings points, i.e. 45 years of insurance at average earnings, to the average net earnings of all current workers. Thus it is not a replacement rate in the ordinary sense (i.e. the ratio of the pension entitlement to last earnings before retirement), but rather a benchmark that aims to achieve a decent standard of living in retirement.

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86 – CHAPTER 3. PROVIDING SOCIAL PROTECTION WHILE ENHANCING WORK INCENTIVES occupational pensions was adapted to make it possible to benefit from Riester subsidies and tax relief; the right to transform part of the wage into a contribution to a pension plan was written into most collective agreements; and pension funds were introduced as a new type of occupational pension plan to reduce the share of such pensions currently granted through direct employer promises (via book reserves and support funds). Currently, about 10.3 million workers in the private sector and 5 million public employees contribute to an occupational pension plan. This corresponds to a coverage of roughly 57%, though only about 43% in the private sector (Infratest Sozialforschung, 2003). From 2001 to 2003, coverage in the private sector increased from 29% to 43% (to 46% in the Old Länder and 27% in the New Länder). Personal pension coverage, on the other hand, is still much lower. With 4.1 million Riester contracts concluded by March 2004, take-up of new private pensions fell short of the original expectations. In particular, the number of contracts concluded did not increase much in the past year.18 Further reform in 2004 aimed at simplifying the regulations so as to promote uptake of Riester pension plans (e.g. it will no longer be necessary to apply for the retirement savings subsidy every year) and to make it more attractive for insurers to offer such retirement plans (e.g. the number of criteria for Riester certification was reduced from eleven to five). Moreover, the portability of occupational pension savings and thus of entitlements from one employer (i.e. from one fund) to the next was improved in order to remove barriers to changing employers. It remains to be seen whether the latest reform measures will stimulate a more rapid uptake of private and occupational pension plans. To fulfil the promises of the 2001 pension reform and avoid a mere lowering of pension incomes, future take-up of second and in particular third-pillar pensions will have to be closely monitored. Moreover, the different retirement incentives in terms of age limits, offered through different rules in the three pillars represent a key challenge for the future. While the government aims to raise labour supply of older workers by, inter alia, making early retirement less attractive, regulations on occupational and private pensions still allow retirement at any age, with full tax advantages from age 60. With an increasing number of persons with occupational and private pension plans, and with an increasing share of those people’s overall pension entitlements coming from these plans, this could become a priority issue in the medium run (see also Section 4). 18.

In addition, recent evidence suggests that a significant number of Riester contracts have been dissolved in the meantime (DIA, 2004). AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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87

Alternative pathways for early labour market exit

For several decades, early labour market exit in Germany has been filtered through unemployment during the last stage of the working career and has thus been “managed” mainly through the unemployment insurance scheme. In this section, alternative pathways out of the labour market and more recent policy measures in this regard are investigated in depth. A.

Pre-retirement programmes and unemployment insurance

In response to both the decline of some major industrial sectors, such as coal mining and steel production, and the trend rise in unemployment, various preretirement programmes (Vorruhestandsregelungen) were developed in the 1970s.19 Such programmes, regulated in collective agreements, complemented the corresponding introduction in 1973 of new early retirement schemes in the oldage pension system. During the mid-1980s, pre-retirement regulations were further facilitated by reform of the unemployment benefit scheme, which increased payment duration for older workers in steps from 12 months (valid to the end of 1984) to 32 months (valid from 1987 onwards). These unemployment benefit reforms contributed to the longer unemployment duration and (therefore) the higher unemployment level of older workers (Launov et al., 2004); most of the impact was on older males (Steiner, 1997). More than this, however, unemployment benefit reform in the 1980s helped firms design even more attractive pre-retirement packages (see e.g. Fitzenberger and Wilke, 2004). The practice developed in those years was to terminate the contract of workers aged 58, if not younger, with the agreement of the employee (Aufhebungsvertrag), thereby circumventing employment protection legislation. In many cases, employers compensated the difference between the last net wage and the unemployment benefit through a rated compensation payment (ratierte Abfindungen). The practice was made easier by Regulation §428 SGB III, introduced in 1986, according to which the unemployed aged 58 and over are exempted from job search (and not offered any further placement support, nor counted as unemployed) if they declare that they are no longer looking for a job and will retire as soon as they fulfil the retirement criteria. In a majority of cases, this would occur at age 60 on the basis of an old-age pension for 19.

In this report, “pre-retirement”, as distinct from “early retirement”, stands for early exit strategies and programmes, often collectively agreed, that precede early retirement through the pension scheme and which, one way or another, make use of the unemployment benefit scheme.

AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

88 – CHAPTER 3. PROVIDING SOCIAL PROTECTION WHILE ENHANCING WORK INCENTIVES long-term unemployed.20 The appeal of the regulation lays in the fact that most of the costs of early exit were borne by the social insurance system – unemployment insurance followed by pension insurance. In other words, the costs involved, particularly widespread in large establishments in the declining manufacturing and extractive industries and thus most frequently affecting low-skilled men, were almost entirely externalised. In the 1980s several attempts were made to impose a larger share of these costs on firms, but without success.21 Today, such pre-retirement practices are still widespread.22 Though precise data are difficult to obtain, the growth in the number of inactive persons with the status created by §428 SGB III (i.e. inactive older workers who receive unemployment benefit payments) since 1999 suggests that the use of pre-retirement schemes has spread further in recent years in response to pension reforms and increasing unemployment. The number has doubled from 200 000 to 400 000 within only a few years, thus offsetting half of the sharp decline in the number of unemployed aged 58 and over during this period (Table 3.2) – a decline also related to the changing retirement conditions, as can be seen from the recent parallel increase in unemployment of older workers aged 50-57. The gradual introduction of pension benefit reductions for those retiring earlier has made pre-retirement schemes more costly to the employee, although in many cases employers cover the loss at least partially. While efforts in the 1980s to internalise a larger part of the total costs of pre-retirement failed – largely because more attractive arrangements had remained in place, the recent unemployment benefit and labour market reforms, together with the recent 20.

Kalina and Knuth (2002) provide a detailed analysis of the distribution of age of entry into, and exit from, pre-retirement schemes.

21.

This is true for the obligation for employers to (partially) reimburse the costs of unemployment benefit payments to older workers (the so-called “Erstattungspflicht”), introduced in 1982 and still valid today (see also Chapter 4), as well as the special pre-retirement scheme which was in operation during the period 1984-1988.

22.

In the aftermath of German reunification (in February 1990) a special regulation was introduced, valid until the end of 1995, according to which older workers in the New Länder were entitled to receive special pre-retirement payments for up to five years before reaching retirement age. Some 400 000 workers took this opportunity. In addition, until 1992 a special extension of unemployment benefit payments to bridge the period from age 55 to 60 was granted (Altersübergangsgeld). This explains the rapid increase in the uptake of early retirement on the grounds of long-term unemployment until the mid-1990s. AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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pension reforms, can be expected to have some impact in the long run. As of February 2006, unemployment benefit payment duration will be lessened considerably, even though, at 18 months, it will still be longer for older workers than it was before 1985. This step will reduce the length of the “typical” preretirement period. Table 3.2. Older unemployed and inactive unemployment benefit recipients aged 58 and over in Germany, 1999-2004 Stock in thousands, change in the stock and share of inactive among all unemployed 1999

2000

2001

2002

2003

2004

1999-2001 2001-2004 1999-2004 Change in stock (in 1000)

1 029 863 165 373

1 099 967 132 392

-216 -11 -226 -63 225 163 -153 -236 -389 41 150 191 Change explained by the increase in inactive unemployed (in %)

a

Unemployed aged 50+ …of which aged 50-57 aged 58+ Inactive unemployed

1 325 804 521 201

1 196 744 452 192

Stock (in 1000) 1 109 1 047 741 758 368 290 242 309

Proportion inactive among all unemployed aged 58+ 28%

30%

40%

52%

69%

75%

27%

64%

49%

a) Data for 1999-2003 refer to the stock in September, for 2004 to the stock in March. Source: Federal Ministry of Economics and Labour.

The fact that change will only be introduced in 2006 – so that, for instance, a worker aged 57 years and four months becoming unemployed in January 2006 continues to be entitled to unemployment benefit until September 2008 – presents the risk that companies will seek to make intensive use of pre-retirement arrangements in 2005 in particular. In any case, employers are likely to continue offering pre-retirement packages as long as the option to retire early on the grounds of long-term unemployment exists (perhaps offsetting at least part of the employee’s pension loss through early retirement) and as long as the older unemployed over the age of 58 remain exempt from job-search requirements. The special early retirement option continues to be available from age 60 until 2005, if with an 18% pension benefit loss, and from age 63 until 2011. Hence, only after full abolition of early retirement for long-term unemployed workers by 2016 will employers no longer have incentives to provide pre-retirement packages filtered through the unemployment scheme – provided the §428 SGB III regulation is abolished by then.23

23 .

In early 2005, the German government then in power had decided to prolong this regulation exempting older unemployed from job-search requirements until the end of December 2007. Due to the unexpected general election which took place

AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

90 – CHAPTER 3. PROVIDING SOCIAL PROTECTION WHILE ENHANCING WORK INCENTIVES Recent reform of the unemployment benefit scheme, which merged unemployment assistance with social assistance, will have some impact on employment practices vis-à-vis older workers. The long-term unemployed, i.e. in the case of older workers those unemployed for over 18 months, will now face a stricter work test in exchange for better placement support (the new mutual obligations approach). In addition, they will only be entitled to what used to be the social assistance benefit and is now called Unemployment Benefit II (see Chapter 5 for more details on this change). This reform is likely to have two effects on the employment of older workers. First, cutting the incidence of long-term unemployment among primeage workers should, in the long run, translate into improved employability of those workers when they get older. Secondly, through the lower reservation wage of older workers, employers will be encouraged to hire more of them or retain them longer in work. It remains to be seen to what extent this will help eliminate pre-retirement practices, which are designed to exhaust the full unemployment insurance benefit payment period (currently at 32 months, 18 months in the future) but which have not typically stretched over the unemployment assistance payment period. B.

Partial retirement and the old-age part-time employment act

Another option that has become increasingly popular recently to reduce the working hours of those aged 55 and over and, ideally, to enable gradual retirement is the old-age part-time employment act. According to the IAB establishment panel, old-age part-time employment is offered by some 60% of all companies with 100-499 employees and by close to 90% of those with at least 500 employees (Bellmann et al., 2003). It is thus the key workplace instrument used by employers in relation to their older workforce. The primary objective of the act is to stabilise the employment of older workers by keeping them on a work contract with insurance coverage for longer (and indeed until retirement), while at the same time avoiding dismissals of these workers and pre-retirement practices such as those described above. At the same time, the act aims to improve the labour market opportunities of young unemployed and of young people in training. It thus aims to contribute to a redistribution of working hours from older to younger workers. In line with that

in September 2005, however, the act with which this would have been introduced (Fünftes SGB III Änderungsgesetz) has not yet and may never pass the parliamentary process. AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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objective, imposed top-up wage and non-wage costs for employers of older workers who have reduced their working hours in line with this act are only reimbursed by the public employment service (PES) if a replacement worker (an unemployed person registered with the PES) or a newly trained apprentice is hired instead. Available evidence shows that only between one-third and onehalf of all old-age part-time employment contracts involve a subsidy from the PES. In all other cases, these contracts serve the purpose of reducing and adjusting the workforce in a socially accepted manner, thereby avoiding layoffs. For the latter cases in particular, often the so-called “blocking” option is used. That means that the employee carries out his duty to work in the first half of the contract duration, e.g. by working full-time in this first period, while being released from work in the second half (see Box 3.3 for more details). Again precise data are unavailable, but estimates indicate that in up to nine in ten cases contracts involve a full-time work and a full-time leisure phase, and are thus also a pre-retirement tool. There is debate in Germany over the actual impact of the old-age part-time employment act. What is agreed is that the participation rates of older workers will have to be raised significantly in the years and decades to come. Defenders of the act emphasise its employment stabilisation function. The act ensures that an older worker who might have lost work otherwise has an employment contract with full social insurance, bridging the period to (early) retirement. The particular method by which work is reduced during this period (50% workingtime reduction over the full period, blocked work and leisure phases, or anything in between) is left to the discretion of the employee and the employer. Supporters further argue that the costs to the social insurance system are reduced by the replacement worker obligation of the scheme: during 1996-2004, a total of 235 000 jobs were created for unemployed and young workers. The stabilisation argument assumes that these older workers would all have been dismissed otherwise, and the second assumes that there were no substitution or deadweight effects. Opponents of the scheme claim that it is yet another early retirement plan, replacing other existing early retirement options. Thus, according to them, it continues the reduction of labour supply and the waste of older workers’ potential, and undermines the intentions of recent policy measures aimed at raising the average effective retirement age. This contrasts with the fact that old-age part-time contracts involve considerable costs for employers, especially where no PES subsidies are claimed – costs that are only justified under economic pressure to downsize the workforce in a socially more acceptable manner. As such these contracts may also be a way, used by some employers, to overcome employment protection legislation (see Chapter 4).

AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

92 – CHAPTER 3. PROVIDING SOCIAL PROTECTION WHILE ENHANCING WORK INCENTIVES Box 3.3.

The German old-age part-time employment act

Old-age part-time work contracts can be concluded with persons aged 55 years or older who had been insured against unemployment for at least three years during the last five (thus this includes people who have received unemployment or sickness benefits in this period) and who are not yet entitled to an old-age pension without adjustment. The employee and his/her employer must sign an agreement on the distribution of work and on the duration of the contract. While the working time must be reduced by exactly 50% over the entire period of the agreement, the distribution of work during the contract period is completely flexible – ranging from a 50% reduction over the whole period to so-called blocking, i.e. working full-time during the first half of the agreement and not at all during the second half. This blocking is a special form of long-term working-hours accounts. Blocking for a period of more than three years (i.e. with a no-work phase of more than 1.5 years) requires a corresponding collective agreement. Currently, the vast majority of agreements include this possibility. There is no general entitlement for old-age part-time work, but agreements can contain clauses which oblige employers to offer such contracts to a specified proportion of their workforce. The old-age part-time contract must (at least) last until the earliest possible date at which the employee would be entitled to an early retirement pension; the employee can then switch over to retirement at the end of the contract. It is not possible to transfer from an old-age part-time work contract into unemployment. During the period of old-age parttime work, the employee is entitled to a 20% top-up payment to the regular part-time wage or salary (up to the threshold for insurance benefits); the top-up is tax-free. In addition, the employer has to pay pension insurance contributions on the basis of 90% of the employee’s previous income (to reduce the loss in terms of pension entitlements). In practice, many collective agreements, especially in some larger sectors (including the chemical industry, the automotive industry, the insurance industry, the entire public sector, and the telecommunications, postal and railway services), contain regulations that are more beneficial, thereby encouraging employees to take-up old-age part-time work contracts. The PES reimburses the 20% wage top-up and the pension insurance contributions top-up for a maximum period of six years (although the maximum duration of an old-age part-time work contract is ten years) if, and only if, the employer hires a formerly unemployed replacement worker or an apprentice after completion of training (or, for employers with up to 50 employees, takes an apprentice into training). In case of blocking, it suffices to hire a replacement worker during the no-work phase. Old-age part-time work was first introduced in Germany in 1988, as a successor to the unsuccessful pre-retirement regulation in place in the period 1984-88. This first old-age part-time work act, which was valid until 1992, already included several elements of the current regulation (e.g. a partial subsidy from the PES for employers hiring a replacement worker), but it was predominantly designed to enable collectively agreed early exit options so as to alleviate the labour market. This regulation was unsuccessful and take-up was limited, partly because other early exit options were more attractive to employers and employees alike and partly because the regulation was only adopted in collective agreements covering one-third of the workforce (see Barkholdt, 2004). The 1992 pension reform introduced a partial retirement option, i.e. the possibility of receiving only parts of a full-time retirement benefit. Low take-up of partial pensions led to the reintroduction of old-age part-time work in its current form in 1996. At the same time,

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early retirement in the aftermath of old-age part-time work (with the same conditions as early retirement for the unemployed) was adjusted. In 2000, eligibility of the scheme was extended to older persons working part-time to avoid the indirect discrimination against women that could have resulted from a regulation directed at full-time workers only. Payment of PES subsidies to such contracts was prolonged until 2009, and the maximum period for PES subsidies increased from five to six years. In 2004, in an effort to make the block option less attractive for employers, an insolvency safeguarding obligation was introduced; since then, employers have to offer security for the value of the full-time work input of their employees with a blocked old-age part-time contract, which involves additional regular expenses.

A key question in assessing the old-age part-time scheme is its overall impact on the total volume of labour supply in terms of total hours, not just persons. Evidence here is lacking, because the scheme has never been evaluated in depth. Results can only be deduced indirectly through changes in take-up in response to pension reform. Take-up was low in the first few years following its introduction in 1996. It increased significantly after 2001 when pension reforms started to bite, rising from around 100 000 persons in late 2000 to close to 300 000 in late 2003 – and the scheme is increasingly including women and workers aged 60-64, often in the public sector (Figure 3.10). This figure compares with some 500 000 new early retirees and 170 000 new disability benefit recipients in that year. The number of people on an old-age part-time employment contract by age and gender, 1999-2003

Figure 3.10.

Men (55-59)

Women (55-59)

Men (60-64)

Women (60-64)

275 000 250 000 225 000 200 000 175 000 150 000 125 000 100 000 75 000 50 000 25 000

03

03

03

.1 2 31

.0 9

.2 0

.2 0

03

.2 0 .0 6

.2 0 30

.1 2

.0 3 31

30

02

02

.2 0

02

.2 0 .0 9

30

31

02 .0 6

.2 0

01

.2 0 .0 3

.2 0 31

.0 9

.1 2 31

30

01

01

.2 0

01

.2 0 .0 6

30

30

00 .0 3

.2 0

00

.2 0 .1 2

31

31

00

.2 0

.2 0 .0 6

.0 9 30

99

00 .2 0

.1 9 .1 2

.0 3 31

31

30

99 .1 9

.0 9 30

30

.0 6

.1 9

99

0

Source: Public Employment Service (BA).

