Globalization, Uncertainty and Late Careers in Society (Routledge Advances in Sociology)

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Author: Hans-Peter Blossfeld | Sandra Buchholz | Dirk Hofacker

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Globalization, Uncertainty and Late Careers in Society Globalization, Uncertainty and Late Careers is one of a series of books which presents the results of the international and multidisciplinary research program ‘GLOBALIFE – Life Courses in the Globalization Process’. The program was based at the Otto-Friedrich University of Bamberg and at the University of Bielefeld, and ran from 1999–2005, including experts from twelve different countries who studied the implications of the globalization process for individuals in industrialized societies. The research presents a systematic, empirical examination of how global developments impact the life courses of individuals in a broad range of modern societies. Unlike much of the literature on globalization, the GLOBALIFE project findings are not limited to the economic dimension but include a multi-causal intersection of economic, technological, cultural and political changes. Using longitudinal micro-data from a great variety of modern societies, this impressive new collection focuses on the effects of the globalization process on late-career workers and the transition from employment to retirement – a relationship that has up to now mostly been neglected in social science literature on aging and pensions. Often, older employees increasingly have problems in adapting to flexible working environments, fast technological changes and accelerating structural changes on the job markets, in other words late-career employees experience a weakening of their position in the labor market under globalization. The research documented within this book poses several important questions: x x x

Has globalization produced fundamental shifts in late-career workers’ labor market participation and retirement transitions? What transformations in old age career mobility can we observe and how do these transformations differ across various groups of older workers? And how are these transformations filtered by different national institutional settings?

With an impressive array of contributions by country-specific experts, this volume will interest students and academics involved in the study of sociology, welfare and globalization.

Hans-Peter Blossfeld is the director of the GLOBALIFE program and is the Professor and Chair in Comparative Sociology at the Otto-Friedrich-University of Bamberg, Germany. He is Editor of European Sociological Review and Associate Editor of International Sociology. Sandra Buchholz is a Researcher in Sociology at the Otto-Friedrich-University of Bamberg, Germany. Dirk Hofäcker is a Researcher in Sociology at the Otto-Friedrich-University of Bamberg, Germany.

Routledge Advances in Sociology

This series aims to present cutting-edge developments and debates within the field of sociology. It will provide a broad range of case studies and the latest theoretical perspectives, while covering a variety of topics, theories and issues from around the world. It is not confined to any particular school of thought.

1

Virtual Globalization Virtual Spaces / Tourist Spaces Edited by David Holmes

2

The Criminal Spectre in Law, Literature and Aesthetics Peter Hutchings

3

Immigrants and National Identity in Europe Anna Triandafyllidou

4

Constructing Risk and Safety in Technological Practice Edited by Jane Summerton and Boel Berner

5

Europeanisation, National Identities and Migration Changes in boundary constructions between Western and Eastern Europe Willfried Spohn and Anna Triandafyllidou

6

Language, Identity and Conflict A comparative study of language in ethnic conflict in Europe and Eurasia Diarmait Mac Giolla Chríost

7

Immigrant Life in the U.S. Multi-disciplinary perspectives Edited by Donna R. Gabaccia and Colin Wayne Leach

8

Rave Culture and Religion Edited by Graham St. John

9

Creation and Returns of Social Capital A new research program Edited by Henk Flap and Beate Völker

10 Self-Care Embodiment, personal autonomy and the shaping of health consciousness Christopher Ziguras

11 Mechanisms of Cooperation Werner Raub and Jeroen Weesie 12 After the Bell – Educational Success, Public Policy and Family Background Edited by Dalton Conley and Karen Albright 13 Youth Crime and Youth Culture in the Inner City Bill Sanders 14 Emotions and Social Movements Edited by Helena Flam and Debra King 15 Globalization, Uncertainty and Youth in Society Edited by Hans-Peter Blossfeld, Erik Klijzing, Melinda Mills and Karin Kurz 16 Love, Heterosexuality and Society Paul Johnson 17 Agricultural Governance Globalization and the New Politics of Regulation Edited by Vaughan Higgins and Geoffrey Lawrence 18 Challenging Hegemonic Masculinity Richard Howson 19 Social Isolation in Modern Society Roelof Hortulanus, Anja Machielse and Ludwien Meeuwesen 20 Weber and the Persistence of Religion Social Theory, Capitalism and the Sublime Joseph W. H. Lough 21 Globalization, Uncertainty and Late Careers in Society Edited by Hans-Peter Blossfeld, Sandra Buchholz and Dirk Hofäcker

Globalization, Uncertainty and Late Careers in Society

Edited by Hans-Peter Blossfeld, Sandra Buchholz and Dirk Hofäcker

First published 2006 by Routledge 2 Park Square, Milton Park, Abingdon, OX14 4RN Simultaneously published in the USA and Canada by Routledge 270 Madison Avenue, New York, NY10016

This edition published in the Taylor & Francis e-Library, 2006. “To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.” Routledge is an imprint of the Taylor & Francis Group, an Informa Business

© 2006 Selection and editorial matter Hans-Peter Blossfeld, Sandra Buchholz and Dirk Hofäcker; individual contributors for their contributions All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data A catalog record for this book has been requested ISBN 10: 0-415-37645-9 (hbk) ISBN 13: 978-0-415-37645-7 (hbk)

Contents

List of tables List of figures List of contributors Preface Foreword

x xiii xv xxii xxv

PART I

Introduction 1

Globalization, accelerating economic change and late careers. A theoretical framework

1

SANDRA BUCHHOLZ, DIRK HOFÄCKER AND HANS-PETER BLOSSFELD

2

Late careers and career exits. An international comparison of trends and institutional background patterns

25

DIRK HOFÄCKER AND ŠTċPÁNKA POLLNEROVÁ

PART II

Country-specific contributions on conservative welfare regimes 3

Men’s late careers and career exits in West Germany

55

SANDRA BUCHHOLZ

4

Labor market exits of older men in the Netherlands. An analysis of survey data 1979–99 KÈNE HENKENS AND MATTHIJS KALMIJN

79

viii

Contents

PART III

Country-specific contributions on Southern European welfare regimes 5

Men’s late careers and career exits in Italy

101

WIEBKE BECKSTETTE, MARIO LUCCHINI AND ANTONIO SCHIZZEROTTO

6

Men’s late careers and career exits in Spain

119

FABRIZIO BERNARDI AND LUIS GARRIDO

PART IV

Country-specific contributions on liberal welfare regimes 7

Late career transitions among men and women in the United States

141

DAVID WARNER AND HEATHER HOFMEISTER

8

Late careers and career exits in Britain

183

KATRIN GOLSCH, DAVID HAARDT AND STEPHEN P. JENKINS

PART V

Country-specific contributions on social-democratic welfare regimes 9

Late careers and career exits in Sweden

211

GABRIELLA SJÖGREN LINDQUIST

10 Late careers and career exits in Norway

235

ARILD AAKVIK, SVEN-ÅGE DAHL AND KJELL VAAGE

11 Late careers and career exits of older Danish workers DIRK HOFÄCKER AND SØREN LETH-SØRENSEN

255

Contents

ix

PART VI

Country-specific contributions on post-socialist welfare regimes 12 Employment exits of older workers in the Czech Republic

281

DANA HAMPLOVÁ AND ŠTċPÁNKA POLLNEROVÁ

13 Late careers and career exits in Estonia

301

KADRI TÄHT AND ELLU SAAR

14 Late careers and career exits in Hungary

323

ERZSÉBET BUKODI AND PÉTER RÓBERT

PART VII

Conclusions and discussion 15 Late careers in a globalizing world. A comparison of changes in twelve modern societies

