Ageing and Employment Policies: Sweden (Ageing and Employment Policies)

Sweden

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ISBN 92-64-19996-9 81 2003 07 1 P

Sweden

In the face of rapid population ageing, there is a need to promote better employment opportunities for older people. Much has been said about the need for reform of old-age pensions and early-retirement schemes but this may not be sufficient to raise employment rates for older people significantly or to reduce the future risk of labour shortages. Both governments and firms will need to actively take measures to adapt wage setting to ageing workforces, to tackle age discrimination and to improve the job skills and working conditions of older workers. In addition, older people will need to change their own attitudes towards working longer and acquiring new skills. Little is known about what countries have been doing or should be doing in these areas. This report on Sweden is the first in a series of around 20 OECD country reports that are intended to fill this gap. Each report contains a survey of the main barriers to employment for older people, an assessment of the adequacy and effectiveness of existing measures to overcome these barriers and a set of policy recommendations for further action by the public authorities and social partners.

Ageing and Employment Policies

Ageing and Employment Policies

« Ageing and Employment Policies

Sweden Vieillissement et politiques de l’emploi

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

Sweden

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

Pursuant to Article 1 of the Convention signed in Paris on 14th December 1960, and which came into force on 30th September 1961, the Organisation for Economic Co-operation and Development (OECD) shall promote policies designed: – to achieve the highest sustainable economic growth and employment and a rising standard of living in member countries, while maintaining financial stability, and thus to contribute to the development of the world economy; – to contribute to sound economic expansion in member as well as non-member countries in the process of economic development; and – to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in accordance with international obligations. The original member countries of the OECD are Austria, Belgium, Canada, Denmark, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The following countries became members subsequently through accession at the dates indicated hereafter: Japan (28th April 1964), Finland (28th January 1969), Australia (7th June 1971), New Zealand (29th May 1973), Mexico (18th May 1994), the Czech Republic (21st December 1995), Hungary (7th May 1996), Poland (22nd November 1996), Korea (12th December 1996) and the Slovak Republic (14th December 2000). The Commission of the European Communities takes part in the work of the OECD (Article 13 of the OECD Convention).

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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 work, both paid and unpaid. 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 for longer given appropriate 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.

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This report on Sweden is the first in a series of around 20 OECD country reports that will be published as part of the older worker thematic review, which has been developed by Raymond Torres. It has been prepared by Patrik Andersson under the supervision of Mark Keese (team leader) with the technical and statistical assistance of Anne-Marie Gray, Sylvie Jeannot, Clarisse Legendre, Steven Tobin and Judy Zinnemann. A draft of the report was discussed at a seminar in Stockholm on 24 May on “Swedish Policies to Improve Labour Market Outcomes for Older Workers”, which was jointly organised by the Swedish Ministry of Industry, Employment and Communication and the Swedish Ministry of Health and Social Affairs. Discussants at the seminar included representatives of the national authorities, the social partners and non-governmental organisations, as well as academics. 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.

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TABLE OF CONTENTS

EXECUTIVE SUMMARY AND RECOMMENDATIONS ........................ 9 The challenges facing Sweden .................................................................. 9 What has been accomplished so far? ......................................................... 9 Areas where further reform is required ................................................... 10 RÉSUMÉ ET RECOMMANDATIONS..................................................... 14 INTRODUCTION...................................................................................... 21 Chapter 1. THE CHALLENGE AHEAD .................................................. 23 1. 2.

The demographic reality .................................................................. 23 Key issue: increasing labour market participation of older people.... 25

Chapter 2. THE CURRENT LABOUR MARKET SITUATION OF OLDER WORKERS......................................................... 31 1. 2. 3. 4. 5.

Labour market participation ............................................................. 31 The employment situation................................................................ 33 The unemployment situation ............................................................ 34 People outside the labour market ..................................................... 38 Are older people more absent from work? ....................................... 40

Chapter 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES ............................................................ 43 1. 2.

Welfare systems – a way out of the labour market?.......................... 43 Public old-age pensions ................................................................... 45 A. Trends in public expenditures on old-age pensions....................... 45 B. The new pension system............................................................... 45 C. Increasing incentives to work ....................................................... 49 D. The effective retirement age and replacement rates ...................... 53 E. Partial pensions – a way to increase employment?........................ 59 F. Public old-age pensions – some reflections................................... 62

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3.

Private pension schemes .................................................................. 63 A. Occupational pension schemes ..................................................... 63 B. Individual pension schemes .......................................................... 65 4. The social security system ............................................................... 66 A. Disability pensions and long-term sickness .................................. 66 B. Why is the inflow to disability and sickness increasing?............... 70 Chapter 4. REMOVING DEMAND-SIDE BARRIERS............................ 77 1.

Employers’ views of older people .................................................... 77 A. The presence of age discrimination .............................................. 79 B. Are relative wages too high for older workers?............................. 80 C. Higher non-wage costs for older workers ..................................... 82 2. Employment protection legislation................................................... 84

Chapter 5. HELPING OLDER WORKERS TO FIND JOBS AND TO CONTINUE WORKING......................................... 89 1. 2. 3.

Incentives to work and labour market participation.......................... 89 Reasons for becoming unemployed.................................................. 90 Helping the older unemployed to find jobs....................................... 91 A. The role of the public employment service ................................... 92 B. The role of labour market programmes......................................... 93 C. Encouraging greater mobility ....................................................... 94 4. Older people’s attitudes to work ...................................................... 96 5. Skills and jobs in demand ................................................................ 97 A. Older people’s skills need to increase ........................................... 97 B. Unemployment rates are lower for the highly educated .............. 101 C. Training of older workers ........................................................... 102 6. The work environment has to be improved .................................... 104 Chapter 6. POLICY COHERENCE AND DILEMMAS ......................... 107 1. 2. 3. 4. 5.

Is there scope to increase employment? ......................................... 107 Alternative ways to boost employment .......................................... 108 Policy coherence............................................................................ 109 What is on the government’s agenda? ............................................ 110 Maintaining the momentum ........................................................... 111

Bibliography ............................................................................................ 112

Boxes Box 4.1.

Laying off older workers in Sweden: the case of Ericsson....... 87

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List of Tables Table 1.1. Participation rates by age and gender in selected OECD countries, 2000............................................................................. 27 Table 2.1. Participation rates by age groups in selected OECD countries, 2001............................................................................. 32 Table 2.2. Employment-population rates for persons aged 50-64 adjusted by hours worked, 2000................................................................. 35 Table 2.3. Incidence of long-term unemployment by age in selected OECD countries, 2000 ................................................................. 37 Table 2.4. Incidence of long-term unemployment in Sweden by age, 2000... 38 Table 2.5. Inactivity status in Sweden and the European Union, 2000 .......... 39 Table 2.6. People working less than their usual working week by age and gender, 2000.......................................................................... 40 Table 3.1. The effect on pensions and the retirement age of projected increases in life expectancy.......................................................... 50 Table 3.2. Pension entitlements by retirement age under the old and new systems ........................................................................................ 52 Table 3.3. Effective and statutory retirement ages in selected OECD countries, 1995-2000.................................................................... 54 Table 3.4. Minimum and maximum public pension under the the old system at age 65....................................................................................... 57 Table 3.5. Partial pensions and work status for persons aged 60-64, 1990-1998.................................................................................... 61 Table 3.6. Total compensation levels for a spell of sickness ......................... 72 Table 4.1. Employers’ willingness to hire different groups of people............ 78 Table 4.2. Premiums for occupational pensions in the state sector, 2001 ...... 84 Table 4.3. Strictness of employment protection for regular workers in OECD countries, late 1990s ......................................................... 86 Table 4.4. Acceptance of switching jobs....................................................... 87 Table 5.1. Average number of training days per worker in Sweden, 2000... 103 List of Figures Figure 1.1. Figure 1.2. Figure 1.3. Figure 1.4. Figure 1.5.

Life expectancy at birth, 2000 ...................................................... 24 Demographic dependency ratios, 2000-2050................................ 24 Labour force growth, 1950-2050.................................................. 26 Labour force growth under various scenarios, 1970-2050 ............ 28 Average age of withdrawal from the labour force in Sweden, 1970-2001.................................................................................... 29 Figure 2.1. Employment rates, by age and gender, 1990, 1995, and 2000 ...... 33 Figure 2.2. Unemployment rates by age and gender, 1990-2001 .................... 36 Figure 2.3. Reasons for absence as a share of total absence, 2000.................. 40 7

Figure 3.1. Different ways to withdraw from the labour market in Sweden for workers aged 60-64 years, 1999 ............................................. 44 Figure 3.2. Public expenditure on old-age pensions in Sweden and other OECD countries, 2000-2050a ....................................................... 46 Figure 3.3. Net replacement rates in Sweden and other OECD countries ....... 56 Figure 3.4. Net replacement rates in the new Swedish pension system for people with different incomes................................................. 59 Figure 3.5. Participation in an individual pension scheme by age and gender, 1999............................................................................................. 66 Figure 3.6. Employed persons aged 50-64 on sick leave longer than 30 days, 1992-2001.................................................................................... 68 Figure 3.7. Inflows into disability pension as share of the labour force for different age groups, 1990-2000................................................... 70 Figure 3.8. Share of people aged 45-64 reporting good health, 1980-97......... 71 Figure 4.1. Age-earnings profiles in selected OECD countries, 2000 ............. 81 Figure 4.2. Age earnings profiles for in selected occupations, 2000 ............... 82 Figure 5.1. Unemployment by reason for prime-age and older workers, 2000............................................................................................. 91 Figure 5.2. Average job tenure of employees by age and gender in selected OECD countries, 2000 ................................................................. 95 Figure 5.3. Comparison of education levels for prime-aged and older people in selected OECD countries, 2000................................................ 98 Figure 5.4. Difference between high and low education shares in selected OECD countries, 2000 ................................................................. 99 Figure 5.5. Education levels in Sweden by age and gender, 2000................. 100 Figure 5.6. Unemployment rates in Sweden by age and level of education, 2000........................................................................................... 101 Figure 5.7. Incidence of training for workers by age in selected OECD countries, 1994-98 ..................................................................... 103

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EXECUTIVE SUMMARY AND RECOMMENDATIONS

The challenges facing Sweden Sweden has one of the oldest populations of all OECD member countries. The number of older people is rising rapidly and, by 2030, almost one in four Swedes will be over the age of 65. There is a risk that this will generate large upward pressures on public expenditures, while at the same time provoking acute labour shortages and slower economic growth. There is no simple solution to reduce these risks, but one thing is clear: to maintain an adequate level of social protection without increasing taxes, the employment rate of older workers (i.e. individuals aged 50 and over) will have to increase. This means that the long-term trend to early retirement will have to be reversed. What has been accomplished so far? Sweden has already taken important measures to address this major challenge. First, a major reform of the public pension system was introduced in 1999. Accordingly public pensions have been made more neutral vis-à-vis work-retirement decisions. In particular, the new pension system provides for a close link between pensions and contributions. The system has been designed to be financially stable with respect to changes in demographic trends, life expectancy and economic growth. There is also more flexibility to combine work and pensions as from the age of 61 and so there is no need for a partial pension system. Furthermore, compared to other OECD member countries, Sweden has one of the highest returns for every additional year of work from the age of 61 – and thus the incentive to remain in employment has been enhanced. However, the net difference between the maximum and minimum pension (guaranteed by the state) is currently small (less than SEK 2 000 per month), which may have dissuaded some individuals from building up long, continuous, careers in work. But, under the new pension system, this gap should widen, since the guaranteed pension is indexed to consumer price inflation while the earnings-related pension will be adjusted in line with real wages. Thus, it is important that these rules are kept unchanged. Moreover, the social security and tax systems are based on an individual’s own labour income rather than family or household income. This, 9

combined with well-developed public care systems for children and the elderly, contributes to explain Sweden’s relatively high employment rates by OECD standards. Finally, there appears to be a well-established tradition of lifelong learning in Sweden. The level of educational attainment is high overall and the incidence of adult vocational training is also high and equally distributed by both age and gender. Areas where further reform is required Though these achievements should be acknowledged, there is still room to improve further employment prospects for older workers. First, the recent reform of public pensions may increase pressure to use disability schemes as a route to early retirement. Sickness benefits may already have become a route to early exit from the labour market. In 1997, sickness-benefit levels were increased, and since then there has been a spectacular rise in the number of recipients of sickness benefits: these have practically doubled since 1997. At present, 10% of older workers are on long-term sick leave. This not only represents a reduction in effective labour supply but may be the first step to permanent withdrawal from the labour market since some of those currently on long-term sick leave will become eligible for a disability pension. More generally, there are cases where the difference between social benefit levels and labour income is negligible, especially if taxes are taken into account, which reduces the incentive to remain in work or to find work if not employed. Second, employment services need to “activate” job-search on the part of the older unemployed. All too often, there has been little interest in making active labour market programmes available to this group. Instead, reducing their labour market participation has often been regarded as a better alternative, especially in the presence of youth unemployment. Programmes for older job seekers, if well targeted, may help here. Third, employment protection legislation is quite restrictive and rules such as the first-in-last-out rule in the case of redundancies that aim at protecting older workers may actually do the opposite. Since the first-in-last-out rule reduces mobility of older workers it may also lower their employability. In fact, many workers aged 45-64 years would prefer to move to another region or to have a salary decrease rather than having their employment protection reduced. Fourth, for defined-benefit occupational pension schemes – covering, for example, white-collar workers in the private sector and employees with incomes above the social security ceiling in the state sector – premiums (paid by employers) increase with age. It is therefore of major importance that less costly

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and age-neutral schemes are developed. Because most of these schemes are based on the final salary of retiring workers, they also potentially reduce flexibility for older workers, especially concerning reduced working time or switching to a job with lower pay. Fifth, working-time flexibility should be increased and entitlements to part-time work strengthened. More emphasis should be placed on adapting workload and working time to individual needs and to have possibilities to recuperate i.e. finding a balance between each worker’s individual capacity and workload. The government, together with social partners, should initiate a research programme to identify best practices with respect to the work environment and reorganisation of work to facilitate employment of older workers. Some form of public subsidies may be required for employers to adapt their workplaces to the needs of older workers. This would serve to alleviate any additional costs to employers of complying with any future anti-age discrimination legislation. Sixth, there is still room to strengthen incentives to invest in human capital. Given Sweden’s very compressed wage structure, the return to additional training in the form of higher wages is presently small. Nevertheless, older workers should be encouraged to undertake training by removing the age limit of 41 for receiving a study loan. Finally, attitudes and perceptions need to change. Employer surveys reveal a reluctance to recruit older workers – this group being less attractive to employers than other disadvantaged categories of job seekers such as immigrants or the disabled. These negative attitudes may also reflect a certain degree of age discrimination. As an example, vacancies are sometimes advertised in newspapers with age criteria, implying that older workers cannot apply to certain positions. In sum, a comprehensive reform strategy is needed to improve employment prospects of older workers. It should encompass not only measures to enhance the work incentives that are embedded in the welfare system, but also action on the demand-side. Therefore, the following policy recommendations are put forward as possible elements of this strategy: •

Eligibility criteria for social insurance should be strengthened. The pressure on social security schemes as a way to early retirement is currently very high and will increase considerably in the future since the new pension system will make it less favourable to use occupational pensions as a way out of the labour market. Eligibility conditions for the disability pension have been tightened in the past but may need to be tightened further.

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•

The decision process for disability pension should be reviewed. The reason is that decisions are taken on a local basis, but with funding at a national level. The weak links between the agency that grants benefits (local officers, in close interaction with applicants, employers and unions), and the agency that funds the benefits (the state), are problematic. A more coherent decision process would increase efficiency of benefit delivery and reduce abuse. Monitoring of eligibility for disability benefits should be strengthened.

•

The number of recipients on long-term sickness should be reduced. In general, sickness benefits are not only easier to access but also higher than disability benefits. This has – in combination with the lack of a checking or a monitoring system – provoked a substantial increase in the number beneficiaries. To reduce the number of recipients, sickness benefits should be limited to a maximum period of one year. Additional medical assessments by a doctor from the sickness insurance (i.e. other than the person’s treating doctor) should be introduced and a system with random checks considered.

•

Employment offices should focus more on older people. Employment offices should “activate” job-search on the part of the older unemployed. If needed, well-targeted active employment programmes should be made available to disadvantaged individuals in this group (special programmes already exist for youth, immigrants, academics, etc., but not for older workers). It is also important that public programmes in general do not encourage older workers to leave the labour market.

•

Skills of older people should be enhanced. While the possibilities for lifelong learning are generally quite good, the new rule in the studysupport system, which limits the possibility to receive a study loan above the age of 41, should be abolished. It is important, however, that this is accompanied by more opportunities to take short or modular courses for older people for whom longer, traditional educational courses may involve low or negative rates of return in terms of foregone earnings.

•

Employment protection legislation, especially the first-in-last-out rule needs to be reviewed. The rule favours older people in work to the detriment of those looking for work. Furthermore, the rule lowers mobility of older workers, which might affect their employability. Ultimately, older workers are protected by being employable and not by rules.

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•

Bring forward legislation to meet the requirements of the EU directive on anti-age discrimination. Legislation alone will probably not change attitudes and practices, but it would be important as part of a package to improve the labour market situation of older workers. It also sends out an important message for society. In particular, legislation should ensure that recruitment advertisements do not embody any age restrictions.

•

Premiums for defined benefit occupational pensions are too high. Thus, the social partners should aim at reaching agreements in order to lower the cost-burden on employers and thereby reduce their reluctance to hire and keep older workers.

•

The work environment, including work organisation, should be improved. The work environment should be better tailored towards individual needs. This may encourage older workers to remain longer in employment and lower the number of sick leaves.

•

Working-time flexibility should be enhanced. Some would stay longer in the labour market if more flexible were available to them. The social partners should be include formal arrangements for part-time work agreements.

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older workers working hours encouraged to in collective

RÉSUME ET RECOMMANDATIONS

Les défis de la Suède La population suédoise est l’une des plus âgées de toute la zone de l’OCDE. Le vieillissement y augmente à un rythme rapide et d’ici à 2030, près d’un Suédois sur quatre aura plus de 65 ans. Cette situation risque d’engendrer d’importantes pressions à la hausse sur les dépenses publiques et de provoquer simultanément des pénuries aiguës de main-d’œuvre ainsi qu’un ralentissement de la croissance économique. Aucune solution simple ne permet de réduire ces risques mais une chose est claire : pour préserver un niveau adéquat de protection sociale sans augmenter les impôts, le taux d’emploi des travailleurs âgés (autrement dit des personnes âgées de 50 ans et plus) devra croître. Il faudra donc renverser la tendance bien établie au départ anticipé à la retraite. Quelles mesures ont été prises jusqu’à présent ? La Suède a déjà pris d’importantes mesures pour relever ce défi majeur. Premièrement, une grande réforme du système public de retraite a été adoptée en 1999. En conséquence de cette réforme, une certaine neutralité des pensions de retraite a été introduite par rapport à la décision de continuer de travailler ou de prendre sa retraite. En particulier, le nouveau régime prévoit un lien étroit entre les pensions et les cotisations. Le système a été conçu pour être financièrement stable face à l’évolution de la démographie, de l’espérance de vie et de la croissance économique. Il permet également d’associer avec une plus grande souplesse l’exercice d’une activité professionnelle et la perception d’une pension de retraite à partir de l’âge de 61 ans, ce qui rend inutile la mise en place d’un système de pension partielle. En outre, comparée aux autres pays Membres de l’OCDE, la Suède offre l’un des rendements les plus élevés pour chaque année additionnelle de travail à partir de l’âge de 61 ans – et l’incitation à rester au travail a donc été renforcée. Toutefois, l’écart net entre le montant maximum et minimum (garanti par l’État) de la pension de retraite est actuellement faible (inférieur à 2 000 SEK par mois), ce qui a pu dissuader certaines personnes de faire une longue carrière sans interruption. Avec le

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nouveau système de retraite, toutefois, cet écart devrait se creuser dans la mesure où la pension garantie est indexée sur l’inflation des prix à la consommation alors que la pension liée aux gains sera ajustée en fonction des salaires réels. Aussi importe-t-il que ces règles ne changent pas. Par ailleurs, les systèmes de sécurité sociale et d’imposition sont fondés sur le revenu professionnel individuel plutôt que sur le revenu de la famille ou du ménage. Cette caractéristique, conjuguée au développement important des mécanismes publics de prise en charge des enfants et des personnes âgées, contribue à expliquer les taux d’emploi relativement élevés de la Suède au regard du niveau enregistré dans la zone de l’OCDE. Enfin, l’apprentissage tout au long de la vie semble être une tradition solidement établie en Suède. Le niveau d’études dans ce pays est globalement élevé et les actions de formation continue professionnelle sont nombreuses et équitablement réparties au regard de l’âge et du sexe. Domaines où une réforme plus poussée est nécessaire S’il y a lieu de se féliciter de ces résultats, des possibilités s’offrent encore d’améliorer les perspectives d’emploi des travailleurs âgés. Premièrement, la réforme récente du régime public de retraite peut davantage inciter à recourir aux dispositifs de mise en invalidité pour obtenir un départ anticipé à la retraite. Il se peut que les prestations d’assurance-maladie offrent déjà un moyen de quitter prématurément le marché du travail. En 1997, les niveaux des prestations d’assurance-maladie ont été relevés et depuis lors, le nombre de leurs bénéficiaires a enregistré une progression spectaculaire : il a pratiquement doublé depuis 1997. A l’heure actuelle, 10 % des travailleurs âgés sont en congé de maladie de longue durée. Cette situation non seulement se traduit par une réduction de l’offre effective de travail, mais peut également constituer la première étape d’un processus aboutissant à un retrait définitif du marché du travail car les bénéficiaires actuels d’un congé de maladie de longue durée sont nécessairement admis à bénéficier d’une pension d’invalidité. D’une façon plus générale, il arrive que l’écart entre le niveau des prestations sociales et le revenu du travail soit négligeable, si bien que ceux qui travaillent sont moins incités à rester en activité et ceux qui ne travaillent pas le sont moins à trouver un emploi. Deuxièmement, les services de l’emploi doivent « activer » l’effort de recherche d’un emploi des chômeurs âgés. On s’est bien trop souvent peu attaché à faire bénéficier ce groupe des programmes actifs du marché du travail – on a plutôt eu tendance à considérer qu’il était préférable de réduire leur taux d’activité, compte tenu notamment du chômage des jeunes. Des programmes en