The old-age part-time employment act is designed to stimulate (and subsidise) the part-time work of older workers and, thus, their gradual retirement under certain circumstances. With this objective in view, it AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

94 – CHAPTER 3. PROVIDING SOCIAL PROTECTION WHILE ENHANCING WORK INCENTIVES “overrides” other possibilities provided for in the old-age pension scheme to combine income from work and a partial early retirement pension – which in turn explains the extremely low take-up of such partial pensions.24 The low take-up of partial old-age pensions is not a result of cumbersome regulation. On the contrary, the pension system offers very flexible gradual retirement options. Depending on continued earnings, a full pension benefit can be received as a one-third, one-half or two-thirds payment, allowing for additional earnings of up to EUR 1.826, EUR 1.372 and EUR 917 per month in 2004, respectively, for an average earner in the Old Länder. These earnings limits vary with the last insured wage before retirement and by region.25 In addition the regulation is very flexible, so that the pension payment can be adjusted to actual earnings on a monthly basis. It is obvious, however, that take-up will remain low as long as employers concentrate their initiatives on the full-time departure of their older employees. Furthermore, the question arises as to whether an actuarially neutral pension system needs to have any earnings limits for those who choose to retire early (see below). C.

Retirement on the grounds of disability

Yet another labour market exit strategy frequently used by older workers and promoted by their employers is the sickness and disability benefit scheme. This is apparently not a key problem in Germany, although the age structure of disability benefit receipt suggests that these benefits tend to be used predominantly by older workers. For instance, in 1999, the last year for which comparative data are available for a large number of OECD countries, 85% of all new disability benefit recipients in Germany were 45 years old or older – compared to an OECD average of 70% (OECD, 2003b, Table 4.8). Similarly, for workers younger than 55, the inflow rate – i.e. the annual inflow into disability benefits per 1 000 persons of the respective age group – was much lower in Germany than the average across the OECD, but significantly higher than this average for workers aged 55 and over (OECD, 2003b, Table 4.9). 24.

Of all pensioners in the 60-64 age range at the end of 2003, less than one in every 800 was receiving a partial pension payment (in total about 2 000 women and 1 000 men). This is an indication of the limited part-time work opportunities for older workers, and of the limited interest of older workers in making use of the provisions for gradual retirement available in the pension system.

25.

Marginal employment providing earnings of up to EUR 400 a month is allowed even for recipients of a full early retirement pension, while from age 65 on no earnings limits apply. AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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This somewhat uncommon age pattern of new disability benefit claimants in Germany deserves attention. Income replacement rates, which are not higher than in most other OECD countries, are unlikely to account for the pattern. An important institutional characteristic that may partly explain the age structure of the inflow is the own-occupation assessment still used for workers currently aged 43 and older. As with several other countries that had used a similar approach, own-occupation assessment was abolished in Germany with disability benefit reform in 2001. However, transitional rules imply that it continues to be used for those aged 40 and over at the time of reform; hence, the old regulation will continue to have an impact for another 15-20 years. This was not the only element of the 2001 reform. Since then a new disability definition is applied that has a clearer distinction between full and partial disability, measured through the daily hours a person can work. It became mandatory to grant benefits on a temporary basis; actuarial adjustments were introduced between the ages of 60 and 63 (in line with the adjustment for early retirement to avoid large-scale substitution); and remaining years until age 60 are fully taken into account for those becoming entitled to a benefit before age 60 (before there was only partial recognition of the years between the ages of 55 and 60). Since the reform, inflow into disability benefits has fallen by 10% for women and almost 25% for men over just three years, with almost the entire decline occurring among workers in the 55-64 age group (mostly those aged 55-59). The reasons for this sharp decline are not well understood. It is therefore difficult to judge whether this will be a long-lasting phenomenon. The change is not explained by a higher rejection rate that has fluctuated around 40% during the past few years. The decline is said to be proof of the reform’s success in avoiding substitution for other early retirement schemes rendered less attractive by benefit adjustments. This is hard to judge. For workers aged 60-64, the decline is more than offset by increased inflow into special early retirement on the grounds of severe disability. The decline for the 55-59 age group – particularly those aged 58-59 – remains to be explained. Possibly, these workers postponed retirement to avoid or reduce benefit cuts. However, the decline in disability benefit claims of workers aged 55-59 could also be the result of more widespread use of pre-retirement regulations during the past few years. This hypothesis is supported by three observations: (i) the rapid increase, since 1999, in the number of both newly contracted old-age part-time work contracts and inactive unemployment benefit recipients (both trends have primarily affected workers in exactly this age group); (ii) the near -total lack of any decline in disability benefit inflow for people below age 55; and (iii) the fact that the declining trend in disability benefit claims of AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

96 – CHAPTER 3. PROVIDING SOCIAL PROTECTION WHILE ENHANCING WORK INCENTIVES workers aged 55-59 had already started in the mid-1990s i.e. prior to disability benefit reform. If this hypothesis is correct, the rapid decline in the 55-59 age group is likely to be short-lived, and substitution is likely to occur the moment pre-retirement and early retirement options are closed, or nearly closed.26 Active, integration-oriented disability policy can help to keep transfer to disability benefits on a moderate level in the coming years and decades. In this regard, Germany is well placed with its well-known “rehabilitation-beforebenefit” principle (Box 3.4). Not only is the German model well known, but it has also improved significantly with the 2001 reform. In particular, with the new SGB IX, the administration of rehabilitation was synchronised and the coordination between the different rehabilitation authorities was enhanced. As a consequence, a client can no longer be moved around between different agencies: each rehabilitation authority is obliged to identify the responsible body for the request in question and to transfer the documents without delay. Hence, a client will be served instantly. Box 3.4.

Germany’s strong rehabilitation approach: good practice further improved in 2001

In Germany, rehabilitation (medical as well as non-medical) is a general right for all disabled people to the extent necessary to maintain, improve or restore work capacity and secure integration into the labour market. Rehabilitation is quasi-compulsory, although the agreement of the disabled person is required. The system is characterised by a strong emphasis on early intervention and efficient and prompt implementation of the necessary measures. Rehabilitation measures are financed and operated by various insurance bodies (pension, accident and health insurance) as well as the PES. The health insurance body can set a ten-week time limit for sickness benefit recipients whose work capacity is seriously endangered to ensure that they apply for medical rehabilitation. Each rehabilitation provider also has to check the need for vocational rehabilitation (Leistungen zur Teilhabe am Arbeitsleben) before, during and after medical rehabilitation. Decisions on vocational rehabilitation (which can also involve two-year training) are typically made jointly by the PES and the pension insurance authority, while the costs for this are generally covered by the pension insurance authority if the person has at least 15 insurance years, and by the PES otherwise. The main problem of the system before the 2001 reform was the lack of co-ordination between the different responsible bodies, and the resulting difficulty for a potential client to access the agency in charge. With the new SGB IX, a one-stop service shop is being created in each district, run by one of the responsible authorities (two-thirds of these are run by the pension insurance). Regular monitoring should ensure proper functioning of these service shops. Clients will have only to approach the shop in their district, which will make sure that the responsible authority renders the necessary services. Another innovation introduced in 2001 is “stepwise” labour market reintegration for people on medical rehabilitation (a possibility that hitherto had only existed for people on sick leave), with weekly or monthly increases in working hours. During this period, a worker receives either a sickness benefit or a special temporary benefit.

26.

The good news in this regard, though, is that pre-retirement models and old-age part-time work contracts were also offered to older workers who might otherwise have left the labour market on the grounds of disability. AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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Despite the strengths of the German rehabilitation system, empirical evidence suggests that older disability benefit applicants may not yet receive the same degree of activation support as prime-age workers. While workers aged 55-64 made up 37% of all new disability benefit claimants in 2003, workers of this age received only 9% of all non-medical rehabilitation measures (compare Columns 1 and 2 in Table 3.3). In particular, they received only 3% of all vocational training measures (Column 5) and less than 1% of work preparation support (Column 4). Read differently, for 22 700 workers under age 40 moving onto disability benefit, 64 800 persons of this age completed a non-medical rehabilitation measure. Among workers aged 55-59, for comparison, there were only 15 400 who completed a rehabilitation programme but 51 300 who were granted a disability benefit. This pattern is similar to that observed in many other OECD countries (OECD, 2003b, Table 5.6). Table 3.3. Disability benefit inflow and completed non-medical rehabilitation measures by age, 2003 Distribution across age groups Disability benefit inflow

Completed non-medical rehabilitation measure

(1)

(2)

-39 40 - 44 45 - 49 50 - 54 55 - 59 60+

22 721 19 077 26 221 41 737 51 332 13 273

All ages

174 361

-39 40 - 44 45 - 49 50 - 54 55 - 59 60+

13% 11% 15% 24% 29% 8%

All ages

100%

Of which:

Work trial and aptitude assessment

Work preparation

Vocational training

(3) (4) (5) Total numbers by age (men and women) 64 843 41 486 5 812 11 214 45 672 29 688 2 835 8 157 36 723 26 026 873 5 633 31 204 24 376 276 3 157 15 366 13 043 48 762 2 184 1 908 1 12 195 992

5 410 4 210 3 493 2 763 1 063 137

28 935

17 076 32% 25% 20% 16% 6% 1%

100%

9 845

(6)

Share of the total falling into each age group 33% 30% 59% 39% 23% 22% 29% 28% 19% 19% 9% 19% 16% 18% 3% 11% 8% 10% 0% 3% 1% 1% 0% 0%

100%

136 527

Support to employers

100%

100%

100%

Source: Pension insurance authority (VdR).

These figures reflect a certain age bias in the selection process for nonmedical rehabilitation, which in principle has to be offered whenever there is a likelihood that the work capacity can be improved or restored. The bias is likely to be related to the lower work motivation of older clients and the inability of the current labour market to offer work to older people with reduced work

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98 – CHAPTER 3. PROVIDING SOCIAL PROTECTION WHILE ENHANCING WORK INCENTIVES capacity.27 Economic efficiency arguments – the younger the person, the larger the long-term returns from vocational investments – may play a role, although no hard evidence on costs and returns by age is available. Given limited budgets for vocational intervention, targeting rehabilitation services to those with the best reintegration potential is a reasonable approach. It is questionable, however, whether age alone is an adequate indicator. In the future this issue will become important, in particular in view of the right for partially disabled workers aged 60 and over to receive a full disability benefit. 4.

Options for reform

Germany began comprehensive pension reform earlier than many other OECD countries – the first major change came in 1992. The timing of the political reaction is partly explained by earlier and more rapid ageing of the population in comparison with most other OECD countries; partly by the earlier steep fall in average retirement ages as a result of implementing early retirement policies at an earlier time; and partly by German reunification 15 years ago. Subsequently, reform has focused on making the pension system sustainable in the long run through a reduction in the replacement rate of the first-pillar scheme, the abolition of early retirement options, and the introduction of benefit entitlement adjustments depending on the age of retirement. However, some further reforms may be needed to improve work incentives among older workers. A.

Completing pension reform

A critical issue for the German pension system is that the level of benefit adjustment in case of earlier retirement, which is set at 3.6% for each premature year, may well be too low according to OECD estimates and therefore continue to represent a real incentive to early retirement. The current mechanism targets actuarial neutrality from the point of view of the pension insurance system (thus it assumes a 1% discount rate on future pension payments), and in this regard can be considered “correct”. However, this perspective ignores the fact that individuals can implicitly apply a much higher discount rate on future payments in their retirement decision. Effectively, after maturing of the latest pension reforms, accrued pension wealth for a worker will be highest at age 62. This reduces the need for employers to change their personnel policy or to develop 27.

It would be interesting and important in this context to collect age-specific evidence on the number of people who reject (non-medical) rehabilitation measures that are considered necessary and offered to them. AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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suitable employment possibilities for older workers who wish to exit gradually from the labour market. A further increase of the reduction factor to the 5-6% range – common in other OECD countries (OECD, 2005d) – would be a major stimulus to promote later retirement. With such higher benefit adjustment rates, it would also be possible to abolish current earnings limits for people aged 60-64 who receive one-third, one-half or two-thirds of an early old-age pension in addition to their income from work. In addition, it would be sensible to raise the statutory retirement age, i.e. the age against which benefit adjustments are determined, in line with rising life expectancy. Several European countries, including Sweden, have recently modified their public pay-as-you-go pension schemes along these lines. The newly introduced sustainability factor indexes payments to the system-dependency ratio and is thus by design self-stabilising. However, in view of the likely large increases in life expectancy, actual benefit cuts seem set to become very large over time. An automatic, system-inherent adjustment of the statutory retirement age as well as the lowest early retirement age could help raise labour supply and avoid large pension benefit cuts (see also Schmähl and Viebrok, 2000). Postponing to after 2008 a decision on the necessity to raise the retirement age, as was done recently, may affect the long-term credibility of the system, the chances for workers to plan their future and the possibility for employers to adjust their personnel policies accordingly. One issue that has not yet been addressed fully by policy makers in Germany is the special pension rules for civil servants. While reforms to the general pension system have also applied to this special scheme since 1992, attempts should be made to bring the schemes into line even further. For example, pension benefits for civil servants are still calculated on the basis of the last salary rather than lifetime earnings. Harmonisation is also necessary in regard to disability pensions, more frequently used by civil servants. For instance, while own-occupation assessment was abolished in the general public pension scheme, this was not the case in the different federal and regional schemes for civil servants (even if there are more possibilities today to recall people to work after long-term sickness). Similarly, the procedure for disability assessment still differs and rarely involves vocational experts in the case of the civil servants’ schemes. Related to this issue is the existence of special retirement ages for certain occupations, especially in the public sector. While these are currently being discussed, no decisions have been made to now. Such privileges should be discontinued. In terms of setting up a sustainable balance between funded and non-funded components of the pension scheme, reform in the past decade has been quite comprehensive. At this stage, two issues remain to be addressed: AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

100 – CHAPTER 3. PROVIDING SOCIAL PROTECTION WHILE ENHANCING WORK INCENTIVES (implicit) early retirement incentives of second- and third-pillar pension claims, and low coverage, especially of Riester-type private savings. Occupational pensions are generally regulated in collective agreements, and there are no formal limitations regarding the age of eligibility or type of disbursement. However, tax advantages can only be gained from age 60 onwards, and eligibility for second-pillar disability payments is linked to entitlement for a disability pension from the public pension scheme. To reduce implicit early retirement incentives through this mechanism, serious consideration should be given to linking entitlement ages to the statutory retirement age, or at least to the minimum early retirement age for the long-term insured. Similarly, the current minimum entitlement age of 60 for third-pillar Riester-type savings is in conflict with ongoing changes in the public pension scheme – in particular in a situation where the second and third pillar are increasingly gaining in relative importance. These entitlement ages should also be harmonised. To raise coverage, it will be important to improve the visibility of the advantages of Riester-type savings. Currently, private pension coverage is very low, and life insurance schemes – which do not benefit from tax advantages to the same extent – make up the largest part of private savings for retirement. Further information campaigns could help raise awareness of the differences and thus achieve the higher coverage targets. Insurance companies themselves have no particular interest in promoting Riester products (e.g. because the costs for drawing-up a new contract cannot be cashed in immediately, as can nonRiester life insurances). Coverage for occupational pensions is already relatively high. More than two-thirds of this, however, is in the form of direct promises by the own employer. In case of bankruptcy, these promises are secured by a special association, but without adjustment to wage developments. Spreading and reducing the risk by increasing the share of occupational pensions through supervised institutions for occupational retirement would be considered necessary. B.

Disability, unemployment and the old-age part-time work scheme

Recent disability pension reform has helped improve the administration of medical and non-medical rehabilitation and co-ordination between the different rehabilitation authorities. Further improving the co-ordination between the health and pension/disability insurance bodies would help ensure well-timed intervention for people with health problems or disabilities, many of whom are older workers, and thereby increase the chances of work retention and labour market reintegration. It would also be useful to examine the possible impact of AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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separating disability from pension insurance and merging health and disability insurance. Separating disability and pension insurance institutionally could help clarify the important point that disability pensions are not intrinsically early retirement schemes. This will become more important in the future, when most early retirement programmes will have been phased out. To complete the 2001 disability benefit reform, activation and job placement for partially disabled people receiving a full disability pension should be strengthened. Workers entitled to a partial disability benefit (i.e. those able to work three to six hours per day) receive a full disability pension if they are unable to find a corresponding partial job. For older workers aged 60 and over, it is assumed that such a job is unavailable to them and they are therefore automatically entitled to a full disability benefit. This “invites” full-time benefit receipt and can only be avoided through stronger activation measures. More broadly, this melange of disability and labour market policy should be reconsidered. A mutual obligations philosophy should be applied; every partially-disabled person should be obliged to register at the PES and be treated like any other unemployed person (but with intensified case management and support). It should not be at the discretion of the gatekeeper in the insurance administration to decide whether to contact the PES or not. In addition, involving private employment agencies should also be considered (which is not the case currently), because the PES has access to only a certain share and segment of the labour market. Recent reform in the unemployment insurance scheme has also been very far-reaching. Most of the elements that invited heavy use of that system (in combination with early retirement on grounds of unemployment) to lay off older workers around age 57-58 have been done away with. However, a key problem is that the reform has a very long transition phase. Until January 2006 it will be possible for a laid-off older worker to receive unemployment benefits for a duration of 32 months, i.e. until mid-2008; until 2011 (the 1951 birth cohort is the last one eligible) it will still be possible to retire at age 63 on the grounds of long-term unemployment. As a consequence, pre-retirement models (Vorruhestandsmodelle) are likely to be used very intensively during the next few years; not until 2016 will all those incentives be abolished. Partly, the long transition period is the consequence of a legislative system in which constitutional law requests long-term guarantees to be modified very carefully (normally a two-year period is considered adequate). Nevertheless, some of the decisions that will be detrimental to the labour market opportunities of older workers in the next few years should be reconsidered. First, job-search requirements for unemployed workers over age 58 could be implemented immediately. Second, early retirement for the long-term unemployed could be AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

102 – CHAPTER 3. PROVIDING SOCIAL PROTECTION WHILE ENHANCING WORK INCENTIVES abolished sooner, e.g. by raising the age limits gradually as planned to 63 years by 2008, and then further to 65 years by 2010, rather than by 2016.28 And third, the rather unsuccessful regulation on the reimbursement of unemployment benefits for dismissed older workers (Erstattungsregelung) could be replaced by a more effective contribution to the costs of the unemployment benefit programme from employers who generate a disproportionate number of layoffs. Finally, there is the issue of the blocked old-age part-time work scheme, which – despite gradual phasing-out of public subsidies after 2009 – will remain an attractive retirement pathway for a long time to come. Indeed, with the reduction in unemployment benefit payment duration from 2006 onwards, pressure on old-age part-time employment is likely to increase in the meantime. Insolvency safeguarding as of July 2004 is a step in the right direction. In addition, ways should be sought to further reduce the incentive to use the block version of the model. One possibility would be to abolish direct public subsidies to employers (which are only paid if a replacement worker is hired) much earlier than 2009 – at least for block-version users but perhaps also for all other old-age part-time work contracts. Gradual retirement can often be key for older workers to carry on working, but the old-age pension scheme offers sufficient (non-subsidised) possibilities for doing so. With full abolition of earnings limits for people aged 60-64 on an early retirement pension (as proposed above), in exchange for an increase in the benefit adjustment factor, incentives to retire gradually could be further improved.