353

DIRK HOFÄCKER, SANDRA BUCHHOLZ AND HANS-PETER BLOSSFELD

Subject index Author index

373 379

Tables

1.1 2.1 2.2 2.3 2.4 2.5 3.1 3.2 3.3 3.4 3.5 4.1 4.2 4.3

4.4

5.1 5.2 5.3 5.4

Institutional contexts and their impact on late careers in the globalization process Participation and employment rates of older workers, men, 1950–2003 Relative cohort change in employment rates between age groups 55–59 years and 60–64 years, 1970–2003 Proportion of part-time employment by sex, age groups 55–59 years and 60–64 years, 1983–2003 Participation and age discrimination in job- and careerrelated training, 1990s Synthesis of results Explanatory variables German men’s labor market mobility after age 55 years (frequencies) Men’s transition to unemployment after age 55 years (logistic regression model) Men’s transition to non-employment after age 55 years (logistic regression model) Men’s transition to unemployment after age 55 years, birth cohort 1929–40 (logistic regression model) Descriptive statistics of variables in the study Results of logit analyses to explain early retirement of older male workers in the period 1979–99 in the Netherlands Results of logit analyses to explain early retirement of married male workers in the period 1979–99 in the Netherlands Results of multinomial logit analyses to explain the chances of becoming unemployed/disabled for work, or early retired of older male workers aged 50–64 years in the Netherlands Employment and unemployment rates by sex and region (in %) Italian men’s labor market mobility after age 45 (in %) Transition to non-employment (piecewise constant exponential models) Demographic indicators

17 29–30 32 37 46 48 65 66 68 70–71 73–74 85 90–91

92–93

94 103 110 112 115

Tables 6.1 6.2 6.3 6.4 7.1 7.2 7.3

7.4 8.1 8.2 8.3 8.4

9.1 9.2 9.3 9.4 10.1

10.2 10.3 10.4 10.5 11.1 11.2 11.3 12.1

xi

Spanish men’s level of education by birth cohort (in %) 121 Changes in the sectoral distribution, occupational structure and macro-economic conditions over time 122 Descriptive statistics for the key independent variables at age 56 years (Spanish men born 1930–40) 127 Spanish men’s exit from employment (piecewise constant exponential model, Hazard ratios) 132–33 Transition in late career by gender in the United States (in %) 154 Job transitions in late career among men and women in the United States, weighted hazard estimates 158–60 Transitions out of the labor force in late career among men and women in the United States, weighted hazard estimates from competing risks models 162–65 Re-entry to the labor force in late career among men and women in the United States, weighted hazard estimates 169–70 Analysis subsample: summary statistics 191 Occupational mobility after age 40 (in %) 195 The probability of transitions from employment and occupational mobility by sex (logistic regression model) 197 The probability of transitions from employment and occupational mobility, controlling for additional characteristics, by sex (logistic regression model) 198–202 Occupational structure in Sweden, 1968–2000 216 Covariates 223 Employees’ number of jobs and re-employment (621 employees) 224 Transition to non-employment after the age of 55 years (Cox proportional hazard models, hazard ratios) 228–29 Observed states at age 65 years for individuals that were employed when they turned age 63 years, by sex and AFP eligibility 244 Marginal effects from multinomial regression, 1932 cohort, males 246 Marginal effects from multinomial regression, 1932 cohort, females 247 Marginal effects from multinomial regression, 1932 cohort, males 249 Marginal effects from multinomial regression, 1932 cohort, females 250 Transitions to inactivity between age 55 years and 67 years of Danish men and women 271–72 Transitions to inactivity, period effects 274 Labor market mobility of Danish men and women age 55–67 years (frequencies) 275 Macroeconomic indicators, 1989–2002 283

xii 12.2 12.3

12.4

12.5

12.6

13.1 13.2 13.3 13.4 14.1 14.2

14.3

14.4

Tables Net replacement rates, pensions awarded in 2001, old and new rules Proportion of working men based on expected counts from logit models with the dependent variable economic status at the week of data collection (separate estimates for different ages) Economic status in the week of data collection (working versus other) for Czech men aged 55–70 years (logistic regression) Proportion of working women based on expected counts from logit models with the dependent variable economic status at the week of data collection (separate estimates for different ages) Economic status in the week of data collection (working versus other) for Czech women aged 53–62 years (logistic regression) Employed persons by economic sector Labor force participation rate of late-career workers, 1959–2000 (in %) Men’s labor market mobility after age 50 years by period (logistic regression model) Exiting employment into unemployment, comparison of different time periods (logistic regression model) Distribution of individuals aged 50–64 years by employment status, 2001 The effect of different attributes on the odds of occupational status mobility between 1988 and 2003, men (logistic regression coefficients) The effect of different attributes on the odds of transition to retirement between 1988 and 2003, men (multinomial logistic regression coefficients) The effect of different attributes on the odds of transition to retirement between 1988 and 2003, women (multinomial logistic regression coefficients)

289

292

293

295

296 303 308 315 318–19 327

341

343–44

345–46

Figures

1.1 1.2

2.1 2.2 2.3 2.4 2.5 2.6

3.1 3.2 3.3 4.1 4.2 4.3 4.4 5.1 5.2 5.3 6.1

Globalization, accelerating economic and social change and late-career transitions Schematic illustration of ideal-typical strategies to adapt the older workforce to structural change and the resulting latecareer mobility patterns Unemployed and inactive as a percentage of population, age 55–59 years, men and women Duration of unemployment, age groups 25–54 years and 55 plus years, both sexes Employment rates vs. implicit tax rates on work, 55–64 years, 1995 Employment rates (1995) vs. OECD EPL Index II (end1990s) Employment rates vs. active labor market policy expenditure as percentage of GDP (1995) Employment rates (1995) vs. participation rates in CET measures (European countries, workers aged 25–54 years, last 4 weeks) Men’s labor force participation rate in age group 60–64 years, 1970–2000 Comparative male unemployment rates, 1978–2000 Men’s transition to non-employment after age 55 years Trends in eligible retirement age and unemployment in the Netherlands Percentage of non-employed men by age and period Proportion of non-employed men aged 55–64 years by education and period Type of non-employment of men aged 55–64 years by year Sectors by region, 1981–2002 Italian men’s transition to non-employment after age 45 years Men’s transition to non-employment by geographical region Employment rates by age for Spanish men, 5-year artificial birth cohorts

5

8 34 35 41 42 44

45 59 60 67 81 87 88 89 104 111 113 129

xiv 6.2 6.3

7.1 8.1 8.2 9.1 9.2 9.3 9.4 9.5 11.1 11.2 12.1 12.2 12.3 12.4 12.5 13.1 13.2 13.3 13.4 14.1 14.2 14.3