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faveur des demandeurs d’emploi âgés, s’ils sont bien ciblés, pourraient en l’occurrence être utiles. Troisièmement, la législation en matière de protection de l’emploi est assez restrictive et des règles, telles que celle du premier entré – dernier sorti, appliquées en matière de licenciements pour protéger les travailleurs âgés, peuvent en réalité avoir l’effet inverse. Dans la mesure où la règle du premier entré – dernier sorti réduit la mobilité des travailleurs âgés, elle peut également diminuer leur employabilité. En fait, nombreux sont les travailleurs âgés de 45 à 64 ans qui préféreraient se déplacer dans une autre région ou subir une baisse de salaire plutôt que voir leur protection de l’emploi réduite. Quatrièmement, dans le cas des régimes professionnels de retraite à prestations définies – couvrant par exemple les cols blancs du secteur privé et les salariés du secteur public dont le revenu est supérieur au plafond de la sécurité sociale – les primes (payées par les employeurs) augmentent avec l’âge. Il est par conséquent primordial de mettre en place des dispositifs moins coûteux sur lesquels l’âge n’a pas d’incidence. Ces dispositifs étant pour la plupart fondés sur le dernier salaire des travailleurs au moment du départ à la retraite, ils peuvent également réduire la flexibilité offerte aux travailleurs âgés, et notamment la possibilité qu’ont ces derniers d’occuper un emploi à horaire réduit ou d’opter pour un emploi moins rémunéré. Cinquièmement, il faudrait accroître la flexibilité dans l’aménagement du temps de travail et renforcer les droits au travail à temps partiel. Il faudrait s’efforcer davantage d’adapter le temps et la charge de travail aux besoins des personnes et donner les moyens de récupérer, autrement dit trouver un équilibre entre les possibilités et la charge de travail de chaque personne. Les pouvoirs publics, conjointement avec les partenaires sociaux, devraient lancer un programme de recherche afin de repérer des pratiques exemplaires qui, en matière d’environnement professionnel et de réorganisation du travail, permettent de faciliter l’emploi des travailleurs âgés. Il faudra peut-être accorder des subventions publiques sous une forme ou sous une autre aux employeurs pour que ces derniers adaptent les postes de travail aux travailleurs âgés. Ce dispositif servirait à atténuer toute dépense nouvelle que les employeurs devraient assumer pour se conformer à une éventuelle législation contre la discrimination par l’âge. Sixièmement, il reste la possibilité de renforcer l’incitation à investir dans le capital humain. L’éventail des salaires étant très étroit en Suède, la rentabilité d’une formation complémentaire, mesurée en majoration de salaire, est actuellement faible. Il faudrait néanmoins encourager les travailleurs âgés à

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entreprendre des activités de formation et pour cela supprimer la limite d’âge, fixée à 41 ans, pour bénéficier d’un prêt-études. Enfin, il faut que les attitudes et les perceptions changent. Les enquêtes auprès des employeurs révèlent que ces derniers hésitent à recruter des travailleurs âgés – qu’ils jugent moins avantageux que d’autres catégories défavorisées de demandeurs d’emploi, telles que les immigrés ou les personnes handicapées. Ces attitudes négatives peuvent également témoigner d’une certaine discrimination fondée sur l’âge. A titre d’exemple, les offres d’emploi publiées dans les journaux font souvent état d’un critère d’âge, ce qui implique que les travailleurs âgés ne peuvent se porter candidats à certains postes. En résumé, une stratégie de réformes de grande ampleur est nécessaire pour améliorer les perspectives d’emploi des travailleurs âgés. Elle devrait comprendre non seulement des mesures visant à renforcer les incitations à travailler qui sont intégrées au système de protection sociale, mais également des mesures du côté de la demande. C’est pourquoi, les actions recommandées ci-après pourraient être des éléments de cette stratégie : •

Les critères d’admission au bénéfice de l’assurance sociale devraient être renforcés. Le recours au système de sécurité sociale pour ménager un départ anticipé à la retraite est actuellement très élevé et cette solution va se développer considérablement à l’avenir puisque dans le nouveau régime de retraite, il sera beaucoup moins favorable d’utiliser les régimes professionnels de retraite pour sortir du marché du travail. Les conditions d’admission au bénéfice de la pension d’invalidité ont été durcies dans le passé mais devraient peut-être l’être plus encore.

•

Le processus de prise de décision concernant l’attribution des pensions d’invalidité doit être révisé. La raison en est que les décisions sont prises localement alors que le financement est assuré à l’échelle nationale. L’organisme qui octroie les prestations (les agents locaux en interaction étroite avec les demandeurs, les employeurs et les syndicats) a peu de liens avec celui qui finance les prestations (l’État), ce qui pose un problème. Si le processus de décision était plus cohérent, l’efficience avec laquelle les indemnités sont octroyées s’en trouverait renforcée et les abus seraient moins fréquents. Il conviendrait de renforcer la vérification des critères d’admission au bénéfice d’une pension d’invalidité.

17

•

Le nombre de bénéficiaires de congés de maladie de longue durée devrait être réduit. En général, non seulement il est plus facile d’accéder aux prestations d’assurance-maladie, mais en outre leur montant est plus élevé que celui des pensions d’invalidité. Cette situation – conjuguée à l’absence de systèmes de vérification ou de suivi – a engendré un accroissement considérable du nombre des bénéficiaires. Pour le réduire, il faudrait limiter le versement des prestations d’assurance-maladie à une durée maximum d’un an. Des examens médicaux complémentaires par un médecin de la caisse d’assurance-maladie (autrement dit autre que le médecin traitant de la personne en question) devraient être organisés et il faudrait envisager un système de contrôle aléatoire.

•

Les agences de l’emploi devraient cibler davantage leurs efforts sur les personnes plus âgées. Les agences de l’emploi devraient dynamiser l’effort de recherche d’un emploi des chômeurs âgés. Si nécessaire, des programmes actifs et bien ciblés d’emploi devraient être proposés aux personnes défavorisées appartenant à ce groupe (il existe déjà des programmes spéciaux pour les jeunes, les immigrés, les universitaires, etc., mais non pour les travailleurs âgés). Il importe également que les programmes publics en général n’encouragent pas les travailleurs âgés à quitter le marché du travail.

•

Il faudrait renforcer les qualifications des personnes plus âgées. S’il est vrai que l’offre de formation tout au long de la vie est en général assez bonne, il convient d’abolir la nouvelle règle, prévue dans le système d’aide en faveur des études, qui exclut la possibilité d’obtenir un prêt-formation après l’âge de 41 ans. Il est cependant important de multiplier parallèlement les possibilités de formations courtes ou modulaires à l’intention des personnes plus âgées pour qui des études plus longues, de type traditionnel, peuvent avoir un taux de rentabilité faible ou négatif en termes de revenus escomptés.

•

La législation en matière de protection de l’emploi, en particulier la règle du premier entré – dernier sorti doit être revue. Cette règle favorise les personnes plus âgées qui ont un emploi au détriment de celles qui en cherchent un. En outre, cette règle diminue la mobilité des travailleurs âgés, ce qui peut avoir une incidence sur leur employabilité. En fin de compte, ce qui protège les travailleurs âgés, ce ne sont pas les règles, mais le fait d’être employable.

18

•

Améliorer la législation pour qu’elle réponde aux exigences de la directive de la Commission européenne sur la lutte contre la discrimination fondée sur l’âge. La législation à elle seule ne modifiera probablement pas ni les attitudes ni les pratiques, mais il serait important, dans le cadre d’un programme global, d’améliorer la situation des travailleurs âgés sur le marché de l’emploi. La législation véhicule aussi un message clair pour la société. Son rôle est en particulier de veiller que les annonces de vacances d’emploi ne comprennent aucune restriction liée à l’âge.

•

Les primes afférentes au régime professionnel de retraite à prestations définies sont trop élevées. C’est pourquoi les partenaires sociaux devraient s’efforcer de parvenir à un accord en vue d’abaisser les charges pesant sur les employeurs et de faire par là même en sorte que ces derniers hésitent moins à recruter des travailleurs âgés et à les maintenir en poste.

•

Les conditions de travail, y compris l’organisation du travail, devraient être améliorées. Les conditions de travail devraient être mieux adaptées aux besoins des personnes. Cette évolution pourrait encourager les travailleurs âgés à rester plus longtemps dans leur emploi et entraîner une diminution du nombre de congés de maladie.

•

Il convient de renforcer la flexibilité dans l’aménagement du temps de travail. Certains travailleurs âgés resteraient plus longtemps en activité s’ils pouvaient bénéficier d’une plus grande flexibilité dans l’aménagement de leur temps de travail. Il faudrait encourager les partenaires sociaux à prévoir des dispositions concernant le travail à temps partiel dans les conventions collectives.

19

20

INTRODUCTION

Sweden’s population is already among the oldest in the OECD and will age further over the next decades. In general, life expectancy is increasing and fertility has fallen. Moreover, workers leave the labour market long before the statutory retirement age at the same time as labour market entry is being postponed. Altogether, this could create severe socio-economic problems. Population ageing is likely to generate large pressures on public expenditures that are already high, but also on public services because of labour and skill shortages. It is therefore necessary to increase employment rates and retain older workers longer in employment. To accomplish this, incentives to work have to be adjusted, attitudes towards older people have to change, and employability of older people has to increase. Most studies so far have concentrated on issues from a supply-side perspective, e.g. pension reforms, which is only one side of the equation. But there is a need to also look at those factors that may be preventing older workers from remaining in employment, or from being hired if unemployed. These factors may include lack of suitable training opportunities, inadequate job search assistance, employment protection legislation, age discrimination and unsuitable working conditions. By taking these demand-side factors into account this study tries to extend the discussion somewhat further. The outline of the study is as follows: Chapter 1 provides the background to the report by setting out the challenges ahead, such as projected changes in demographic patterns. Furthermore, it highlights the importance of improving the employment prospects of older workers as the key to meeting the ageing challenge. Chapter 2 discusses the current labour market situation for older people in terms of their employment- and unemployment situation, but also in terms of absenteeism and their situation outside the regular labour market. Chapter 3 discusses the role of supply-side factors behind declining employment rates as people age and how incentives to work are affected by benefit levels and eligibility criteria in the welfare system. However, measures on the demand-side are also needed to boost employment rates. Thus, Chapter 4 covers employers’ willingness to hire older people, institutional settings such as employment protection legislation, and how the work environment affects

21

employment patterns. Chapter 5 analyses different ways to help older people to find jobs and to remain in these jobs longer; more specifically it discusses how to increase employability of older people in terms of formal education, training, and labour market programmes. Finally, Chapter 6 discusses the importance of introducing a broad range of reforms and not only focusing on single solutions. It also examines the importance of co-operation between government bodies, social partners and individuals. Finally, some alternative suggestions are discussed, such as increasing migration as well as the policy dilemmas involved.

22

Chapter 1 THE CHALLENGE AHEAD

1.

The demographic reality

Over the past three decades, the demographic position of Sweden has changed considerably. The Swedish population is ageing rapidly and as a result, has experienced a notable increase in the average age of the population. Key factors behind the transition include declining fertility rates and rising life expectancy. Throughout the years, the Swedish fertility rate has been characterised by dramatic upswings and downturns. The past two decades have been no exception. During the 1980s, social reforms are said to have played a role in rising fertility rates – the fertility rate jumped from 1.6 in 1984 to peak at 2.1 in 1991. However, since the onset of the economic recession in the early 1990s the fertility has dropped considerably and reached around 1.6 in 2001. Despite the sharp drop in the 1990s, Sweden has an average fertility rate by European standards. Moreover, at 79.5 years – second only to Japan – Sweden has the highest average life expectancy at birth in the OECD area (Figure 1.1). Since 1970, this represents an increase of nearly 5 years. Furthermore, life expectancy of cohorts aged 60 currently sits at 84.3 and 80.1 years, for women and men, respectively. Together, low fertility rates and high life expectancy typify the demographic situation of Sweden. Until recently, these demographic trends were not seen as posing a major problem, perhaps because of the decline in the total dependency ratio. But concerns are now being raised because of a rising old-age dependency ratio and a realisation that savings because of smaller cohorts of children will be outweighed by additional expenditure on larger cohorts of older people. Indeed, the demographic realities are troubling. An examination of the old-age dependency ratio (the ratio of the population aged 65 and over to the population aged 20 to 64) reveals that, despite recent stability, the ratio for Sweden is set to increase from its current level of 29% to 45% in 2050 (Figure 1.2). For the OECD and the European Union area, this ratio will more than double during the next 50 years, reaching a level of 46% and 53% respectively.

23

Figure 1.1.

a

Life expectancy at birth, 2000

Total

Men

Women

86 84 82 80 78 76 74 72 70 United States

United Kingdom

OECD

EU

France

Sweden

Japan

a) Data for France, UK, US refer to 1999. Source: OECD Health Data (2001).

Figure 1.2.

Demographic dependency ratios, 2000-2050 Percentages

80

120

A. Old age dependency ratioa

B. Total dependency ratiob

Japan 70

110

Czech Rep. 60

100

Japan

EU

Mexico

50

EU OECD Sweden

90

OECD Sweden Sweden EU

40

OECD 30

Sweden

Sweden

80

70

Turkey

Sweden

OECD EU

Turkey

OECD

EU

EU

OECD 20

60

Korea

Turkey

Turkey 10

0 1975

50

Mexico

2000

2025

40 1975

2050

2000

2025

2050

a) Ratio of the population aged 65 and over to the population aged 20-64. b) Ratio of the sum of the population aged less than 20 and the population aged more than 65 to the population aged 20-64. Source: National projections; EUROSTAT Population Projections (1999 revision); and UN, World Population Prospects 1950-2050 (The 2000 Revision).

24

The total dependency ratio defined as the ratio of children (<20) and the elderly (65+) to the working-age population, has either declined or been relatively stable in most countries over the past few decades. However, a marked increase is set occur starting in 2005 for Sweden and around 2010 for the other countries in the comparison. In fact, the total dependency ratio in Sweden will rise from 71% in 2000 to 85% in 2050 (Figure 1.2). Moreover, the bulk of this rise will occur over the next two decades. The increase expected, though preoccupying, is somewhat less dramatic than for example the European Union area, which expects an increase from 64% in 2000 to nearly 90% by 2050. The ageing of Sweden’s population is likely to have serious economic and social repercussions. It will create, among other things, serious fiscal strains on public finances. A related concern is that the ageing process will create intergenerational inequities. By 2050, with individuals 65 and over representing possibly 31% of the population aged 20 and above (compared to 23% in 2000), a disproportionate share will be composed of retirees. Furthermore, the economic dependency ratio (the ratio of the population aged 65 and over to employment), which has been relatively stable the past two decades, is projected to increase from its current level of 46% to 71% in 2050 (assuming unchanged participation rates by age and gender). This might exacerbate intergenerational tensions, if the younger working generation is required to finance the large growing cohort of retirees through higher savings, increased taxes or higher contributions. These tensions will be intensified if individuals choose to retire earlier. 2.

Key issue: increasing labour market participation of older people

A key factor in meeting these challenges will be the extent to which Sweden’s potential labour supply can be fully mobilised, especially with respect to older people. Despite Sweden’s relative high participation rates for older people, the demographic changes now underway will almost certainly have a negative impact on labour force growth. In fact, if current participation rates by age and gender remain constant, labour force growth over the next 50 years will be stagnant (having averaged 0.6% per annum between 1980 and 2000, Figure 1.3). The economic consequence of slower labour force growth could be a reduction in the growth of potential output by 0.4% per annum over the next 50 years, compared to average growth experienced during the previous

25

50 years.1 For the European Union area and France, the magnitudes of these declines are expected to be even more severe, and the consequences, therefore, more disturbing. There is also the key issue of productivity and whether, as some claim, older workers are less productive; a phenomenon that if true, would exacerbate the impact ageing will have on economic growth. Figure 1.3. Labour force growth, 1950-2050a Average annual percentage growth 1950-2000 -0.8

-0.6

2000-2020 -0.4

-0.2

Sweden

0.0

OECD

EU

0.0

0.2

0.4

0.6 0.5 0.2

-0.2

-0.3

1.0

1.2

1.4

1.6

1.8

0.6

-0.1

United Kingdom

0.8

1.2

0.4

United States

France

0.6 0.6

0.1

-0.1

-0.5

2020-2050

1.6

0.6

0.6

-0.1

a) The projection of labour force growth over the period 2000-2050 assumes that participation rates by 5-year age groups and gender remain constant at their 2000 level. Source: OECD Labour Force Statistics and OECD estimates.

To what extent could slower labour force growth in Sweden as a result of population ageing be offset by increased labour market participation? Participation rates are already relatively high in Sweden (Table 1.1). Still, concerning men aged 50-64, there remains some room for manoeuvre to raise 1.

The contribution of labour to production represents approximately 65% of total inputs. A reduction in the annual labour contribution of 0.6% [difference in the average annual rate between 1950 and 2000 (0.6) and projected growth over the next 50 years (0.0)] means that average potential growth would decline by 0.4% per annum (0.65*0.6).

26

participation rates. Figure 1.4 depicts the effects this would have on labour force growth by comparing the results of two scenarios: the “constant” scenario and the “maximum” scenario. In the constant scenario, participation rates by age and gender are assumed to remain constant at their 2000 level for the next five decades. In the maximum scenario, participation rates by age and gender are assumed to converge over the period 2000-2030 to the corresponding maximum rate observed across OECD countries in 2000 and remain constant thereafter (see Table 1.1). Clearly, marked increases in activity rates would lead to much stronger labour force growth and could help to alleviate some of the economic effects brought about by an ageing society. On the other hand, participation rates for older people may decline further over the coming decades. The impact of such a decline on future labour force growth is explored in the “declining” scenario in Figure 1.4. Under this scenario, participation rates for older people (55 and over) are assumed to converge by 2030 to the average OECD levels observed in 2000 and thereafter remain constant. Participation rates for younger age groups are assumed to remain constant at their 2000 levels. According to this scenario, the labour force would actually start to contract within the next decade and would continue to decline until 2030 before stabilising at a level last observed in the late 1970s. Table 1.1. Participation rates by age and gender in selected OECD countries, 2000 Total

Men

Women

25-49

50-64

25-49

50-64

25-49

50-64

Sweden

88.1

76.8

90.6

79.8

85.5

73.8

United States

84.7

68.0

92.4

75.6

77.3

61.0

United Kingdom

85.0

63.4

92.9

72.5

76.8

54.5

France

87.0

56.8

94.8

63.2

79.3

50.5

European Union

84.0

54.0

94.0

66.1

73.9

42.3

81.3

60.3

93.7

72.8

69.0

48.4

89.8 (SVK)

76.8 (SWE)

97.2 (JPN)

89.1 (JPN)

85.5 (SWE)

73.8 (SWE)

OECD average OECD maximum

a

a) The OECD maximum refers to the highest participation rates observed in the OECD area (excluding Iceland). Source: OECD Labour Force Statistics.

27

These scenarios show a wide range in the size of the labour force over the next half-century. They also suggest that there is considerable scope for changes in policy and institutional settings that affect participation rates to influence the rate at which labour force growth slows over the coming decades and to limit the extent of the eventual decline in the labour force. In particular, they point to the importance of ensuring that a high proportion of older men continue to work. For instance, under the constant scenario, labour force growth is projected to be only 0.1% per annum over the next two decades and virtually zero over the next five decades. Under the maximum scenario this rises to 0.6% in the following two decades and to 0.3% over the next five decades. Under the “declining” scenario, the labour force is projected to decline by 0.15% per annum over the next two to five decades. Figure 1.4. Labour force growth under various scenarios, 1970-2050a Thousands Historical

Constant

Decline

Maximum

5500 5250 5000 4750 4500 4250 4000 3750

45

40

35

30

25

20

15

10

05

00

95

90

85

80

75

50 20

20

20

20

20

20

20

20

20

20

20

19

19

19

19

19

19

70

3500

a) The “constant” scenario assumes that participation rates by 5-year age groups and gender remain constant at their 2000 levels. The “declining” scenario also assumes constant participation rates up to and including the age group 45-49 but for the older age groups they are projected to decline such that by 2030 they are at the same level as the OECD average of these rates in 2000. The “maximum” scenario assumes that participation rates by age and gender converge by 2030 to the corresponding maximum rate observed across OECD countries in 2000 and remain constant thereafter. Source: OECD Labour Force Statistics and OECD estimates.