28.

In Austria, which has a similar legislative system, early retirement on the grounds of unemployment has been abolished as from 2004 without a transition phase and with only minor compensation rules. AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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Chapter 4 PROGRESS IN REMOVING DEMAND-SIDE BARRIERS

The previous chapters highlighted the early retirement culture that has become part of the German landscape since the late 1970s, and the relatively low employment rate of older workers. The discussion also traced the many reforms to the social security system introduced in the past few years to reverse the early retirement trend. This chapter focuses on the possible reasons for the below-average demand for older workers. The first section assesses attitudes and employment practices of employers vis-à-vis older workers. The three sections that follow analyse subjective and objective reasons for these practices – age discrimination at the workplace on the one hand, and the impact of wages and non-wage labour costs and employment protection legislation on the other. The last section looks at a few recent good-practice initiatives by employers in the Old and New Länder. 1.

Employer attitudes and employment practices

Despite the fact that firms still use early retirement and pre-retirement regulations to restructure and rejuvenate their workforce (Chapter 3), less than 20% of companies deem it necessary to directly replace older workers with younger workers on the shop floor (Table 4.1). Personnel policies that combine the strength of younger workers with the experience of older workers seem the preferred option. Almost 90% of firms, regardless of age composition, agreed with the statement that older and younger workers should work in mixed-age teams. Eighty-six per cent of the companies also state that older workers should be included in skill training measures, and a similarly high proportion (84%) state that “in principle, older workers are just as efficient as younger workers”. Results from the IAB Establishment Panel 2000 further suggest that three out of ten enterprises think that older workers find it difficult to adapt to new demands, while six out of ten believe that older workers’ strengths could be exploited by using them in a way appropriate to their age. In general, managers’ opinions concerning older workers are more positive in enterprises with a larger share of these workers in their own workforce. The experience of more frequent AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

104 – CHAPTER 4. PROGRESS IN REMOVING DEMAND-SIDE BARRIERS “cohabitation” of younger and older workers in firms appears to generate more positive attitudes. Currently, few German companies offer specific workplace measures targeted at their older employees. Table 4.2 shows that 93% of the companies with less than five and 83% of those with five to 19 employees offer no such measures; the percentage drops sharply with the size of the enterprise, down to 8% in companies with more than 500 employees. Overall, one in every five firms in Germany (of those who have older workers as employees) proposes one of the measures listed in the 2002 round of the Establishment Panel shown in the table. Only three measures for older workers are more widely used: old-age part-time work contracts, general inclusion in further training, and age-heterogeneous work teams. Old-age part-time employment is by far the most prominent of all measures provided by employers to address the problems of older workers. The majority of old-age part-time workers are found in large firms; 86% of the firms with more than 500 employees offer such contracts. Much less effort is devoted to including older workers in further training, let alone the targeted application of further training to the specific learning needs of older workers. There still appears to be little innovation in terms of specific instruments used by German enterprises to address older workers. Table 4.1. German companies’ views of older workers, by share of older workers in the company, 2000 Percentage of companies agreeing to each statement Share of older workers in the workforce 1525Over None 1-14% Total 24% 39% 40%

Statement In principle, older workers are just as efficient as younger ones

83

80

82

84

91

84

Older workers find it difficult to adapt to new demands

28

37

37

32

20

30

Older workers' strengths can be exploited by using them in a way appropriate to their age

64

61

63

59

53

60

Older and younger workers should work in mixed-age teams

88

91

91

86

88

88

Older workers should be included in skill training measures

84

85

86

85

89

86

Older workers should be replaced by younger workers

18

18

20

18

14

17

Source: IAB Establishment Panel 2000 (adapted from Hübner and Wahse, 2002). AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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Table 4.2. Workplace measures offered to older workers in Germany, by company size, 2002 Percentage of companies offering a particular measure Number of employees in June 2002

1 to 4

5 to 19

20 to 99

100 to 499

Over 500

Total

Old-age part-time work scheme

3

8

26

61

86

11

Special equipment at the workplace

1

1

3

7

13

2

Reduced performance requirements

1

3

5

7

13

3

Age heterogenous work teams

1

5

14

24

33

6

Involvement in and equal access to training

2

6

12

24

35

6

Suitable training for older employees

1

1

1

2

4

1

Other measures for older employees

1

1

2

4

6

1

No specific measures for older employees

93

83

59

27

8

80

Source: IAB Establishment Panel 2002 (adapted from Bellmann et al., 2003).

One could conclude that the lack of special workplace measures is consistent with the view of managers on the abilities of older workers, which is largely judged to be in line with that of younger workers. The 2000 round of the German establishment panel provided some evidence on the importance of specific job-related skills and the extent to which older workers’ skills differ from those of their younger peers. The human resource managers interviewed in the survey ranked working morale and discipline, quality consciousness, work experience and loyalty to the firm among the five most-required skills for an “ideal” employee. While the majority of firms do not see differences between younger and older workers with regard to any of these skills, a minority responded that they were more likely to find these skills among older workers than among younger ones (Bellmann et al., 2003). Not surprisingly, this is particularly true of work experience, but also holds for quality consciousness and working morale. It remains to be seen why employers’ attitudes and employment practices do not mirror these views: 40% of all German companies do not have one older

AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

106 – CHAPTER 4. PROGRESS IN REMOVING DEMAND-SIDE BARRIERS worker among their staff.29 In addition, only one in two companies would be willing to employ older job applicants without special conditions (regardless of the size of the firm), while some 15% would not hire an older worker as a matter of principle (Bellmann et al., 2003). Many companies would hire older employees only on a temporary contract, or as part-time workers, or together with a wage subsidy, or, more generally, if no younger workers can be found. The most common practice still is to lay off or retire older workers early in the course of restructuring. Second in line is use of old-age part-time work contracts largely to achieve the same goal of downsizing and rejuvenating the workforce. This suggests that older workers are either objectively more costly relative to their output in comparison with other workers, or subjectively perceived to be more costly. Most likely, in the past the combination of subjective and objective demand-side barriers and various supply-side incentives (including various early retirement options) has resulted in a forceful push factor to squeeze lower-skilled older workers out of firms. This is no longer a sustainable personnel policy option. 2.

Is there age discrimination in Germany?

Negative attitudes towards older workers may reflect various forms of age discrimination. The European Directive on the subject of anti-discrimination, including that based on age, was adopted in the year 2000 and had to be implemented by the EU Member countries by December 2003, with the possibility of extending the implementation date of the age component by up to three years (Directive on equal treatment in employment and occupation). The idea of the Directive is to put in place a general framework to ensure equal treatment of individuals regardless of their religion or belief, disability, age or sexual orientation, as regards access to employment or occupation and membership of certain organisations. Differences in treatment are allowed only under certain circumstances (Box 4.1). 29.

According to Boockmann and Zwick (2004), the lack of employment for older workers is due to specific firm-level characteristics, such as the age of the firm itself, the use of technology and the (non)-existence of a works council. According to the 2002 sample of the IAB Establishment Panel for the state of Baden-Württemberg, comprising 800 firms with more than 20 employees, younger firms show a significantly lower share of older employees aged 50 years and over, as do firms applying the newest technologies. Additionally, firms with a works council in operation have larger shares of older employees. The study stresses the path dependency of the established governance structure in enterprises and how this influences a firm’s human resource strategy. AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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Germany, along with some other EU member countries, made use of the option to postpone the implementation by three years, but the new law is likely to be put in place earlier. Draft legislation was presented to parliament in December 2004, and the parliamentary deliberations are still ongoing. There is some controversy at the moment as to whether the act goes too far, or not far enough. Box 4.1.

Differences of treatment allowed on the grounds of age

Article 6 allows special justification of differences of treatment on the grounds of age. Notwithstanding Article 2(2), EU member states may provide that differences of treatment on the grounds of age shall not constitute discrimination if, within the context of national law, they are objectively and reasonably justified by a legitimate aim, including legitimate employment policy, labour market and vocational training objectives, and if the means of achieving that aim are appropriate and necessary. Such differences of treatment may include, among others: (a) the setting of special conditions on access to employment and vocational training, employment and occupation – including dismissal and remuneration conditions – for young people, older workers and persons with caring responsibilities, in order to promote their vocational integration or ensure their protection; (b) the fixing of minimum conditions of age, professional experience or seniority in service for access to employment or to certain advantages linked to employment; (c) the fixing of a maximum age for recruitment which is based on the training requirements of the post in question or the need for a reasonable period of employment before retirement.

Some positive-action measures were taken in Germany in 2002 with the aim of eliminating discrimination on the basis of disability. This is important for older workers to the extent that the incidence of disability increases sharply with age: 11% of all workers aged 20-49 but more than 30% of those aged 50-64 report a health condition or disability due to which they are hampered in their daily activities (OECD, 2003b). The German Social Code, in its book on rehabilitation and participation of people with a disability (SGB IX), contains a general 5% employment quota rule for registered disabled persons, covering public and private employers with 20 or more employees. However, this does not give disabled people the right to an employment contract, nor to a contract with a particular employer. The sanction for employers who fail to fulfil their quota is a compensation payment to institutions that assist disabled persons through a range of vocational measures (to raise participation and to support them on the job). In addition, disabled people have a right to positive-action measures, e.g. having their employer take into consideration their capacities and knowledge; they enjoy special dismissal protection and can be exempt from overtime work; and they are entitled to necessary rehabilitation-related absences from work. Employers AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

108 – CHAPTER 4. PROGRESS IN REMOVING DEMAND-SIDE BARRIERS must reach agreement with the representatives of disabled persons inside the enterprise concerning how the integration of these workers is to be addressed. Actual employment practice, however, seems to indicate that only one in five employers fulfil the entire quota; one in three disregard it completely and prefer to pay the sanction rather than to address the issue within their enterprise. The economic literature on age discrimination, which is most extensive in the United States (e.g. Adams and Neumark, 2002; Neumark and Stock, 1997), suggests that age discrimination does occur (measured by the numbers of court cases), but that older workers do sufficiently well in terms of wage levels. However, longer unemployment durations, lower probabilities of getting hired, and the incidence of displacement – as well as lower earnings upon re-employment – are still largely unfavourable to older workers. Similar results for Germany are for the most part unavailable and can, at best, be inferred from more general studies. Bellmann et al. (2003) report that roughly one in four of all German companies admit discriminating against older workers in their recruitment policy. Based on responses to a specific questionnaire sent to personnel managers (with students as a control group), Büsch et al. (2004) conclude that there is far more age discrimination in hiring decisions in Germany than, for example, in Norway with its much higher rate of employment of older people. Figure 4.1. Age discrimination at the workplace in selected OECD countries, 2000 a Proportion of older workers reporting age discrimination at their workplace 16 14 12 10 8 6 4 2

I xe taly m bo ur D g en m ar k Lu

et h N

EU G re ec e Fr an c Be e lg iu m Sp a Po in rtu ga Ire l la nd

d er la nd G s U e ni te rma d Ki ny ng do m Sw ed en

la n

Fi n

Au

st ri

a

0

a)

The two questions used are: "Over the past 12 months, have you been subjected at work to age discrimination?" and "In the establishment where you work, are you aware of the existence of age discrimination?" Source: European Foundation (2001), "European Working Condition Survey 2000". AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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There is still very little methodical literature available on the measurement of discrimination. Most of it has focused on the issue of gender discrimination in terms of wage gaps. A survey carried out by the European Foundation for the Improvement of Living and Working Conditions asked employees about their perceived discrimination, most of which probably were not the subject of any legal proceedings. The references to age discrimination are of various types. The most common are those encountered at the point of new job recruitment, career advancement, salary increases, access to training and involvement with social plans. The results indicate that perceived age discrimination is only slightly more frequent in Germany than (on average) across the European Union (Figure 4.1). The political debate on the age-discrimination legislation proposal introduced into parliament has just begun. This legislation would send an important signal for changing the behaviour of private and public employers, regarding both new hires (currently for instance, job offers can and often do exclude applicants over a certain age) and equal access to training measures at the company level. To ensure that it achieves its stated objectives, information about the new legislation should be widely disseminated and its effects on workers should be carefully monitored. 3.

High wages and high non-wage labour costs

There are also likely to be more objective factors behind the low retention and hiring rate of older workers in Germany. One of these is labour costs. In 2003, hourly labour costs in the Old Länder were the third-highest across the OECD – only slightly lower than in Norway and Denmark – and between onethird and one-half above the hourly labour costs in France, the United Kingdom, the United States and Japan. Labour costs in the New Länder are lower, but still high in comparison with countries in the east and the south of Europe. The high level of exports reached in Germany are very much related to exporting sectors that produce innovative products despite high labour costs. Whereas companies in these sectors can and need to pay relatively high wages to attract the most skilled, motivated and innovative high-performance employees, in other sectors such high labour costs will, sooner or later, lead to the shrinking of the workforce through the replacement of capital for labour. Labour costs have two main components: those relating and not relating to wages. The latter are mostly but not exclusively social security contributions, which are commonly believed to be independent of the firm’s behaviour because they are set by the government. However, increases in these contribution rates in the past decades, and in pension contribution rates in particular, have to a AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

110 – CHAPTER 4. PROGRESS IN REMOVING DEMAND-SIDE BARRIERS considerable degree been caused by low aggregate labour demand and the widespread use of early retirement schemes. They thus reflect overall retirement costs in a pay-as-you-go pension system. Meanwhile the combination of high wages and high social security contributions raises the productivity requirements for older workers. The following sections discuss age-earnings profiles as employer costs – but also as an incentive for older workers to stay in work in the later stage of the life cycle – and address the role of social security contributions vis-à-vis the employment opportunities of older workers. A.

The shape of age-earnings profiles

To promote the employment retention and re-employment chances of workers, the age-earnings profile of older workers should, at least in theory, largely match the age-productivity profile, i.e. the cost of employing (older) workers should match their contribution to the value added of the firm.30 In practice, however, while the costs of workers to the firm are fairly easily established, their individual contributions to the firm’s revenue are not. It is a common finding across OECD member countries that age-earnings profiles reflect increases in earnings in the early years of labour market participation up to around age 40 to 50. It is after this age that the differences between individuals and across societies become more heterogeneous. That wages increase with age in many countries is attributable to the classic function of wages, that is to reflect the employee’s productivity and the accumulated work experience. Due to the difficulty in observing a person’s contribution to the firm’s productivity, work experience is frequently applied as a proxy for on-thejob learning processes. Compared with France and the Netherlands for instance, where workers continue to achieve rising wages at older ages, the corresponding age-earnings profile for men in Germany is relatively flat. It is thus much more similar to that in the United States, with the exception of the 60-64 age group (Figure 4.2). The age-earnings profile of women in Germany is below that of men, but its relative position vis-à-vis other OECD countries is similar. The differences in ageearnings profiles between men and women are most pronounced in the child-

30.

In reality this is true only over the life-cycle of a worker within the firm, i.e. in a discounted sense. A steeper age-wage profile is an incentive device to encourage new (young) workers to furnish appropriate levels of work effort (Lazear, 1979). This, of course, requires mandatory retirement – which is one reason why firms in many OECD countries are reluctant to abolish mandatory retirement or other forms of “automatic” early or pre-retirement. AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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rearing phase, i.e. for adults in their late 30s, as well as in the older age groups. After age 55, women in Germany seem to experience a steep decline in their age-earnings profile. This reflects the selectivity in labour market exit behaviour: it is predominantly lower-paid women who work until age 65 to top up their future retirement package. Age-earnings profiles in selected OECD countries, early 2000s Earnings of 25- to 29-year-olds=100

Figure 4.2.

Men Germany

Women

France

Netherlands

Sweden

180

180

170

170

160

160

150

150

140

140

130

130

120

120

110

110

100

100

90 25-29

30-34

35-39

40-44

45-49

50-54

55-59

60-64

90 25-29

30-34

United-Kingdom

35-39

40-44

45-49

United States

50-54

55-59

60-64

Source: Enquête Emploi France; German Socio-Economic Panel; Statistics Netherlands; Statistics Sweden; UK Labour Force Survey; US Current Population Survey.

The literature on human capital suggests that wages depend to a large extent on educational attainment and to a lesser extent on work experience (e.g. Mincer, 1974). Earnings levels as well as age-earnings profiles therefore differ in line with workers’ educational attainment. In this regard, for Germany it is important to further distinguish people who have completed a vocational training degree from those who have not. This is especially true for people with a vocational degree from Germany’s large-scale apprenticeship system, which is very successful in terms of integrating youth into the labour market. Correspondingly, at the same level of educational attainment the completion of an apprenticeship puts people on a higher earnings trajectory. Not surprisingly, workers with tertiary education have higher earnings at all ages (Figure 4.3). Somewhat surprisingly, however, the age-earnings profiles are rather flat for men and women at all levels of education. While Figure 4.3 is based on cross-sectional data and thus cannot reveal true longitudinal earnings patterns, the data confirm that seniority pay is not a major problem in Germany, contrary to the situation in some other OECD countries such as France and Austria (OECD, 2005b; OECD, 2005c). AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

112 – CHAPTER 4. PROGRESS IN REMOVING DEMAND-SIDE BARRIERS Age-earnings profiles in Germany by educational attainment and gender, 2002 Average monthly earnings in the main occupation (full-year employees)

Figure 4.3.