14.4 14.5

Figures Survivor function for the exit from employment by education, Spanish men of the 1930–40 birth cohort Survivor function for the exit from employment by employment status, Spanish men of the 1930–40 birth cohort Implied labor force participation rate of men and women aged 50 to 95 years in the United States Self-reported labor force status by age and gender (in %) Transition out of work and back to work (in %) Percent employees aged 16–64 years by industry, 1975–2003 Public sector employment (aged 16–64 years), 1970–2003 Individuals not participating in the labor force, 1978–2003 Unemployment by age, 1975–2003 Transitions to non-employment by cohort Schematic overview of retirement pathways in Denmark Survivor curve for dropping out of the labor market, Danish men (top) and women (bottom) Civilian employment by broad sectors, 1990–2002 Educational attainment by age groups, 2001 Numbers of newly awarded early pensions, 1989–2002 Difference in probability of having a job by age and education between 1995–97 and 1998–2001 (men) Difference in probability of having a job by age and education between 1995–97 and 1998–2001 (women) Labor force participation rate by age, 1989–2002 Pension replacement ratio in Estonia, 1965–99 (% average gross wage) Mobility of late-career men Men’s labor market exit after age 50 years The employment rates for older males (top) and females (bottom) The observed occupational mobility rates for senior males by age and birth cohorts The number of newly awarded early retirement pensions (above) and disability pensions (below) and the observed rates of entry Transitions to early retirement between 1988 and 2003 by age and birth cohort for men (top) and women (bottom) Older men’s (top) and women’s (bottom) transition to disability pensions between 1988 and 2003 by age and birth cohort

130

131 155 193 194 213 214 214 215 225 263 269 284 285 288 294 297 306 307 312 313 326 336

337 338

339

Contributors

Arild Aakvik is an Associate Professor at the Department of Economics, University of Bergen, Norway. His main research interests include social program evaluation, econometrics, early retirement, and health and education economics. He teaches courses on the economics of the welfare state. He has published in journals like Health Economics, Oxford Bulletin of Economics and Statistics, Empirical Economics, and Journal of Econometrics. Address: Department of Economics, University of Bergen, Herman Foss gate 6, N-5007 Bergen, Norway. [e-mail: [email protected]] Wiebke Beckstette served as a student research assistant in the GLOBALIFE project at the Otto-Friedrich-University of Bamberg, Germany, where she wrote her diploma thesis on early retirement processes in Italy. Currently, she is working as a research scientist at the State Institute for Family Research at the University of Bamberg in the interdisciplinary DFG-project “BiKS,” which studies mechanisms of educational decisions especially for the transition from primary to secondary school. Address: Staatsinstitut für Familienforschung an der Universität Bamberg (ifb), Heinrichsdamm 4, D-96047 Bamberg, Germany. [e-mail: [email protected]] Fabrizio Bernardi is an Associate Professor of Social Structure in the Department of Sociology II (Social Structure) of the Universidad Nacional de Educación a Distancia (UNED), Madrid, Spain. His main research interests focus on social inequality, the relationship between family and labor market dynamics but also on quantitative methods for longitudinal analysis. Address: Departamento de Sociología II, U.N.E.D., c/Obispo Trejo s/n, 28040 Madrid, Spain. [e-mail: [email protected]] Hans-Peter Blossfeld is a Professor of Sociology at the Department of Social and Economic Sciences, Otto-Friedrich-University of Bamberg, Germany. He was a Professor of Sociology at the European University in Florence and the Universities in Bremen and Bielefeld. He is editor of the European Sociological Review. He was the Director of the GLOBALIFE project and is

xvi

Contributors

the Director of the “Staatsinstitut für Familienforschung an der Universität Bamberg (ifb)” (State Institute for Family Research at Bamberg University). His research interests include social inequality, youth, family, and educational sociology, labor market research, demography, social stratification and mobility, cross-national comparative research, modern methods of quantitative social research, and statistical methods for longitudinal data analysis. He has published 16 books and over 100 articles. Address: Lehrstuhl für Soziologie I, Otto-Friedrich-Universität Bamberg, Postfach 1549, D-96045 Bamberg, Germany. [e-mail: [email protected]] Sandra Buchholz served as a research scientist in the GLOBALIFE project at the Otto-Friedrich-University of Bamberg, Germany. She is now working in the DFG-project “Flexibility forms at labor market entry and in the early career – a cross-national comparison of the development of social inequality” at the State Institute for Family Research at the University of Bamberg, Germany. Her reserach adresses the influence of increasing labor market flexibility on employment patterns in different career stages. In her dissertation she focuses on labor market entry and exit in East and West Germany. Address: Lehrstuhl für Soziologie I, Otto-Friedrich-Universität Bamberg, Postfach 1549, D-96045 Bamberg, Germany. [e-mail: [email protected]] Erzsébet Bukodi is the Head of the Section of Social Stratification within the Department of Social Statistics of the Hungarian Central Statistical Office, Budapest, Hungary. Her research interests involve educational inequalities and different aspects of life-course analysis. She is a participant of a research project aiming to develop a new social indicator system in Hungary. Recently, she published a book (her PhD dissertation) on marriage timing and educational homogamy of couples. Further publications examine career differences of married couples and the main features of regional and social stratification based on the Hungarian Census data. Address: Hungarian Central Statistical Office, Keleti Károly utca 5-7. 1024. Budapest, Hungary. [e-mail: [email protected]] Svenn-Åge Dahl is the Research Director and Senior Research Fellow at the Institute for Research in Economics and Business Administration (SNF). He is also Research Director for the Research Council of Norway’s Welfare Program. His research and publications concentrate on aspects of social insurance such as early retirement, sickness absence, and vocational rehabilitation. He has for example published in Acta Sociologica, Applied Economics, and European Sociological Review. Address: SNF, Breiviksveien 40, N-5045, Bergen, Norway. [e-mail: [email protected]]

Contributors

xvii

Luis Garrido is a Full Professor and the Director of the Department of Sociology II (Social Structure) of the Universidad Nacional de Educación a Distancia (UNED), Madrid, Spain. His main research interests focus on education, labor market, and family dynamics. In 2005, he has published a book on retirement in Spain, which won the CES (Spanish Economic and Social Council) yearly award. Address: Departamento de Sociología II, U.N.E.D., c/Obispo Trejo s/n, 28040 Madrid, Spain. [e-mail: [email protected]] Katrin Golsch is currently an Assistant Professor at the Faculty of Economics, Business Administration and Social Sciences, University of Cologne, Germany. Previously she was a researcher in the GLOBALIFE project and a lecturer in the Department of Sociology, Bielefeld University, Germany. She received her doctorate in sociology in 2004 about labor market insecurity and its impact on the work and family life of men and women in Germany, Great Britain and Spain. Her core interests include statistical methods for the analysis of survey data and longitudinal data analysis in particular, life-course analysis, social structure, labor market research, and comparative sociological research. Address: The Faculty of Economics, Business Administration and Social Sciences, University of Cologne, Herbert-Lewin-Str. 2, 50931 Cologne, Germany. [e-mail: [email protected]] David Haardt graduated from Johannes Kepler University (Linz, Austria) in 2003 and is now working on his PhD in economics on the dynamics of work and income in later life at the Institute for Social and Economic Research, University of Essex, UK, under the supervision of Professor Stephen P. Jenkins. Currently, he is analyzing the labor market behavior of older men and women in the United Kingdom using hazard regression models. He acknowledges PhD funding from the Austrian Academy of Sciences and the Economic and Social Research Council. Address: Institute for Social and Economic Research (ISER), University of Essex, Colchester, Wivenhoe Park, Colchester, Essex CO4 3SQ, United Kingdom. [e-mail: [email protected]] Dana Hamplová works as a researcher at the Institute of Sociology, Academy of Sciences of the Czech Republic and finished her PhD in Sociology at the Charles University, Prague, Czech Republic. From 2002–04, she worked as a research associate within the GLOBALIFE project at the Otto-FriedrichUniversity of Bamberg, Germany. Her main research interests focus on family and labor market dynamics. Address: Institute of Sociology, Jilska 1, 110 00 Prague 1, Czech Republic. [e-mail: [email protected]]