28

The mobilisation of older workers depends on how long they remain in the labour force before retiring. Figure 1.5 demonstrates that the average age of withdrawal from the labour force has been declining since the early 1970s.2 Though the trend has stabilised somewhat in recent years, there is a serious risk that if the situation deteriorates further and older workers continue to exit earlier from the labour force, the economic challenges could worsen. Figure 1.5. Average age of withdrawal from the labour force in Sweden, 1970-2001a Women

Men 70

69

69

68

68

67

67

66

66

65

65

64

64

63

63

62

62

61

61

60

60

19 70 19 71 19 72 19 73 19 74 19 75 19 76 19 77 19 78 19 79 19 80 19 81 19 82 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01

70

a) Average age of withdrawal from the labour force based on changes in participation rates by 5-year age cohorts over 5 year intervals, e.g. 2001 refers to the period 1996-2001. Source: OECD estimates based on data from the Swedish Labour Force Survey.

2.

The effective age of retirement refers to the average age at which people aged 40 and over withdrew from the labour force over any given 5-year period. It is estimated using information on participation rates and effectively assumes that no exits from the labour markets occur because of death and that the population structure by age remains constant over time.

29

30

Chapter 2 THE CURRENT LABOUR MARKET SITUATION OF OLDER WORKERS

1.

Labour market participation

Labour force participation rates have generally been rising for women and falling for men during several decades, bringing the two rates closer. Both the decrease for men and the increase for women are to a large extent the result of changes in the tax and welfare system during this period. The difference in overall participation rates between men and women in Sweden is currently 3.5 percentage points, but was as low as 0.9 percentage points in 1993. Currently, the overall labour force participation rate amounts to 78.4%, which is more or less the same as 30 years ago. In general, employment rates are high for most age groups and only start to decline above the age of 60. In 1970, the labour force participation rate for men was 91% in the age group 55-59 and 80% in the age group 60-64. For women, the corresponding figures were 51% and 37%. In other words, the figures for men were more or less twice as big as for women. By 1990, these gaps had narrowed considerably. Labour force participation rates for men had declined to 87% in the 55-59 age group and to 63% in the 60-64 age group. During the same period, women’s participation rates increased to 79% and 53%, respectively. Since 1990, labour force participation rates for older women have been more or less constant, while they have continued to decline for older men. For people aged 25-59 years, participation rates are very similar at all ages. Only two age groups – below the age of 25 and above the age of 60 diverge from an otherwise very homogenous participation pattern. This is, however, not the case for most other countries where participation rates start to decrease significantly for people above 50 years of age (Table 2.1). Differences in participation rates between men and women are, in contrast to most other countries, also very narrow in Sweden. Participation rates

31

of older Swedish women are also substantially higher compared to almost all other OECD member countries. This is one of the principal reasons for higher participation rates for men and women combined in the 25-64 age group. Participation rates for men, however, are not significantly higher in general except for the older age groups 55-59 years and 60-64 years. Overall, participation rates for older men (aged 50-69) are much higher in Sweden than on average in the European Union, but only slightly higher than in the United States. Table 2.1. Participation rates by age groups in selected OECD countries, 2001 Sweden Men

United States

OECD

European Union

54.2

33.1

72.0

67.1

56.1

51.9

25-49

90.8

94.8

92.3

92.1

93.3

93.4

50-54

89.7

90.5

86.2

86.5

87.5

88.0

55-59

83.7

66.9

75.5

77.3

75.3

69.4

60-64

59.5

15.5

51.2

56.5

48.5

34.0

65-69

17.1

3.3

14.5

30.3

26.4

9.9

81.4

74.3

83.8

83.4

80.6

78.5

15-24

54.4

26.5

64.2

62.2

46.0

43.7

25-49

85.7

79.6

77.0

76.9

68.9

74.1

50-54

85.4

74.2

72.9

74.0

64.2

63.5

55-59

79.9

52.0

58.2

61.6

49.2

45.9

60-64

50.4

13.0

27.5

42.4

27.4

16.3

65-69

8.8

2.3

7.7

20.0

11.6

4.5

77.1

61.8

68.9

70.5

59.3

60.3

Total Total

United Kingdom

15-24

Total Women

France

15-24

54.3

29.9

68.2

64.6

51.0

47.8

25-49

88.3

87.1

84.8

84.4

81.1

83.8

50-54

87.6

82.3

79.5

80.1

75.8

75.7

55-59

81.8

59.3

66.8

69.1

62.1

57.5

60-64

54.9

14.2

39.1

49.1

37.6

24.9

65-69

12.8

2.8

10.9

24.7

19.4

7.0

79.3

68.0

76.4

76.8

69.9

69.4

Total

Source: OECD Labour Force Statistics and Swedish Labour Force Survey.

32

2.

The employment situation

Following the recession at the beginning of the 1990s, employment rates fell significantly for most age groups (Figure 2.1). However, women in the age group 50-59 fared relatively better than other groups. Their employment rate as share of the population decreased by less than 3 percentage points from 83% in 1990 to 80% in 2000, which was almost the same rate as for men, following a decline in the rate for men from almost 90% in 1990. The overall employment rate in the age group 16-64 fell from 83.1% in 1990 to 74.2% in 2000, i.e. a decrease by 9 percentage points. It is evident that the age group 60-64 differs significantly from the other groups, both in terms of levels and recovery from the recession. This age group had the largest percentage decrease over the period, which is especially true for the men, who experienced a cut in employment rates by as much as 17% or 11 percentage points. Thus, employment prospects for this age group are very sensitive to changes in economic cycles, especially in times of increasing unemployment. Figure 2.1. Employment rates, by age and gender, 1990, 1995, and 2000 1990

1995

2000

% of population 100 90 80 70 60 50 40 30 20 10 0 Men 25-49

Men 50-59

Men 60-64

Women 25-49

Women 50-59

Women 60-64

Source: Swedish Labour Force Survey.

Although employment rates in Sweden have declined, they are still relatively high for older people compared to most other countries. In fact, Swedish women have one of the highest employment rates of all OECD member countries. However, part-time employment and work absences are also high and thus

33

important to take into account. In Table 2.2, employment rates for people aged 50-64, as a share of the population in 2000, are shown both before and after an adjustment for actual hours worked per week.3 For Swedish women, actual hours worked amounted to almost 30 hours per week, which was around 5.5 hours less than the corresponding figure for Swedish men. This gap is much smaller than the average OECD gap in actual hours worked between men and women. The reason, however, is not that Swedish women work particularly long hours, but rather that Swedish men work relatively short hours. This also appears to be the case in the other Nordic countries. In fact, older men work fewer hours than in Sweden only in Norway, Denmark, Finland and the Netherlands. Taking actual hours worked into account reduces employment rates by almost 8.3 percentage points for men, which is the third largest reduction, and by 18 percentage points for women, i.e. lowering employment rates from 70.4% to 52.4%. In terms of employment rates for the countries shown in Table 2.2, Sweden’s ranking for older men changes from fifth highest to tenth highest when hours worked are taken into account but remains unchanged for older women at second place. 3.

The unemployment situation

As a result of the recession of the early 1990s and other structural changes in the labour market, unemployment reached historically high levels. Between 1990 and 1997, the total unemployment rate increased from 1.6% to 8%. Except for the age group below 25, the increase was highest in the age group 60-64 with an increase from 2% to 9.8% (Figure 2.2). Generally, men fared worse than women. The overall labour market situation did not improve until 1998, when a turning point was reached and the economy recovered substantially. The total unemployment rate declined to 4% in 2001. During the 1990s, unemployment rates were generally lower for older workers compared with prime age workers – both as share of the labour force and as share of the population. In 2000, this pattern was changed and unemployment rates were 4.1% for prime age workers (25-49) and 4.5% for older workers (50-64). This change can be explained by persistently high unemployment rates of workers in the 60-64 age group. The unemployment rate for this group in 2001 was just over 7%. Furthermore, unemployment rates for older women seem to be lower than for older men. This is especially true for older women in the 50-54 age group, for which the unemployment rate in 2001 was 2.6% and thus low compared with other groups. 3.

It would be preferable to make an adjustment on the basis of annual rather than weekly hours worked but the relevant data by age are not available.

34

35

67.6 56.3 51.5 70.3 59.1 54.7 57.7 66.0 95.8 71.1 54.4 84.1 65.5 78.3 70.8 64.9 73.7 83.6 68.6 73.7 68.4

11 17 20 9 15 18 16 12 1 7 19 2 13 4 8 14 5 3 10 6

46.6 32.4 27.0 60.1 57.6 42.9 39.6 29.5 82.7 34.7 23.1 54.8 38.2 67.3 48.6 25.6 70.4 59.2 52.9 59.6 47.6

11 16 18 4 7 12 13 17 1 15 20 8 14 3 10 19 2 6 9 5

Women Rate (%) Rank 68.6 57.6 46.9 59.6 50.8 53.4 59.0 71.3 116.7 76.5 54.0 96.1 57.6 64.0 69.0 63.9 65.5 86.7 65.6 76.8 68.0

8 15 20 13 19 18 14 6 1 5 17 2 16 11 7 12 10 3 9 4

Men Rate (%) Rank 33.3 27.4 18.2 41.8 42.1 33.3 29.0 27.8 69.9 24.6 19.3 49.1 19.1 41.4 40.6 21.6 52.4 37.8 33.5 52.4 35.7

11 15 20 6 5 12 13 14 1 16 18 4 19 7 8 17 2 9 10 3

Women Rate (%) Rank

Adjusted employment rates

40.6 40.9 36.4 33.9 34.4 39.0 40.9 43.2 48.7 43.0 39.7 45.7 35.2 32.7 39.0 39.4 35.5 41.5 38.2 41.7 39.5

Men

28.6 33.8 27.0 27.8 29.2 31.0 29.4 37.7 33.8 28.3 33.4 35.8 20.0 24.6 33.5 33.7 29.8 25.5 25.3 35.2 30.2

Women

Weekly hours of work

a) The adjusted employment rate is obtained by multiplying the ordinary employment rate by actual hours worked weekly and dividing by 40. Source: OECD Labour Force Statistics and OECD Database on Hours of Work.

Australia Austria Belgium Denmark Finland France Germany Greece Iceland Ireland Italy Japan Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom United States Average

Men Rate (%) Rank

Unadjusted employment rates

Table 2.2. Employment-population rates for persons aged 50-64 adjusted by hours worked, 2000a

Figure 2.2. Unemployment rates by age and gender, 1990-2001 Men 25-49

Women 25-49

Men 50-59

Women 50-59

Total 60-64

11 10 9 8 7 6 5 4 3 2 1 0 1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

Source: Swedish Labour Force Survey.

In general however, unemployment rates are not higher for older workers compared with prime age workers. One reason for this may be low incentives to work as a result of eligibility rules for welfare benefits that are not very strict and high replacement rates for these benefits. For example, a relatively large share of older people are on disability pensions and long-term sickness benefits. Another reason is the use of occupational pensions. A third reason is the use of different programmes that encourage older workers to leave the labour market, perhaps because of the belief that older workers crowd out younger people from employment. This lowers of course unemployment, but more important it results in a permanent decrease in employment rates for older people. Nevertheless, unemployment rates remain high for the oldest age group (persons aged 60-64). Since older people have larger difficulties than younger people in finding a new job after becoming unemployed, older workers who lose their jobs are more likely to become trapped in long-term unemployment. Long-term unemployment Generally, older workers appear to be less employable than prime age workers (see Chapter 4). This means that they are less able to switch to a new

36

job or to move from unemployment to employment; thus, they run a greater risk of becoming long-term unemployed. As in most other countries, the incidence of long-term unemployment, in Sweden, is considerably higher for older workers than for prime-age workers, i.e. almost 70% higher (Table 2.3). For the United Kingdom, this difference is much smaller, because of a higher incidence of long-term unemployment for prime-aged workers and a lower incidence for older workers. The United States stands in total contrast to European countries. The incidence of long-term unemployment in 2000 was as low as 11% for older workers and was only 6.5% for prime-aged workers (these figures are in fact even more striking since older workers refer to the age group 55-64). Table 2.3. Incidence of long-term unemployment by age in selected OECD countries, 2000a 25-49 Sweden

50-64

28.2

46.9

6.5

11.0

United Kingdom

31.7

41.2

France

39.2

62.8

EU average

45.8

59.6

United States

a) ILO definition of unemployment and long-term unemployment refers to a spell lasting one year or longer. The data for the United States refer to individuals aged 25-54 and 55-64, respectively. Source: OECD database on unemployment by duration.

In fact there is a clear relationship between the incidence of long-term unemployment and age in Sweden (Table 2.4). For workers aged 25-54, only 12% have been unemployed for 53 weeks or longer, compared to 31% for older workers (55-64), i.e. long-term unemployment is almost three times higher for older workers. The oldest age group, 60-64, suffers most from long-term unemployment and as many as 40% of the unemployed in this group have been unemployed for more than one year, which is almost twice as high as in the age group 55-59. Therefore, in addition to taking measures to prevent job loss among older workers, once they do become unemployed, it is essential to help them find jobs before they enter into long-term unemployment. This could be handled by employment offices or by labour market programmes, but foremost by increasing the employability of older workers.

37

Table 2.4. Incidence of long-term unemployment in Sweden by age, 2000 Age group

27-52 weeks

53 weeks or more

16-24 25-34 35-44 45-54 55-59 60-64 Total

7.0 14.4 15.0 18.5 20.9 22.6 15.3

4.6 6.7 12.2 18.0 23.3 40.1 14.0

Source: Swedish Labour Force Survey.

4.

People outside the labour market

The decline in labour market participation after the age of 55 in Sweden has many reasons. Some of these are discussed in Chapter 3 that deals with the role of the welfare system. The conclusion is that incentives to work are quite poor because of generous rules in, for example, the old-age pension system, sickness insurance, disability pension, and occupational pension schemes. As is also mentioned, in Chapter 5, older people have from time to time been encouraged by the public authorities to withdraw from the labour market. To cope with the situation of population ageing, people in unemployment and long-term sickness, but especially those outside the labour market, need to be better utilised. To investigate the extent to which potential labour supply is under-utilised, Table 2.5 shows the status of people outside the labour market for different age groups in Sweden and the European Union. If we disregard the youngest age group, the major reason for not being in the labour market in Sweden is disability. In the age group 55-59, around 65% of Swedes who are not in the labour force classify themselves as disabled, which is significantly higher than the European Union average where the most common status is either doing household work or being retired. Of course, not all of those grouped in the disability category are handicapped or disabled, but they might be on a permanent disability pension, which significantly lowers the incentives and willingness to return to employment. In Chapter 3, it is shown that people on a disability pension are very unlikely to return to employment. It is difficult to draw any firm conclusions from these comparisons of the status of people not in the labour force, since there are numerous of reasons for the differences between Sweden and the EU average. The more obvious

38

explanations being differences in social security systems and definitions of, for example, disability and early retirement. Moreover, it is clear that most other countries have a relatively larger potential labour reserve consisting mainly of women, since on average around 50% of women aged 15-64 are not in the labour force compared with 25% in Sweden. Table 2.5. Inactivity status in Sweden and the European Union, 2000 Percentages of all persons inactive in each gender and age group Age group

Studying

Looking for work

Retired

Disability

Household/ Other

Men

15-24 25-49 50-54 55-59 60-64 Total

84.3 36.1 7.4 5.6 0.0 49.7

2.6 17.2 15.5 11.2 5.5 7.9

0.0 0.5 1.0 6.6 43.2 7.5

0.7 24.0 64.8 67.9 42.2 20.8

12.3 22.1 11.2 8.7 9.0 14.0

Women

15-24 25-49 50-54 55-59 60-64 Total

82.1 36.5 5.1 3.7 0.4 44.6

3.4 11.2 8.5 7.6 4.7 6.5

0.1 0.0 2.1 4.2 31.4 5.6

0.7 23.1 64.7 66.1 48.1 23.9

13.8 29.2 19.6 18.5 15.3 19.4

Sweden:

European Union: Men

15-24 25-49 50-54 55-59 60-64 Total

92.0 28.3 0.7 0.4 0.2 43.5

4.1 25.9 11.3 10.5 2.4 8.2

0.0 6.4 48.1 61.8 86.7 32.9

1.1 25.2 29.7 19.9 7.3 9.8

2.8 14.2 10.2 7.5 3.5 5.6

Women

15-24 25-49 50-54 55-59 60-64 Total

86.4 7.3 0.6 0.5 0.3 25.5

3.8 8.6 4.4 4.7 1.4 5.3

0.0 2.0 10.8 19.3 51.6 13.5

0.7 5.4 9.0 8.0 4.5 4.6

9.1 76.7 75.2 67.6 42.2 51.1

Source: Eurostat, European Labour Force Survey.

39

5.

Are older people more absent from work?

Reducing absences may be a factor both for enhancing the employability of workers and to more effectively mobilise labour supply. Although there may be several reasons for absence, it contributes to lowering overall working time. Even though high employment rates are important, it is in fact the total number of working hours that counts in terms of labour resources that are effectively utilised. In other words, it is the total amount of working hours that contributes to economic growth not the number of employees. Reducing absence from work, especially illness, increases economic growth at the same time as both public expenditures and employer expenditures are lowered. Table 2.6.

People working less than their usual working week by age and gender, 2000 As a percentage of employed

Age group

Men

Women

25-49

28.4

41.4

50-59

27.0

38.2

60-64

27.1

39.9

Source: Swedish Labour Force Survey.

Figure 2.3. Reasons for absence as a share of total absence, 2000 Percentages of all absences for each gender and age group Illness

Vacation

Parental Leave

Irregular working hours

Public holiday

Laid off or similar

leave of absence

% of absence 100 90 80 70 60 50 40 30 20 10 0 25-49 Men

50-59 Men

60-64 Men

25-49 Women

Source: Swedish Labour Force Survey.

40

50-59 Women

60-64 Women

In fact, there are only small differences in absence between age groups (Table 2.6). Absence is, in fact, only marginally lower for older workers, which is probably the effect of the reduced use of parental leave by older people. There is, however, a substantial gap in absence between men and women. On average, 27% of men and 40% of women work less than their ordinary working hours every week. The reasons for work absences differ between age groups. Figure 2.3 shows the distribution of all absences by reason. It is worth noting that the definition of absence is people working less than their ordinary working week. Obviously, vacation and public holidays account for the larger part of absence in all age groups. Since the share of absence is about the same in all age groups for men and women respectively, it is clear that older workers are more absent because of illness than younger workers are. In fact the number of people working less than the ordinary working week because of illness, as a share of the total number of employed in each age group, differs remarkably. The span ranges from 3% for men aged 25-49 up to 13% for women aged 60-64. In the age group 50-59, almost 5% of all employed men are absent because of illness and more than 10% of working women. Reducing illness should be a major task for the policy makers in Sweden, and, as reported in Chapter 3, there have been ongoing discussions within the government about this issue.

41

42

Chapter 3 PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES

Supply-side factors are important explanations for the actual retirement decisions of older people. Individual decisions to work depend highly on benefit levels and eligibility criteria in the public pension system and in other social security schemes, but also on tax rules for occupational and individual pension schemes. This chapter analyses the disincentives to continue working that may arise within the Swedish tax and welfare benefits system. However, it is important to bear in mind that the role of the welfare system is to support vulnerable groups and to cover both temporary and permanent losses of labour income. 1.

Welfare systems – a way out of the labour market?

As discussed in the previous chapter, there is a substantial drop in labour market participation after the age of 60. In 2001, around 82% of all people in the age group 55-59 were in the labour force. The corresponding figure for the age group 60-64 was only 55%. This decrease cannot be explained by changes in health status alone, although many in the older age group are in receipt of a disability pension. Almost 35% of all people in the age group 60-64 are on disability pension or long-term sick leave. In other words, this group is about 10% smaller than the group of people who actually work.4 This may indicate that the social security system is being used as a way to withdraw early from the labour market. In fact, in 1999, more than 40% of people aged 60-64 who left the labour market did so by using a disability pension (27%) or were

4.

In 2000, there were 442 477 individuals in the age group 60-64. Of these, 152 789 were disabled or long-term sick. In fact, only 170 477 (i.e. 38.5%) did actually work according to the Swedish Labour Force Survey. Moreover, around 81% of the disabled had a full-time disability pension. This indicates that probably less than 10% of disabled workers are actually working the remaining time.

43

on long-term sickness insurance benefits (15%) while very few, only about 5%, used the old-age pension system since it is much less generous (Figure 3.1). Figure 3.1. Different ways to withdraw from the labour market in Sweden for workers aged 60-64 years, 1999 Men

%

Women

30 25 20 15 10 5 0 Disability pension

Occupational pension

Long-term sickness

Unemployment Old-age pension

Other ways

Source: National Social Insurance Board (2002).

Larger pressure on the welfare system in the future In the future, there will be even greater pressure on the social security system since occupational pensions are likely to become a less attractive path to early retirement. Under the new pension system, pension entitlements will be based on lifetime earnings and so early retirement through an occupational pension plan will result in a lower public pension since occupational pensions do not generate any additional entitlements. However, using a disability pension, sickness benefit or other public income supports for some years before retirement will not affect old-age pension entitlements either in the old or in the new system. The reason is that both disability pensions and sickness benefits generate pension rights, although at a somewhat lower rate, but without any large impact on entitlements. Therefore, the pressure on these systems is likely to increase. Thus, it is of great importance that eligibility for social security benefits are strengthened.

44

2.

Public old-age pensions

For the majority of people in Sweden, their income after retirement is still mainly derived from a public pension. Occupational pensions, on average, only account for around 20% of total pension entitlements. However, these pensions are of substantial importance to persons with incomes above the social security ceiling. Individual pension schemes account for an even smaller amount, although their coverage has increased quite dramatically in recent years. A.