Primary or incomplete secondary (without vocational degree) Primary or incomplete secondary (with vocational degree) Secondary (without vocational degree) Secondary (with vocational degree) Tertiary (Fachhochschule) Tertiary (University) Tenured civil servants (all education levels) 5 000

5 000

Men

4 500

4 500

4 000

4 000

3 500

3 500

3 000

3 000

2 500

2 500

2 000

2 000

1 500

1 500

1 000 25-29

30-34

35-39

40-44

45-49

50-54

55-59

1 000 60-64 25-29

30-34

35-39

Women

40-44

45-49

50-54

55-59

60-64

Source: Public Employment Service (BA).

Men have higher earnings than women at all ages and all levels of educational attainment; the gender gap is largest for those with the lowest level of education. This signals the size of the challenge lifelong learning initiatives will need to overcome to convince older women in particular to stay longer in the labour market. The motivation effect of a steeper age-earnings profile to continue to work at older ages is weakest for women, though it seems to be weak for men as well. Only continued investment in lifelong learning will increase the chances of rising age-productivity and, thus, age-earnings profiles at later stages of the life-course, for women as well as for men. While age-earnings profiles in the private sector are relatively flat in Germany, this is not the case in the public sector. Figure 4.3 shows the automatic increase in wages for civil servants with age, which is particularly advantageous to employees after the age of 50 when the wage levels of their peers in the private sector have stopped rising. The most recent collective bargaining round in the public sector, currently only concerning tenured civil servants but later to be extended to all public employees, has sought to address this issue by introducing a stronger element of performance-related pay for civil servants (Schily et al., 2005). These efforts should be continued. Collective agreements in other sectors do not cover the same kind of agerelated wage increases (except for very young ages). Nevertheless, several AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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collective agreements contain seniority-related clauses such as, for instance, wage guarantees for workers who are shifted into other, lower-paid branches in a company, or severance payments in case of job loss. A recent study has shown that such regulations are widespread but by no means universal; that they are usually based on a combination of age and tenure; and that differences across sectors and agreements can be substantial (Bispinck, 2005). Such regulations can create incentives for employers to seek ways to terminate the work contract through early retirement. B.

High non-wage labour costs as an employment barrier

In 2003, non-wage labour costs in the Old Länder were higher than in any other OECD country – some 20% higher than, for example, in Austria and Sweden, and twice as high as in the United Kingdom and the United States (Table 4.3). Even non-wage labour costs in the New Länder were higher than those in the English-speaking countries. These costs are likely to have major negative effects on labour demand in general (e.g. Chen and Funke, 2003), with particular impact on the demand for older workers.31 High non-wage labour costs are partly a consequence of high wages, since the former are paid as a percentage of the gross wage. Adding the social security contributions (in Germany shared equally between the employer and the employee) to the age-earnings profile will therefore often imply that a further increase in the age-productivity trajectory needs to be achieved for older workers. Only if wages and productivity are a sufficiently close match will older workers remain competitive in the labour market. The value of work experience and on-the-job learning, which determines the productivity of older workers vis-à-vis their younger peers, thus becomes crucial. It is the employers’ direct assessment of these characteristics in relation to overall labour costs that determines their older workers’ employment potential. The flip side of high social security contributions is considerable work disincentives for the unemployed, who face a relatively high reservation wage. At 52%, the overall tax wedge in Germany for a single person without children is the second highest across the OECD, with a larger increase in the tax wedge in the period 1979-2003 than in any other OECD country (Table 4.4). For married one-earner families with two children the position of Germany is much 31.

In line with international standards, non-wage labour costs are defined to consist of direct (esp. paid public holidays, annual leave and regular bonus payments) and indirect non-wage labour costs (esp. social security contributions, continued wage payment in case of sickness and vocational training costs).

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114 – CHAPTER 4. PROGRESS IN REMOVING DEMAND-SIDE BARRIERS more favourable, and the tax wedge for this group has also more or less remained constant over the same time span. However, firstly, older workers will often belong to the group of persons who no longer carry financial responsibility for a child, in particular low-skilled (and frequently unemployed) older workers whose children tend to stay in the education system for shorter periods on average. Secondly, the more successful countries in terms of employment creation and unemployment reduction in recent years, such as Ireland, New Zealand, the United Kingdom and the Netherlands, have managed to reduce tax wedges for all groups of the population since 1991. Bringing down social security contributions and the tax wedge in general could further stimulate the German labour market, with a particularly positive effect on the employment chances of older workers. Table 4.3. Non-wage labour costs in the manufacturing industry, 2003 Non-wage labour costs per hour worked, in euros and in % of total labour costs Non-wage labour costs in 2003

Old Länder Belgium Finland Netherlands Austria France Sweden Norway Switzerland Italy Japan Spain Luxembourg Denmark New Länder USA UK Ireland Canada Greece Portugal Czech Republic Hungary Slovak Republic Poland

Non-wage in % of total labour costs

In euros per hour

Relative to West Germany

1980

2003

Increase 1980-2003

12.0 11.3 10.5 10.3 9.9 9.7 9.5 9.2 8.8 8.1 7.4 7.3 7.1 6.7 6.7 6.0 5.9 5.2 4.7 4.1 3.0 2.0 1.8 1.3 1.2

100 95 87 86 82 81 79 77 74 68 61 61 60 56 56 50 49 43 39 34 25 16 15 11 10

42.9 44.4 35.5 43.2 45.1 44.4 39.0 32.4 32.0 45.9 39.0 29.1 18.0 27.0 28.1 25.4 24.2 35.9 -

44.1 47.6 43.5 44.4 46.2 48.0 41.6 32.6 34.4 48.6 40.2 45.6 33.8 24.5 39.6 30.1 31.4 28.4 27.9 40.4 43.1 45.3 43.6 41.6 36.8

1.3 3.2 8.0 1.2 1.2 3.5 2.6 0.2 2.4 2.6 1.2 4.7 6.5 3.1 3.4 3.1 3.7 4.5 -

Source: IW Köln (2004), “Industrielle Arbeitskosten im internationalen Vergleich”.

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Table 4.4. The tax wedge for childless singles and married couples with two children, 1979-2003 Income tax plus employee and employer contributions less family benefits as % of labour costs Single persons without children Belgium Germany France Sweden Italy Austria Finland Netherlands Denmark Turkey Spain Norway Greece Portugal Canada Luxembourg United Kingdom United States Iceland Switzerland Australia Japan Ireland New Zealand

1979 47.4 40.8 50.7 45.3 36.5 41.6 48.0 40.6 53.9 36.4 43.5 25.6 28.1 23.2 38.5 36.1 31.9 28.2 21.9 16.7 33.9 26.0

1991 53.7 46.4 46.0 48.8 39.1 44.5 46.5 46.7 41.2 36.5 41.2 33.0 33.2 29.0 33.9 33.2 31.3 20.1 27.3 22.8 21.5 39.8 23.8

2003 54.5 52.0 48.3 46.6 45.3 45.0 44.5 43.0 42.7 42.1 37.6 36.8 34.3 32.6 32.4 31.7 31.1 29.4 29.3 29.2 28.3 27.0 24.5 20.6

One-earner family with two children 1979 33.1 30.7 42.5 40.9 20.5 32.4 39.4 30.9 53.9 31.9 32.6 9.3 24.3 11.7 20.1 25.2 23.5 19.2 13.0 11.2 20.4 10.4

1991 37.3 34.3 37.7 40.7 24.7 32.5 40.1 32.5 41.2 32.6 26.4 30.5 25.4 18.5 14.3 24.3 24.8 -14.0 18.0 14.4 15.3 29.4 20.8

2003 39.0 33.5 40.0 39.5 35.5 29.5 37.8 33.7 30.1 42.1 30.9 27.6 34.3 23.7 23.3 9.6 18.3 15.5 8.9 17.8 20.4 23.2 7.4 13.6

Source: OECD (2004d), Taxing Wages 2002-2003, Annex Tables II.3 and II.6, Paris.

In conclusion, a reduction of non-wage labour costs for the population as a whole, and for low-skilled older workers and the older unemployed in particular, would help stimulate labour demand, especially for older workers. Along these lines, the government introduced reduced unemployment insurance contributions for older workers a few years ago. Since 2003, employers hiring a person aged 55 or over are fully exempt from paying contributions to the unemployment insurance system. However, this reduces labour costs by only 3.25%. An evaluation of this recent measure is not yet available. Through the principle of autonomous collective bargaining by the social partners, a right guaranteed by the German Constitution, non-wage labour costs are the main lever by which the government can steer overall labour costs. Nevertheless, the social partners should be encouraged to achieve the closest possible match between wages and productivity at the level of the individual to equalise the employment chances of workers at all ages and all skill levels. AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

116 – CHAPTER 4. PROGRESS IN REMOVING DEMAND-SIDE BARRIERS 4.

Employment protection and the hiring of older workers

Strict employment protection could be another more objective demandside barrier running against the employment chances of older workers. The debate over the role of employment protection and job creation has three major components: (1) the standard work contract and the general legal provisions in these contracts concerning probationary periods at entry, dismissal protection at the termination of employment relationships, and judicial procedures at termination; (2) fixed-term contract legislation, which allows employment relationships of short duration and sets conditions for renewal of contracts and temporary agency work; and (3) collective dismissal provisions. In an overall comparison of the strictness of employment protection legislation, based on a widely used OECD indicator (OECD, 2004a), Germany ranks 20th, next to Belgium, Norway, Sweden and Italy, countries that are known for a high level of employment protection or for restrictions on temporary agency work or fixed-term contracts (Table 4.5). There is evidence that German workers are not shy about availing themselves of this protection (see e.g. Jahn and Schnabel, 2003). In 2003, 17% of all employer-driven dismissals were brought to the Labour Court, up from 13% two years earlier (age-specific information on this is unavailable). This evidence suggests there are considerable incentives for employees to challenge their dismissal at court. Two findings should be kept in mind when interpreting the classification in Table 4.5. First, there may be concentrations of different groups of employees working on different types of contracts (e.g. Boeri and Jimeno, 2003; Dolado et al., 2004; Rogowski et al., 1998), so the strictness of employment protection tends to affect different groups of workers differently. For older workers in Germany, the relatively strict protection for regular contracts and for collective dismissals seems to outweigh the more lenient protection for temporary workers, despite recent changes in this regard. Secondly, the impact of higher levels of employment protection legislation (EPL) on overall employment levels and on employment dynamics is somewhat ambiguous, especially for older workers (e.g. OECD, 2004a; Daniel and Siebert, 2004). Broadly speaking, a stricter EPL will lower the re-employment potential for older unemployed, while it may increase the likelihood of employment retention for those in work. For the same reason, early retirement and pre-retirement regulations will be particularly appealing in countries with a relatively strict EPL – as is borne out by the German evidence.

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Table 4.5. The strictness of employment protection, 2003 Level-2 OECD indicators Regular contracts Weights

Weights

Temporary contracts

Collective dismissals

5/12

2/12

Overall indicator

5/12 Regular procedural inconveniences

Notice periods and severance pay

Difficulty of dismissal

a

Fixed-term contracts

Temporary work agencies

1/3

1/3

1/3

1/2

1/2

Australia Austria Belgium Canada Czech Republic Denmark Finland France Germany Greece Hungary Ireland Italy Japan Korea Mexico Netherlands New Zealand Norway Poland Portugal Slovak Republic Spain Sweden Switzerland Turkey United Kingdom United States

1.5 2.5 1.0 1.0 3.5 1.0 2.8 2.5 3.5 2.0 1.5 2.0 1.5 2.0 3.3 1.0 4.0 2.0 2.0 3.0 3.5 5.0 2.0 3.0 0.5 2.0 1.0 0.0

1.0 0.9 2.4 1.0 2.7 1.9 1.0 1.9 1.3 2.2 1.8 0.8 0.6 1.8 0.9 2.1 1.9 0.4 1.0 1.4 5.0 2.7 2.6 1.6 1.5 3.4 1.1 0.0

2.0 3.8 1.8 2.0 3.8 1.5 2.8 3.0 3.3 3.0 2.5 2.0 3.3 3.5 3.0 3.7 3.3 2.7 3.8 2.3 4.0 2.8 3.3 4.0 1.5 2.3 1.3 0.5

1.3 1.8 1.5 0.0 0.5 2.3 3.3 4.0 1.8 4.5 1.8 0.8 2.5 0.5 0.8 2.5 0.8 1.5 3.3 0.0 1.8 0.3 3.0 1.8 1.3 4.3 0.3 0.0

0.5 1.3 3.8 0.5 0.5 0.5 0.5 3.3 1.8 2.0 0.5 0.5 1.8 2.0 2.6 5.5 1.6 1.0 2.5 2.5 3.8 0.5 4.0 1.5 1.0 5.5 0.5 0.5

2.9 3.3 4.1 2.9 2.1 3.9 2.6 2.1 3.8 3.3 2.9 2.4 4.9 1.5 1.9 3.8 3.0 0.4 2.9 4.1 3.6 2.5 3.1 4.5 3.9 2.4 2.9 2.9

1.5 2.2 2.5 1.1 1.9 1.8 2.1 2.9 2.5 2.9 1.7 1.3 2.4 1.8 2.0 3.2 2.3 1.3 2.6 2.1 3.5 2.0 3.1 2.6 1.6 3.5 1.1 0.7

OECD average

2.2

1.7

2.7

1.7

1.9

3.0

2.2

Difference to average Rank for Germany

1.3 24

-0.4 12

0.6 18

0.1 16

-0.1 16

0.8 22

0.4 20

a) Indicators range from zero (least strict) to six (most strict). Source: OECD (2004a), Employment Outlook, Paris.

In view of the ambiguity in the relationship between employment protection and the employment outcomes for older workers, the major strength of the OECD indicator on the strictness of EPL lies in identifying areas where further reform may be needed. Procedural inconveniences and the impossibility of dismissing a worker without legal proceedings (including the possibility of the dismissed worker filing an action for continued employment) continue to be a key obstacle (e.g. Jahn, 2004). This is confirmed by the results of a survey undertaken by the Institute of the German Economy (IW Köln) in late 2003 among 859 employers in Germany. Eighty per cent of all interviewed employers consider EPL as an employment barrier, and 57% say that it has had a negative AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

118 – CHAPTER 4. PROGRESS IN REMOVING DEMAND-SIDE BARRIERS impact on their own hiring behaviour (Janßen, 2004). In this survey, EPL is perceived as the key labour law-related obstacle, even if high non-wage labour costs and taxes are more prominent obstacles. Almost nine in ten employers say that a dismissal process bears considerable financial risks for employers, and almost eight in ten believe that special protection for special groups will reduce hiring probabilities for those groups. These findings must be seen against the background of various legal changes since the enactment of the Employment Promotion Act in 1985, leading to the Part-time and Temporary Work Act 2001 which significantly broadened the options for part-time as well as temporary work. With regard to EPL for standard work contracts, however, changes enacted over the years were much less dramatic than was feared by the opponents, but also generated far fewer additional jobs than was hoped by the major proponents. The latest EPL reform in Germany, which became effective in 2004, has modified the situation somewhat. First, the threshold number of employees above which EPL becomes effective has been raised from five to ten. This favours very small enterprises particularly subject to rapid changes in turnover, which require fast responses in terms of hires and fires. Second, the range of social criteria employers have to take into consideration in collective dismissal decisions has been limited to disability, job tenure, age, and the presence of dependents in the household.32 Third, for newly founded companies it is possible to offer temporary contracts for up to four years, without any reason, instead of two years as with other companies. Fourth, the recent reform features a major innovation: if the employer offers a severance payment upon dismissal, the dismissed worker can choose to accept that payment (equivalent to half a month’s salary) in lieu of challenging the dismissal in court. 32.

For older workers, employment protection is reinforced due to a potential threat of reimbursement of unemployment benefits by employers in case of dismissal of those who have a long-term employment relationship with the same employer (Erstattungspflicht). As of 2004, this reimbursement regulation was made more stringent for those still eligible for the longer unemployment benefit payment duration. As of 2006, in line with the reduction in payment duration, the reimbursement regulation will be abolished. While this policy does increase employment protection in the short run, the impact will be marginal: currently only one in every 100 employers firing an older worker aged 56 or older are affected, because a large number of exemptions have been introduced (e.g. the employer must have special responsibility for the emergence of unemployment) after a ruling of the Constitutional Court in 1990. The administrative costs of the current regulation are high, because all cases must go through the Labour Tribunal. AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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Surely it is too early to expect concrete outcomes from a reform that was only introduced in 2004. Preliminary empirical evidence suggests a mixed picture. Based on a matched employer-employee data set, Bauer et al. (2004) show inconclusive effects of recent changes in EPL on the employment dynamics in small firms. In contrast to the predictions of general economic theory, the results indicate that there is no statistically significant effect of the dismissal protection legislation in terms of thresholds on worker turnover. Bonin (2004) predicts that the reform will have a very limited impact on actual hiring and firing behaviour. Given Germany’s relatively strict EPL, which is likely to impede the hiring of older workers into new jobs, flexible and transitional labour markets – e.g. any form of part-time or temporary work – can be an important element to influence the hiring practice of employers. Recent legislative change has facilitated the use of open-ended fixed-term contracts with older workers aged 58 and over. As of 2003, however, the impact of this change was minor. At around 4%, Germany still belongs to those OECD countries with the lowest share of older workers on temporary work contracts (Figure 4.4). As in Austria, more than half of all temporary contracts concern young workers aged 25 or younger, many of whom are apprentices. Considering the practice of early retirement, which is still widespread, the limited impact of facilitating temporary work for employees aged 58 and over is not surprising. Whether lowering the age threshold for unlimited temporary employment without any particular reason to 52 years will have an impact remains to be seen. Alongside other, complementary action – the abolition of early retirement options and the inevitable adjustment of pre-retirement regulations – this could well be the case. However, for this regulation to see implementation on a large scale, current legal ambiguity will have to be addressed. The regulation could violate the EU directives on age discrimination (see above) and on temporary work – which, in order to limit abuse, requires either a time limit or a functional justification for fixed-term work contracts. Only if this issue is resolved will this relaxation of strict EPL for regular work through lenient regulations on temporary work achieve its objective to help stimulate the (re-)employment of older workers and older unemployed. While facilitating fixed-term employment for older workers may improve their re-employment chances, further reform of EPL for workers on regular contracts may also be needed. The arrangement of the legal system to guard against abuses seems to be overly restrictive and an expensive option for both parties. Easier agreements on lump-sum payments to avoid legal procedures and AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

120 – CHAPTER 4. PROGRESS IN REMOVING DEMAND-SIDE BARRIERS provide faster decision making seems warranted, at least judging by the legal systems in other OECD countries. In addition, further reducing the range of social criteria to be applied in cases of collective dismissal may help stimulate the demand for older workers. It appears that the tenure criterion would provide adequate protection for most older workers, and the disability criterion would suffice for those older workers with significantly reduced work capacity. Incidence and distribution of temporary employment by age group, 2003 Proportion of workers with a fixed-term work contract

Figure 4.4.