xviii Contributors Kène Henkens is the Head of the Social Demography Department of the Netherlands Interdisciplinary Demographic Institute (NIDI), an institute of the Dutch Royal Academy of Sciences (KNAW). He is an expert in research on issues regarding the aging labor force. He studied the effectiveness of recent retirement reforms in a national and international perspective. He has conducted large-scale studies among workers and their spouses on the process of retirement and carried out studies among employers on the consequences of an aging workforce, stereotypes toward older workers and labor shortages. He is also an affiliated member of Netspar, the Network for Studies on Pensions, Aging and Retirement. He has a PhD from Utrecht University. Address: NIDI P.O. Box 11650, 2502 AR The Hague, Netherlands. [e-mail: [email protected]] Dirk Hofäcker currently works as an assistant at the Chair of Sociology I at the Otto-Friedrich-University of Bamberg, Germany. He worked as a researcher in the GLOBALIFE project from 2002 to 2005. His main research interests lie in the field of international comparisons, attitude research as well as in quantitative social science data analysis. His work has concentrated on crossnational comparisons of female employment patterns and its institutional backgrounds, and the comparative analyses of retirement processes. Address: Lehrstuhl für Soziologie I, Otto-Friedrich-Universität Bamberg, Postfach 1549, D-96045 Bamberg, Germany. [e-mail: [email protected]] Heather Hofmeister served as the Deputy Director and a Senior Research Fellow of the GLOBALIFE project at the Otto-Friedrich-University of Bamberg, Germany, and is an Assistant Professor. Her current work focuses on families, couples, and gendered occupational and geographical career pathways in international comparison, with a specialization on the United States in recent decades. Address: Lehrstuhl für Soziologie I, Otto-Friedrich-Universität Bamberg, Postfach 1549, D-96045 Bamberg, Germany. [e-mail: [email protected]] Stephen P. Jenkins is a Professor of Economics at the Institute for Social and Economic Research, University of Essex, and Research Professor at DIW Berlin. His current research focuses on poverty, income and labor market dynamics, and applied micro-econometrics, especially survival analysis. He has published numerous journal articles on these topics and was co-editor of The Dynamics of Child Poverty in Industrialised Countries (CUP 2001) and The Distribution of Welfare and Household Production (CUP 1998). Address: Institute for Social and Economic Research (ISER), University of Essex, Wivenhoe Park, Essex CO4 3SQ, United Kingdom. [e-mail: [email protected]]

Contributors

xix

Matthijs Kalmijn is a Professor in the Department of Social and Cultural Sciences, Tilburg University, Netherlands. His research focuses on the sociology of marriage, family, and the life course. Important current research projects are on divorce and separation in the Netherlands and on kinship solidarity in the Netherlands. He is also a member of Netspar, the Network for Studies on Pensions, Aging and Retirement, which was initiated and is coordinated by Lans Bovenberg, Arie Kapteyn, and Theo Nijman. Within this institute, he focuses on the sociological aspects of the later stages in the life course. He has a PhD from the University of California, Los Angeles, USA. Address: Department of Social and Cultural Sciences, Tilburg University, P.O. Box 90153, 5000 LE Tilburg, Netherlands. [e-mail: [email protected]] Mario Lucchini currently is a Research Officer at the Department of Sociology of the Milano-Bicocca University, Italy. He is a member of the ILFI (Italian Longitudinal Household Panel). He is working on longitudinal datasets (ECHP, ILFI), applying event history analysis and neuralnetworks techniques. Among his current research projects are “Transition to Adulthood in Europe,” “Corporate Social Responsibility” and “Fuzzy Approaches to the Measurement of Social Exclusion.” Address: Department of Sociology, Milano-Bicocca University, Via Bicocca degli Arcimboldi, 8, Edificio U7, 20126 Milano, Italy. [e-mail: [email protected]] ŠtČpánka Pollnerová works as a researcher at the Research Institute for Labor and Social Affairs (RILSA), Prague, Czech Republic. From 2003–04 she worked as a research associate within the GLOBALIFE project at the OttoFriedrich-University of Bamberg, Germany. She focuses on social insurance systems, pension policy, and demographic aging. Address: Research Institute for Labor and Social Affairs (RILSA), Palackeho namesti 4, 128 01 Prague 2, Czech Republic. [e-mail: [email protected]] Péter Róbert is an Associate Professor at the Department of Sociology, Faculty of Social Sciences, ELTE University, Budapest, Hungary. He is also a Senior Researcher at the TÁRKI Social Research Center. His research interests include social stratification and mobility with special focus on educational inequalities and life-course analysis. He also does research on lifestyle differentiation and on attitudes toward social inequalities. Recent publications examine career differences of married couples, educational transition from secondary to tertiary school, comparison of students’ performance in stateowned and church-run schools. Address: Faculty of Social Sciences, ELTE University, Pázmány Péter Sétány 1/A. 1112. Budapest, Hungary. [e-mail: [email protected]]

xx

Contributors

Ellu Saar is a Senior Researcher at the Institute for International and Social Studies, Tallinn University, Estonia. Her research areas are social stratification, educational inequalities, life-course analysis. She is a coordinator of the 6th Framework Project “Towards a Lifelong Learning Society in Europe: The Contribution of the Education System.” Address: Institute for International and Social Studies, Tallinn University, Estonia blvd. 7, Tallinn, Estonia. [e-mail: [email protected]] Antonio Schizzerotto is a Professor of Sociology at the Milano-Bicocca University, Italy, and the scientific director of the Italian Household Longitudinal Survey (ILFI). His main interests include research on social mobility, social change and the life cycles, comparative analysis of the transition from school to work as well as research on unemployment and inequalities by gender and generation. Address: Department of Sociology, Milano-Bicocca University, Via Bicocca degli Arcimboldi, 8, Edificio U7, 20126 Milano, Italy. [e-mail: [email protected]] Gabriella Sjögren Lindquist works as a researcher at the Swedish Institute for Social Research, Stockholm University. She focuses on personnel economics. She war born in Stockholm, Sweden, and finished her PhD in Economics at Stockholm University in October 2004. Address: Swedish Institute for Social Research (SOFI), Stockholm University, SE-106 91 Stockholm, Sweden. [e-mail: [email protected]] Søren Leth-Sørensen is a sociologist employed as Senior Adviser in a Research Service Unit at Statistics Denmark. Currently, his office is at the University of Aarhus. His responsibilities include managing projects for outside researchers using data from Statistics Denmark. His main research interests focus on labor market and family changes in Denmark. He has taken part in establishing the so-called IDA-database. This is a longitudinal database for persons, jobs, and firms in Denmark starting in 1980. Address: Forskningsservice, Danmarks Statistik, Forskerfilialen, Århus Universitet Bygning 447, Tåsingegade 1, 8000 Århus C, Tlf. 8942 6810. [e-mail: [email protected]] Kadri Täht works as a doctoral researcher at the Faculty of Social Sciences of the Vrije Universiteit Amsterdam, the Netherlands. In 2004, she worked as a researcher within the GLOBALIFE project at the Otto-Friedrich-University of Bamberg, Germany. Her main research interests focus on social inequality, labor market, and the relationship between labor market and family cohesion. Address: Faculty of Social Sciences, Vrije Universiteit Amsterdam, De Boelelaan 1081, 1081 HV Amsterdam, The Netherlands. [e-mail: [email protected]]