Trends in public expenditures on old-age pensions

Currently, expenditures on public pensions account for about 9% of GDP and more than 50% of all social security expenditures. During the past 20 years, pension expenditures in real terms have increased by almost 60%. Projections reveal that this increase will continue even in the future, although at a slower pace, both in real terms and as share of GDP (Figure 3.2). Swedish public pension expenditures, as a share of GDP, are projected to increase by more than 25% in the next 30 years or about 2.5 percentage points compared with 2000 and reach a peak in the year 2033 at a level of 11.6%. However, because of a slowdown in population ageing, together with the maturing of the new pension system, the overall increase in public pension expenditure over the entire period 2000-2050 may be somewhat less dramatic compared with most other OECD countries, rising by only 1.6 percentage points to reach 10.7% of GDP. From around 2008, expenditures in the income-related pension system are projected to become larger than contributions, and remain as such for the next four decades. This primary deficit is expected to be sufficiently financed by the return on the buffer fund and by consuming part of its capital. The size of the buffer fund is expected to diminish, but will not to be completely depleted. B.

The new pension system

A new system for the public old-age pension was introduced in 1999, with the rules for the old system being phased out over a period of 15 years. Thus, pensions will continue to be paid partly according to the rules of the old system and partly according to the rules of the reformed system for people born in 1953 or earlier. Consequently, there will be large payments originating from the old pension system for at least the next 25 years or so.5

5.

Individuals born during the period 1938-53 will receive their pension partly from the old system and partly from the new system. The transition rules are

45

Figure 3.2. Public expenditure on old-age pensions in Sweden and other OECD countries, 2000-2050a As a share of GDP Levels in 2000 (%)

Change between 2000 and 2050 (% points) Italy France Germany Poland Austria Spain Sweden Belgium Finland Portugal Japan Czech Republic OECD Average Denmark Hungary Netherlands Canada Norway New Zealand United States United Kingdom Australia Korea

0

2

4

6

8

10

12

14

16

-4

-2

0

2

4

6

8

10

12

a) For France, the estimates refer to the period 2000-2040. Source: OECD (2001).

The reason for reforming the public pension system was twofold. First of all, the old pension system had become too costly and risked becoming financially unsustainable. Reforming it was therefore a necessary step to control fiscal pressures mainly arising from large cohorts leaving the labour market and increasing life expectancy. Secondly, to cope with the overall future pressure on public expenditures, incentives to work had to be improved and thus the link between lifetime earnings and pension entitlements had to be strengthened. A closer link between contributions and pension entitlements was also a way to ensure formulated so that those born in 1938 have 4/20ths of their benefits calculated according to the new rules and 16/20ths according to the old rules. Individuals born in 1939 have 5/20ths of their benefit calculated according to the new rules and 15/20ths according to the old rules and so on. Finally, individuals born in 1953 have 19/20ths of the benefit calculated according to the new system and 1/20ths according to the old rules.

46

greater fairness between individuals such that a person with a longer work record would receive a correspondingly higher pension entitlement than a person with a shorter work record, all else equal. In order to better appreciate the significant reforms introduced under the new system, and the relatively long transition period involved, it may be useful to briefly describe the main characteristics of the old system. The old public pension system was a defined benefit scheme with low incentives to work and no connection to economic growth. The system consisted of a flat-rate pension provided in full to everyone with at least 40 years of residence in Sweden between the ages of 16 and 65, or 30 years of contribution. Furthermore, it included an earnings-related, pay-as-you-go (PAYG) component providing a benefit based on 60% of the 15 years with highest earnings out of the minimum required 30 years of work. Thus, to obtain a full pension required only 30 years of work, of which, only 15 years were of importance for the entitlement. This benefit formula created large disincentives to continue working after completing 30 years of contributions, since for many people continuing to work did not result in a higher public pension. In the same way the system favoured those who had short working careers or variable earnings. The statutory retirement age was 65 years, but pensions could be drawn from the age of 61 with a lifelong reduction, or postponed to the age of 70 with a lifelong increase. However, the employment contract was usually terminated at the age of 65. Under the new system, by switching to a new formula based on lifetime earnings instead of the 15 best years out of 30, incentives to work and to maximise earnings while in work have been increased. The new pension system can, in broad terms, be characterised by a switch from a defined benefit to a defined contribution scheme, where the larger part of the contribution (86.5%) goes into a notional account under the PAYG regime and the remaining part (13.5%) is pre-funded. The system consists of an earnings-related pension and a minimum guaranteed pension. In turn, the earnings-related pension consists of a defined contribution PAYG component and a defined contribution pre-funded component. The total contribution amounts to 18.5% of income and income up to the ceiling will generate pension rights.6 The earnings-related pension is autonomous in 6.

Most benefits within the social security and pension system are linked to the socalled base amount. The base amount in Swedish Krona (SEK) is fixed for one year at a time and appreciated by the CPI. For 2002 the base amount equals SEK 37 900. The ceiling in all social security transfers equals 7.5 times the base amount. From 2001, the base amount in the pensions system will be indexed by

47

relation to the state budget with a contribution of 16%. In practice, contributions are recorded in individual notional accounts, which accrue in line with a three-year moving average of real wage growth. The pre-funded system is based on the remaining 2.5% of the contribution and individuals choose from a large number of mutual funds how their contributions should be invested. Interest is added to the savers’ pension rights and the pre-funded pension can be claimed in part or in full from the age of 61. There is no longer a statutory retirement age and entitlements from the earnings-related pension (i.e. PAYG and pre-funded scheme) can be drawn, in part or in full, at any age from 61 onwards with no upper age limit. Since the system is actuarially neutral, pension entitlements will among other things depend on number of years worked, the size of lifetime earnings and remaining life expectancy at the age of withdrawal. People with low lifetime earnings or with short or no employment record will receive a guaranteed pension. The guaranteed pension is financed with general revenues from the central government budget. The benefit declines as a function of lifetime earnings such that it is possible to have a small guarantee component, while receiving the main part of one’s pension from the earnings-related system. The guaranteed pension benefit cannot, in contrast to the earnings-related pension, be drawn before the age of 65. Because the new system is still more or less a PAYG system it will therefore also be sensitive to changes in demographic trends, economic growth and employment rates. However, the system is equipped with an automatic balancing mechanism and a coefficient controlling for average life expectancy.7 These features should secure the financial stability of the system. The automatic balance the growth in average wages instead of CPI and therefore is somewhat higher (SEK 38 800). In November 2002, EUR 1 corresponded to around SEK 9.10. 7.

The automatic balance mechanism states that if the ratio of total assets, i.e. the buffer fund and contribution assets, over pension liabilities drops below unity the balance mechanism is automatically activated. Indexation of pensions and notional accounts is then reduced according to legislated rules. There is also an ongoing discussion about whether to increase indexation in the case where the buffer fund and contribution assets over pension liabilities increase above a certain ratio. A coefficient (“delningstalet”) will be used to calculate annual pensions. Income-related pensions are calculated by dividing total pension assets by the coefficient, which is related to average life expectancy over a five-year period. If average life expectancy increases, the coefficient will also increase and annual pensions will decrease. The coefficient is calculated when the cohort has reached the age of 65.

48

mechanism makes the system more sustainable, but at the risk of falling pension entitlements in the future. Whether the balancing mechanism is triggered or not, depends on whether the current liabilities of the system are greater than the calculated assets. The most recent projection made on the activation of the automatic balance mechanism was made in September 2001 (National Social Insurance Board 2002b). According to the baseline scenario of those projections, the automatic balance mechanism will not be activated any single year during the projection period, which stretches to 2050. The assumptions underlying this scenario are, however, quite optimistic.8 In scenarios where the automatic balance mechanism is activated, the effect on pensions varies depending on the cause and strength in the factors that activate it. In the “worst case” scenario pension expenditures would be reduced by 14%. This scenario is, however, not entirely implausible.9 C.

Increasing incentives to work

Incentives to work and to continue working longer have probably increased since the introduction of the new pension system. There are three explanations for this. The first and foremost is that, compared to the old system, the average value of pensions will probably be lower in the future. The second reason is that entitlements are based on actuarial calculations, which penalise or favour people that withdraw early or later, respectively. The third reason is that the retirement decision and how pensions can be drawn are much more flexible compared to the old system. Lower replacement rates in the new system Replacement rates (i.e. the ratio of pension entitlements to income from work prior to retiring) are likely to be lower in the new system compared to the old one because entitlements are now based on lifetime earnings, life 8.

In these projections the economic development is very smooth; no business cycles are projected, pensionable income grows by approximately 2% per year, long-term fertility stabilises at 1.8 children per woman, net immigration amounts to 18 000 persons per year, mortality decreases (i.e. on average life-expectancy increases by 26 days per year), the real return on the buffer fund is 3.25% and 78% of the labour force has a pensionable income.

9.

In this scenario, the pensionable income is assumed to grow by approximately 0.5% per year, long-term fertility stabilises at 1.5 children per woman, net immigration amounts to 12 000 persons per year, life-expectancy increases by 26 days per year, the real return on the buffer fund is 0.5% and 73% of the labour force has a pensionable income.

49

expectancy and overall economic growth. Economic growth has for a long time been below the projected long-term increase of 2%, life expectancy at 65 is increasing and labour market entry is being increasingly delayed due to more years in school, i.e. resulting in fewer years in work over the life cycle. Since these factors are taken into account when entitlements are calculated, replacement rates will probably decrease in the future. The way pensions are affected by increased life expectancy is shown in Table 3.1. These calculations reveal how much the retirement age would have to increase for younger cohorts, relative to the cohort born in 1940, to completely neutralise the effect of the projected increase in life expectancy. For example, the cohort born in 1990 will have to work two-and-a-half years more. Hence, it is clear that people will have to work more years in the future to achieve the same relative standard of living in retirement as today – and perhaps even more so – if all other factors mentioned above are taken into account. Table 3.1. The effect on pensions and the retirement age of projected increases in life expectancy Cohort born in

Projected divisor, i.e. life expectancy at 65

Effect on pension entitlements (in %)

Retirement age

1940 b 1945 1950b 1955 1960 1965 1970 1975 1980 1985 1990

15.62 15.99 16.34 16.64 16.90 17.16 17.41 17.64 17.84 18.00 18.12

0 -2 -4 -6 -8 -9 -10 -11 -12 -13 -14

65 +5 months +9 months +13 months +16 months +20 months +23 months +26 months +28 months +29 months +30 months

a

a) The number of additional months a person would need to work after 65 before retiring if they were to receive the same real pension entitlement as a worker born in 1940 and who retires at 65. b) For the 1945 and 1950 birth cohorts, the calculation does not reflect the fact that part of their pension entitlement should be calculated according to the old, defined benefit, system. Thus the table exaggerates somewhat the required increase in retirement age (and work time) for these cohorts. Source: The National Social Insurance Board, 2001.

50

Actuarial calculations The second potential reason why incentives to continue working more years have increased, is that the new system is based on actuarial calculations and thus favours people who continue to work and discourages early retirement. Although there exist no formal retirement age in the new system, a postponement of drawing the pension lowers the coefficient controlling for average life expectancy (i.e. increasing annual pension) at the same time as extra years at work generates new pension rights – this is somewhat different compared to the old system. The principle in the former system was that every additional month after the age of 65, for which the pension was not drawn, increased the lifetime pension by 0.7%, up to the age of 70, i.e. to a maximum increase of 42%. In the same way the lifetime pension was decreased by 0.5% for every month the pension was drawn before the age of 65 (at earliest from age 61), to a maximum decrease of 24%. There is, however, an important difference between the compensation for late retirement in the new and old system. The figures in the old system are only based on postponement of drawing the pension, while in the new system, calculations are based on the fact that the individual continues to work. Table 3.2 shows the size of average pensions at ages 61 and 70 as a share of average pensions at the age of 65 for people born in 1960. There are, both in the new and old system, large incentives to continue working after the age of 65, but also large disincentives to withdraw an old-age pension at earlier ages, which are important factors. Comparing potential outcomes in the new system and actual outcomes in the old system, it is clear that disincentives to withdraw early have increased in the new system. It is, however, less obvious whether incentives to continue working after the age of 65 have increased or not. This will depend on the actual level of average real wage growth over each worker’s entire working career. Moreover, the level of pension outcomes will vary significantly according to average real wage growth. As an example, if an individual retires at the age of 70 and the real wage growth has been 2%, the actual pension would amount to SEK 20 400 per month. In the corresponding case of 0% average real wage growth the actual pension would instead be SEK 12 300 per month, i.e. 40% lower. Under the old system, neither the possibility to withdraw early on an oldage pension nor the possibility of postponing the drawing of the pension was used to a large extent. In 2000, less than 3% of older workers drew their pension after the age of 65 and around 5% drew their pension before the age of 65 years. It is therefore not clear whether the actuarial calculations will, in practice, greatly affect the decision by workers of when to retire.

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Table 3.2. Pension entitlements by retirement age under the old and new systemsa As percentages of pension entitlements at the retirement age of 65 New system Retirement age

Average annual lifetime wage growth of 0%

Old system

Average annual lifetime wage growth of 2%

Independent of real wage growth

61

70

71

76

65

100

100

100

70

134

152

142

a) The calculations are averages based on an individual born in 1960. Source: National Social Insurance Board, 2000a.

Increasing flexibility The third reason why incentives might be increased has to do with the flexibility introduced by the new system with respect to combining work and the pension. From the age of 61 onwards, it is possible to work and draw a pension at the same time. The pension can be drawn at 100% or partially in steps of 75%, 50% or 25% and combined with full-time or part-time work. The percentage of the pension can be increased at any time, but decreased only every six months and new pension entitlements will always be earned on any pensionable income. Therefore, if a person continues or restarts to work after retirement, the pension will increase. The calculation of new entitlements takes into account the shorter remaining life expectancy when new entitlements are converted to pension entitlements, thus the age at which new pension credits are earned affects the pension level as well. In this respect, flexibility should have a positive effect on the retirement decision. Under the old pension system, the stipulated retirement age was 65 (i.e. the age at which pensions could be drawn without any reductions), although the Employment Security Act gave employees the right to remain at work until they reached age 67. The social partners had, however, the right to include in collective agreements the age at which the employment contract would be terminated, which usually occurred at age 65 or earlier.10 This possibility was abolished in the spring of 2001 when the government introduced a law, giving employees the legal right to stay at the work place until the age of 67. The government’s argument for this change was to increase the legal right for individuals to continue working for two 10.

It was of course possible to continue working after age 65, but it required the employer’s agreement.

52

more years, i.e. to have the possibility to accumulate pension rights in higher ages (which will be necessary in the future). It is also believed that it will encourage people to stay longer in the labour market. It is not entirely clear why the age of 67 was chosen given the incentives in place under the new pension system to continue working even after this age. One possibility would have been to abolish the mandatory age of retirement entirely, i.e. there would be no set age at which employers would have the right to terminate the employment contract. However, this may not have been seen as desirable given Sweden’s relatively strict employment protection rules, particularly the first-in-lastout rule (see Chapter 4). In fact, the law came into force after much discussion and despite much criticism from both trade unions and employers. Employers were opposed to the law since it further reduces the possibility to “hire and fire” (due to the first-in-lastout rule). The unions believe that the new law will “infringe fundamental principles regarding the right of the labour market parties to act as independent, autonomous organisations entitled to regulate their dealings with one another in collective agreements”.11 Moreover, collective agreements that contain rules on compulsory retirement before age 67, and which were concluded before 1 September 2001, will become invalid on 1 January 2003. It is difficult to foresee how this change will affect the effective age of retirement. D.

The effective retirement age and replacement rates

It is now commonplace for people in Sweden and other OECD countries to retire earlier than the statutory retirement age. Some countries have therefore increased the statutory retirement age in order to increase the effective retirement age. The statutory retirement age in Sweden was 65 years in the old pension system. However, during the period 1995-2000, the average age of withdrawal from the labour market in Sweden was 63.8 for men and 62.5 for women (Table 3.3). Statutory retirement ages differ substantially between countries and gender. In Italy for example the statutory retirement age for women is 58 years while it is 60 in France and the United Kingdom and 67 in Island and Norway. For men, statutory retirement ages vary between 60 years in France and 67 years in Island and Norway. However, the majority of countries have a statutory retirement age of 65. The variation across OECD countries in the gap between statutory retirement ages and the effective retirement age is shown in Table 3.3. In general, women appear to retire earlier than men do, except in France and Spain. 11.

As cited in the complaint of 20 November 2001 by the Swedish Confederation of Professional Employees’ (TCO) and the Swedish Trade Union Confederation’s (LO) against Sweden for breach of ILO Conventions.

53

Sweden’s statutory retirement age was 65 years in the old system and, thus, in line with most other countries, but the effective retirement age is around one year higher the average effective retirement age across OECD member countries. Although, among the Nordic countries, only Finland has a lower effective retirement age for both men and women. Furthermore, Swedish women come out better in these international comparisons than Swedish men in terms of having a relatively high average effective age of retirement. In fact, only four countries have a higher effective retirement than Swedish women do – of which only Icelandic women have higher employment rates. Table 3.3. Effective and statutory retirement ages in selected OECD countries, 1995-2000a Effective retirement age Country Japan

Statutory retirement age

Difference

Men

Women

Men

Women

Men

Women

70.0

66.2

65

65

5.0

1.2

Iceland

69.5

66.2

67

67

2.5

-0.8

Switzerland

65.5

62.4

65

65

0.5

-2.6

United States

64.7

63.6

65

65

-0.3

-1.4

Norway

64.5

64.3

67

67

-2.5

-2.7

Denmark

64.3

60.6

65

65

-0.7

-4.4

Sweden

63.8

62.5

65

65

-1.2

-2.5

Canada

62.8

60.8

65

65

-2.2

-4.2

United Kingdom

62.4

60.9

65

60

-2.6

0.9

Australia

61.9

59.7

65

61

-3.1

-1.3

Spain

61.4

61.4

65

65

-3.6

-3.6

Germany Netherlands

61.0 60.7

60.4 59.0

65 65

65 65

-4.0 -4.3

-4.6 -6.0

Finland

60.1

59.7

65

65

-4.9

-5.3

Italy

59.9

58.1

63

58

-3.1

0.1

France

59.6

59.7

60

60

-0.4

-0.3

Belgium

58.3

56.9

65

61

-6.7

-4.1

Average

63.0

61.3

64.8

63.8

-1.9

-2.4

a) Average age of withdrawal from the labour force based on changes in participation rates by 5-year age cohorts over 5 year intervals. Source: OECD estimates based on each country’s labour force survey.

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Even though many workers in Sweden withdraw from the labour market before the statutory retirement age, the majority of them finance their early retirement by means other than by public old-age pensions. The major exits are through disability pensions and occupational pensions. Around 50% of those who withdraw early use either of these two systems, but only 5% use the public pension system. This is because using the public pension system would considerably lower a person’s expected retirement income, as was shown earlier. Replacement rates – a comparison The replacement rate, i.e. the level of pension benefits relative to former earnings, provides one indicator of whether public pension systems are constructed in such ways that provide incentives to go on working after a certain age (OECD, 2001b). In order to discourage early retirement, public pension systems should start off with a relatively low replacement rate that increases for every extra year of work. For example, the replacement rate in Germany starts at 68% at the age of 63 and continues to increase until the age of 70 when it reaches 100% (Figure 3.3). Swedish replacement rates start at an earlier age of 61 years, with a rate of 57% rising to 90% at the age of 70. Finally, in the United States, the replacement rate rises from 43% at the age of 62 to 76% at the age of 70. Since occupational pensions and other systems increase the final pension, the importance is not so much to have a high replacement rate, but rather to have a curve that rises relatively steeply with age. Clearly, there is no simple relationship between the level of replacement rates and effective retirement ages across countries. Of course, financial incentives to withdraw can come from other sources such as social security benefits, occupational pension schemes, own savings, etc. Therefore to have a better picture of how replacement rates affect incentives to withdraw, one would have to take into account all other financial resources, as well as social behaviour. Small differences in public pension levels For people on the margin of the labour market or those with irregular or low paid jobs, e.g. part-time workers, there is a minimum guaranteed pension. On top of the guaranteed pension there is also an income-tested housing allowance. Currently, almost 25% of all old-age pensioners receive this allowance.12

12.

In the old system there was a possibility to withdraw early with a corresponding lifetime decrease in entitlements (as discussed above). An early withdrawal for this group will, however, also affect the housing allowance in a negative way

55

a

Figure 3.3.

Net replacement rates in Sweden and other OECD countries Percentages

Sweden

Norway

UK

Germany

Spain

United States

110 100 90 80 70 60 50 40 30 20 10 0 55

56

57

58

Sweden

59

60

61

Canada

62

63

64

Finland

65

66

67

France

68

69

Italy

70

71 Age

Japan

110 100 90 80 70 60 50 40 30 20 10 0 55

56

57

58

59

60

61

62

63

64

65

66

67

68

69

70

71 Age

a) Net replacement rates from public pension including occupational pensions, where relevant, for workers earning the equivalent of Average Production Worker (APW) earnings in each country. For Sweden, the calculations are based on the new pension system including occupational pensions. Source: OECD estimates.

(the allowance will be calculated as if the individual had retired at the age of 65). In the new system, there is no possibility for this group to receive the public guaranteed pension before the age of 65.