A. Incidence of temporary employment by age group 55-64

25-54

30 25 20 15 10 5

IS L FR A BE L D EU D N K IR L U SA N O R LU X AU T

TU R M EX C ZE JP N ES P PO L PR T SV K C AN G R C SW E IT A FI N H U N N LD G BR

0

B. Distribution of temporary employment by age group 55-64

25-54

15-24

100 90 80 70 60 50 40 30 20 10

FI N N O R PO L BE L PR T D EU ES P LU X TU R N LD FR A AU T

IR L G R C IT A

C ZE JP N G BR SV K U SA SW E IS L C AN D N K H U N M EX

0

Source: European Union and national labour force surveys.

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121

Raising awareness and spreading good-practice solutions

In a country like Germany, the social partners play a key role in raising awareness of the need to increase the employment rate of older workers in response to workforce and population ageing, and in spreading good-practice examples. They can therefore be instrumental in changing employer and employee attitudes and practices. For over twenty years, the social partners have actively supported the early labour market exit of older workers. The Alliance for Jobs, Training and Competitiveness (better known as the Alliance for Jobs) in 1998-2002 indicated a first resolution of the social partners on a paradigm change regarding older workers. Since then, a number of initiatives have been launched at various government and social partner levels, which aim to identify, certify and spread good practice (Leuchtturm-Projekte) in relation to the employment of older workers. Some of these initiatives target the problems of high unemployment and/or future demographic change more generally, but others focus especially on older workers. One such initiative is Proage, which was initiated in 2001 by the German, Dutch, Danish and Irish Employers’ Associations and the Bertelsmann foundation. This is a large-scale awareness campaign directed at the members of these organisations and beyond. Proage has reached a broad audience through the webpage www.proage-online.de and the multiplier role of the national employers’ associations. Similar efforts have been undertaken by the “DL21” initiative aimed at accelerating growth in service sector jobs in Germany (www.dl2100.de – see Chapter 5). The Federal Institute for Occupational Health and Safety is also active in developing, funding and disseminating good practice in employing older workers. A promising undertaking is the “new quality of work initiative” (INQA), www.inqa.de, which is the result of co-operation between the social partners, the federal and regional government levels, social insurance authorities and various foundations and business. This initiative aims to start a dialogue on quality work in the new millennium and – by combining the workers’ interest in good working conditions and the employers’ interest in competitive workplaces – to improve the situation at the company level. Good-practice concepts and instruments are being developed for selected branches of the economy, with the aim sharing these with employers. With its campaign “30, 40, 50 plus – Working healthily as you get older”, INQA specifically promotes employability at all ages. Employers’ and society’s awareness of the impact of demographic change is being raised, and employers are supported in maintaining and promoting the full potential of their current staff – who will, after all, be tomorrow’s older workers. The INQA activities range from proposals for innovative work design through concepts and measures for AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

122 – CHAPTER 4. PROGRESS IN REMOVING DEMAND-SIDE BARRIERS strengthening lifelong learning and sustaining company health policy, to holistic sector-specific offers to improve the work environment and business culture. These projects and initiatives are a response to the challenge of identifying good-practice models. The challenge is a difficult one, partly because companies with good practices are often invisible. For that reason, it would be a good idea to certify good-practice approaches through some sort of best-practice contest. Learning from others is not necessarily a question of one-to-one transfer of human resource policies from other companies, but it is tremendously useful to reflect on the positive experiences and the know-how of others (Mörschhauser et al., 2003). A recent overview by Adenauer (2002) identified some good-practice examples. By and large, these examples demonstrate that companies start to react when they face recruitment problems and/or when they are confronted with the prospect of a very rapid ageing of their workforce (Box 4.2). The latter in particular will affect a majority of German companies in the next decades. In other words, companies react as soon as they face immediate skill shortages – which already exist in some regions particularly in the New Länder due to smaller cohorts of youth entering the labour market, and regional imbalances and wage differentials across Germany – or the moment they realise that their current employment (and pre-retirement) practices will become unsustainable in the near future. Recent findings in ergonomics will help contribute to the development of new employer approaches and a more individualised view on ageing. The long-held, widespread belief in a “deficit model”, according to which ageing only implies decay and loss of capacities, is gradually being replaced by recognition of a “compensation model”, according to which only some physical and psychological abilities decline, while others such as social competence remain stable or continue to increase (Maintz, 2003). It is now clear that investments in terms of continued training and sickness prevention are likely to pay off, largely irrespective of the age of the worker (see Chapter 5). In this context, hard evidence in the form of company-level cost-benefit analyses of any of those measures targeted at improving the employability of workers at all ages would help establish a business case. In view of the difficulty in identifying good practice, the current plans of the social partners to put new life into the Alliance for Jobs by launching an “Action Plan for Older Workers” should be followed vigorously. Similarly, the ongoing development of a whole-of-government approach to address low employment rates of people over age 55 is welcome. Numerous activities are planned to identify good practice in the employment of older workers, as well as in the other key areas of lifelong learning and health promotion at the company level.

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Box 4.2.

123

Good practice in relation to the ageing of the workforce

Example 1: Carl Zeiss Jena GmbH, Jena – a company in the optical industry facing a shortage of young skilled labour (see Myritz, 2001). Following massive staff reduction, predominantly via early retirement of older workers, the company was looking for young skilled trainees and apprentices. Because of recruitment problems (lack of qualified young workers, many of whom have left for western Germany), the company had to resort to older workers. In co-operation with the local public employment service, Carl Zeiss Jena successfully rehired some of its own former employees. Owing to the use of modern technology and new production processes, retraining was needed to prepare these older workers for their new jobs. This was planned and conducted in line with the needs of the company. After an eight month training period, the motivated older workers were ready to take the jobs originally designed for younger workers. Meanwhile, the average age of the employees of Carl Zeiss Jena is 44.5 years, and in some divisions as high as 50 years. Example 2: DaimlerChrysler AG, Stuttgart – a company in the automotive industry with the prospect of a rapidly ageing workforce (see Lehr, 2002). With the average age of the workforce projected to increase from 40 years in 2000 to 47 years in 2015, human resource managers realised that they will have to meet the challenges of the future with a workforce in which older workers comprise the majority. Several age management projects have been launched to get prepared for this:

• • • • •

health matters to ensure employability (Leistungsfähigkeit) willingness of older workers to co-operate and stay on (Leistungsbereitschaft) early prevention to avoid impairments lower leave of absence due to sickness age-integrating human resource policy.

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Chapter 5 SUSTAINING EMPLOYABILITY AND PROMOTING THE JOB SEARCH OF OLDER WORKERS

Improving financial incentives to remain employed longer and encouraging employers to be more receptive to an age-diverse workforce is only part of the problem. If older workers suffer from poor health, lack necessary skills or face onerous working conditions, they may still seek to retire as early as possible. They may also lack access to efficient employment services and sound career advice when seeking a new job. These are all factors that affect an older worker’s “employability”. This chapter analyses older people’s employability in Germany and looks at how it could be enhanced. The first section addresses training participation and the challenges relating to lifelong learning for employees and the population at large. The performance of public employment programmes in dealing with the needs of older jobseekers is assessed in the second section. The last section discusses recent steps towards an effective sickness prevention and health promotion strategy by the government and other public (social insurance) authorities. 1.

Lifelong learning needs to address the whole population

With rapid technological change and increasing international trade, skill demands are rising. These developments are also leading to rapid skill obsolescence, such that lifelong learning is becoming a condition for continued employability. The other challenge facing Germany is to ensure that the ongoing shift towards a service economy will provide new job opportunities for older workers as well. With the ageing of the large baby boom cohorts currently in their 40s, many of whom are still working in manufacturing jobs, job transfers of mature workers from industry to the service sector will become increasingly necessary. Obstacles to such transfers into jobs that require a different set of skills need to be addressed urgently. The extent to which these manufacturing workers, for the most part male, will be able to carry out (new) AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

126 – CHAPTER 5. SUSTAINING EMPLOYABILITY AND PROMOTING THE JOB SEARCH OF OLDER WORKERS service jobs is crucial for the success of recent comprehensive labour market and retirement policies. Given the rising skill demands, a projection of the educational composition of the future labour force in the age group 50-64 for 2025 shows only a very moderate increase for Germany in overall education levels, much less than that projected for France, Sweden, the Netherlands and the United Kingdom (Figure 5.1). Currently, the education level of workers aged 50-64 is comparatively high in Germany; on the other hand, this is not fully reflected in their employment rates (Chapter 2). In contrast to the other countries, further improvements in education levels in the coming 25 years are rather small, possibly impeding a more rapid shift of workers from declining into growing sectors of the economy. The share of older workers with tertiary education, for instance, is projected to remain virtually unchanged. Educational composition of the labour force aged 50-64 in selected OECD countries, 2000 and 2025 a Percentages of the labour force by level of educational attainment

Figure 5.1.

Tertiary

Upper secondary

Less than upper secondary

100 11.6

17.3

90

6.5

11.7

19.8 29.2

80

19.0

23.0 36.7

43.3

70 60

51.9

42.8

59.6

54.4

50

68.7 49.5

42.0

59.7

39.1

40

36.9

30 20

37.3 28.8

28.3

10

36.4

28.7

27.5

24.1

19.8

24.8

21.4

U

K

(2 02 5)

(2 00 0) U

K

(2 02 5)

N

et he rla

nd s

nd s

(2 00 0)

(2 02 5) N

et he rla

ed en

(2 00 0) Sw

ed en

(2 02 5) Sw

Fr an ce

(2 00 0)

Fr an ce

an y G er m

G er m

an y

(2 00 0)

(2 02 5)

0

a)

Estimate based on the data for 2000 and obtained by applying participation rates by educational attainment, gender and five-year age group for the population aged 50-64 to the corresponding population aged 25-39 in 2000. Source: OECD (2004b), Education at a Glance – OECD Indicators, and Secretariat estimates.

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While it will be important to continue strengthening Germany’s system of initial education with its strong vocational orientation, improving training opportunities for adults will also be vital. Skill mismatches continue to exist in the labour market despite high levels of unemployment. The entire system of learning, not just the initial education system, needs to respond to this challenge. Particular responsibility falls on further training and second-chance education if the initial education system fails to generate sufficient numbers of highly skilled workers for the German economy. In addition, there is the need to upgrade continuously the skills of all employees, even those with already high levels of general education or vocational training and experience. Various initiatives have been launched in recent years to address some of these issues (see below). In particular, July 2004 saw the federal government jointly with the Länder governments pass a strategy for lifelong learning in Germany that aims to promote learning in its broadest sense in all stages and areas of life. In this strategy, learning is defined as the process of converting (new) information and experiences into capacities and competences. Among the strategy’s priorities are the inclusion of informal learning, self-control, competence development, networking, new learning cultures and equal access to lifelong learning. A.

Society’s major target groups in need of training

Evidence from the European Labour Force Survey suggests that Germany is currently lagging far behind the European lead countries – the Nordic countries and Switzerland – in the area of continued education and training. In 2004, with only around 6% of the workforce aged 25-64 having participated in training during the four weeks preceding the survey, it fell into the bottom group together with most countries in the south and east of Europe. Partly reflecting this situation, relatively few older workers participate in training. During a four-week period in 2004, the share was only 3.5% – the fifth-lowest figure out of 21 countries for which comparable data are available (Figure 5.2). Those aged 50-64 have a relative disadvantage in training participation vis-à-vis their prime-age peers, and in Germany this disadvantage is equally large for employed, unemployed and inactive people.33

33.

To a smaller extent, the low training participation rates in Germany may result from a blurred borderline between initial training and continued training, but there is no evidence available to quantify this.

AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

128 – CHAPTER 5. SUSTAINING EMPLOYABILITY AND PROMOTING THE JOB SEARCH OF OLDER WORKERS Workers having participated in further education and training a in selected OECD countries, second quarter 2004 Percentages of workers having participated in training by age

Figure 5.2.

50-64

25-49

40 35 30 25

Unweighted average 25-49

Unweighted average 50-64

20 15 10 5

Sw Sw ede n itz er la n Fi d nl an D d U e ni te nm d ar Ki k ng do m N N orw et a he y rla nd s Au st ria Be lg iu m Fr an ce Ita ly I Lu rela n xe m d b Cz our g ec h R Sl e ov p ak Re p Po la n G er d m a Hu ny ng a Po ry rtu ga l Sp ai n G re ec e

0

a) These data refer to training undertaken during the four weeks preceding the survey. Source: European Union Labour Force Survey.

There are also regional differences in training participation, explained by the strong focus of the public employment service during the 1990s on upgrading the skills of workers and the unemployed in the New Länder. Throughout the 1990s, men and women there participated in vocational training more frequently than their peers in the Old Länder. Recently, the gap for older workers disappeared as a result of a decline in their participation in training in the New Länder between 1997 and 2000 (Figure 5.3). Despite the huge investment in training there immediately after German reunification, however, there is a continued need for updating of skill levels to bring broad (labour) productivity levels in line with those in the Old Länder.34 Figure 5.3 also shows that training participation in Germany has gradually increased since 1979 from a very low initial level, but that this increase has come to an end recently for all age groups.

34.

Bellmann (1994) argued that massive training participation in the New Länder in the first years after reunification was hardly more than unemployment benefit payment under a different name. AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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Figure 5.3.

Participation in vocational training in Germany by age group a and region, 1979-2000 Percentage of the population in the respective age group 19-34 years

35-49 years

50-64 years 45

45

Old Länder

40

40

35

35

30

30

25

25

20

20

15

15

10

10

5

5

0 1979

129

1982

1985

1988

1991

1994

1997

2000

0 1991

New Länder

1994

1997

2000

a) These data refer to training undertaken during the year preceding the survey. Source: Federal Ministry of Education and Research, Berichtssystem Weiterbildung VIII.

Another key finding is the distinct pattern of training participation by skill level, which perpetuates inequality in terms of access to career jobs and higher earnings over the life cycle. The highly skilled are much more likely to participate in training than the skilled and the low-skilled (Figure 5.4). Again, skill differences are evident at all ages, but the incidence of training is particularly low for low-skilled older workers. This probably explains the large differences in labour market participation by skill level (see Chapter 2). At age 50-64, for instance, only 1.7% of the low-skilled participate in further training, compared to 17.3% of the highly skilled and 7.4% of the skilled. Low-skilled persons who only completed a practical or a vocational preparation year are at a continuous disadvantage in lifelong learning.35 The evidence in Figure 5.5 suggests that despite similar overall levels of training for men and women, there are also a number of gender-related challenges for a lifelong learning strategy. First, while the large majority of people participating in training do so for job-related purposes, the proportion of older women undertaking training for other reasons is particularly high. Considering this group’s low labour force participation rates, targeted measures may be required to raise their participation in job-related training. In this regard policy will also need to address prime-aged women, because gender differences in the type of training undertaken already begin at this age. 35.

This confirms recent evidence on easier access to on-the-job training for welltrained persons in Germany (O’Connel, 2002; Bellmann et al., 2003).

AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

130 – CHAPTER 5. SUSTAINING EMPLOYABILITY AND PROMOTING THE JOB SEARCH OF OLDER WORKERS Participation in training in Germany by age group a,b and skill level, 2003 Percentage of workers in the respective age group

Figure 5.4.

Low-skillled*

Skilled**

Highly-skilled***

35 30 25 20 15 10 5 0 15-24

25-49

50-64

a)

Definition of skill levels: * Practical, vocational preparation year; ** Apprenticeship, technician or similar; *** University degree or similar. b) These data refer to training undertaken during the four weeks preceding the survey. Source: German Labour Force Survey.

Figure 5.5. Purpose of last training measure and participation in online learning offers by gender and age group, Germany, 2003 Percentages Did not participate in online training

Predominantly private or social purpose 100 90

Participated in online training

Predominantly job-related purpose 16.1

16.7

5.7

11.0

100

13.0 28.7

80

90 80

70

70

60

60

50 40

83.9

83.3

94.3

87.0 71.3

20 10

0

0

15-24

69.0 86.1

93.0

30

10 Men

62.7

40

20

Women

56.7

50 89.0

30

Men

56.3

Women

25-49

Men

Women 50+

43.7

43.3

37.3

31.0 13.9

Men

Women

15-24

Men

Women

25-49

Men

7.0 Women 50+

Source: German Labour Force Survey.

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Second, there also appears to be a “digital divide” for older workers in general and for older women in particular. Among those participating in training, almost half of all young respondents and one-third of those in the prime-age groups did so through online training (Figure 5.5). Access to and familiarity with online facilities is far less widespread among those over the age of 50, and the gender gap is distinct. Due to the labour market relevance of knowledge on how to handle online resources in an increasingly knowledgebased society, countering this digital divide should be addressed more forcefully by policy initiatives. Certainly this is an issue not only for federal-level policies, but also (and even more so) for regional and local initiatives. B.