Contributors

xxi

Kjell Vaage is an Associate Professor at the Department of Economics, University of Bergen, Norway. His present research interest includes social insurance economics, applied labor economics, and applied econometrics. On these topics, he has published in economic journals (Scandinavian Journal of Economics, Labour Economics, Applied Economics, etc.) as well as in sociological journals (European Sociological Review, International Journal of Sociology). Address: Department of Economics, University of Bergen, Fosswinkelsg 6, N-5007 Bergen, Norway. [e-mail: [email protected]] David Warner, PhD, is a Postdoctoral Fellow at the Carolina Population Center, University of North Carolina-Chapel Hill, USA. His research interests include the demography of work and retirement, health inequalities, gender and the life course, marriage and marital quality. His current research uses multi-state life tables to understand race, gender, and marital status differences in working life expectancies in the U.S. Address: Carolina Population Center, The University of North CarolinaChapel Hill, 123 West Franklin Street, Chapel Hill, North Carolina 27516, USA. [e-mail: [email protected]]

Preface

This volume is a product of the international and multidisciplinary research project “GLOBALIFE – Life Courses in the Globalization Process,” funded by the Volkswagen Foundation (Hanover, Germany). This project studied the implications of the globalization process for the life courses of individuals in modern societies. In particular, the project examined how globalization impacts four phases of the life course: (1) the transition to adulthood, (2) men’s mid-career mobility, (3) women’s mid-career mobility and the work/family link; and (4) late careers and retirement. There is an edited volume on each of these life phases. This edited book presents the findings of the fourth phase of the GLOBALIFE project. It examines how accelerating changes in the (labor) market, induced by globalization, and the incentives engendered by national pension systems affect the position of older employees in the labor market as well as their rate of exit to early retirement. In a globalizing world, the higher job security and wage levels of late-career employees are often at odds with the faster obsolescence of their skills and competences, the lower profitability of their re-training investments and their lower competitiveness with regard to the better qualified younger generation for newly created jobs. In a period of accelerated global change, companies therefore often view late-career employees as an increasingly expensive and inflexible burden. Employers can (1) either re-train late-career workers and adjust their skills to the new needs of the workplace, which is comparatively costly, or (2) lay them off, which jeopardizes the motivation and trust of mid-career employees in the company, or (3) cut their wages, which is often difficult and de-motivating, or (4) they can try to send them into early retirement – if this option structurally exists in their country. In other words, in a globalizing world older workers increasingly face a more difficult structural labor market position. In particular, in nations with so-called insider-outsider labor markets, where the job security of older workers is particularly high and layoffs as well as wage cuts are hardly possible, the response of the welfare state to accelerated structural change has been the introduction of various early retirement schemes for the older workforce. These measures offer incentives for older employees to leave the workforce earlier and give companies an opportunity to adjust their personnel’s qualification structure through the hiring of a younger generation with modern education. Such early retirement programs

Preface xxiii also help to unburden the labor market in general and to reduce the number of people who are counted as unemployed. However, not all countries have adopted this relatively costly early retirement solution, as will be demonstrated in this book. How late-career employees are affected by globalization varies strongly based on national institutions, such as occupational structures, employment relations, labor market policies, as well as welfare and pension systems, which together systematically filter the globalization forces. A central aim of this volume is therefore to compare the consequences of globalization for older employees across various country contexts of modern societies. The GLOBALIFE project started in 1999 and ended in 2005. It was first located at Bielefeld University, but then moved in September 2002 from Bielefeld to Bamberg, when its director, Hans-Peter Blossfeld was appointed as Professor of Sociology at the Otto-Friedrich-University of Bamberg. During the analyses and the writing of drafts, the project consisted of the following core project members at the University of Bamberg: Hans-Peter Blossfeld, Sandra Buchholz, Daniela Grunow, Dana Hamplová, Steffen Hillmert, Dirk Hofäcker, Heather Hofmeister, Karin Kurz, Detlev Lück, ŠtČpanká Pollnerová, Jan Skopek, and Kadri Täht. We would like to thank all of these colleagues for their superb support and their excellent comments in the weekly GLOBALIFE research seminars. As editors of the book and organizers of the cross-national comparisons, we would also like to thank all the contributors of the country-specific chapters in this volume for their wonderful co-operation and for the enormous effort they put into their analyses and manuscripts. We tried to use comparable data and made a commitment to apply a common research design to the study of effects of globalization on late careers. However, the contributors did not simply carry out a previously designed analysis. As demonstrated by the wealth of information in the country-specific chapters, much of the work in this book represents the creative contributions of our international collaborators. It is also important to note that all of the book chapters were peer-reviewed and revised several times. We also thank Petra Ries and Kathrina Schafhauser for competent administrative project support. In particular, in the stage of preparing the typescript, we received valuable help from our student assistants Monique Antler, Cathrin Conradi, Eva-Maria Goertz, Karin Handke, Wolfgang Kraus, Ilona Relikowski, Monika Schmich, Susanne Stedtfeld, and Dagmar Zanker. We would like to thank all of them for their careful contributions. We especially thank our colleagues Karin Kurz and Heather Hofmeister who gave us helpful advice for preparing the typescript. We have benefited greatly by the work of John Bendix, Sean McCambridge, Molly Knight, and Susan Lang who copy-edited our manuscripts, improved the English of several chapters with great care and gave us one or the other substantive advice. Although these colleagues eliminated some of our errors, only we are responsible for those that remain.

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We would also like to thank the many individuals who responded to our research when it was presented at various international conferences. Our appreciation also goes to Terry Clague and the anonymous Routledge reviewers for supporting the publication of this volume. Finally, we would like to thank the Volkswagen Foundation in Hanover for their financial support that made this ambitious project possible.

Hans-Peter Blossfeld Otto-Friedrich-University of Bamberg

Sandra Buchholz Otto-Friedrich-University of Bamberg

Dirk Hofäcker Otto-Friedrich-University of Bamberg

Foreword

Globalization has increased the uncertainty of late work careers, forcing many older workers to retire earlier than during the Golden Age of full employment prior to 1973. As shorthand for diverse economic changes, “globalization” can be seen as accelerated international economic competition, as restricted space for national public policies, and as ongoing transnational diffusion of labor saving technologies. These economic changes affect the life courses of individuals in their transitions from work to retirement. While globalization has pushed some older workers out of the labor market, it also considerably limits today’s welfare states in providing generous early retirement options. For current reform debates, we need to understand how global economic pressures have affected the late career life course. Why have some countries been more capable of maintaining high employment rates in older age groups, while other countries have excluded them from work and externalized costs on to welfare states? The present study looks at work-retirement transitions for older workers from a life course perspective. Instead of assuming globalization to have similar effects or leading to convergence, this comparative cross-national study takes into account the differential institutional “filters” of welfare state regimes, labor market regulation, and education-qualification profiles, mediating the impact of globalization on the late career life course. The present collaborative study of the impact of globalization on late-career phases is part of the GLOBALIFE Project (“Life Courses in the Globalization Process”), generously funded by the Volkswagen Foundation over the last five years (1999–2004). In previous studies, GLOBALIFE has covered the earlier phases in the work-related life course: the labor market entry phase, the midcareer patterns for men, and the work participation of women during the phase of childrearing. An understanding of these earlier life course phases is not only important in its own right, but also informs our understanding of transitions from work to retirement. Differences in general and vocational education have a longterm impact on an individual’s employment chances and career opportunities. Vocational training systems that focus on early phases often lack appropriate (re-) training thereafter – to the detriment of older workers’ skill profiles. Midlife career patterns such as steep seniority wages, insufficient up-skilling, workrelated health impairments, and unemployment spells are even more closely related to early retirement of men. Finally, increased female labor force participation in the mid-career phase may put more pressure on the labor market