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Table 3.4 shows the differences in minimum and maximum public pensions at the age of 65 in the old system. Since calculations in the new system depend on several external factors – such as wage growth, inflation, life expectancy, the return on the pre-funded part, immigration, etc. – calculations from the old system are used instead. It is, however, believed that the situation in the short run will be very similar under the new system. A promise was also made that people under the guaranteed pension would continue to receive at least the same amount for their pension as they currently do. Thus, incentives for older people with low lifetime earnings to work up to or above the age of 65 remain weak under the new system. Table 3.4. Minimum and maximum public pension under the old system at age 65a SEK per month 1999

2000

2001

2002

Individual never worked and with low wealth Mandatory pension Pension supplement Total pension Housing allowance Tax Net total pension

2 912 1 684 4 596 3 510 8 106

2 928 1 735 4 663 3 510 8 173

2 952 1 750 4 702 4 050 8 752

3 032 1 797 4 829 4 095 8 924

Individual with long working history Mandatory pension Max Supplementary pension Total pension Housing allowance Tax Net total pension

2 912 11 830 14 742 - 4 358 10 384

2 928 11 895 14 823 - 4 393 10 430

2 952 11 993 14 945 - 4 422 10 523

3 032 12 355 15 387 - 4 466 10 921

Gross difference in pensions

10 146

10 160

10 243

10 558

2 278

2 257

1 771

1 997

Total net difference

a) For persons with a low supplementary pension there also exists a special tax reduction of SEK 1 320 for the year 2002. In November 2002, EUR 1 corresponded to around SEK 9.10. Source: The National Social Insurance Board.

57

It is clear that the net gap in public pensions is very narrow between people who have not worked or those in irregular or low paid jobs and those who have a full work career, although the tax system and housing allowances have a large impact as well on total net incomes. Comparing just pension benefits the gross gap is around 200%, but after taxes and allowances this falls to around 20%. Such a narrow gap reduces incentives to work or to work harder and longer to gain higher earnings and hence a higher pension. In fact in the old system, the only incentive to go on working, for people with incomes above the ceiling, was the pension received from occupational pension schemes. In the new system this is changed since every extra year at work generates new pension rights and thus increases pension entitlements. Although the gap in the new system will be narrow in the short run, it should widen over time. The reason is that the guaranteed pension is indexed to changes in the CPI – while the earnings-related pension follows real wage growth. Positive real economic growth will therefore widen this gap. In this respect, incentives to work have increased for all groups in the new system. There is, however, a political wish to keep income dispersion low between different groups in society, which holds especially for the group of pensioners. Thus, there may be a risk that rules for calculating guaranteed pension entitlements might change if the gap increases above some politically accepted level, e.g. indexation rules could be changed in the future. Net replacement rates in Sweden Net replacement rates under the new system can also be estimated for people at different points in the earnings distribution (Figure 3.4). Low-income earners, i.e. 50% of Average Production Worker (APW) earnings, will only receive the guaranteed pension and, therefore, will not be entitled to the public pension before the age of 65. Since their replacement rates remain more or less equal to their income, incentives to go on working – or work at all – are very low. Calculations made by the National Social Insurance Board indicate that around 30% of cohorts born between 1938 and 1944 will receive the guaranteed pension. For workers with earnings at 100% or 150% of APW earnings, the pension can be drawn from the age of 61 at replacement rates of 48% and 57% respectively. At the age of 70, the replacement rate for both of these groups is around 90%, i.e. almost twice as much as at the age of 61. Thus, incentives for these two groups to continue working are strong. As discussed earlier, incentives for individuals with incomes from work that are above the ceiling, for example 200% of APW earnings, are not as high as for middle-income earners. Because pension rights will only be earned

58

up to the ceiling, replacement rates will be lower. Pension entitlements will, however, increase for every year the pensions are not drawn and new pension rights can be earned without any limitation on age. For this group of income earners, occupational pensions play a crucial role. However, currently most occupational pensions are activated at the age of 65 or earlier. Figure 3.4. Net replacement rates in the new Swedish pension system for people with different incomesa Percentages 50% APW

100% APW

150% APW

110 100 90 80 70 60 50 40 30 20 10 0 55

56

57

58

59

60

61

62

63

64

65

66

67

68

69

70

71 Age

a) Including occupational pensions. Source: OECD estimates.

E.

Partial pensions – a way to increase employment?

A partial pension, i.e. a pension that can be combined with part-time work, is often considered as being one way to promote a smoother transition from work to retirement. Up to 2001, such a system existed in Sweden as a part of the old pension system.13 However, as part of the introduction of the new

13.

The partial pension system was launched in 1976, but it has since changed several times. In 1994, for example, the minimum eligibility age was raised from 60 to 61 years and the replacement rate was lowered from 65% to 55%.

59

pension system, the partial pension system was abolished. The main reason for this change was that the new system allowed for greater flexibility than the old system in terms of combining work and the pension, but the partial pension system was also considered expensive. Clearly, a partial pension system would correspond to the wishes of many people, since it involves a subsidy for switching from full-time to part-time work. However, a key question is whether such a system would result in a net increase in the total amount of working hours. Results from different surveys reveal a growing interest for part-time work while drawing a pension. The National Institute for Working Life (2001), reports that 60% of working women in the age group 25-44 and 55% in the age group 45-64 are in favour of combining part-time work with a pension for the last few years prior to the standard retirement age at 65. The corresponding figures for working men are 55% and 48%, respectively. The lower figures in the older age groups are more likely a result of selection bias, since a significant part of this group has already left the labour market. Although there exists a possibility to work part-time, the approval to reduce working time is entirely the decision of employer. In the age group 45-64, nearly 60% of workers suggest that the opportunity to work part-time at the older ages is limited. One way to investigate whether partial pensions increase the overall labour supply of older workers is to review the changes in employment rates and labour force participation that took place both before and after the public partial pension system was abolished. The results in Table 3.5 suggest that there is no strong positive correlation between the number of recipients of a partial pension and employment rates; or between recipients and labour force participation rates. In fact it is the opposite, employment rates decreased at the same time as the number of recipients increased. Since this time period covers one of the largest recessions since the 1930s, these trends may have been affected by the economic cycle. Nevertheless, it would not appear to be the case that an increase in the number of recipients in the partial pension system automatically leads to an increase in labour force participation – or vice versa.

Furthermore, the minimum remaining working time was increased from 17 hours to 30 hours a week.

60

61 -44 893 (-88.8%)

Change in total number 1994-98

-34 300 (-32.4%)

-4 400 (-4.0%)

45.0 45.9 51.4 54.5 54.8 52.2 46.1 40.4 37.1

Part-time employment share

Persons

33 500 (38%)

-47 300 (-35.3%)

55.0 54.1 48.6 45.5 45.2 47.8 53.9 59.6 62.9

-800 (-0.4%)

-51 700 (-21.2%)

57.0 57.6 54.2 49.8 47.2 47.7 49.2 47.3 46.2

Employment rate

Percentages

Full-time employment share

Source: Swedish Labour Force Survey and National Social Insurance Board.

12 505 (32.8%)

15.3 14.8 20.4 22.1 24.2 17.9 11.8 6.4 2.8

1990 1991 1992 1993 1994 1995 1996 1997 1998

Change in total number 1990-94

Share of people with a partial pension system

Year

-3 800 (-1.8%)

-3 869 (-15.6%)

58.2 59.1 56.4 53.4 51.4 52.4 54.5 52.5 49.7

Participation rate

Table 3.5. Partial pensions and work status for persons aged 60-64, 1990-1998

-5 500 (-0.2%)

18 100 (0.6%)

92.8 92.2 91.3 90.3 89.2 89.6 89.4 88.6 88.0

(age group 25-54)

Participation rate

It is also interesting to note how the number of full-time and part-time workers changed over time. During the period 1994-98, the number of recipients on partial pension fell by almost 45 000, but the number of part-time workers fell by 34 000 only. This might indicate that when partial pension benefits are lowered, some workers switch to regular part-time jobs. Moreover, lower part-time work seems to be offset by a higher number of full-time jobs. Clearly, it is difficult to draw any firm policy conclusions based on this simple analysis, but there appears to be little evidence that subsidising part-time work (e.g. by a partial pension system) would have positive effects on labour supply in terms of labour volume. A new partial pension system in the state sector As a result of a recent collective agreement, a new partial pension system will be introduced in the state sector. The system will be introduced in January 2003 and entitles workers 61 years or older to lower their working time by as much as 50%. The system is relatively generous and reimburses 60% of the income loss. For example, workers who lower their working time by half will receive 80% of their former full-time salary. Another feature of the system is that the employee’s occupational pension will be unaffected, since entitlements will be calculated as if the person would have continued to work full-time. The Swedish Agency for Government Employers believes that the system could help to retain older workers longer and secure a smooth transition of knowledge between generations (Seniorgruppen, 2002). However, there is also a risk that this system may serve as a model for other sectors in the labour market, and thus lower effective labour supply more generally. Moreover, there is already considerable flexibility under the new pension system to combine work with a pension and thus to lower working hours. The generous incentives offered under this new agreement could result in large numbers of workers choosing to work part-time who would otherwise have continued to work fulltime and so may have a negative overall impact on labour supply. F.

Public old-age pensions – some reflections

It is too early to say whether the new pension system will have a positive impact on labour supply. Because of transition rules, the first cohort that will be fully covered by the new system is the cohort born in 1954 (who will be 61 in 2015). As an example, the cohort born in 1944 will have half of their pension from the new system and half from the old system. Nevertheless, it is clear that several positive steps towards achieving financial sustainability and increasing incentives to work longer have been taken as a result of the reform to Sweden’s pension system. A necessary reform of the public pension 62

system from a defined benefit system into a contribution-based system has occurred. The diversification between pay-as-you-go and funding with actuarial neutrality is also a positive change. The introduction of the automatic balance mechanism ensures the financial stability of the PAYG-system. Flexibility in the retirement decision, i.e. the possibility to combine work and pension from age 61, has also increased. Moreover, in comparison with other OECD countries, Sweden has for average earners one of the highest returns, in terms of replacement rates, for every additional year of work from the age of 61 and thus good incentives to continue working. Overall, incentives to work and to work more years have been strengthened in the new system. Nevertheless, there are a number of issues that still need to be addressed. First, there is a risk that the narrow gap in pension benefits between those who have long continuous work careers and those who do not will persist in the new system, i.e. economic incentives to build up long working careers will remain too weak for too many individuals. Second, the incentives to continue working after age 65 and the disincentives to withdraw before age 65 are only slightly stronger than in the old system, which very few actually took advantage of. Therefore, there may be a risk of complacency that the new pension system will itself be sufficient to encourage workers to remain longer in employment. The disability system, the sickness insurance, occupational pension schemes and other systems are also creating disincentives to work. Finally, no strong evidence exists which suggest that subsidising part-time work would have positive effects on labour supply and especially not on total hours worked and so any reintroduction of partial pensions should be monitored carefully in terms of its impact on labour supply. 3.

Private pension schemes

A significant number of people have incomes above the ceiling for a public pension and therefore also rely on occupational and individual pension schemes. The coverage of these schemes continues to increase and occupational pensions are the second most common reason for early exits from the labour market. A.

Occupational pension schemes

Occupational pension schemes cover almost 90% of the Swedish labour force. These schemes provide a supplement to the public pension and are normally received from age 65. Entitlements in defined-benefit schemes have usually been 10% of income, up to a ceiling, and thereafter roughly 65% of the

63

final salary exceeding the ceiling. On average, occupational pensions account for 20% of total pension entitlements. In the past, most of these schemes were defined benefit schemes, where entitlements were based more or less on a worker’s final salary. This is still the case for white-collar workers in the private sector and persons with incomes above the social security ceiling in, for example, the state sector. Lately, several of these schemes have changed into defined-contribution based, fully-funded schemes and are now more like individual pension schemes. Occupational pensions are potentially an attractive way to lay off older workers. The worker receives the pension, which can be seen as a salary, up to the age of 65 when the public pension (without any reduction) is received. Thereafter, the occupational pension continues to be paid out as usual. It is less expensive to pay older workers a pension than to pay a salary. The pension is treated as a cost for the company and tax deductible as long as the pension does not exceed 80% of the previous salary. Estimations indicate that the employer’s costs are reduced by nearly 40% of the salary when using an occupational pension (Fölster et al., 2001). Using occupational pensions when downsizing is also a good way for companies to avoid negative press coverage, since there is growing acceptance of early retirement when accompanied by a suitable pension package. A survey by the National Institute for Working Life (2001) indicates that 40% all men and women hope to get an offer of an occupational pension from their employer before the normal age of retirement. In addition, occupational pensions are often used as a way to get around strict employment protection rules such as the first-in-last-out rule (see Chapter 4). As mentioned earlier, occupational pensions are the second most common reason for early exits from the labour market; 24% of the men and 23% of the women in the age group 60-64 who left the labour force (1999) withdrew on an occupational pension. Palme and Svensson (2000) (as reported in National Social Insurance Booard, 2000b) have studied sources of income for cohorts born between 1927 and 1932. They find that 14% of all women and men had an occupational pension as their first major income after leaving the labour market. There is of course a large dispersion depending on the educational level and sector. For example, 32% of all men in the state sector ended their career by using an occupational pension. In contrast, the corresponding figure for female blue-collar workers in the private sector was only 4%. The authors find a clear positive correlation between educational level and employers’ use of occupational pensions, i.e. the higher the education level, the higher the use of occupational pensions. Since occupational pensions are frequently used as an instrument to lay off older workers, the generous tax treatment of these pension payments 64

should be reviewed. There is also a need to change the views of employers, unions, individual workers and the media, who appear to be complacent about the use of occupational pensions as a way to encourage early withdrawals from the labour force. There is also an issue of equity between different groups of employees since the likelihood of receiving an occupational pension before the ordinary age of retirement is much higher for well-qualified employees, at the same time as the demand for qualified employees is growing. (Premiums for occupational pensions also affect demand-side behaviour, which will be further discussed in Chapter 4.) However, pension entitlements in the new system are based on lifetime earnings and since income from occupational pensions do not generate pension rights, the use of these schemes as a way of early retirement will probably diminish. If this is the case, the pressure will instead be on public transfer systems, such as the disability pension, the sickness insurance and the unemployment insurance system (see Section 4.A). B.

Individual pension schemes

In Sweden, there is a growing interest in subscribing to individual pension schemes. The incentives are mainly motivated by people’s wish to maintain the same standard of living after retirement (given the ceiling on public pensions), to be able to withdraw earlier from the labour market (or at the same age as today), and weak confidence in the new public pension system. Favourable tax rules are also another factor, since savings in these schemes are tax deductible up to half of the base-amount (i.e. SEK 19 000). Another advantage is the possibility to switch between different forms of savings without paying taxes on potential yields. In 1999, more than 35% of all individuals in the age group 20-64 had an individual pension scheme (IPS). Furthermore, almost 55% had taken different measures to increase the pension (Pensionsforum, 2001). Interestingly, in all age groups, women are more frequent users of individual pension schemes than men (see Figure 3.5). Women on average receive lower pensions, as a result of lower average earnings, and thus are likely to compensate for this by putting additional savings into individual pension schemes. On average, men are saving SEK 7 400 per year and women SEK 6 000, i.e. they channel more or less the same amount of money each year into these schemes. Since pensions can be drawn from the age of 55, for a minimum of five years, there is a potential risk that the growth in these schemes could have a negative impact on effective retirement ages in the future.

65

Figure 3.5. Participation in an individual pension scheme by age and gender, 1999 As a percentage of the population in each group Women

Men

50 45 40 35 30 25 20 15 10 5 0 18-24

25-34

35-44

45-54

55-64

65+

20-64

Source: Statistics Sweden (2002).

4.

The social security system

The Swedish social insurance system provides individuals with economic security for a variety of life situations and is characterised by the fact that it is politically determined, compulsory for everyone and allows for redistribution between different risk groups. The core of the system is to provide an insurance against losses of own labour income. Internationally, the Swedish welfare system stands out for its high transfers in connection with high taxes. The system covers three major areas: old-age pensions, sickness and disability, and families with children. On top of most social security benefits, there are supplementary benefits based on collective agreements. Such supplements are of particular importance for persons with incomes above the social security ceiling. This section will focus on the areas of sickness and disability. A.

Disability pensions and long-term sickness

Expenditures on sickness and disability are second only to old-age pensions and account for more than 30% (4% of GDP) of all social insurance payments. Currently, 440 000 individuals receive a disability pension of which 66

71% are in the age group 50-64. There are also around 400 000 individuals on sick leave of which over one half are long-term sick, i.e. absent for more than 30 days. Nearly 45% of all long-term sick are 50 years and older. Overall, more than 30% of the labour force between 50 and 64 are on disability pension or long-term sickness. Long-term sickness All individuals in the labour force are entitled to a sickness benefit that currently amounts to 80% of the individual’s salary up to the social insurance ceiling. After 14 days, most people also receive a supplementary 10% based on their collective agreements. Since the 1960s, the basic pillar in the Swedish social insurance system has been “the guarantee against loss of income” (Inkomstbortfallsprincipen). However, over the past decade, wages in Sweden have grown in real terms. As a result, the salaries of more than one-third of all full-time employees are above the social security ceiling which is indexed to the CPI. For these employees, therefore, entitlements from the social security system are often less than 80% of their salary. Thus, the income guarantee underlying Sweden’s social insurance system is no longer working as was originally intended, since many individuals are receiving substantially less than full compensation for loss of income when sick. Furthermore, those taking out a private insurance will pay twice for their protection against income loss in case of sickness. For these reasons, there are plans to increase the ceiling so that a larger majority of people would be fully covered. However, implementing these plans could lead to a further increase in the large number of people already on sick leave, thereby increasing public expenditures substantially. Over the last decade, the inflow into these systems has changed quite dramatically, especially for long-term sick cases (Figure 3.6). Between 1992 and 1997 the share of sick cases as a percentage of employed (50-64 years) decreased substantially from 7.5% to 5%. The decrease was, among other things, not only a result of high unemployment rates, which usually lower absence from work, but also a result of changed rules, i.e. lower benefit levels and increased employer responsibility. After 1997, the economy recovered, benefit levels were increased, and the number of sick cases nearly doubled. Currently, 10% of all older workers are long-term sick. The development is similar for all age groups, but it is somewhat more pronounced for older people. While the reasons for this recent sharp increase in the number of longterm sick are not well understood, one explanation could be the recovery of the economy in connection with increased benefit levels. Another potential explanation is the tightening of rules in the disability pension system, which has

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prevented some people from transferring from sickness benefits to disability benefits. A third reason, some argue, is that working conditions have worsened – as a result of the economic recession in the first half of the 1990s – especially in the municipalities, which are responsible for elderly care and teaching, and where the majority of the long-term sick cases are found. Figure 3.6. Employed persons aged 50-64 on sick leave longer than 30 days, 1992-2001a As a percentage of all employed persons aged 50-64 10

9

8

7

6

5

4 1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

a) The data refer to the end of December of each year. Source: National Insurance Board (2002).

Disability pension Previously, a disability pension could be obtained based on social and labour market conditions. However, currently, eligibility for disability pensions is supposed to be determined on the basis of health status only. Entitlements are based on the individual’s work history where benefits are calculated in a similar way to the former old-age pension system. The disability pension can be drawn on a full-time or partial basis, and about one fourth of all sick leaves or disability pensions are partial. In addition to the public disability benefit, there are additional benefits from collective agreements, as is the case for old-age pensions. This means that the economic loss for people on disability pension is usually low.

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In 2000, the number of new disability pensioners increased by 26% and, in 2001, by 16%. In 2000, around 80% of disability benefit inflows came from the sickness insurance system. In general, if the length of sickness is likely to be permanent or at least likely to continue for one year or longer the insurance office should seek to convert sickness benefits into a disability pension. As a result of the increase in long-term sickness, the number of disability pensioners is likely to increase substantially in the near future since many of these people currently on long-term sick leave will transfer into the disability system. At the end of 1980, around 70% of all people on long-term sickness returned to work after one year. In 1999, this figure had fallen to 53%. Changes in eligibility rules also explain some of the large variations in the inflow rate to disability over the last 10 years (see Figure 3.7). Between 1990 and 1993, the number of older people on disability pension increased significantly and especially for the age groups 50-54 and 55-59. The steep increase in unemployment rates in the early 1990s was no doubt a contributory factor, but the announcement that the possibility of receiving a disability pension for labour market reasons was going to be abolished also led to a sharp increase in the number of applicants. In 1993, during the recession, benefits were lowered by 2% at the same time as the eligibility criterion was strengthened, i.e. to obtain a pension the ability to work should be totally reduced. Subsequently, the inflow rate declined. Moreover, in 1995, the social insurance offices were given the possibility to reinvestigate the decision of disability, which lowered the inflow further. In 1997, the possibility of receiving a disability pension due to labour market reasons was also abolished for people aged 60-64. Since this change was announced in advance, it resulted, once again, in a large surge in applications, and therefore large inflows in the system. In 1999, eligibility rules were eased up somewhat. Currently, a disability pension can be obtained if the ability to work is “almost reduced” (it should be reduced by seven-eighths). The rise in inflows over recent years can be attributed partly to this change and partly to the high number of long-term sick cases. As a result of the new pension system a reform of the disability pension system is currently under way. The new system will be separated from the old-age pension system and instead be a part of the sickness insurance system. If and how rules will change is at present unknown.

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Figure 3.7. Inflows into disability pension as share of the labour force for different age groups, 1990-2000 50-54

55-59

60-64

% of labour force 9 8 7 6 5 4 3 2 1 0 1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

Source: National Social Insurance Board (2002).