Recent reforms to the training landscape

There is a wide consensus in Germany that lifelong learning and specific labour market training programmes have an important role to play in mastering the transition to more service sector jobs and higher skill levels for all workers. The reform process has, however, been hampered by the complex institutional set-up of the full-time education and training system and the “subsidiarity” principle in further education provision. In particular, the influence of federallevel policies on training and participation in lifelong learning is limited because of the overriding dominance of the 16 federal states (Länder) in determining education systems, course curricula, staffing and – following a recent judgement of the federal constitutional court – the ability to collect tuition fees from students.36 The federal government only has a subsidiary role and can only act on behalf of those groups in society to whom the Länder do not offer sufficient support. Nevertheless, the federal government is the leading actor in the running of the public employment service (PES), which has a tripartite governance structure that also includes the Länder and the social partners. In 1999, the PES funded around 21% of all continued training across Germany, in addition to the roughly 7% funded by other public authorities, mostly the Länder (Bellmann, 2003). Some 54% of the total costs on continued training were covered by companies, and the remaining 18% by trainees themselves.37 As of 2003, two

36.

Responsibility for legislation is divided between the federal and Länder governments according to articles 30 and 72 of the basic constitutional law; there is frequent recourse to the constitutional court to reconfirm or clarify competencies.

37.

The main trend in spending patterns over the 1990s was a decline in the share of training funded by companies directly, and a corresponding increase in the share

AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

132 – CHAPTER 5. SUSTAINING EMPLOYABILITY AND PROMOTING THE JOB SEARCH OF OLDER WORKERS fundamental changes became law. First, training vouchers were introduced for the unemployed. This innovation in principle increases the choice for the individual unemployed person seeking training, who can take the training voucher to any training provider he or she judges most appropriate to his or her needs. Second, an accreditation system of training providers and individual training measures was simultaneously introduced. The system relies on proven records of successful placements of previous participants by a specific provider (Bellmann and Leber, 2004). Box 5.1.

Training-related initiatives launched by the government

Learning regions This large-scale programme is built around a bottom-up strategy to bring local training providers and firms together to share the provision of training and to rebuild networks beyond established sector-specific or occupational boundaries. In view of the general transformation of the landscape of training providers, this federal programme is intended to demonstrate in a large number of regions and communities that innovative ways to bring together all stakeholders can be effective (Forschungskonsortium, 2004). The public role of co-financing through the European Social Fund has helped kick-start these local initiatives even at times of general public budget restrictions. Currently there are more than 70 learning region networks across Germany. Recently, attempts have been made to strengthen co-operation and the exchange of good practice across networks. Until there is greater private financing and responsibility for further training in Germany, such regional programmes are an important step toward restructuring training provision. That is why these learning regions are at the core of the “lifelong learning for all” programme of the Federal Ministry of Education and Research, launched in 2001. Early recognition of skill requirements In the late 1990s a long-term project was initiated by the Federal Ministry of Education and Research to address skill mismatch, which exists in several parts of the country (mostly in the New Länder, and largely determined by differences in the industrial structure). The programme has two intertwined aims: to avoid investment in educational programmes that encounter difficulties in placing their graduates in adequate jobs; and to provide sufficiently detailed information on occupational branches in which labour shortages are likely to occur (Bullinger, 2002, 2005). The initiative of early recognition of skill requirements addresses this issue on the basis of an analysis and projection of broad economic trends, and takes account of sector-specific institutional arrangements. Possible reactions to the observed needs are subsequently discussed in a broad national forum with regular meetings and through an appropriate Internet platform (www.frequenz.net).

covered by the PES. Partly this trend is a result of the strong focus of the PES on training in the New Länder, following German unification. Recently, the share covered by the PES has again begun to decline. AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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Although it is far too early to assess the effects of these reforms, initial evidence points to a marked reduction in the number of traditional courses and training places on offer. This raises the question of equal and adequate access to training for all groups of the unemployed (Dobischat, 2004). However, a complete picture of the diverse new landscape of further training is still missing. Uncertainty in the transition to a new form of fund allocation blurs an objective assessment at this moment in time. Despite its subsidiary role in the education sector, the federal government has initiated various programmes in recent years aimed at improving the skill level of the German population and at generating sufficient qualified labour for the growing sectors of the economy. While these initiatives are not targeted at older workers, they may help in enhancing the employability of workers until retirement age. These efforts include a programme to build “learning regions” to promote innovative solutions and a programme for early recognition of skill requirements in order to address skill mismatches (Box 5.1). Smaller-scale initiatives worth mentioning are the so-called further-training-passport (Profilpass), a certificate that recognises competences acquired through nonformal and informal training; and the “learning-oriented quality test in further education” (LQW 2), a means for providers to have the quality of their courses certified and for customers to be able to identify high-quality training offers across Germany – thus helping to raise both quality and transparency. C.

Challenges for the future

The participation in continuing training of workers, the unemployed and the inactive population at all ages is low in Germany when compared with most other OECD countries. Unequal access to further training by age and skill levels remains an obstacle to improving the employability of those with a high risk of becoming unemployed or dropping out of the labour market. Low participation could have a negative impact on future labour force participation rates of older workers, and could become a problem for maintaining a high-skill, high-wage economy. To avoid this, decisive steps need to be taken to overcome skill mismatches for prime-aged and older workers. Reliance on employer-sponsored training has apparently not been sufficient to provide the necessary skill levels. As a consequence, more efforts and more co-financing will be required at both the federal and regional government level and, in particular, from the social partners. As to the latter, few collective agreements have included specific measures to promote the continued upgrading of skills at all ages and all levels of education (Bispinck, 2005). Currently, there are only two agreements that have taken into account the particular situation of older workers. The first is the 2001 AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

134 – CHAPTER 5. SUSTAINING EMPLOYABILITY AND PROMOTING THE JOB SEARCH OF OLDER WORKERS qualification agreement for the metal-working industry in Baden-Württemberg, which includes entitlement to an assessment of skill needs for all workers and an entitlement to training, of varying length, for those over the age of 40 or 50. The second exception is the 2003 collective agreement for the chemical industry, which stresses that in setting up qualification agreements the special needs of older workers (as well as those of shift workers and workers who have just returned from parental leave) have to be considered. Not only are similar clauses missing in the hundreds of sector- and region-specific collective agreements across Germany and in the dozens of qualification agreements in some of those collective agreements, but also very little is known about how the existing qualification agreements are being implemented at the firm level. Careful monitoring is needed of the few good-practice agreements that currently exist, and promising initiatives should then be spread to other sectors. There also is a role for the government. Due to the federal governance structure in Germany, efforts in higher education and higher-level vocational training rely largely upon the Länder to become more active in this field. However, the federal government also needs to step up its efforts to adapt infrastructures and improve the links between education and research to the benefit of all employees, and older employees in particular. While initial education is predominantly a matter for the regional governments, this is not the case for (continued) vocational training. In particular, the federal government may have to strengthen its co-financing role for those groups of workers that tend to be underrepresented in training participation, i.e. the older and low-skilled workers.38 Covering individual training costs for older persons working in small and medium-sized enterprises is a step into the right direction, but insufficient as long as take-up remains low. Any resources that are available from not using training vouchers (which is another problem – see below), for example, could be put into a special programme for the training of low-skilled workers and inactives aged 40 and over. This would at the same time provide the opportunity for developing skills and age-appropriate training tools and methods. Similarly, some of the savings stemming from the significantly downgraded PES training efforts (see the next section) could be used in this way.39

38.

Continuous improvement of skills is not just an issue in the high-technology sectors. Even in the lowest-skilled jobs new techniques have to be incorporated, organisational changes such as the introduction of team-working affect working routines, and environmental protection legislation needs to be applied on the shop floor (Loebe and Severing, 2005).

39.

While PES training is in principle funded from contributions to the unemployment insurance system, the government’s deficit guarantee for the PES AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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In addition, the impact of ongoing initiatives will have to be closely monitored. Careful evaluation of the training voucher system in particular is needed to see if it yields efficiency and improved choice to individuals and to the economy as a whole. For instance, since potential participants need time to “shop around” in order to find an appropriate training provider, some may end up not making use of their voucher at all (as can be inferred from the savings resulting from voucher non-use, which has apparently reached around EUR 2 million in 2004). Non-use may also arise from the fact that the local training provider is unable to fill the course with sufficient numbers of persons seeking a similar type of training and hence does not offer the course – a problem that could only be overcome by better co-operation between training providers. Alternatively, persons may not get the training they need because those with different needs are combined into one single course, thus reducing the impact. Learning region networks and early recognition of required skills should help improve the matching of participants to courses. Nevertheless, comprehensive monitoring and evaluation of the whole process of voucher allocation and use, including changes in the training infrastructure, are urgently needed. There are also a number of smaller-scale initiatives and tools which should also be evaluated for effectiveness and take-up. These include the educational leave offered in most of the Länder and the measure, mentioned above, that provides full reimbursement of individual training costs for older workers working in small and medium-sized companies. Finally there is another, more general issue in relation to the increased choice recently given to training participants. A weakness of the German training approach is its off-the-job character, i.e. the fact that PES training tends to take place outside the market (see e.g. Farhauer, 2004). This problem is not eliminated by the introduction of training vouchers. A stronger focus of PES efforts on on-the-job qualification may be needed (see also the next section). 2.

Activation and placement support to promote job creation

Comprehensive labour market reforms have already been implemented by the government, through the Job-AQTIV Act and the package of so-called Hartz reforms (the four parts of the Act for Modern Services in the Labour Market). A key aim of these reforms is to increase job-search activity and work incentives for the unemployed – particularly the long-term unemployed, many of whom are

implies that reducing PES training costs indirectly reduces the costs for the government. AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

136 – CHAPTER 5. SUSTAINING EMPLOYABILITY AND PROMOTING THE JOB SEARCH OF OLDER WORKERS older workers. Utilising a new combination of carrots and sticks to encourage the unemployed to take up a job rapidly, these reforms represent a radical departure from the traditional delivery of labour market policy. They can be interpreted as a shift to a work-first strategy, while other traditional labour market policy measures are being curtailed. The success of these reforms will depend crucially on how well the PES performs in providing effective job-search assistance to the unemployed in general, and to the older unemployed in particular. A.

Incidence and effectiveness of ALMP

Importance of the PES The PES is a major player in getting the unemployed back into work, in particular in the New Länder, and more so for the older than the prime-age unemployed. In 2000, some 50% of all the unemployed in the Old Länder leaving the benefit rolls through work did so with the help of the PES, with only minor variation by age group (Figure 5.6). The corresponding share in the New Länder was 60-70% for the prime-age unemployed, and more than 80% for the older unemployed. There is also a major difference in terms of the type of help offered by the PES, with the majority of older jobseekers in the New Länder being reintegrated through training and/or placement support in combination with some form of a wage subsidy. In the Old Länder, only some 15% of those older jobseekers reintegrated into work (and one in every ten prime-age workers) received a wage subsidy. Overall, it would appear that the level and pattern of the outflow from unemployment into work differs little between the Old and the New Länder. The lower demand for older workers in the New Länder is counterbalanced by the more extensive use of wage subsidies. For the unemployed in the 50-59 age group, work-outflow rates are even higher in the New Länder than in the Old Länder despite much lower shares finding work without the help of the PES. This indicates the importance of the PES in helping the unemployed to become work-ready and getting the older unemployed back into work. Work-outflow rates do not give any information about the type or permanence of the new job (see below). Nevertheless, all over Germany the work-outflow rate is lower for the older unemployed than for the prime-age unemployed. In 2003, the average number of participants in active labour market programmes (ALMP) was around three-quarters of a million. This compares with an average number of registered unemployed of 4.4 million in the same year. On the whole, older people were well represented in these programmes: they accounted for almost 24% of all ALMP participants compared with 25% of AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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all jobseekers (Table 5.1, Panel A, Columns 1 and 2). Overall, the ratio between the stock of ALMP participants and that of jobseekers (an approximation of the activation rate of the PES) was around 13%, both for those aged 50 and over and for all age groups taken together (Table 5.1, Panel B, Column 1). Figure 5.6. Outflow from unemployment into work by age and region, 2000 Percentages A. As a percentage of the total outflow into work

60-64

55-59

50-54

45-49

60-64

40-44

0% 35-39

10%

0%

25-29

20%

10%

<20

30%

20%

55-59

40%

30%

50-54

50%

40%

45-49

60%

50%

40-44

70%

60%

35-39

80%

70%

30-34

90%

80%

25-29

100%

90%

<20

100%

20-24

Old Länder with help with help and subsidy

without help

20-24

without help

30-34

New Länder with help with help and subsidy

B. As a percentage of the total outflow from unemployment

60-64

55-59

50-54

45-49

0 40-44

0

Old Länder with help with help and subsidy

35-39

10

25-29

10

60-64

20

55-59

20

50-54

30

45-49

30

40-44

40

35-39

40

30-34

50

25-29

50

20-24

60

<20

60

20-24

without help

<20

without help

30-34

New Länder with help with help and subsidy

Source: Public Employment Service (BA) – data taken from Koller (2001).

The type of support received from the PES by the unemployed, however, varies greatly by age. In 2003, the older unemployed accounted for only 6% of all participants in vocational training measures and 11% of those receiving some sort of preparatory training (including skills identification to determine the appropriateness of further qualification measures). On the other hand, more than 50% of all wage subsidies to employers were paid for hiring workers aged 50 and over. Similarly, one in two participants in structural adjustment job creation schemes (SAM) were 50 years or older (Table 5.1, Panel A, Columns 3 to 8). AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

138 – CHAPTER 5. SUSTAINING EMPLOYABILITY AND PROMOTING THE JOB SEARCH OF OLDER WORKERS Hence, there is a distinct age gradient: younger and prime-age jobseekers receive PES support mainly in the form of training, while 50% of older jobseekers receive a wage subsidy and another third are in a job creation programme (Table 5.1, Panel B, Columns 5 to 7). Table 5.1. Jobseekers and ALMP participants by type and age, 2003 Average annual stocks, percentage of older workers on each programme, a distribution across programmes, and ratio of ALMP participants to jobseekers A. Average annual stock Of which

all ages

Jobseekers

ALMP participants

(1) 5 434 154

(2) 742 430

Vocational training

Preparatory training

(3) 250 976

(4) 77 887

Job creation schemes (ABM) (5) 92 443

Job creation structural (SAM) (6) 47 843

Wage subsidies to employers (7) 134 348

Other forms of subsidies (8) 138 934

15-24

715 653

70 464

26 927

15 273

11 705

1 703

5 427

9 428

25-49

3 354 215

495 654

208 626

53 701

43 821

20 563

56 827

112 116

50+

1 364 285

176 312

15 423

8 913

36 916

25 577

72 093

17 390

25.1%

23.7%

6.1%

11.4%

39.9%

53.5%

53.7%

12.5%

Share 50+

B. Derived structural indicators As shares of all jobseekers

all ages

As shares of all ALMP participants

Total ALMP

Training

Job creation

Subsidies

Training

Job creation

Subsidies

(a)=2/1 13.7%

(b)=(3+4)/1 6.1%

(c)=(5+6)/1 2.6%

(d)=(7+8)/1 5.0%

(e)=(3+4)/2 44.3%

(f)=(5+6)/2 18.9%

(g)=(7+8)/2 36.8%

15-24

9.8%

5.9%

1.9%

2.1%

59.9%

19.0%

21.1%

25-49

14.8%

7.8%

1.9%

5.0%

52.9%

13.0%

34.1%

50+

12.9%

1.8%

4.6%

6.6%

13.8%

35.4%

50.8%

a)

Jobseekers include the registered unemployed (4.38 million), ALMP participants (0.74 million) and other people looking for a job. Source: Public Employment Service (BA).

The PES approach towards older workers is changing These figures only partially reflect the recent reorientation of the PES. Until the mid-1990s, its job placement activities were very much concentrated on job creation in the public sector and on extensive training and retraining. Since the enactment of the Social Code III in 1998, there was a substantial shift towards the use of wage subsidies and placement in the “normal” (i.e. private sector) labour market. At that time a variety of wage subsidies were introduced, each addressing a specific target group – e.g. the long-term unemployed, the older unemployed aged 55 and over and other unemployed with significant labour market disadvantages. These subsidies varied in their amounts and duration, and also depended on the location of a firm, with more focus on structural aid in the New Länder. AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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With the significant increase in unemployment over recent years and concerns expressed in the early 2000s about the efficiency of PES placement activities, this shift in the orientation of policy measures has continued rapidly, further spurred by the need to cut down ineffective measures. Between 2000 and 2003, comprehensive vocational training and job creation in the public sector have been reduced substantially – by around 30% and 55% respectively, contributing to an overall decline in the number of ALMP participants of around 16%. At the same time, the use of wage subsidies and preparatory training and skills assessment increased very rapidly. The shifts, however, affected different age groups very differently. The overall number of ALMP participants declined sharply for young and prime-age jobseekers (despite a more than 20% increase in the number of jobseekers of this age), but not for older workers (Figure 5.7, Panel A). Figure 5.7. Jobseekers and ALMP participants by type and age, 2000-2003 Percentage change in the number of participants, and distribution across age A. Changes from 2000 to 2003 in per cent

15-24

25-49

50+

150%

100%

50%

0%

-50%

-100% Change in number of jobseekers

Sum of all ALMP measures

Vocational training

Preparatory training

Job creation schemes (ABM)

Job creation structural (SAM)

Wage subsidies to employers

Other forms of subsidies

B. Average annual stock, 2000 versus 2003 Share of training in total ALMP

100% 90%

11%

Share of job creation in total ALMP

21%

19% 34%

80% 70%

36%

19%

60%

13% 55%

40% 20%

26% 51%

30%

50% 30%

Share of subsidies in total ALMP

60%

53%

35%

53%

51%

10%

19%

14%

0% 2000

2003 15-24

2000

2003 25-49

Source: Public Employment Service (BA). AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

2000

2003 50+

140 – CHAPTER 5. SUSTAINING EMPLOYABILITY AND PROMOTING THE JOB SEARCH OF OLDER WORKERS First, while structural adjustment job creation (SAM) has almost been eliminated for the younger and prime-age jobseekers, there was no change in this regard for the unemployed aged 50 and over (although the cut in community employment programmes (ABM) affected all age groups equally). The older unemployed continue to participate in public job-creation programmes to a much larger extent than other groups of unemployed,40 even though the shift away from programmes aimed at public-sector job creation to subsidies to promote employment in the private sector was strongest for them in recent years (Figure 5.7, Panel B). Second, the use of wage subsidies paid to the employer doubled for the older unemployed but remained unchanged for other groups. Finally, the decrease in extensive vocational training measures was largest for the older unemployed, who were already significantly underrepresented in these programmes in 2000.