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and may affect the quantitative impact of female (early) retirement. Due to the increased female employment participation, a life course analysis is particularly appropriate to study actual end-career exit patterns. This fourth volume in the GLOBALIFE series presents a comprehensive crossnational analysis of late career transitions from work to retirement and the differential patterns of maintaining active employment of or exclusion from work for the age groups aged 50 and older. Let me sketch an “archaeology” (Mayer 2004) of the comparative and life course analysis of early retirement over the last decades in order to situate the current study and highlight its considerable contribution. The advances made by the GLOBALIFE study can be best understood as standing “on the shoulders” of previous work seeking to grasp the seemingly general phenomenon of ever earlier exit from work. The observation that “older workers are one of the groups whose labor market situation, as unemployment became increasingly structural in its nature, has deteriorated considerably in the last decade” (Casey and Bruche 1983: vii), initiated a study at the Wissenschaftszentrum Berlin (WZB), comparing labor market problems of older workers in Germany, Britain, the Netherlands, Sweden, and the United States. The project looked at early retirement as one of multiple adjustment problems connected to rising mass unemployment since the mid1970s. Others included adjusted working conditions, dismissal protection, working time reduction, long-term unemployment, and re-integrative labor market policies. That analysis reflected the various strategies of trade unions, employers and governments used at the time to cope with structural unemployment: some unions called for working time reduction (most prominently the German metal workers union’s 35-hours-per-week-campaign), others sought to buy out older workers and bring in young unemployed persons (for instance, the German pre-retirement scheme of 1984). During the 1980s, life course analysis advanced to an exciting sociological perspective that had immediate relevance for studying (early) retirement (Mayer 2004). On the one hand, welfare states institutionalized retirement as a final exit from work and as the third phase of the life course. On the other hand, the actual retirement age became increasingly destandardized, as workers would leave employment ever earlier. By the early-1990s, Time for Retirement compared various pathways to early retirement (Kohli et al. 1991), such as flexible old age pensions, disability pensions, special pre-retirement schemes, and long-term unemployment benefits. Although many European countries, including Hungary, and the United States showed a trend toward early exit from work, the publicly financed pathways differed considerably across welfare states. During the 1990s, several specialized comparative studies investigated particular aspects related to early retirement, such as the (mis-) use of disability pensions (the “Dutch disease”) and the active employment strategy of gradual (or partial) retirement (the “Swedish virtue”). Esping-Andersen’s influential Three Worlds of Welfare Capitalism (1990) provoked much comparative research, and it was not unrelated to the early retirement problematic. In his view, Continental “welfare states without work”

Foreword xxvii face an “impasse” of “labor shedding” strategies, such as early retirement, to alleviate labor market pressures (Esping-Andersen 1996). Similarly, Fritz Scharpf criticized the “Continental dilemma”: the vicious circle of passive labor market policies that increases social labor costs and thereby unemployment rates even further (Scharpf 1998). His international comparative project on Work and Welfare in the Open Economy at the Max Planck Institute in Cologne explored the capability of welfare states to adapt to globalization (Scharpf and Schmidt 2000), including a study on reversing early retirement policies (Ebbinghaus 2000). These comparative welfare state analyses showed the importance of understanding the different macro-regime constellations and the difficulties of changing policies given institutional path dependency and political veto points. In contrast to macro-level studies, economists took macro-configurations as given and asked to what degree social protection would provide a “pull” towards early exit from work for older workers. A special study for the OECD (Blöndal and Scarpetta 1998) became the influential starting point for economic analyses of the disincentives to work provided by welfare states. A comparative international study used benefit simulations to show the incentive effects of current public old age pension schemes (Gruber and Wise 1999), although it excluded other pathways such as disability pensions and unemployment benefits. Yet employers may have fostered early retirement through private occupational pensions or golden handshakes. Many economic studies seem biased in looking mainly at the labor supply side, the “pull” incentives of welfare programs, while they ought to also take into account the demand side, the “push” factors, such as the interest of firms in shedding older workers. That early exit from work results at least partly from economic “push,” was a convincing new perspective in the comparative project under the direction of the late Frieder Naschold at the WZB investigating the externalization or internalization strategies of firms across Europe, Japan, and the United States (Naschold and de Vroom 1994). Some companies use early retirement as a strategy to restructure, keeping younger workers with new skills and shedding older workers with outdated skills in a socially accepted way. In Sweden and Japan, companies use more internalization strategies to maintain these workers in the firm or re-employ them after their mandatory retirement from career jobs. More broadly, the Varieties of Capitalism (Hall and Soskice 2001) approach draws attention to the differences between Anglo-Saxon “free” versus Rhenish “social” market economies, or liberal uncoordinated versus non-liberal coordinated market economies. Recent research in political economy has explored the institutional complementarities and elective affinities between welfare regimes, production systems, and labor relations (Ebbinghaus and Manow 2001). In order to explain variations in early exit from work, one should apply a more integrative macro-sociological perspective to look at the “pull” of different welfare regimes and the “push” of different economic systems as well as the mediating role of the social partners (Ebbinghaus 2006). The comparative studies reviewed thus far have largely used macrocomparative analysis to study “pull” and “push” factors on early exit from work

xxviii Foreword patterns. Even micro-economic analyses use pension benefit rules set nationally to simulate micro-level incentive effects. Besides individual national studies, truly comparative projects with micro-level analysis of early retirement decisions are rare, partly due to the problems of availability and comparability of survey and panel data. The GLOBALIFE project is a welcome endeavor empirically to study the impact of cross-national regime variations across welfare states and employment systems with the help of national micro-level data that allow longitudinal analysis. Just recently, a comparable micro-level database for older working and non-working people was launched in Europe with the SHAREProject (Börsch-Supan et al. 2005), allowing comparisons utilizing similar data in Britain and the Unites States. Interestingly, many of the mentioned international research projects have been initiated or coordinated at German research institutions. Given the long record of using early exit from work in response to labor market problems since the mid1970s, the societal and political debate in Germany (and in many other neighboring European countries) has naturally also affected the research agenda and funding decisions. Although the impetus may have been to understand national developments, from the very start these research projects were international in comparing experiences in other European countries and abroad, and collaborating with many non-German academics. This holds also for the GLOBALIFE project, thanks to the considerable coordinating skills of HansPeter Blossfeld at the Otto-Friedrich-University of Bamberg. The GLOBALIFE project has brought together a truly international team of collaborators to cover developments in eleven European countries and the United States. Compared to many previous studies concentrating only on socialdemocratic, conservative and liberal welfare state regimes, the GLOBALIFE scope of countries extends to include the post-socialist regimes of Eastern Europe. This is of particular significance, because no other area in Europe has gone through such dramatic exposure to globalization in the 1990s, with older workers forced out of work, especially in Central Eastern Europe (less so in the Baltic countries). Each national GLOBALIFE study provides an in-depth analysis of late career employment patterns and work to retirement transitions, based on the analysis of national micro-level data. These collected studies provide the most comprehensive analysis to date of individual work to retirement transitions in a life course perspective, enabling the comparison of different cohorts across time. Given the data upon which such retrospective cohort analyses rely, the findings concern past and current cohorts of retirees. Thus, in order to study the impact of current and future reforms, further studies will be needed in the years to come. For such endeavors, the GLOBALIFE project provides an impressive model of how to combine macro-comparative and micro-level analyses of the life course to illuminate social change. Bernhard Ebbinghaus Mannheim Center for European Social Research, University of Mannheim, Germany