B.

Why is the inflow to disability and sickness increasing?

Changes in the health situation of older people The increase in the number of long-term sickness and disability benefit claimants is at odds with long-term trends in the self-reported health status of the Swedish population. In 1980, around 60% of the population aged 45-64 reported being in good health. In 1997, this figure had increased to 74% (Figure 3.8). Although the trend is increasing, there have been some significant changes over the period. There are three outlying points: the first one is in 1989, when the economy was booming; the second is during the big recession in early 1990s when unemployment rates were very high, the third one is at the end of the period 1995-97, when the economy was recovering. Evidently, the selfreported health situation of the population is closely correlated to the economic cycle, but, nevertheless, has been following an upwards trend. Unfortunately the available data ends at 1997, which makes it impossible to compare the health situation with the dramatic increase in long-term sickness and the increased inflow to disability pensions that occurred in the following year.

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Figure 3.8. Share of people aged 45-64 reporting good health, 1980-97 Percentages 74 73 72 71 70 69 68 67 66 65 64 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997

Source: OECD (1999).

Are the sickness and disability systems too generous? There is no doubt that high benefit levels can create disincentives to work and hence generate lower hours of work than otherwise would have been the case, not to mention higher public expenditures. Gruber and Wise (1997) conclude that: “Social security programme provisions have indeed contributed to the decline in the labour force participation of older persons, substantially reducing the potential productive capacity of the labour force”. It is, therefore, of interest to see how changes in eligibility and payment rules and benefit levels for sickness benefits are related to changes in the number of recipients of these benefits (Table 3.6). During the last decade there have been many changes in these rules. Currently, the employer pays the benefit for days 2 to 14 of any spell of sickness; afterwards the responsibility is on the state. In the late 1980s and early 1990s, replacement rates were more or less 100% with a corresponding high rate of persons on sick leave. During the period 1991 and 1997, benefit levels were decreased and employer responsibility increased. In 1993, a qualifying period of one day was introduced, which led to a substantial decrease in the number of short-term sick leaves. Between 1993 and 1997, the number of sick cases was substantially lowered. In the beginning of 1998, benefit levels

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increased again. For shorter sick leaves, benefits increased from 75% to 80% and for longer absences from 75% to 90%. This is also the time when the incidence of long-term sickness began to increase dramatically. Table 3.6. Total compensation levels for a spell of sicknessa As a percentage of own income Sick day

1 2–3 4–14 15–28 29–90 91–365 366–

Dec 87 to Mar 91 to Jan 92 to Apr 93 to July 93 to Jan 96 to Jan 97 to Jan 98 to Feb 91 Dec 91 Mar 93 June 93 Dec 95 Dec 96 Dec 97 Mar 98 90+10 90+10 90+10 90+10 90+10 90+10 90+10

65+10 65+10 80+10 80+10 90+10 90+10 90+10

75* 75* 90* 80+10 80+10 90 90

0 75* 90* 80+10 80+10 80 80

0 75* 90* 80+10 80+10 80 70

0 75* 75* 75+10 75+10 75 75

0 75* 75* 75* 75+10 75 75

0 80* 80* 80* 80+10 80+10 80+10

Apr 98 –

0 80* 80* 80+10 80+10 80+10 80+10

a) Compensation levels applicable to persons below the social insurance ceiling. Above the ceiling, compensation levels are based on rules in collective agreements. The figures of 10% in each column refer to additional benefits received under collective agreements and paid for by the employer. An asterisk indicates that the employer pays the whole benefit. Source: National Social Insurance Board (2000b).

Henrekson and Persson (2001) have investigated the effect on sick leave of changes in benefit levels in Sweden. They use aggregated data from 1955 to 1999 and thus include numerous changes in benefit levels. Their conclusion is that there are strong effects on sick leave behaviour from changes in benefit levels: “When the insurance system is made more generous, the aggregate number of sick days increases, and when the system is made more austere, the number falls”. Furthermore, they find that, in 1998, the impact of the increase in benefit levels on the incidence of sick leave was substantially larger than most of the other parameters, including unemployment. Different measures introduced by the government The dramatic increase in the number of sick cases has been accompanied by a similar increase in expenditures. Therefore, in 1999, the government initiated a commission to investigate the situation concerning sick leave. This resulted in two reports: Sjukförsäkringen – basfakta och utvecklingsmojligheter (Ministry of Health and Social Affairs, 2000a) and

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Sjukfrånvaro och sjukskrivning – fakta och förslag (Ministry of Health and Social Affairs, 2000b). The main purpose of both of these reports was to collect facts and figures. The government also released its 11-point programme for better health in working life (Ministry of Health and Social Affairs, 2001). This programme focuses on measures for a better working environment and clearer employer responsibility as well as measures for an early return to work after illness. It provides more of a framework for measures rather than a ready-made package of specific measures to be implemented immediately. The programme will be carried out in close connection with the social partners. As of autumn 2002, nothing had been implemented. To provide background material for the 11-point programme, the government initiated a new commission which produced a report called the Action Plan for Improving Health at Work (Ministry of Health and Social Affairs, 2002). A major recommendation from this report is that employer responsibility must increase, which is based on the assumed close connection between the work environment and sickness. Other proposals include extending the length of the employer’s responsibility for the payment of sickness benefits up to 60 days (currently from day 2-14); lowering employers’ contributions; reinstalling the system of “enterprise doctors”; and increasing the benefit level to 90% from the 15th day of sickness. At present, the government is considering these proposals. However, extending the period during which employers are responsible for sick pay could increase the reluctance of employers to hire older people, and increasing the benefit levels could lead to a further rise in the incidence and duration of sick leave. In January 2000, an attempt was made to lower the number of disability pensioners by offering all persons on disability pension the possibility to work for a maximum period of three years, without jeopardising entitlements. During the first three months of this “trial” period, disability benefits are left unchanged but then taken away, although the entitlement to benefits would still be available whenever the person wanted to quit the job and return to the disability pension. After 12 months time, however, a review of the person’s disability status would be carried out. Two years after the introduction of this measure, only 0.45% of all recipients had accepted this possibility of returning to work. Of those who accepted the offer, 30% returned to the disability pension within the first three months. The outcome of this measure might suggest that replacement rates for the disability pension are quite high and thus most people on disability benefits have little interest in returning permanently to the labour market. An alternative conclusion could be that most people, in fact, are too sick to return to work. 73

Extensive rehabilitation programmes are another way to help people return to their jobs after a period of long-term sickness and thereby to increase the outflow from social security systems. These programmes can include medical treatment, but also occupational rehabilitation such as work testing, work training and other types of training courses. About 15% of the long-term sick receive some kind of active rehabilitation but the number of people who actually return to their former jobs is not known. Thus, the success of these programmes is hard to evaluate. It is, however, a common belief that the present methods do not work. One major disadvantage is probably that most programmes focus on how people can return to their former jobs, when, in fact, these jobs may no longer be adapted to their changed health status or may even have contributed to their ill-health in the first place. The rehabilitation programmes are currently under investigation. A relevant question is, however, whether people want to return to their jobs or not. This is discussed further in Chapter 4, in the section about attitudes to work. The local decision process According to the formal eligibility rules for obtaining a disability pension, the health situation of claimants should be thoroughly examined and their ability to work should be considered as “almost totally reduced”. The person then has to apply for the pension at the local insurance office, where a local insurance officer prepares the case. Finally, the locally and politicallynominated board (Socialförsäkringsnämnden) decides to reject or approve the request – at least formally. There are a large number of local insurance offices in Sweden, and just in the Stockholm area alone there are 45. Access to an office is therefore easy and contacts between applicants, companies and local insurance officers can be quite close. Obviously, there can be a social relationship between some of these parties, which could influence the decision process. A second problem is that a local decision process might lead to different outcomes for the same person depending on place of residence, i.e. in practice, it may depend on the individual insurance officer handling the case. A third problem, also related to the local decision process, is that insurance offices are geographically situated at a municipal level, but with state funding. This might not give good incentives for insurance officers to allocate resources efficiently. Some of these problems would obviously disappear if the decision process were centrally placed and organised or if municipalities were also implicated directly in the funding of benefits.

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Measures to reduce long-term recipiency of long-term sickness benefits In order to reduce the number of long-term recipients of sickness benefits, the following features of the current system should be re-considered: i) sickness benefits amount to – in general – 90% of the salary up to the social insurance ceiling, resulting in low incentives to work; ii) they are significantly higher than disability benefits, which increase incentives to remain on sickness benefits; iii) they are relatively easy to access, since only the claimant’s own doctor’s approval is required; iv) there is no time limit for the receipt of sickness benefits, which probably results in a longer average period of benefit receipt than otherwise would be the case; v) there is no systematic checking or monitoring of whether a person is fit to return to work or not, which makes abuse of the system easy. Altogether, these reasons have probably provoked the substantial increase in the number beneficiaries. Thus, to reduce the number of recipients, a set of measures should be taken. First, additional medical assessments by doctors from the sickness insurance – instead of the person’s own treating doctor – should be introduced, possibly once the period during which the employer pays the benefit has ended. Second, a time limit of one year should be introduced. Finally, a system with random checks should be considered. If these three measures are taken, there is probably no need to decrease benefit levels.

75

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Chapter 4 REMOVING DEMAND-SIDE BARRIERS

Demand-side factors are the other side of the equation explaining lower employment rates for older people than for prime-age people. In general, employers’ willingness to hire older people depends on factors such as their perceptions about the adaptability and productivity of older people, and the wages they have to pay for older workers relative to younger ones. Moreover, institutional settings such as employment protection legislation may affect hiring and firing practices of employers with respect to older workers. Therefore, this chapter examines employers’ attitudes to older people and how these might reflect age discrimination or higher labour costs for older workers. It also discusses whether employment legislation aiming to protect older workers may in fact be a hindrance to their employment. 1.

Employers’ views of older people

Recently, several surveys of employers’ attitudes towards older workers have been conducted. In a survey carried out by the National Labour Market Board (1998), one of the questions concerned the willingness of employers to employ different groups of people such as the long-term unemployed, women planning to have a child, immigrants, lone parents, physically disabled people and people above 55 years of age (see Table 4.1). Of these groups, older people were the least attractive group. Almost 40% of employers expressed negative or very negative views about hiring older people, 45% were neutral and only 11% expressed positive views. Thus, older longterm unemployed and older disabled people, in particular, appear to face a double handicap in terms of finding employment given these attitudes by employers.

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Table 4.1. Employers’ willingness to hire different groups of people Percentages

Above 55 years Immigrants Long-term unemployed Lone parent Physically handicapped Planning to have a child

1

2

3

4

5

10 2 7 3 6 12

30 7 25 17 20 20

45 70 56 67 55 57

9 13 6 8 7 5

2 2 2 1 1 1

Do not know 5 5 5 4 12 5

Note: 1=very negative, 3=neutral, 5=very positive. Source: National Labour Market Board (1998).

In the same study, attitudes towards hiring unemployed persons in different age groups were also surveyed. Employers were questioned about the age at which they regard a person as being less suitable for a job, despite the fact that he or she in all other respects fulfils the requirements of the job. Almost 60% considered age to be a relevant factor. Only 2% of employers in the survey regarded people in the age groups 20-24, 25-34 and 35-44 as less suitable to hire. For the older age groups, the share of employers with a negative attitude increased to 6% for the age group 45-54, to 30% for the age group 55-59 and to 45% for the age group 60-64. In a survey carried out by the National Social Insurance Board in 2001 (National Social Insurance Board, 2001), almost 50% of all employers considered the skills of younger peoples to be better and more relevant than those of older people. As many as 50% regarded older people as inflexible and rigid to changes at the workplace. Nevertheless, only 20% thought that younger workers were more productive than older workers. Furthermore, 70% of all employers indicated they never or rarely hire a person above 50 years. While it is true that older peoples’ education level is lower in relation to younger people, they have usually gained valuable skills as a result of long work experience. On the other hand, some of these skills may have become obsolete because of technological change. That is why lifelong learning and onthe-job training in all ages are so important (discussed in detail in Chapter 5). It is, however, hard to say if older workers are in general less flexible and less productive, since this will not just depend on age, but rather on work

78

organisation. Therefore, work should be arranged in ways that all ages could be more productive (Ilmarinen, 1999). Employers should recognise that older workers make a positive contribution to the development of the workplace, e.g. through sharing knowledge and experience with younger employees or by bringing a balance to teams. Factors like these will all contribute positively to the overall efficiency and effectiveness of the firm. A.

The presence of age discrimination

Age discrimination can be defined as the situation when someone makes a distinction because of another person’s age and uses this as a basis for prejudice against that person. The negative attitude of employers vis-à-vis older workers that was discussed in the previous section may also reflect a certain degree of age discrimination. In a survey by the National Institute for Working Life (2001), employees were asked whether they felt there was any discrimination against older workers at their work place and whether they had observed such discrimination taking place. The answers reveal that 25% of workers in the age group 25-44 feel that older people are being discriminated against due to their age. In the age group 45-64, more than 30% report the presence of age discrimination. These survey results of course do not provide objective evidence of discriminating behaviour by employers but they do indicate that discrimination on the basis of age is widely perceived to be a problem. Moreover, Swedish vacancies are sometimes advertised in newspapers with age criteria, implying that older workers cannot apply to certain positions. This would be treated in many countries as age discrimination. Although age discrimination is not a new topic, interest in this issue has increased dramatically during the last decade. As an example, the United Kingdom government has sought to change the climate of opinion by issuing a “Code of Practice for age diversity in employment”, which seeks to reduce age discrimination by employers (OECD, 2000b). Sweden has, however, currently no legislation against age discrimination. Neither the Constitution nor any of the specific anti-discrimination Acts deal explicitly with age discrimination. In 2000, the European Union Council Directive 2000/78/EC established a general framework for equal treatment in employment and occupation. The Directive requires all 15 EU countries to introduce legislation prohibiting direct and indirect discrimination at work on the grounds of age, sexual orientation, religion and belief and disability. The Directive allows Member States until the end of 2006 at the latest to implement the provisions on age and disability, and allows considerable latitude as to how the directive is to be implemented in practice.

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The effectiveness of legislation against age discrimination is not clear, however, and legislation alone will not be sufficient to change attitudes and practices. Nevertheless, it sends out an important message that discrimination should not be tolerated. Therefore, measures to combat age discrimination in all aspects of the recruitment and retention of older workers should be developed, for example, by prohibiting age restrictions in job advertisements. B.

Are relative wages too high for older workers?

One other potential reason for the negative attitudes of employers towards older workers may be the perception that wages of older workers are too high given their marginal productivity. This could occur if, for example, wages rose in line with seniority rather than with increases in productivity. However, seniority wages do not appear to be a problem in Sweden. Compared with other OECD countries, Sweden has a very compressed wage structure, especially in the public sector. The system of individual pay setting is used in order to manage recruitment of young skilled workers. Wage differentials are therefore normally relatively small between older and younger workers. Accordingly, there are few problems with a high wage level as a barrier to hiring older workers. The general view in Sweden with respect to wage setting is that wages should be set in relation to qualifications and not age or seniority. As an example, the seniority wage system in the state sector was abolished in 1989. International comparisons also suggest that the age-earnings profile in Sweden is quite flat. Figure 4.1 shows age-earnings profiles for Sweden, France, Japan, the United Kingdom, and the United States. The profiles are indexed by age and set to unity for the age group 25-29. Clearly, earnings should rise with age, especially at the younger ages when new skills are developed and efficiency is increased. It is, however, also obvious that this increase starts to diminish after a certain number of years, indicated by a flatter profile in older ages, which is the case for Sweden. However, in the United Kingdom, the profile not only becomes flatter, but also decreases dramatically after the age of 50 for women and 55 for men. At the age of 60, salaries are almost the same as for the age group 25-29. The total opposite pattern is found in France where men’s salaries continue to increase over the whole life cycle. In the age group 60-64, the average salary level is 130% higher compared to the age group 25-29. For women in France, the increase is higher compared to both men and women in most other countries, although the profile flattens out after they reach 50 years of age.

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Figure 4.1. Age-earnings profiles in selected OECD countries, 2000 Earnings of 25-29 year-olds = 100 Men Sweden

Japan

USA

UK

France

240 220 200 180 160 140 120 100 80 25-29

30-34

35-39

40-44

45-49

50-54

55-59

60-64

Women Sweden

Japan

USA

UK

France

240 220 200 180 160 140 120 100 80 25-29

30-34

35-39

40-44

45-49

50-54

55-59

60-64

Source: Japanese Ministry of Health, Labour and Welfare, Basic Survey on Wage Structure; US Current Population Survey; Blöndal and Girouard (2002).

To further investigate whether or not seniority wages are present in Sweden, monthly salaries in different age groups are compared in six very different occupations (Figure 4.2). There is a weak tendency that salaries increase by age in Sweden, but to a certain extent, this should be expected given that experience and efficiency increase through the early years of employment,

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especially for high-skilled workers. These differences in earnings by age are more noticeable for workers in higher positions and for high-skilled workers than for low-skilled workers. The profile for nurses probably reflects the high concentration of women in this profession, which appears to not only lower salary levels, but also compresses wage progression by age. Overall, wages in Sweden are very compressed and they would be even more compressed if taxes and allowances were taken into account. Figure 4.2. Age earnings profiles for in selected occupations, 2000 SEK per month 25-34

35-44

45-54

55-64

35 000 30 000 25 000 20 000 15 000 10 000 5 000 0

Master of Engineering

Director small companies/units

Public Administrator

Police

Nurses

Garbage collector

Source: Statistical Yearbook of Salaries and Wages (2000).

Therefore, it would appear that there is no widespread practice of seniority wages in Sweden and so the potential problem of older workers being paid more than the value of their marginal product in terms of their basic wages can probably be discounted. However, Sweden’s very compressed wage structure may result in lower incentives to participate in training or formal education and may also lower work effort. C.

Higher non-wage costs for older workers

While wages do not appear to rise very steeply with age in Sweden, it is also important to take into consideration the age profile of labour costs more generally, including non-wage benefits that are provided by employers. Most collective agreements contain provisions for supplementary benefits to top-up public social security benefits. These supplementary benefits are of particular

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importance for persons with incomes above the social security ceiling whose entitlements to public benefits are capped. These collectively agreed benefits vary considerably between sectors and groups of workers and can sometimes be very costly to employers. This is especially true for occupational pensions covering white-collar workers in the private sector and people with incomes above the social security ceiling in, for example, the state sector. In recent years, most occupational pension schemes have been turned into defined-contribution schemes. The pension benefits generated by these schemes are mainly based on number of years of work, the level of earnings, the premiums made and the interest these savings generate. As an example, the occupational pension scheme for blue-collar workers in the private sector (ASL) is based on a contribution of 3.5% of a worker’s salary irrespective of age and tenure. Furthermore, the worker can decide whether to invest the money in a mutual fund, a bond, etc., and the savings can be drawn as from the age of 55. Since the employer’s contribution does not depend on age, the scheme is not an obstacle to hiring older people. From the individual’s view, incentives to continue working are enhanced since the pension increases for every additional year of work (up to the age of 65). However, occupational pension schemes for white-collar workers in the private sector (ITP) and for people with incomes above the social security ceiling in the state sector are still defined-benefit schemes. As such, they are based on a benefit formula giving people 10% of the final salary up to the social security ceiling and 65% thereafter. To insure salaries above the ceiling – in line with the benefit formula – requires very high premiums and thus becomes very expensive. Since premiums are mainly based on the salary and remaining years to retirement it is, in general, much more expensive to make contributions for older workers. Thus, these agreements may result in disincentives for employers to hire and keep older workers. Since the pension is based on the final salary, it further reduces the flexibility for older workers to reduce their working time or to switch to another job with lower pay. The employer’s contribution on premiums under the pension agreement in the state sector is given in Parliamentary Auditors, 2001. These premiums paid by the employer are shown in Table 4.2 for people aged 30, 40, 50 and 60 with the same salary (SEK 360 000 per year, i.e. about 30% above an average full-time worker in Sweden) and for different salary increases over the past year. Since a salary increase results in an increase in lifelong pensions, contributions have to be adjusted accordingly. Moreover, the longer the tenure, the higher the premiums. Salary increases for older workers therefore result in substantial increases in premiums – especially for people with salaries above the social security ceiling. 83

Table 4.2. Premiums for occupational pensions in the state sector, 2001 In SEK Yearly premiums at different ages Salary increase 0 12 000 (3.3%) 24 000 (6.7%) 36 000 (10%)

30

40

25 749 27 080 28 411 29 742

46 737 53 688 60 638 67 589

50

60

75 974 90 992 106 010 121 027

117 058 143 641 170 224 196 807

Source: Parliamentary Auditors (2001).

In fact, the premium for a yearly salary increase of SEK 12 000 (i.e. 3%) results in a premium of SEK 27 100 for a 30-year-old and SEK 143 600 for a 60-year-old, i.e. a premium that is five times higher for the older worker. This corresponds to an increase in premiums – compared to the case of zero growth – of SEK 1 300 for the 30-year-old worker and SEK 26 600 for the 60-year-old worker, i.e. 20 times higher for the older worker. This gap becomes even larger if the wage increase is less moderate. Thus, premiums of this size (of upwards almost half the older worker’s salary) make employers reluctant to keep and hire older workers. Moreover, all employers have to make contributions to the social security system of 32.82% on the total salary, which increase the cost further. Therefore, the social partners should aim at reaching new and less expensive agreements in order to lower the cost-burden on employers. Such a scheme could be a defined-contribution scheme, like the one for private sector, blue-collar, workers. To obtain fair contribution rates one possibility could be to diversify the premium, i.e. have one premium for salaries up to the social security ceiling and a second one for the part of salaries above the ceiling. Since contribution-based schemes are based on the life-income principle they are age neutral and hence employers would be less reluctant to keep and hire older workers. 2.