Outcomes of ALMPs – more evaluation is required A crucial question in this context is how successful this new orientation of the PES has been in terms of the longer-term labour market reintegration of the unemployed. Unfortunately, only limited evidence is available on the effectiveness of individual measures and for specific groups of the unemployed, despite the improved database and better monitoring tools of the PES.41 Post-programme employment rates (Eingliederungsquoten) are published in the annual reintegration balance-sheet of the PES; these rates measure the ratio of workers who are in employment six or twelve months after completion of an ALMP measure relative to the number of people who have participated in the programme. However, as Martin and Grubb (2001) point out, this type of indicator does not capture the net impact or effectiveness of the programme in terms of employment outcomes, since it is not adjusted for the proportion of ALMP participants who would have found a job without the programme. Nor 40 .

Normally, having been unemployed for at least six months is a prerequisite for participation in such job creation programmes.

41.

The general lack of thorough evaluation studies and the inconclusiveness of the few available studies in terms of findings is to a large extent a result of data limitations. Available data, which are usually taken from small-scale population surveys such as the German Socio-Economic Panel, do not allow for an accurate adjustment of programme heterogeneity (i.e. various heterogeneous instruments typically have to be pooled) and do not provide sufficiently detailed characteristics on programme participants and non-participants (see e.g. Fitzenberger and Speckesser, 2000; and Hujer and Caliendo, 2000). AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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does this measure take into account possible substitution and displacement effects, i.e. the jobs found by some participants may have been at the cost of jobs for other non-participants. Moreover, post-programme employment rates say nothing about the post-programme earnings history. In line with these limitations, a study of the effectiveness of employment creation programmes has shown that even post-programme employment rates of 50% can imply a negative net effect – that is, occasionally employment outcomes would have been even higher than 50% in the absence of the programme (Caliendo and Jahn, 2004). The same study concluded that the current community employment programmes (ABM), with post-programme employment rates of around 30%, have a negative net employment effect of around 15% for Germany as a whole.42 The post-programme employment rates necessary to produce a positive net effect obviously vary considerably across instruments; thus they do not allow a generalising from this analysis, and also limit the value of the comparison of post-programme employment rates across ALMP schemes. Bearing these caveats in mind, Figure 5.8 compares available postprogramme employment rates mainly to illustrate differences in employment outcomes between different groups of the unemployed. Differences between age groups are relatively small, though the post-programme employment rates tend to be lower by some 10 percentage points for older compared with prime-age workers. Differences are greatest for training programme participants, and nonexistent for participants of job creation programmes. Overall the results seem to support the recent reorientation of the PES, as participants in community employment programmes show the lowest post-programme employment rates and those who received a wage subsidy by far the highest. (The latter is not true however for wage subsidies designed to promote self-employment.) The differences in outcomes between the Old and New Länder are also relatively small. Again, it is important to treat these results with caution since any differences in outcomes between programmes may only be loosely related to underlying differences in their effectiveness.43

42.

In fact, the majority of evaluation studies of ALMP training programmes and job creation schemes find only very small or even negative net employments effects; see Fitzenberger and Speckesser (2000) and Hujer and Caliendo (2000).

43.

For instance, participants in one programme may have more substantial labour market disadvantages on average than participants in other programmes and so would be more likely to have poorer outcomes in any case.

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142 – CHAPTER 5. SUSTAINING EMPLOYABILITY AND PROMOTING THE JOB SEARCH OF OLDER WORKERS Post-programme employment rates by type of ALMP, age group and region, 2002 Proportion of ALMP participants in employment six months after completing the measure

Figure 5.8.

New Länder

Old Länder

all ages

age 50+

Sum of all ALMP measures

Subsidy for taking up selfemployment Wage subsidies to employers

Job creation structural (SAM)

Job creation schemes (ABM)

Preparatory training

Vocational training

80

60

40

20

0

0

20

40

60

80

Source: Public Employment Service (BA), Eingliederungsbilanz 2002.

As part of the recent Hartz reforms, comprehensive evaluation of the effectiveness and efficiency of labour market instruments is now obligatory. Therefore, it is to be hoped that much better, scientifically rigorous evaluation of existing and new programmes will become available in the future. For the moment such analysis is not only scarce44 but, where it is available, it has not been looking at the employment effects for different age groups. Unfortunately, 44.

Lechner et al. (2004), who assess the long-run effects of public sector-sponsored training undertaken in the Old Länder during the period 1991-97, are an exception. They conclude that all training programmes have negative net employment effects in the short run and positive effects over a horizon of about four years. For substantive training programmes lasting about two years (i.e. the types of programmes that were cut down considerably in recent years), they conclude that gains in employment probabilities of more than 10 percentage points appear to be sustainable, though they come at the price of large negative lock-in effects. AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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any hopes for early evidence on what works are unlikely to be met because it takes time for the post-programme effects to appear unequivocally – sometimes as much as two to five years or more (see Martin and Grubb, 2001). B.

A comprehensive institutional reform package

Comprehensive labour market reforms have been implemented in recent years on the basis of the Hartz commission recommendations. The first two of the four Acts for Modern Services in the Labour Market combine supply- and demand-side measures, with the first step being a reorientation and restructuring of the PES and its local labour offices to improve the effectiveness and efficiency of its placement activities for the unemployed. Performance targets are being introduced, for both the PES itself and all its local offices. Resources will be shifted towards placement activities; this will include adding counselling staff in order to reduce caseloads. Search counselling will be improved and the focus on profiling strengthened. Administratively these changes have been accompanied by a stronger emphasis on private service delivery, first initiated with the abolition of the public monopoly in providing employment services in 1994. With the Job-AQTIV act the PES also has the possibility to outsource job placement activities. , Furthermore, each PES district has to set up at least one Personnel Service Agency (PSA); with the Hartz I reform, such agencies can now also be run by the PES itself. The obligation of early registration with the PES for all employees facing layoff or quitting their job voluntarily is another step toward increasing placement support for persons at risk of unemployment. Since mid-2003, workers have had to report to the local labour office immediately after receiving notice of dismissal (or, alternatively, three months before the end of a temporary contract) or upon giving up their job. If a person fails to comply with this regulation, sanctions can be imposed (up to 30 days of benefit payment can be withheld). Employers should inform employees about this early registration obligation. The effect could be twofold. First, finding a new job has been shown to be much easier without an intermediate phase of unemployment. Secondly, the period remaining to the end of the employment contract can already be used for job placement activities and other early intervention, e.g. through some sort of preparatory training. In parallel with the stronger placement focus of the PES, the hiring of the older unemployed is being explicitly promoted, especially through various forms of (flexible) wage subsidies to the employer and/or the worker. Employers hiring a person over age 50 can receive a subsidy of up to 50% of the wage, payable for a period of up to three years. The lower age limit for this AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

144 – CHAPTER 5. SUSTAINING EMPLOYABILITY AND PROMOTING THE JOB SEARCH OF OLDER WORKERS special subsidy was recently reduced from 55 to 50 years to speed up labour market integration of the older unemployed.45 In addition, employers hiring a person aged 55 or over are exempt from contributions to the unemployment insurance system, while the hitherto unemployed pays only half of the full rate. At the same time, as of 2003 the unemployed aged 50 and over can receive a temporary wage guarantee should they take up a lower-paid job. This subsidy consists of two components: the wage guarantee itself (Entgeltsicherung), which covers 50% of the difference between the previous and the new wage; and a top-up to the pension insurance contribution to a level of 90% of former insured earnings. The wage guarantee can in principle be combined with a wage subsidy to the employer. Initial data suggest that take-up is very low. This is likely to be related to both the low demand for older workers and the limited willingness of the older unemployed to accept a lower-paid job. It may also be the result of the subsidy’s eligibility criteria: a person must be entitled to an unemployment insurance benefit for at least another 180 days, with the temporary wage guarantee ending when the insurance benefit entitlement ends. Hence, this regulation does not cover the long-term unemployed. Moreover, with the forthcoming reduction of the payment duration for unemployment insurance benefits, the potential maximum payment period will decline considerably. Better activation and improved hiring support have been accompanied by various forms of increased pressure on the unemployed of all ages, and the older unemployed in particular, to look for work more actively. Currently, for instance, unemployed workers aged 58 and over can be exempt from looking for work. The forthcoming reduction in the duration of unemployment benefits (see Chapter 3) is also increasing the pressure on the older unemployed to find a job more rapidly.46

45.

Unemployed workers younger than 50 years but falling into the category of “persons with reintegration impediments” can receive a similar temporary wage subsidy, but only for up to one year.

46.

The impact of the longer payment duration for workers aged 55 and over – who, after reforms are implemented in January 2006, can receive unemployment benefits for 15-18 months rather than the 12 months applicable to all other workers – remains to be seen. There is a risk that what is intended to be more generous income support for older workers might lead them to wait until the maximum payment period is close to expiring before accepting another, potentially lower-paid job. Evidence from hazard rate models on the impact of the benefit payment duration on the length of unemployment spells indicates the existence of such “spikes” in the probability to leave the unemployment benefit AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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Probably the most important element of reform to be enacted was the last part of the Hartz package. As of January 2005, the former wage-related unemployment assistance benefit was merged with the flat-rate social assistance benefit. In the future, there will only be a distinction between two benefits: the contributionfinanced, earnings-related Unemployment Benefit according to SGB III (henceforth UB I,); and the tax-financed Unemployment Benefit II (henceforth UB II, also called basic income for people looking for work), with means-tested flat-rate payments at social assistance level. To avoid large benefit cuts in the transition from UB I to UB II, top-up payments are paid in the first two years, equal to two-thirds of the difference with the UB I benefit in the first year, and one-third in the second. Upper thresholds for top-up payments vary by family status.47 The underlying new principle of German labour market policy is “Fördern und Fordern”, i.e. a stronger focus on mutual obligations, with the objective of reintegrating all people capable of working. The unemployed will no longer have the option of remaining inactive; they will have to put all their potential to use to end benefit dependence as quickly as possible. But they will not be doing so completely on their own. The PES will have to provide much better placement support and assistance. In particular, the unemployed will be counselled by a personal case manager with whom they are expected to conclude a personal reintegration agreement that covers all steps and supports necessary for a successful return to work. Mutual obligations also imply that benefit eligibility criteria will be enforced more strictly. Sanctions will follow should an unemployed person refuse a reasonable job offer or placement in an ALMP measure without good reason (these can amount to a 30% cut of the benefit for up to three months). This new approach will have a major impact on unemployed persons irrespective of their age, who after exhaustion of UB I will have to accept any job available on the German labour market (UB I recipients can however refuse jobs below a certain wage level, e.g. 80% of the previous salary in the first three months, 70% in months 4-6 and 60% thereafter). Combined with more stringent job-search criteria, this represents a significant change, especially for older workers.48

rolls when the maximum duration of benefits is reached, in particular in Germany (Gangl, 2004). 47 .

The upper threshold of the supplement is EUR 160 for a single person and EUR 320 for a couple, plus EUR 60 for each dependent child living in the household.

48.

In terms of benefit replacement rates for UB II claimants, the impact of this reform very much depends on the person’s pre-unemployment income level. At and below average earnings the difference between unemployment assistance

AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

146 – CHAPTER 5. SUSTAINING EMPLOYABILITY AND PROMOTING THE JOB SEARCH OF OLDER WORKERS With the new legislation, communities could choose to provide labour market services themselves – an option that was chosen by 69 communities across the country. In all other communities, job placement and counselling are provided either by the local office of the PES or by a team or association built by the community and the local PES for that particular purpose. It remains to be seen whether the communities have the necessary competencies to do this on their own and also sufficient incentives, since benefits are financed at national level but controlled by local political bodies. Furthermore, first evidence suggests that because of unclear division of competencies, UB II offices comanaged by local PES offices and communities have considerable difficulties in administrating services (Walwei, 2005). To fix these problems, it might become necessary to either hand over management of employment services to the federal authorities or devolve the financing of UB II payments to the regions/communities. The merging of social assistance with unemployment assistance will, in the short run, increase the total number of jobseekers – as is evident from the statistics published in early 2005. However, in the medium term these reforms should lower wage pressures by expanding the effective labour supply. This in turn can be expected to yield additional job creation and faster filling of any vacancies. C.

Directions for further action

There has been a significant shift in active labour market policy in the past few years, with the PES strengthening its placement activities and the measures for reintegration into the “normal” labour market. Generally, this shift has affected unemployed persons of all ages. Despite the shift, however, so-called “passive” labour market measures clearly continue to dominate – i.e. unemployment benefits and (former) unemployment assistance, in particular as regards older workers. In 2001 for instance, around two-thirds of total spending of the PES for workers under age 55 was on passive measures and one-third was on various active labour market programmes (Koller et al., 2003). For workers over the age of 55, the share of spending on passive measures was much higher – 90%, and the share has not declined very much since then. Hence, for older workers in particular, the PES continues to subsidise inactivity rather than activity. This is also true for the most part for the subsidised old-age part-time employment scheme, even if these workers continue to be counted as employed. and social assistance is small, but for people with higher previous earnings – especially those with more than twice the average earnings – this could imply a major drop in benefit income (OECD, 2005e). AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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Thus, further efforts will be needed to shift the PES focus towards labour market reintegration of older workers. With the introduction of job-search requirements for older workers and the other elements of the Hartz reform package, PES caseworkers will face a drastically different situation. The current strong focus of the PES on young workers is understandable in a period of high unemployment, but it lowers the chances for the older unemployed to receive proper counselling and support. The new emphasis on profiling is promising, but the PES will have to reduce caseloads dramatically if it wants to deliver in this regard. This will require a major shift in spending patterns, thereby freeing up more caseworkers for the new duties and challenges. That shift has not occurred so far but will need to occur in line with the recent reform. Shifting caseworkers within the PES will also require proper training so that staff members are equipped with the necessary (specialised) skills to achieve the overall placement target. Changing the attitudes of caseworkers and older clients alike is a major challenge for the coming years. Restructuring of the PES has already commenced, but it will take time to transform a bureaucratic institution with an entitlement mentality into a modern, outcome-oriented service provider. To change staff attitudes, performance-based rewards of the type introduced in many other OECD countries will have to be developed. Moreover, the dynamism of placement activities could be strengthened through more active involvement of competing private employment agencies. Some types of services may be better if they are outsourced, partly or fully. Several OECD countries, such as Australia, have been experimenting successfully with outcome-based funding of private employment services. This way the public pays for success, while private brokers can choose the most appropriate support for their clients. In such a setup, payments for more difficult client groups would have to be higher than the average payment, of course. The relatively high proportion of older unemployed with health problems – 39% of all unemployed in the 55-64 age group compared to 17% of those younger than 45 – also warrants particularly low caseloads and major efforts. Special emphasis on the older (long-term) unemployed in the placement target agreements between the Ministry for Economics and Labour and the PES, and between the PES and its regional labour offices, would help to promote a seachange in this regard. A complementary policy for the PES would be to use caseworkers specialised in the problems and placement of older workers. PES policy for older workers is increasingly shifting towards wage subsidies to employers, but also to employees. Without rigorous evaluation of the effectiveness of this approach, it is difficult to assess. Temporary wage subsidies appear to address the high (non-wage) labour costs in Germany, i.e. AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

148 – CHAPTER 5. SUSTAINING EMPLOYABILITY AND PROMOTING THE JOB SEARCH OF OLDER WORKERS the high relative costs of older workers for their new employer. Until proper evaluation results become available, it will be important to ensure appropriate targeting of these wage subsidies on the low-skilled, long-term unemployed (many of whom are over the age of 50), to avoid large-scale deadweight and substitution effects. The recently introduced temporary wage guarantee for the older unemployed, aimed at making work pay for those aged 50 and over taking up a lower-paid job, also has some potential. Orszag and Snower (2003) for example argue that for the unemployed with prospective flat wage profiles – i.e. those unlikely to experience much wage growth upon re-employment (a situation often characteristic for the older unemployed) – wage subsidies are likely to be more effective than hiring subsidies to the employer. Again, proper assessment of this relatively new instrument will not be possible until proper evaluation becomes available. However, to raise its effectiveness, and in view of the forthcoming reduction in the unemployment payment period, eligibility may have to be broadened so as to prolong the potential payment period. Again, in exchange, stricter targeting may be required – e.g. to the long-term unemployed, similar to the “New Deal 50+” programme of the United Kingdom (OECD, 2005g) – to minimise deadweight loss. 3.

Towards an effective sickness prevention strategy

Preventing work-related sickness and incapacity, and promoting the healthy ageing of workers, are also important elements in securing the continued employability of older workers. They are thus a prerequisite to achieving the target of later retirement for larger shares of the population.49 The whole debate on disability pensions, early retirement schemes and job-search requirements for older workers would take on a different tone if prevention strategies were more effective. A.

Sickness absences and work injuries

The professional associations (Berufsgenossenschaften) in charge of health and safety and the workers’ compensation scheme – which covers work accidents and injuries and occupational diseases – have a well-established commitment to sickness prevention strategies. Available evidence suggests that these preventive measures have helped reduce the incidence of work accidents considerably. In the decade 1992-2002 the number of work accidents declined 49.

In this report, the term “prevention” is used to express the promotion of healthy ageing and the prevention of sickness and work incapacity. AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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by 37%, and so did the inflow into work-injury benefits (Table 5.2). The number of work accidents per 1 000 workers declined from 55 to 36, following a long-term halving in this indicator from around 110 in the 1960s down to 55 in the mid-1980s. Following stagnation between 1986 and 1992, a fresh effort was made, and intensified in recent years to promote preventive actions; these have turned out to be rather successful.50 Table 5.2. Work accidents and new work-injury benefit recipients in Germany, 1992-2002 Absolute figures per 1 000 insured workers Workers (in 1000)

Work accidents

1992 1997 2002

37 456 38 074 36 738

2 069 422 1 598 972 1 306 772

1992-1997 1997-2002

2% -4%

-23% -18%

1992-2002 -2% -37% Source: Deutscher Bundestag (2003).