Foreword xxix BIBLIOGRAPHY Blöndal, S. and Scarpetta, S. (1998) ‘The Retirement Decision in OECD Countries’, OECD Economic Working Papers, 202. Börsch-Supan, A., Brugiavini, A., Jürgens, H., Mackenbach, J., Siegrist, J. and Weber, G. (2005) Health, Ageing and Retirement in Europe – First Results from the Survey of Health, Ageing and Retirement in Europe, Mannheim: mea. Casey, B. and Bruche, G. (1983) Work or Retirement? Labor Market and Social Policy for Older Workers in France, Great Britain, the Netherlands, Sweden and the USA, Aldershot: Gower. Ebbinghaus, B. (2000) ‘Any Way out of “Exit from Work”? Reversing the Entrenched Pathways of Early Retirement’, in F.W. Scharpf and V. Schmidt (eds) Welfare and Work in the Open Economy. Vol. II, Oxford: Oxford University Press, 511–33. Ebbinghaus, B. (2006) Reforming Early Retirement in Europe, Japan and the USA, Oxford: Oxford University Press (forthcoming). Ebbinghaus, B. and Manow, P. (2001) Comparing Welfare Capitalism: Social Policy and Political Economy in Europe, Japan and the USA, London: Routledge. Esping-Andersen, G. (1990) Three Worlds of Welfare Capitalism, Princeton, NJ: Princeton University Press. Esping-Andersen, G. (1996) ‘Welfare States without Work: The Impasse of Labour Shedding and Familialism in Continental European Social Policy’, in G. Esping-Andersen (ed.) Welfare States in Transition: National Adaptations in Global Economies, London: Sage, 66–87. Gruber, J. and Wise, D.A. (1999) Social Security and Retirement around the World, Chicago, IL: University of Chicago Press. Hall, P.A. and Soskice, D. (2001) Varieties of Capitalism: The Institutional Foundations of Comparative Advantage, New York, NY: Oxford University Press. Kohli, M., Rein, M., Guillemard, A.-M. and van Gunsteren, H. (1991) Time for Retirement: Comparative Studies on Early Exit from the Labor Force, New York, NY: Cambridge University Press. Mayer, K.U. (2004) ‘Life Courses and Life Chances in a Comparative Perspective’, MZES Mannheimer Vorträge, 26. Naschold, F. and de Vroom, B. (1994) Regulating Employment and Welfare: Company and National Policies of Labour Force Participation at the End of Worklife in Industrial Countries, Berlin: W. de Gruyter. Scharpf, F.W. (2001) ‘Employment and the Welfare State: A Continental Dilemma’, in B. Ebbinghaus and P. Manow (eds) Comparing Welfare Capitalism, London: Routledge, 270–283. Scharpf, F.W. and Schmidt, V. (2000) Welfare and Work in the Open Economy. 2 vols, Oxford: Oxford University Press.

1 Globalization, accelerating economic change and late careers A theoretical framework Sandra Buchholz, Dirk Hofäcker and Hans-Peter Blossfeld

INTRODUCTION Globalization has powerfully shaped both national economies and individual life courses in modern societies during the last two decades (Blossfeld et al. 2005; Blossfeld, Mills, and Bernardi 2006; Blossfeld and Hofmeister 2006). The growing flows of capital, commodities, services, labor, and information across national borders have intensified the exchange between people from countries with quite different productivity levels, wage structures, social standards, work cultures, and investment opportunities – in particular after the fall of the Iron Curtain. The emergence of a single worldwide market has therefore enhanced the number of competitors – with the effect that a larger market spawns more international specialization of labor and more rapidly transforms older industries and occupational structures and brings new ones into being. Furthermore, the competition between more heterogeneous market participants and companies working under different production conditions has increased, which in turn has raised the likelihood of market turbulences, the volatility of market developments, and the rate of technological progress in the economy. In addition, the increasing mobility of production factors across national borders, in particular financial capital, has led to a rising tax competition among welfare states and to a greater effort of governments to deregulate, privatize, and liberalize their national economies. The importance of the market as a coordinating principle appears to increase with actors competing on a larger and intensified scale. Acceleration and rising uncertainty of social and economic processes in open economies have been reinforced by the constant improvement of modern information and communication technologies, which allow individuals to connect faster around the globe. Thus, important scientific discoveries and technological advances, including new and better materials and improved methods of production as well as consumer fashions and product innovations, are diffusing much faster throughout the interconnected world. The increasing integration of the world’s economic community also creates unprecedented interdependences and therefore reinforces the exposure of local markets to random external shocks (such as major political and economic crises,

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technological inventions, wars, terrorist attacks, etc.) occurring someplace on the globe. In other words, global markets are not only more dynamic and are pushing technological advances in an extraordinary manner, but they have also turned out to be less predictable and more risky. The increasing acceleration of technological innovation and rising uncertainty of the social and economic environment of firms require companies to respond faster to these changes (Castells 2000; Mills and Blossfeld 2003). In other words, there is a rising need for a more flexible work organization in most firms and for higher investments in employee training and development. Workers’ vocational, technical, and professional skills need to be able to adapt quickly to technological advances in the workplace and to newly created job positions. Even if we see increasingly powerful effects of globalization, the nation state usually remains the decisive force in determining the economic condition of its citizens (Mills and Blossfeld 2005). National labor markets are an important reality, and pension systems differ to a large extent among countries. A central aim in this volume is therefore to compare the consequences of globalization for older employees across various country contexts. The impact of globalization on the employment patterns of men and women in modern societies has been studied by the GLOBALIFE project for young people entering the labor market (Blossfeld et al. 2005) as well as for the job trajectories of mid-career men (Blossfeld, Mills, and Bernardi 2006) and mid-life women (Blossfeld and Hofmeister 2006). In this book, we address the question of how accelerating changes in the (labor) market, induced by globalization, and the incentives engendered by national pension systems affect the position of older employees in the labor market as well as their rate of exit to early retirement. Only a few studies have paid attention to the effects of globalization on older workers, and most of these studies focused on how globalization affects the sustainability of welfare states or the financing of pension systems in rapidly aging populations. An elaborate empirical comparison of the consequences of accelerated economic change and the filtering of this change by country-specific institutions for late-career employees is lacking. Fast changes in technology and work affect the relative numbers of workers in different jobs, occupations, and industries and call for corresponding changes in the re-training and movement of current workers and the allocation of young entrants and other persons seeking employment. In this adjustment process, older workers increasingly face a more difficult structural labor market position for a number of reasons. First, older employees, in particular the more qualified ones, have a lower likelihood to change firms than younger workers in all modern societies. This is because the security of employment within an organization often increases with seniority. Even though long-term employment security is usually not guaranteed by law or contract in most countries (exceptions are the civil servants in Germany, for example), it has been often embedded in the human resource planning policies of internal labor markets in larger firms. For older employees, it also becomes harder to find a job with another company that will replace the wages and fringe benefits often achieved after years of service