Employment protection legislation

Swedish employment protection legislation is quite restrictive and some rules that aim specifically at protecting older workers may also make 84

employers more reluctant to hire older people (see e.g. Seniorgruppen, 2002). This holds, especially for the first-in-last-out rule, which states that the employer is obliged to follow a special order of priority when laying off workers. This entails giving priority to continued employment for those who have been employed longest. Where the length of employment is equal, workers who are older have a higher priority. A summary indicator of overall strictness of employment protection for regular employment in OECD member countries is given in Table 4.3. This indicator is based on several different aspects of employment protection measures, for example, notice period requirements, severance pay, definition of unfair dismissals, etc. Protection provisions vary widely between countries; Australia, Canada, the United Kingdom and the United States have minimal levels of protection, whereas the Czech Republic, Italy, Korea, the Netherlands, Portugal and Sweden have a high level of employment protection. It is not obvious whether restrictive employment legislation increases employment rates of older workers or not. Restrictive employment legislation may protect workers who already have a job (insiders), but at the expense of those without a job (outsiders). On the one hand, the high rate of employment in the age group 50-64 in Sweden may be explained by employment protection legislation that works in favour of older employees. When enterprises are forced to reduce staff, the principle of first-in-last-out rule will hold and since older workers usually have been employed longer, they face a lower risk of being made redundant than younger workers. On the other hand, it may reduce mobility of older workers and increase the risk of long-term unemployment if older workers do lose their jobs (OECD, 2000b). The first-in-last-out rule may reduce the mobility of older workers since an employee who switches to another job will lose the employment security they have built up based on their tenure in their former job. Thus, new points have to be earned at the new job. An example of how this rule affects mobility is shown in Table 4.4. Employees were asked under what circumstances they would switch to another job. It is obvious that job security is a very important determinant. For employees in the age group 45-64, no other factor reduces their willingness to switch jobs as much as this. In fact, they would rather take training, move to another region, or have a wage cut than reduce their job security. These effects would probably be even more significant for the age group 50-64, since at older ages the first-in-last-out rule makes a larger difference. Not only is tenure an important factor, but so is age since the

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rule gives double points for years worked after the age of 45.14 In contrast, job security appears to be less important for the younger age group, where the two alternatives of moving and a cut in salary appear to be more important. Table 4.3. Strictness of employment protection for regular workers in OECD countries, late 1990sa Country ranking

Overall strictness of protection against dismissals

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

0.2 0.8 0.9 1.0 1.2 1.5 1.6 1.6 1.7 2.1 2.1 2.2 2.3 2.3 2.4 2.4 2.6 2.6 2.6 2.7 2.8 2.8 2.8 2.8 3.1 3.2 4.3

a) For an explanation of how the overall strictness of employment protection for regular workers has been measured, see (OECD, 1999 Annex 2b). Source: OECD (1999).

14.

Every month worked after the age of 45 generates double points. However, only 60 of these double points can be earned, i.e. double points can only be accumulated for five years.

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Table 4.4. Acceptance of switching jobsa Percentages Women

Men

Alternatives

25-44

45-64

25-44

45-64

Reduced job security

21

9

20

9

Lower salary

16

10

16

9

Move to another region

15

13

16

14

Undertake training

58

36

49

31

a) Of those persons who wish to switch jobs, the percentage of persons in each age and gender group indicating under what circumstances they would accept to switch to another job. Source: National Institute for Working Life (2001).

Ultimately, workers are better protected by being employable not by legislation such as the first-in-last-out rule. Therefore, it is particularly important that workers are given opportunities to obtain relevant skills and to continuously up-grade them. Moreover, the law itself no longer gives full security for older workers since there are several ways to get around this law. This is especially true for large companies that are able to avoid the first-in-lastout rule by reaching an agreement with the unions (see Box 4.1). Furthermore, the state sector itself has relaxed the effectiveness of the rule in the provisions of its own collective agreements dealing with redundancy. A state-sector employer has the possibility to divide the work organisation into different priority groups with people having largely comparable tasks and then apply the first-in-last-out rule but only within each priority group. It is not unusual that these priority groups become very small.

Box 4.1. Laying off older workers in Sweden: the case of Ericsson In May 2002, about 3 500 employees were given notice of redundancy at the Swedish telecom company, Ericsson. In the package given to those laid off, there was a special package for workers above 55 years and with tenure of at least 10 years. One part of this special package consisted of an extended notice period of 18 months. During this period persons can attend specific job-search activities led by a private employment agency. Another part was to pay an occupational pension to those aged 58 or more. This pension amounts to 65% of the former salary and is received until the person turns 65. Thereafter, the public old-age pension can be drawn together with the ordinary occupational pension. The local trade union says that the disadvantage with this package is that employees lose the right to re-employment, but is satisfied with the solution overall (Dagens Nyheter, 2002).

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Relaxing the first-in-last-out rule could increase mobility of older workers. Workers would be less discouraged from switching jobs and thereby gaining new skills that would raise their employability. At the same time, while there may be some increase in the number of older workers that are laid off, employers would be less reluctant to hire older people. Furthermore, “when firing costs are large, few workers are fired, and those who are become stigmatised as low-productive individuals and have greater difficulty in finding a new job” (Canziani and Petrongolo, 2001). However, it would be important to implement this change – not as a single solution – but as part of a package of measures to improve labour market outcomes for older workers.

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Chapter 5 HELPING OLDER WORKERS TO FIND JOBS AND TO CONTINUE WORKING

Employability can be defined as having the necessary skills and ability to either remain in a job, to switch easily between jobs or to find a new job in the case of job loss. More generally, it means ensuring that there is a good match between the type of jobs on offer and the types of jobs that are being sought. The degree of employability of each person depends crucially on his or her level of formal education, having up-to-date skills, and relevant work experience and on the types of jobs available. It will also depend on appropriate incentives being in place to take up job opportunities if unemployed. The public authorities have a responsibility to supply labour market programmes, employment services and education programmes that are suitable for older people. Firms also have a role in providing training opportunities for their employees and suitable working conditions and working-time arrangements. However, the responsibility also lies on individuals to seek to continuously upgrade their skills. This chapter analyses older people’s employability and how it could be enhanced. 1.

Incentives to work and labour market participation

Sweden’s social security system and tax system, together with its well-developed public systems for childcare and long-term care for the elderly, are probably an important explanation for its relatively high employment rates for both younger and older women. Incentives to work increased dramatically for women during the 1970s and 1980s. In 1971, the co-taxation of couples was abolished and women were taxed on the basis of their own individual income. The change in taxation rules, together with a continuous expansion of public child-care and elderly-care, made it possible but also economically more attractive for women to take up a job outside the home – and so they did. During the same period, both eligibility criteria for welfare benefits and the level of these benefits were made much more generous. This probably

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lowered incentives to work significantly and the participation rates of men have since been declining. Since these changes were often focused on older workers, the decline in employment rates has been most significant for this group. For men aged 60-64 years, the participation rate has decreased by 25% during the last 30 years. However, this was offset by the entry of an increasing proportion of women in the labour market to bolster the overall participation rate of older people. During the economic recession in the 1990s, benefits were lowered, but at the same time new systems forced older people out of the labour market, as will be discussed later on in this chapter. Thus while the rise in participation of women in the labour market offset the decline in participation rates for men during the 1970s and 1980s, this was a once-and-for-all phenomenon, and so other solutions will be necessary in the future to boost labour supply. 2.

Reasons for becoming unemployed

There are several potential reasons why older people become unemployed. One reason might be that employers dismiss or layoff older workers because they assume older workers to be less productive than younger workers or lacking relevant skills. Another reason may be that when firms are downsizing, the willingness of older workers to move to other regions or to find new jobs is lower compared with younger workers. Furthermore, attitudes to work play a role, but probably more so for the labour market participation decision than with respect to willingness to carry out job search if unemployed. Moreover, unemployment can be voluntary or involuntary and so, reasons for becoming unemployed differ between age groups. In 2000, around 23% of all unemployed prime-age workers were unemployed due to redundancies, while the same figure for the age group 60-64 was around 60% (Figure 5.1). This share is not only three times higher than for prime-age workers, but also substantially higher compared with workers aged 50-59 years. One likely motive for this large difference is that the frequency of temporary jobs is lower in higher ages. To some extent, unemployment because of redundancies may be harder to recover from than the ending of a temporary job which often leads to another temporary job (OECD, 2002a). Of all unemployed, 80% became unemployed because of redundancy or because the period of a temporary job contract ended. Surprisingly, unemployment due to poor health only accounts for only 5% of the unemployed, and is the same for both men and women. In fact, health reasons as an explanation for unemployment is lowest for women aged 60-64 years.

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Figure 5.1. Unemployment by reason for prime-age and older workers, 2000 Redundancies

Temporary job

Health reasons

Other reasons

% of unemployed 100 90 80 70 60 50 40 30 20 10 0 25-49 Men

50-59 Men

60-64 Men

25-49 Women

50-59 Women

60-64 Women

Source: Swedish Labour Force Survey, 2000.

Incentives may be too low for an unemployed person to accept a temporary job offer with an income lower than the previous one. The reason is that unemployment benefits are based on previous income and thus, taking up a job with a lower salary could risk lowering the unemployment benefit in the future if the job contract is terminated. Thus, the system runs a risk of keeping people on unemployment benefits longer than necessary. 3.

Helping the older unemployed to find jobs

As discussed in Chapter 2, the incidence of long-term unemployment is significantly higher for the older unemployed compared with other age groups. Thus, it is important to help older unemployed people find new jobs as early as possible following job loss. This will require improving employment services for older job seekers, their access to active labour market programmes – with an emphasis on helping them to return to work – and also encouraging greater mobility.

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A.

The role of the public employment service

One of the objectives of the Swedish employment service is to take account of diversity in the labour market, i.e. peoples’ ethnicity, gender, age, and skills. However, there is neither a specially designed employment service for older job seekers nor any special training of staff to deal with the specific needs of unemployed older people. For a few years at the end of the 1980s and at the beginning of the 1990s, when the labour market was over-heated especially in Stockholm, there was one employment office in Stockholm for workers above 65 years of age. Ironically, the service closed down when unemployment rates increased. It seems that this employment service was introduced more as a way to help employers find employees than the opposite. Employment services for older people should, however, not only be focused on people above 65 years, but they should also be tailored more generally to older people aged 50 and over that may be particularly disadvantaged or require specific help and types of assistance that may differ from that given to other job seekers. This could, for example, include developing new teaching methods with less focus on younger adults. While no specific employment services are targeted at the older unemployed, they are covered by the “activity guarantee” that was introduced in August 2000 in order to enhance the work opportunities for all people with a weak attachment to the labour market (regardless of age). One purpose of the activity guarantee is to give people a stable and sustainable full-time activity until they find a job or enrol in employment training. In 2002, about 49 200 unemployed participated in the activity guarantee of which 9 500 were above 55 years of age. Between August 2000 and February 2002, 6 113 persons above the age of 55 left the activity guarantee, of which, only 741 got a regular job. The older unemployed also participate in the extensive range of labour market programmes that are open to all unemployed. In 2001, 19 718 persons above 55 years of age participated in these programmes – an increase of more than 6 000 compared to 1997. However, in the case of older people, these programmes may not be very effective. In 2000, a survey, called Dagpenningundersökningen, was carried out of attitudes to labour market programmes (Wadensjö and Sjögren, 2000). People in labour market programmes were asked whether they believed that their chances to have a regular job increased after participating in a programme. In the age group 30-39, almost 44% believed that it would increase their chances. However, this proportion fell to 36% in the age group 50-54 and to 25% in the age 92

group 55-59. In the oldest age group, 60-64, there was no one who believed that these programmes had any positive effect on their chances to get a regular job. These attitudes, and the fact that the incidence of long-term unemployment is high for the older unemployed, suggest that these general labour market programmes in Sweden have only had a limited impact on helping older unemployed people back into jobs. Thus, there may be scope for labour market programmes to be more tailored to the specific needs and skills of older people. However, to avoid stigmatising older people, labour market programmes should not focus just on age itself, but rather on individual needs. Moreover, employment service staff should be given training to be more sensitive to the needs of older people, as is being done in Finland (Finnish Ministry of Health and Social Affairs, 2002). B.

The role of labour market programmes

During the 1990s, several measures were taken both within the social security system and in labour market programmes to lower the unemployment rate of older workers. However, most of these measures were not focused on increasing employment rates, but rather on reducing labour force participation. The three labour market programmes for older workers during this period were the following: Public Temporary Work (Offentligt tillfälligt arbete), the Generation Switch (Generationsväxling) and the Casual Withdrawal Benefit (Tillfällig avgångsersättning). The Public Temporary Work Programme, focused on people aged 55 years and over who had been unemployed for more than two years (National Labour Market Board, 2001). The purpose of this programme was not to generate regular jobs, but rather to give people a meaningful activity and at the same time increase the quality of services in the public sector. However, many of the participants felt degraded, since they had extensive experience, but received only the unemployment benefit, which was significantly lower compared with the salaries of their colleagues. The programme was not a success since the large majority leaving the programme returned to unemployment (Wadensjö and Sjögren, 2000). The programme was abolished in 2001. Under the Casual Withdrawal Benefit Programme, the long-term unemployed aged 60-64 remained eligible for unemployment benefits up to the official retirement age of 65 years without having to look for a new job. By definition they were therefore no longer included in the labour force, which is the reason for the large reduction in unemployment rates at this time. Thus, this programme lowered unemployment rates of older workers considerably, but not

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by increasing employment rates. Interviews with public employment service officials reveal that this programme was seen as a continuation of the former practice of granting a disability pension due to labour market reasons.15 After the Casual Withdrawal Benefit programme was abolished, the Generation Switch Programme was introduced. This programme aimed to substitute employed workers aged 63 years or over with unemployed young persons. As in many other countries this system failed, since there was no easy substitution of people. As Wetterberg (2000) points out, it is a clear misunderstanding of how the economy and labour market function if the view is that a 58-year-old employed person helps a 23-year-old unemployed to obtain a job by withdrawing from the labour force. Over the past decade, these three programmes are the only ones that have focused on older workers, but none of them tried to increase the employment of older workers. Instead, two of them concentrated on encouraging older workers to withdraw from the labour market. There exist of course several other labour market programmes, however, the participation of older people in these programmes is relatively low. In the annual report on labour market programmes, the Labour Market Board clearly reveals that the main focus is on immigrants, disabled people and youths (National Labour Market Board, 2001). In November 2000, a new programme called Special Employment Subsidies was introduced. This programme aims to make it easier for persons above 57 years, and unemployed since two years time, to find a job. The subsidy is also intended to encourage employers to recruit at an earlier stage. The subsidy is paid to employers during a maximum period of 24 months and up to 75% of the wage costs to a maximum of SEK 525 per day, i.e. SEK 10 500 per month (roughly half of the average salary for a full-time worker). In 2001, only around 1 900 persons participated in this programme. C.

Encouraging greater mobility

Labour mobility is an important aspect for the process of matching labour supply and demand, especially in times of high unemployment rates. Not 15.

In 1997, the special rules in the disability pension system for people between 60-64 years (the so-called äldrereglerna) were abolished, i.e. receiving a disability pension would only be considered on strict medical grounds. Just after the eligibility criteria had been strengthened, the Casual Withdrawal Benefit was introduced.

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surprisingly, labour mobility is lower for older workers than for younger workers. As an illustration, only 5.7% of all employees in the age group 50-64 in 2000 had been working for the same employer for less than one year (European Labour Force Survey, 2000). The corresponding figure for employees aged 25-49 years was much higher at 16.2%. This gives an indication of the low mobility among older workers. As was discussed in Chapter 4, the first-in-last-out rule probably reduces mobility of older workers, since job security will be lost if workers switch jobs. In countries with high employment protection, older workers tend to have higher tenure compared to countries with lower employment protection (Figure 5.2). For example, Japan, Italy and Sweden have highly regulated labour markets, which seem to generate higher tenure. In the United Kingdom and the United States, where the situation is the opposite, tenure is much lower. Figure 5.2. Average job tenure of employees by age and gender in selected OECD countries, 2000a Men Sweden

Women Japan

Italy

30

30

28

28

26

26

24

24

22

22

20

20

18

18

16

16

14

14

12

12

10

10

8

8

6

6

4

4

2

2

UK

USA

0

0

20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64

20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64

a) The data for Japan refer to regular workers in enterprises with 10 or more regular workers, excluding the agricultural, hunting forestry, fishing and general government sectors, and are not strictly comparable with the data for the other countries, which are based on labour force surveys covering all workers. Source: European Labour Force Survey; Japanese Ministry of Health, Labour and Welfare, Basic Survey on Wage Structure; Job Tenure Supplement to the US Current Population Survey.

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It is difficult to influence the decisions people make about staying with the same employer. However, mobility should be encouraged throughout the whole work life because it reduces the risk for older workers of being trapped in their current job and position (see e.g. Senior 2005, 2002). Since increased mobility gives people opportunities to develop new skills and to obtain new contacts, it also improves employability. 4.

Older people’s attitudes to work

People’s attitudes to work are, among other things, based on the generosity of welfare benefits and the eligibility criteria for these benefits, but also on society’s acceptance of not working. Below, some findings are reported from different surveys about attitudes to work. In interpreting these results, it is important to bear in mind that people tend to report what they ideally would like to do rather than what they would actually do in the future. For example, a survey by the Pensionsforum (2001) found that 80% of all workers wanted to withdraw before the age of 65 and as many as 30% before the age of 59. Only 3% wanted to continue after the age of 65. At the same time, 70% did not believe that their pension would be high enough to withdraw when they wanted to, while only 30% thought that they would have the financial possibility to withdraw before 65 and around 8% believed that they would have to work after the age of 65. The survey by the National Institute for Working Life (2001) indicates quite similar results concerning employment after 65 years. Only around 14% of men and 8% of women wanted to continue to work after their normal retirement age, which is somewhat higher than in the study by Pensionsforum (2001). The survey results of people’s wish to continue working after the age 65 can be contrasted with actual retention rates obtained from the labour force survey. This is done by a simple estimation of the retention rate for the cohort 55-59 in 1990, which turned 65-69 in 2000. Unfortunately, there is no survey on people attitudes to continue working after 65 from 1990, so these results are not strictly comparable with those in the above survey. In any case, the result indicates that around 16% of the cohort 55-59 who worked in 1990 was still working in 2000. Thus, since the survey results of people’s retirement intentions indicate retention rates of between 8% and 14%, there may be some pressure on employment rates to fall further for people above 65 years in the future.

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During recent years there have been large information campaigns concerning the new old-age pension system. Overall it would appear that these campaigns have fulfilled their purpose. About 93% of all women and men above the age of 35 are aware of the close connection between the number of years worked and the size of the pension. In the survey by the National Insurance Board (2000c), 18% of all women in the labour force aged 35-49 planned to continue to work additional years as a result of the reform (whether this means working after age 65 is not clear). The corresponding result for men was 15%. Thus, there is a wish to withdraw early, but few people believe they can afford to. Furthermore, the willingness to continue to work at older ages is low, therefore the introduction of the new pension system could have a positive effect on people’s behaviour. 5.

Skills and jobs in demand

The shift away from the production of goods to the production of services, together with technological change, has increased the need for more skilled and flexible workers. Thus, there is considerable pressure on the education system to adapt to new demands, on employers to continuously upgrade their employees’ skills and on individuals themselves to engage in lifelong learning. A.

Older people’s skills need to increase

To cope with the demographic transition in coming years and the associated changes in the labour market, there is an important need to carry out studies of the future demand for different skills and professions. There is already a shortage of skilled labour in Sweden in certain professions such as nurses, dentists, pharmacists, assistant nurses, teachers (especially in science and technology), pre-school teachers and civil engineers. In particular, large groups of nurses will leave the labour market over the next ten years, and at the same time the need of these services will increase significantly. This situation will especially affect municipalities. Not surprisingly, the educational attainment of prime-aged people (25-49 years) is higher compared with that of older people (50-64 years) (Figure 5.3). This difference is, however, remarkably small in the United States compared with other countries. The education level for both prime-aged and older people is higher in Sweden than in France and the European Union, on

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average. However, it is considerably lower for both age groups compared with the United States. For older people in Sweden, the share in the lowest education level is almost 15 percentage points lower than in the European Union and in France, while tertiary education is about 10 percentage points higher. However, compared with the United States, these figures are reversed. In fact, only 15.5% of older people in the United States have an education lower than upper secondary compared to 33.5% in Sweden and for tertiary education the gap is almost 10 percentage points. Figure 5.3. Comparison of education levels for prime-aged and older people in selected OECD countries, 2000 Less than upper secondary

Upper secondary

Tertiary

% of population 100 90 80 70 60 50 40 30 20 10 0 US 25-49

US 50-64

UK 25-49

UK 50-64

Sweden 25-49

Sweden 50-64

France 25-49

France 50-64

EU 25-49

EU 50-64

Source: OECD, Education at a Glance, 2002.