Accidents per 1000 workers 55.2 42.0 35.6

New work injury benefits 45 619 38 393 28 278

Benefits per 1000 workers 1.22 1.01 0.77

Fatal work accidents 1 752 1 403 1 071

-16% -26%

-20% -24%

-38%

-39%

The impact of preventive measures on disability benefit claims and sickness absences is less obvious. Inflow into disability showed a trend rise until the mid-1990s when it started to decline, partly in response to benefit reform (Chapter 3). Entitlement criteria and the more stringent enforcement of rehabilitation measures have played an important role in explaining the decline. In the coming years more disability benefit claims can be expected in response to the reduction in the unemployment benefit payment duration for the older, long-term unemployed, as of 2006. A stronger focus on work-incapacity prevention will also be needed in order to ensure that the new policy regime of the PES, comprising stricter work requirements for all workers, achieves its objectives. Lessons from other OECD countries show that tightening of job-search criteria for the unemployed and/or for social assistance clients could lead to sudden increases in the number of persons claiming disability pensions (OECD, 2003b). This would be a very costly alternative to unemployment, and make returns to the labour market of persons drawing disability pensions very unlikely. 50.

This is an impressive long-term record, taking into account the intensification of work and the increasing stress and time pressure at the workplace (e.g. Lehndorff 2002), often held to be responsible for part of the increase in disability benefit claimants in a large number of OECD countries.

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150 – CHAPTER 5. SUSTAINING EMPLOYABILITY AND PROMOTING THE JOB SEARCH OF OLDER WORKERS The pattern of sickness absences in Germany during the past decade largely seems to reflect the business cycle. They dropped sharply from 1995 to 1997 and again from 2001 to 2003, in both cases in response to low economic growth and rising unemployment (Figure 5.9). The latest provisional figures for 2004 suggest that this downward trend has continued, resulting in savings in terms of labour costs in the years 2003 and 2004 worth around an estimated EUR 2 billion (BMGS, 2004). More detailed data by economic sector suggest that the trend over the past ten years has affected all sectors of the economy in a similar way (Badura et al., 2005). Trend in sickness absence of workers in Germany by region, 1991-2003 Average annual stock of workers on sickness absence (Germany 1991=100) Figure 5.9.

Germany

New Länder

Old Länder

120 110 100 90 80 70

03 20

02 20

01 20

00 20

99 19

98 19

97 19

96 19

95 19

94 19

93 19

92 19

19

91

60

Source: Federal Ministry for Health and Social Security, health insurance statistics.

A crucial element in the context of workforce ageing and low employment rates of older workers is the significant rise in sickness absence rates with age. Older workers aged 50 and over have, on average, twice as many sickness absence days as prime-age workers – roughly 30 days per year rather than the 15 days for workers around age 40, for instance (Figure 5.10, Panel A). The age gradient is very steep, with those aged 60-64 having 50% higher absenteeism rates than those aged 50-54. Moreover, the age pattern of sickness absences has remained virtually unchanged over the period 1990-2003.51

51.

2003 data in Figure 5.10 refer to the AOK (the main German health insurer) only, as published in the most recent Fehlzeitenreport 2004 (Badura et al., 2005), because age-specific data for 2003 covering all insurers were not available. While AOK-insured workers tend to have somewhat higher absenteeism rates AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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The more detailed data for 1995 indicate where policy could possibly come into play: older workers have fewer sickness cases each year (on this indicator young workers aged 15-24 are doing worst), but a significantly longer duration of sickness absence per case. This suggests that they have either more serious sicknesses and/or need a longer recovery period (Figure 5.10, Panel B). Figure 5.10. Sickness absence of workers in Germany by age, 1990-2003 a Cases per insured, days per case and total days per insured A. Average number of sickness days by age for 1990, 1995 and 2003 GKV 1990

GKV 1995

AOK 2003

45 40 35 30 25 20 15 10 5 60-64

55-59

50-54

45-49

40-44

35-39

30-34

25-29

20-24

< 20

0

B. Age-specific morbidity statistics for 1995 (average all ages=100) Number of days per case

Cases per 100 insured

Days per 100 insured

300 250 200 150 100 50

70 +

65-69

60-64

55-59

50-54

45-49

40-44

35-39

30-34

25-29

20-24

< 20

0

a)

Data for all health insurance providers (GKV) for 1990 and 1995, and data for the main insurer only (AOK) for 2003. Source: Federal Ministry for Health and Social Security and Badura et al. (2005).

overall, the data suggest that there is little variance in age patterns across insurers. AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

152 – CHAPTER 5. SUSTAINING EMPLOYABILITY AND PROMOTING THE JOB SEARCH OF OLDER WORKERS Sickness management should promote early reintegration into work in cases of longer-term sickness, especially for older workers. Along these lines, obligatory integration management at the company level (betriebliches Eingliederungsmanagement) introduced in 2004 has a great potential. After six weeks of uninterrupted sickness absence (or in case of repeated absences), employers have to analyse the situation and to seek steps to adjust the workplace and to prevent long-term work incapacity. This is done in collaboration and agreement with the employee concerned as well as the works council and, where necessary, the relevant public authorities. Support by the latter, if needed, is provided as quickly as possible in order to use the full potential of the worker. Related to this, “stepwise” labour market reintegration for people on medical rehabilitation (introduced in 2001) and for people on sickness benefits should be promoted, and the outcomes monitored and evaluated. Further enhanced co-ordination between the health insurance system (which, for example, is responsible for early mobilisation of patients to prepare them for subsequent rehabilitation) and the pension insurance system would help to ensure well-timed intervention. B.

Strengthening sickness prevention

The Federal Ministry for Health and Social Security, in co-operation with the Länder, has recently prepared a draft bill on sickness prevention, which went to the parliament in Summer 2005. The new law, part of a more comprehensive national prevention strategy, should help reach large shares of the population, including those outside the labour force. Besides fostering agreement on priority measures, the major change is to bring together all of the relevant social insurance branches to share responsibility for and the costs of sickness prevention. In doing so, prevention is being established as a health provision pillar in its own right. Currently, responsibility for prevention is scattered. Work-accident insurers are also responsible for preventing occupational diseases and for industrial safety and health in companies more generally, while health insurers provide complementary measures aimed at health promotion.52 The public health insurance is the only authority with a mandate for health promotion at and outside of work. The longer-term failures of non-prevention, however, are

52.

Prevention is often split into three parts: primary prevention aimed at avoiding first-time sicknesses, secondary prevention with the objective of early detection of health problems, and tertiary prevention aimed at avoiding subsequent diseases or the deterioration of established health conditions. AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

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often and to a large extent borne by the pension insurance. The federal government bears no direct responsibility for prevention matters. With the new prevention law, joint projects will be conducted by the health, pension, work accident and long-term care insurances. These endeavours will be based on a “setting” concept and thus concern not only workplaces but also for instance schools, senior homes, and quarters of a city. In addition, a prevention fund (Stiftung Prävention und Gesundheitsförderung) will be established in each of the 16 Länder, jointly financed by the health insurers, state pension institutes, accident insurance and the long-term care insurance. Sector-specific and cross-company measures can be financed through this fund. In total, EUR 250 million annually will be available for the prevention pillar. Joint activities of the different insurance branches are an important step. Existing co-operation between health and work-accident insurers in reducing work-related health risks will also be further strengthened, with the objective of raising the attractiveness of prevention and health promotion for those firms (in fact the large majority of all firms in Germany) currently left out. The federal government, through the Federal Office for Health Information (Bundeszentrale für gesundheitliche Aufklärung) and the Robert-Koch-Institute, will support the process through health information campaigns and monitor the development and the quality of prevention instruments. The government will prepare a sickness prevention report at four-year intervals. The forum on prevention (Deutsches Forum Prävention und Gesundheitsförderung), initiated by the Federal Ministry for Health and Social Security, supports the objectives of the prevention strategy of the government and the social insurance branches. This forum is a useful source of information on the initiative (www.forumpraevention.de), although more links could be developed to other information on healthy ageing and working conditions best suited to older workers.53 Overall, the emphasis on preventive approaches is gradually spreading from the more narrow fields of health and safety to other fields of social and labour market policies. These recent efforts are important steps towards maintaining the health of older workers and thus extending employability into later age. While costs of sickness prevention accrue immediately, most of the benefits will only be reaped in the future. Since the overall benefits tend to

53.

Many specific good-practice examples from a large set of industries and services can be followed on the information system of the professional associations of health and safety (www.hvbg.de/d/pages/praev/strateg/praev_lohnt/index.html).

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154 – CHAPTER 5. SUSTAINING EMPLOYABILITY AND PROMOTING THE JOB SEARCH OF OLDER WORKERS vastly outnumber the costs of such measures, every effort should be made to avoid a crowding-out of preventive policies due to short-term budgetary pressures.

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Chapter 6 CONFRONTING POLICY DILEMMAS AND OBSTACLES

As made clear in previous chapters, action is required on a number of fronts to encourage the participation of older people in Germany’s labour market. The country has taken several steps in the right direction in recent years, but more needs to be done if the objective of raising to 50% the employment rates of those aged 55-64 by 2010 is to be achieved. That will require a comprehensive, coherent and balanced package of measures. It will also require appropriate macroeconomic policies and structural reform, because general labour demand will need to be boosted at the same time. 1.

Getting the economic fundamentals right

For a long time, labour market and retirement policy reform in many OECD countries, including Germany, was driven by the assumption that a high rate of employment among older workers reduces employment opportunities for new labour market entrants and younger workers. In a certain way, the German old-age part-time employment act is the last piece of policy to reflect that view. This assumption will not survive into the future, for two reasons. First, rapid population ageing is changing the issue. Young workers are becoming a scarce resource while older workers are increasingly becoming indispensable to the economy, despite ongoing industrial restructuring and technological change. Employment practices and habits that have developed in the course of policy making during the last thirty years have yet to adapt. Downsizing through massive recourse to preretirement, widespread in the past and in many cases also today, is simply no longer a viable (or possible) option. Second, the current situation is not one of older and younger workers competing over a fixed number of jobs. Rather, empirical evidence points to a positive relationship between employment outcomes for the two groups. As can be seen from Figure 6.1, an increase in employment rates for older people tends to be associated with an increase, not a decrease, in employment rates for younger people. This underlines the role of AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

156 – CHAPTER 6. CONFRONTING POLICY DILEMMAS AND OBSTACLES macroeconomic and other policies in helping boost labour demand more generally. Workers of all ages benefit from the removal of demand-side barriers to employment, and from product markets that are dynamic and responsive to new business opportunities. More jobs for older workers do not mean fewer jobs for younger workers Percentage point change in employment-population ratios, 1992-2002 Figure 6.1.

Older w orkers (50-64)

20

20

NZL NLD

15

15

IRL AUS

10 BEL

CAN GBR USA

PRT

5

HUN ITA

NOR ESP DNK

5

GRC

ISL

CHE

DEU 0

AUT

10

FIN

FRA

0 SWE

JPN KOR -5

-5 -15

-10

-5

0

5

10

15

Young w orkers (15-24)

Source: OECD labour force statistics.

Thus, older workers will face better employment prospects if economic growth and overall employment growth are strong. In particular, their opportunities will be enhanced by tackling barriers to job creation more generally, in areas such as wage and non-wage labour cost flexibility, workingtime flexibility, the entrepreneurial climate, product market competition and skill formation. It is important to continue to pursue reform in these areas as outlined in the OECD Jobs Strategy recommendations in the mid-1990s.

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2.

157

Ensuring policy balance, coherence and complementarity

A major challenge for policy is to find an appropriate balance between measures to remove supply-side work disincentives and those that promote better employment opportunities for older workers. Policy makers in Germany have tried to achieve that balance by complementing comprehensive pension reforms in 1999, 2001 and 2004 with far-reaching labour market policy reform through the Job-AQTIV Act and the four parts of the Act for Modern Services in the Labour Market. It remains to be seen whether and to what extent actual employment practices and individual retirement behaviour will change in response to reform. With many of the supply-side reforms being implemented only very gradually, pre-retirement practices are likely to be used extensively in the decade to come – thus potentially slowing down the increase in participation rates of older workers. This is why further and more rapid supply-side measures are probably necessary if demand-side measures are to be truly effective. In addition, more effective measures to stimulate labour demand will be needed. In particular, attempts must be made to maintain the employability of workers until a later age – by promoting the participation of workers in training (and not only workers) at all ages and by improving the ability of older workers through better working conditions and more investment in healthy workplaces. Furthermore, attention needs to be paid to the way that different kinds of interventions interact. For instance, active labour market policies aimed at getting the older unemployed back into work are likely to be more effective when demand-side barriers (such as hiring and firing costs) are reduced as well. Similarly, promoting the employability of older workers is better achieved through the combined actions of various labour market institutions, e.g. collective bargaining to reduce the impact of seniority-based regulations and the PES and regional government promoting education and training. Policies directed at older workers may need to be integrated in a wider strategy to cope with population ageing. Clearly, raising the labour market participation of older people would help alleviate the negative impact of population ageing on labour force growth. Older workers are not, however, the only group whose labour resources are underutilised. Another group is women, in particular mothers of young children. For them, employment policies promoting the combination of work and family life should be a crucial element in such a wider strategy. Ideally, such policies – including possibilities for qualified part-time work and more affordable high-quality childcare facilities – could help raise female employment as well as fertility, leading to an increase in labour supply in both the short and long run. AGEING AND EMPLOYMENT POLICIES: GERMANY – ISBN-92-64-012737 © OECD 2005

158 – CHAPTER 6. CONFRONTING POLICY DILEMMAS AND OBSTACLES Broader strategies to cope with population ageing have been developed in a number of OECD countries, e.g. Australia and New Zealand. In other countries, such as Finland, Japan and the United Kingdom, a strategy or framework for policy action has been set out more specifically to encourage later retirement. Along these lines, Germany should also consider developing a general ageing strategy (see Box 6.1). In setting up a broader strategy, it would be important to involve not only the federal but also local and regional governments, the PES, the social partners, the social insurance authorities and business – as is done successfully in the INQA initiative. Furthermore, quantifiable goals should be established that can be measured, evaluated and followed up in order to monitor the impact on the labour market performance of older workers. Box 6.1.

National ageing strategies in selected OECD countries

Australia The National Strategy for an Ageing Australia was launched by the federal government in 2001. It is intended to promote awareness among the Australian community of the likely impacts of, and possible responses to, population ageing, and advise the government on short- , medium- and long-term policy responses as part of a co-ordinated national framework. Some of the goals in this strategy aim to: i) create a sustainable retirement income system that provides adequate income for all older Australians, and support and encourage individual contributions to retirement savings throughout working life; ii) remove barriers to the continued participation of older workers; iii) ensure that society has a positive image of older Australians; and iv) promote and support healthy ageing across the lifespan and a world class care system for elderly. The Strategy document states that there will be regular monitoring of progress in meeting these goals, including a report to the Commonwealth Parliament every three years by the Office for Older Australians. The document also states that the directions set by the National Strategy should be evaluated at regular intervals to ensure that they remain relevant.

Finland The National Programme on Ageing Workers is the largest and best-known government programme seeking to improve employment opportunities and work ability for people over the age of 45. Proposed by a special committee in 1996, it was conducted over the period 1998 2002. The programme was implemented jointly by the Ministry of Social Affairs and Health, the Ministry of Labour and the Ministry of Education, and covered both those in work and the unemployed. The three main objectives of the programme were to: i) develop working life; ii) promote a return to work; and iii) reform pension and other social protection systems. The focus of measures has varied during the programme period. In the initial phase, measures were concentrated on legislative amendments and information campaigns. The middle phase focused on research and development projects, while the final phase concentrated on management training and development of the workplace. This programme was followed up by the introduction of the VETO Programme in 2003, which is based on the experiences of previous programmes and seeks to ensure that: i) people can fully participate in working life; ii) workers are encouraged to stay on longer at work; and iii) the attractiveness of work is enhanced. The VETO Programme will run until 2007. Source: OECD (2004e), Ageing and Employment Policies: Finland; and OECD (2005f), Ageing and Empoyment Policies: Australia.

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3.

159

Conclusion

Policy makers face various dilemmas in their attempts to raise the older population’s rate of labour force participation and to reverse the long-term trend of early labour market exit. Measures to improve the employability of older workers will probably not achieve their objective as long as pre-retirement options have not been fully eliminated or made sufficiently unattractive. At the same time, any increase in statutory retirement ages in line with life expectancy should go hand in hand with a strengthening of measures to help workers facing the greatest difficulty remaining in work. Otherwise, a rise in labour force participation rates of older workers could be accompanied by rising unemployment or increasing numbers of workers in low-quality jobs. Difficult choices will also have to be made between competing policy objectives. For example, measures to promote phased retirement could encourage some workers to stay in the labour market longer – but if they also encourage full-time workers to switch to part-time work, the net result could be a reduction in effective labour supply in terms of hours worked. A related issue is the optimal policy with respect to retirement choices. Ideally, workers should be able to choose the age at which they leave the workforce, as long as they bear the costs of their own decision (or share these costs with their employers). However, even if those costs are shared, early retirement in large numbers could have a negative impact on economic growth and the sustainability of age-related public expenditures apart from the pension scheme. This in turn may require further action on the part of government, possibly including restrictions on individual choice. Another difficult decision is the extent to which age-specific measures should be used to remove barriers to the employment of older workers. German policy is characterised by various age-related regulations, such as the exemption from job-search requirements for the unemployed over age 58; longer unemployment benefit payment periods and stricter employment protection for older people; reductions in social security contributions for newly hired workers over the age of 55; the facilitation of temporary employment for those over the age of 52; and more generous wage subsidies for those over the age of 50. Such measures can help, but they often come with high deadweight loss and substitution effects. Age-specific measures may also sometimes increase rather than reduce age discrimination by reinforcing negative stereotypes about older workers. Age-diversity management, on the other hand, is geared at maximising the productivity of workers at all ages through, for instance, age-appropriate job design. This should improve the chances of older workers staying in their jobs.

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160 – CHAPTER 6. CONFRONTING POLICY DILEMMAS AND OBSTACLES Finally, it is important to recognise that older workers are a very diverse group. Thus, it is unlikely that government policies will by themselves be able to tackle the full range of barriers to finding and keeping a job that each older person faces. What is required are the creative solutions that the social partners and other non-governmental organisations representing older people can propose to improving opportunities for longer working lives. Close co-operation should be encouraged between these groups and government.

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