There are also substantial differences across countries between the proportions of people with a high or low education level. For older people this gap is usually negative, i.e. the share with higher education is larger than the share with less than upper secondary education, while positive for prime-aged people – which is the case for Sweden and the United Kingdom (see Figure 5.4). However, in the European Union and France, the group of low educated is larger than the group of high educated for both prime aged and older people. In contrast, the proportion of high educated in the United States is about 20 percentage points larger compared to low educated for both age groups.

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Figure 5.4. Difference between high and low education shares in selected OECD countries, 2000 In percentage points 50-65 -40

-30

-20

25-49 -10

0

10

20

30 EU France Sweden UK US

-40

-30

-20

-10

0

10

20

30

Source: OECD.

In Sweden, women are on average better educated than men, especially in the 25-49 age group (Figure 5.5). The largest differences in education levels are between women in the age groups 25-49 and 60-64. For the group of prime-aged women, less than 15% had less than upper secondary education, in contrast with 41% for the oldest age group. For men, the corresponding figures are 18% and 44%, respectively. The differences in tertiary education are not as large, although the share of the oldest age group is 10 to 15 percentage points below the prime-aged group. To afford studies at university or a college, there is a well-developed and state-run study-support system.16 The eligibility criteria for this support were tightened from 1 July 2001 by, among other things, reducing the possibility to receive the loan-part of the study-support system after the age of 41. The reason for imposing this age constraint was to “ease the loan burden 16.

The study support system consists of two parts: a loan part and an allowance part. The loan part amounts to around SEK 4 400 per month and the allowance to SEK 2 300 per month.

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in older ages”. However, the implication of the rule is that the possibility to study after the age of 41 is almost eliminated.17 Since the demand for skilled workers is rising, and may continue to do so at even a more rapid pace in the future, this age constraint should be released. The rule might not only be unproductive but also reduce the scope of lifelong learning substantially. Figure 5.5. Education levels in Sweden by age and gender, 2000a Less than upper secondary

Upper secondary

Tertiary

% of population 100 90 80 70 60 50 40 30 20 10 0 25-49 Men

50-59 Men

60-64 Men

25-49 Women

50-59 Women

60-64 Women

a) Less than upper secondary is defined as primary school, upper secondary is defined as high school, and tertiary is defined as a college or university education. Source: Swedish Labour Force Survey, 2000.

Even if education levels in Sweden are above the European Union average, there is a relative need to narrow the gap between older and younger people, i.e. to raise the education level of older people relative to younger people. Moreover, since there is a rising demand for skilled labour, workers should be given both incentives and possibilities to continuously up-grade their skills. Lifelong learning can therefore prevent situations where an older generation lacks relevant skills and thus has difficulties in keeping, finding or switching jobs.

17.

For people aged 51 to 55 there is, however, a possibility to receive a study allowance for a number of vocational training courses in areas with labour shortages.

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B.

Unemployment rates are lower for the highly educated

Labour market status is clearly linked to education attainment. In Sweden, labour force participation rates increase substantially between the lowest and highest educational categories, i.e. “less than upper secondary” and “tertiary”. This is especially true for prime-age workers and workers aged 60-64 years. For the prime-aged, the participation rate rises from 80% to 90% and, for the age group 50-59, from 76% to 93%. For the oldest age group 60-64, the participation rate increases from 48% to 65%. Unemployment rates are also strongly correlated with education levels. On average, workers in 2000 with less than upper secondary education had an unemployment rate that was three times higher than the rate for workers with a tertiary education, i.e. 7.8% compared with 2.5%, respectively. These differences are particularly large among the prime-aged and oldest workers. Unemployment rates for the lowest educated workers aged 60-64 are 9.2% and for workers aged 25-49 the corresponding figure is 7.3%. In contrast, the highest educated workers have unemployment figures of 3.5% and 2.4%, respectively. Figure 5.6. Unemployment rates in Sweden by age and level of education, 2000 Less than upper secondary

Upper secondary

Tertiary

% of labour force 10 9 8 7 6 5 4 3 2 1 0 25-49

50-59

Source: Swedish Labour Force Survey, 2000.

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60-64

Higher education not only reduces the risk of being unemployed, but is also associated with higher participation rates. These results should encourage public policy makers to support lifelong learning and higher education for older people. Therefore, reducing the possibilities for higher studies among people aged 41 and above (i.e. under the new legislation in the study-support system) could have serious implications for the future, especially if people are to be encouraged to go on working after the age of 65. Hence, a 41-year-old person may have at least 20 remaining years in the labour market – after completing a four-year long education. C.

Training of older workers

Firms may be reluctant to train older workers because it might be more efficient to concentrate training on younger workers since economic returns may be larger because of the longer payback time (OECD, 1999). However, older workers are less mobile and are therefore more likely to stay on the job longer. In any case, less training results in lower employability and thus a greater risk of unemployment, which should be factored into the social returns on training. The level of training differs significantly across countries (Figure 5.7). In general, the incidence of training for older workers is lower than the average incidence for all workers aged 25-64. In Sweden, around 60% of the workers receive training, which places Sweden among the top four countries in overall training. Furthermore, older workers in Sweden are better off than all other countries, except Belgium. The incidence of training for older workers is more or less the same as the overall incidence, i.e. the ratio of incidence of older workers to all workers is around 90%. A simple “head count” such as the incidence rate, provides an incomplete measure of the level of training (OECD, 1999). Therefore, in Table 5.1, the incidence of training in Sweden for 2000 is reported with respect to the number of days of training received per worker. The amount of training falls off with age, but at a slow rate. For those workers that participate in training, these differences are, however, small but somewhat larger for women than for men. This holds especially for women in the age group 60-64, who received less than half of the amount of training days per employee compared with prime-age workers. In general, public sector employees receive more training than private sector employees; both per worker and per worker participating in training.

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Figure 5.7. Incidence of training for workers by age in selected OECD countries, 1994-98a Ratio by age (50-64 / 25-49)

overall incidence (15-64) Incidence

Ratio by age

20

20

0

0 hi C

s

la

nd rla

he

N

et

Po

) nd

la

la

er itz

ng (E

m do

N

ng

C

ze

Sw

y Au

er

st

m

ra

an

nd la G

ew

Ire

Ze

al

an

ry

ay

ga

w or

un

N

H

k

en

Sl

m en

ch

D

R

ov

ar

ly ep

ub

Ita

an nl Fi

a ad

U

an C

s) er

ed

nd

Sw

la (F m iu

U

ni

te

d

Ki

Be

lg

le

40

nd

40

nd

60

lia

60

d

80

ia

80

lic

100

d

100

SA

120

en

120

a) Refers to training received at some stage during the 12-month period prior to the survey. Source: IALS.

Table 5.1. Average number of training days per worker in Sweden, 2000a

Age

25-49 50-54 55-59 60-64 Total Private sector Public sector

Days of training per worker

Days of training per worker participating in training

Men

Total

Men

5.0 4.2 3.8 2.9 4.3 3.7 5.7

8.4 8.4 6.1 8.6 8.0 7.6 9.5

4.8 4.4 3.0 3.3 4.2 3.7 6.5

Women

5.3 4.0 4.7 2.4 4.5 3.7 5.3

a) Training paid for by the employer. Source: Swedish Labour Force Survey, 2000.

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Women

8.7 6.7 7.9 5.2 7.9 7.4 8.3

Total

8.6 7.5 7.0 6.8 8.0 7.5 8.7

Overall, 54% of all workers received some kind of firm specific training and of those receiving this training the average length was eight days. The length of the training is on average not low, so any further effort to increase training should focus on how to increase participation. The reason for differences in the incidence of training by age and gender may depend on the worker and not only on the employer. In either case, incentives to supply training and to participate in training should be strengthened. There are extensive opportunities for adult learning in Sweden. The public system includes municipal adult-learning courses, Swedish language teaching for immigrants and the National Schools for Adults. Municipal adult learning includes both basic and upper secondary adult learning. This system was introduced in 1968 for the benefit of adults lacking the equivalent of basic or upper secondary schooling. There is also labour market training, which is used as an instrument of labour market policy and is primarily intended as basic vocational education or further training for the unemployed. Training packages are bought from, for example, municipal adult learning centres, commercial training companies or similar bodies (The National Agency for Education, homepage). For the concept of lifelong learning to be effective and successful a co-operation between the public authorities and social partners is necessary. It is also necessary to motivate both individuals and employers to spend time and money on the learning process. Furthermore, occupational training and labour market training programmes should be adapted to different situations and individual needs, i.e. there is no simple “one size fits all” solution. If training is more tailored to individual needs, there is no doubt that both companies and individuals will be better off – especially in the long run. “One of the most important labour market policy measures in the immediate future will be to counteract the shortage of labour and bottlenecks through vocationally oriented labour market training in areas where there is a shortage of skilled labour” (OECD, 2000a). 6.

The work environment has to be improved

The shift away from the production of goods to the production of services has tended to decrease the number of jobs with unpleasant working conditions such as jobs requiring heavy lifting and exposure to impure air. However, many women work in the care sector, where heavy lifting and uncomfortable working positions are still part of the daily work. In the care sector far fewer improvements concerning the work environment have taken place than in the industry sector. Hence, the overall physical work environment

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has improved, but mostly so for men (National Social Insurance Board, 2000b). This may partly explain why women in Sweden have a substantially higher sickness rate than men. In 2001, women were on sick leave for six weeks on average compared with four weeks for men. For women above 50 years, the average length of sick leave was in fact eight weeks. In general, the number of employees absent from work because of sickness continues to increase (Swedish Confederation of Professional Employees, 2002). Thus, given the need for workers to stay on longer in the labour force, the work environment should be improved so that people can enjoy a fuller career with fewer periods of ill health. The government’s 11-point programme for better health in working life (Ministry of Health and Social Affairs, 2001), which was discussed in Chapter 3, includes measures for a better working environment. Moreover, the Government Commission for Increased Health in Working Life concluded that a work place that is stimulating and gives more individual responsibility, results in smaller numbers of sick cases (Ministry of Health and Social Affairs, 2002). The commission further argued that improving the work place is probably the only solution to the situation. However, working conditions seem to be better in Sweden compared with almost all other countries in the European Union. According to the Third European Survey on Working Conditions (2000), older workers in Sweden report the second lowest figure of unpleasant working conditions, behind the Netherlands.18 In fact, less than 33% of Swedish workers aged 50-64 years report unpleasant working conditions in contrast to almost 40% in the age group 25-49. These differences vary substantially both within and between countries. Of course, depending on whether older workers with unpleasant working conditions tend to retire earlier than workers with better working conditions, and the extent to which this varies across countries, these results might be biased.

18.

Workers reporting unpleasant working conditions refer to all workers who report that they are exposed during at least half of their working time to one or more of the following conditions: vibrations from hand tools or machinery; loud noise; high or low temperatures; breathing in vapours, fumes, dust or dangerous substances; handling dangerous products; or radiation such as X rays, radioactive radiation, welding light or laser beams. A description of the survey together with its main findings can be found in Paoli and Merllié (2001).

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In recent years, it has been suggested that the “psycho-social work environment” has become worse, which mostly has to do with the economic recession in the early 1990s. During the recession many employers laid off workers and as a result, the amount of over-time work increased, stress-related sickness increased and the number of workers reporting “burned-out” syndrome started to grow. However, the increased workload on those who remained in work also resulted in increased possibilities to obtain new skills (National Social Insurance Board, 2000b). The work environment is regulated by the Work Environment Act of 1978. This Act applies to the entire labour market. The Act is a framework law, which means that it does not contain any detailed regulations but only specifies the framework for how modifications to the working environment are to be carried out. The Swedish National Board of Occupational Safety and Health issues detailed regulations in the form of directives. The work must be adapted to each worker’s physical and mental capabilities. The main responsibility for the working environment rests with the employer, who is obliged to take all necessary action to prevent employees from being exposed to health and accident risks at the workplace. Since physical capacity decreases with age, it is important to adapt the work environment more towards older workers through work rotation, reorganisation of work tasks, ergonomic improvements, short breaks, etc. (Ilmarinen, 1999). In particular, it is important that the work is organised so that the employees themselves have the opportunity to influence their own work situation. A good working environment reduces and prevents occupational risks, and develops factors that make it possible to preserve people’s capacity to work and to promote employees’ health at work. To prevent exclusion and to increase possibilities to remain in work at older ages, the work environment should be arranged towards flexibility that is more individualised (Senior 2005, 2002). In particular, it may be important that older workers have greater flexibility in their working-time arrangements and the possibility to work fewer hours if necessary. Therefore, the social partners should be encouraged to include formal arrangements for part-time work in collective agreements, with the government prepared to introduce measures to strengthen the entitlement to part-time work in the case that the social partners fail to agree on appropriate measures. Thus, more emphasis should be placed on adapting workload and working time to individual needs and to have possibilities to recuperate i.e. the right balance needs to be found between each worker’s individual capacity and workload.

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Chapter 6 POLICY COHERENCE AND DILEMMAS

1.

Is there scope to increase employment?

To manage the demographic and economic challenge ahead an increase in the utilisation of potential labour supply is needed. This can be achieved by increasing employment rates; actual average hours of work; or the average number of years spent in the labour market. Other potential solutions could include raising immigration rates and, as a longer-term measure, encouraging higher fertility rates. Since Swedish employment rates are already above 80% in the age group 25-59, the room for large improvements is limited compared to many other OECD member countries. The increasing labour market participation of women during the 1970s and 1980s in Sweden boosted labour force growth and offset the decline in participation rates of older men, but this was a once-andfor-all phenomenon and so, new solutions are needed. There may be more scope to raise employment rates for older people but since these rates are already quite high by international standards the main challenge will be to ensure that these high levels are maintained. There is probably greater scope, however, to raise total hours worked, since many people work less than an ordinary working week. Absence and parttime jobs are two explanations for low hours of work. Many people are on longterm sickness benefits and a large percentage of the workforce, especially women, are involuntarily part-time workers. The age group 60-64, in particular, not only has the lowest labour force participation rate, but also the highest 19 unemployment rate and the largest incidence of part-time employment.

19.

For employed men aged aged 25-59, around 5% to 9% are working part-time. The corresponding figures for women are 35% to 39%. However, in the age group 60-64, 24% of men and 53% of women are working part-time.

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Raising actual working hours will not be enough to prevent economic dependency ratios from rising. However, it may boost economic growth and could help to avoid large tax increases or general cut backs in welfare systems in the future. Therefore, ongoing discussions about subsidising a shortening of working hours should be carefully reviewed. 2.

Alternative ways to boost employment

An increase in immigration has sometimes been put forward as a way to help solve the ageing problem. By providing an immediate increase in the working-age population (20-64), it could help to alleviate the pressures of Sweden’s unfavourable demographic trends. However, immigrants often lack suitable qualifications and consequently suffer from problems of joblessness and under-employment. Moreover, as mentioned in Chapter 5, the lack of labour in the future is expected be most evident in the care-sector (e.g. nurses, dentists, and pharmacists), for teachers (especially in science and technology and pre-school teachers) and for high-skilled engineers. The magnitude of the impact that immigration would have on the Swedish labour market, therefore, depends critically upon the skill composition of migrants. Moreover, even if immigration can play a complementary role to help solve the situation ahead, “it cannot be expected to have more than a marginal impact on the projected disequilibria in the age structure” (OECD, 2001c). This is because fertility and death rates of immigrants and their descendants soon converge to the levels of the non-immigrant population. To keep the dependency ratio at the same level as today, the National Social Insurance Board (2002a) has estimated the inflow of immigrants would need to be 88 000 per year during the next 30 years. Such a substantial increase in immigration could be constrained by political and social pressures. Another possibility for boosting future labour supply would be to encourage higher fertility rates. In 1990, Swedish fertility rates reached 2.1 and were the highest the European Union. However, over the past decade fertility has declined considerably, reaching around 1.5 in 2000. While higher fertility rates would eventually lead to an increase in labour supply, this would only begin to have an impact on labour supply after 2025. Moreover, increasing the number of children would initially raise public expenditures and increase the pressure on public finances further. Nevertheless, it is important to consider family-friendly policies and how to reconcile better work and family life. Another factor affecting both labour supply and demand are income taxes. As a result of high income taxes, Swedish people often carry out many tasks themselves, instead of hiring someone else to do them. In fact, having a

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salary equal to the average production worker (APW) and paying someone the same salary for one hour, demands two and a half hours extra work in Sweden (OECD, 2002b). High employment rates in combination with high tax rates thus imply that many people work much more than indicated by their actual working time in their paid jobs. The fact that many Swedes are carrying out a substantial amount of unpaid work such as cleaning, picking-up children, household maintenance, repairing, etc., could therefore serve as an explanation for high sickness rates and the frequency of reports of “burned-out” syndrome. Thus, there may be a dilemma in seeking to increase actual hours of work further. However, by lowering tax rates, people could afford to do less household work themselves, which could eventually decrease work absences due to sickness and possibly increase employment rates. Creating new jobs, presently in the informal sector, would of course also boost employment in the formal sector. Since high average marginal tax rates also discourage work effort in general, a reduction could have an overall positive effect on the economy. Some room for implementing a tax cut could be made by strengthening eligibility criteria for welfare benefits and introducing a system with continuous reviews and random checks of the eligibility status of welfare recipients. An important step to cope with the expected increase in financial pressures in the future is the consensus of a two-percent surplus per year in government finances over a business cycle. Since total public expenditures as percent of GDP will fall during the next ten years, and then increase quite steeply up to 2035, these accepted savings should be seen as a success. 3.

Policy coherence

Labour market prospects for older workers could also be improved by boosting employment more generally through wide-ranging reforms as outlined in the OECD Job Strategy recommendations for Sweden (OECD, 2002b). This could include reinforcing the effectiveness of labour market programmes by keeping them small and targeted towards specific groups and thereby avoiding the risk that they become a form of passive income support. In general, large programmes are difficult to manage effectively and the outcomes tend to deteriorate when the group of participants becomes too heterogeneous. Measures should also be taken to encourage greater entrepreneurial activity by reducing barriers such as high administrative costs, high rates of corporate taxation, etc. (OECD, 1995). Overall incentives to work also have to be strengthened. There are two ways to adjust incentives and thereby increase overall employment rates. The first one is the stick approach by, for example, lowering benefit levels in the

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welfare system. The other one is the carrot approach by, for example, increasing the rewards from working. The new pension system is an important example of a policy approach that can strengthen incentives to work. The new pension system is less generous than the former system but entitlements increase substantially for every extra year worked. In other words, the new pension system uses both the stick and carrot approach. However, as discussed in Chapter 3, it is not enough to reform the old-age pension system if other avenues to early retirement such as long-term sickness and disability are not controlled. Currently, it is easy to switch between different welfare programmes, for example, from unemployment benefits to sickness benefits. The reason is that unemployment benefits end after 300 days, while there is no limit in the duration of sickness benefits. Large flows also occur from sickness to disability benefits. If the length of sickness is likely to continue for at least one year or longer, the insurance office will seek to convert it to a disability pension. Furthermore, it is possible to combine part-time work with partial sick leave, partial disability pension or partial unemployment benefits. In this case, a reduction in labour income – from working part-time instead of full-time – can be fully compensated. Thus, to avoid a carousel effect between welfare systems, reforms have to be wide-ranging and coherent – otherwise there is a considerable risk of failure. It is also important that policy makers dismantle demand barriers as well as those on the supply side, i.e. by emphasising the integration of workers and by closing pathways out of the labour market. At the same time, older workers need to be given more freedom in how they work. Thus, closer cooperation between the social partners and government bodies such as the National Labour Market Board and the National Social Insurance Board should be encouraged. The government together with the social partners should initiate research programmes to identify best practices on how to reconcile work and family life in a life-cycle perspective, but also with respect to the work environment and reorganisation of work. These are important factors that have to be addressed in order to improve labour market outcomes in general, and for older people in particular. 4.

What is on the government’s agenda?

There are two commissions working on the issue of older workers. These are the Senior 2005 and the Seniorgruppen. A third commission is looking into the age-discrimination issue and a fourth one is reviewing the possibilities for a general shortening of working hours. There are also several

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studies of the situation facing older workers that have been conducted by government agencies such as the National Social Insurance Board, but also by the social partners. In 1998, the Parliamentary Commission, Senior 2005, was set up by the government to develop a long-term policy for older people. The Commission was given the task of analysing and putting forward proposals on how to meet the need of health care and other services for the elderly as well as to promote possibilities for older people to remain longer in the labour market. In April 2002, they published a preliminary report with no policy recommendations, but which instead discussed the current situation. Their work will be finished during May 2003 (Senior 2005, 2002). The Seniorgruppen was set up in October 2001 and had as its task to investigate barriers that exist in legislation and collective agreements that may discourage employers to hire and retain older workers as well as the willingness of older workers to remain in the labour market. The group worked in close collaboration with the social partners and the Senior 2005 Commission (Seniorgruppen, 2002). Their report was published in April 2002 and included a set of recommendations many of which are in line with those presented in this report. 5.

Maintaining the momentum

Sweden has already taken important measures to address the major challenges ahead. Although these achievements should be acknowledged, there is still room to improve further employment prospects for older workers. The reform of the pension system was an important and necessary measure, but it will not be sufficient to deal with future challenges. Hence, a comprehensive reform strategy is needed. This should encompass not only measures to enhance work incentives that are embedded in the welfare system, but also action on the demand-side. This report shows that to achieve sustainable development and to cope with future economic and demographic challenges, more needs to be done and the current momentum for reform should be maintained.

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OECD PUBLICATIONS, 2, rue André-Pascal, 75775 PARIS CEDEX 16 PRINTED IN FRANCE (81 2003 07 1 P) ISBN 92-64-19996-9 – No. 53017 2003