Globalization, accelerating economic change and late careers

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and internal promotion. Thus, voluntary job moves across firms generally decrease with age. Second, based on promotion and seniority rules, late-career employees often enjoy higher wages than younger employees, even if this wage differential is not necessarily justified by a higher productivity, making latecareer employees often more expensive than their younger competitors. Third, based on the acceleration of technological and organizational change, the skills and labor force experiences of older workers – who were often trained for more traditional occupations – get outdated more quickly, so that their comparative advantage in terms of work experience declines more rapidly in globalizing societies. Fourth, the period of future returns-to-investments in on-the-job training and re-training is typically much shorter for older workers than for their younger counterparts. Consequently, employers’ incentives for these investments often decrease strongly with the age of employees. This makes it also harder for older unemployed workers to get jobs requiring longer periods of on-the-job training. Instead, their re-entry opportunities are often limited to those jobs where the demanded skills are easily acquired and where wages are usually lower. Finally, younger workers with a recent education are often more suitable for many of the newly created jobs in the knowledge economy – and as long as young job seekers have difficulties establishing themselves in a tight labor market (see Blossfeld et al. 2005), these young people will be less expensive alternatives. In sum, in a globalizing world, the higher job security and wage levels of latecareer employees are often at odds with the faster obsolescence of their skills and competences, the lower profitability of their re-training investments and their lower competitiveness with regard to the better qualified younger generation for newly created jobs. In a period of accelerated economic change, companies therefore view late-career employees as an increasingly expensive and inflexible burden. Employers can (1) either re-train late-career workers and adjust their skills to the new needs of the workplace, which is comparatively costly, or (2) lay them off, which jeopardizes the motivation and trust of mid-career employees in the company, or (3) cut their wages, which is often difficult and demotivating, or (4) they can try to send them into early retirement – if this option structurally exists in their country. In particular, in nations with so-called insideroutsider labor markets, where the job security of older workers is particularly high and layoffs as well as wage cuts are hardly possible, the response of the welfare state to accelerated structural change has been the introduction of various early retirement schemes for the older workforce. These measures offer incentives for older employees to leave the workforce earlier and give companies an opportunity to adjust their personnel’s qualification structure through the hiring of a younger generation with modern education. Such early retirement programs also help to unburden the labor market in general and to reduce the number of people who are counted as unemployed. However, not all countries have adopted this relatively costly early retirement solution, as will be demonstrated in this book. How late-career employees are affected by globalization varies strongly based on national institutions (Mills and Blossfeld

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2003), such as occupational structures, employment relations, labor market policies, as well as welfare and pension systems, which together systematically filter the globalization forces. Our comparative analysis in this book includes twelve countries from five welfare and labor market regimes. The United States and Great Britain represent the liberal regime, while Germany and the Netherlands exemplify the conservative one. Denmark, Norway, and Sweden count as social-democratic regimes, while Italy and Spain embody the Southern European regime. The “post-socialistic” regimes in our study are the Czech Republic, Estonia, and Hungary. This introductory chapter discusses how globalization may have affected older workers in different regime types and thereby provides a comparative theoretical framework for the following twelve country studies and their comparison in the final chapter of this volume. We first describe how OECD economies and their labor markets have changed due to globalization and then explain how global forces affect late-career employees’ labor market position and retirement behavior. Subsequently, we develop different ideal-typical strategies for how various societies adapt an older workforce to the accelerating structural change in a globalizing world. In particular, we address the importance of national institutions such as pension systems, production regimes, occupational structures, and employment-sustaining policies in filtering the effects of globalization on late careers. Based on these institutional considerations, we present both a regime classification and hypotheses for an international comparison of late careers before we identify specific individual characteristics affecting the labor force participation of older employees. We conclude with a brief summary of the key hypotheses, a short description of the data and methods employed, and an overview of the structure of the book.

GLOBALIZATION AND ITS IMPACT ON LATE-CAREER WORKERS It is a general perception that in recent years, the world has been changing more rapidly than ever before and that it is likely to keep changing at this accelerating pace in future years (Tanzi 2000). Globalization is the key idea by which the media, policy makers, and academics explain this acceleration of social and economic processes in the recent past (Waters 2001). As outlined by Mills and Blossfeld (2003), globalization can be characterized by four interrelated structural shifts that have transformed the life courses in modern societies during the last two decades (see Figure 1.1). First, there is the rapid blurring of national borders and the subsequent internationalization of financial, product, and labor markets, especially after the breakdown of the East–West divide. This development has intensified the exchange among people from countries with different production conditions and has stimulated a new international division of labor, which rapidly has transformed older industries and occupational structures and brought new ones

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GLOBALIZATION

Internationalization of markets

Intensification of competition based on deregulation, privatization, liberalization

Increasing division of labor among societies, intensification of innovation, transformation of old industries and occupations, creation of new ones

Spread of global networks and knowledge via new ICTs

Rising dependence of local markets on global shocks occurring randomly

Accelerating market transactions

Increasing volatility of market development

Increasing uncertainty and accelerating rate of social and economic change Greater need for swift adaptation

INSTITUTIONAL FILTERS Institutions adapting an older workforce to structural change Pension and welfare systems Promoting/hindering employment exit

Employment relations systems

Occupational systems

Employmentsustaining policies

Promoting/hindering employment continuation

MICRO LEVEL Late-career mobility pathways: employment maintenance versus employment exit Figure 1.1

Globalization, accelerating economic and social change and late-career transitions (own illustration following Mills and Blossfeld 2005)

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into being. The second shift has been the intensification of competition generated from privatization, deregulation, and liberalization within the nation states. In an era when capital increasingly crosses national borders, nation states are forced to compete with each other for foreign direct investments. This often happens on the basis of tax competition and the creation of more attractive investment conditions through privatization, deregulation, and liberalization. The third development is the constant advancement of modern information and communication technologies, which allows people to form global networks, to connect swiftly around the world, and to create an instant common worldwide standard of comparison. Modern ICTs have therefore fundamentally changed the scope, intensity, velocity, and impact of social and economic transformations. Finally, globalization produces a mutual dependence on the world, which makes local markets increasingly vulnerable to random shocks (such as major political and economic crises, technological inventions, wars, terrorist attacks, etc.) occurring someplace on the globe. Altogether, these four mechanisms of globalization have produced unprecedented accelerated social and economic change and have increased the level of market uncertainty over the last two decades (Castells 2000). Public and private organizations are forced to adjust to these changes in their environment and to use more flexible forms of production and distribution organization as well as new management strategies (Castells 2000; Piore and Sabel 1984). The most prominent recent examples of more flexible forms of labor organization are outsourcing, which many companies have used as a strategy to shift their production to other countries; lean management, the desire of many firms to reduce the number of levels in the management hierarchy and the number of middle managers; and lean production to simplify work procedures and speed up the whole production process. In OECD countries, the chief investment in plants and equipment since the late-1980s was directed into information technology, such as computers and telecommunications equipment (Castells 2000). As a consequence, the reorganization of labor has been characterized by more extensive networking, both within and between (multi-national) enterprises (Castells 2000; Piore and Sabel 1984). New information and communication technologies have also entailed considerable shifts in the production processes. In particular, automation and computer programmable machinery have set the conditions for a shift from large-scale standardized goods to flexible specialization and differentiated quality (Soskice 1999). Of course, these developments affect late-career employees and their position on the labor market. First, we expect that both unskilled and skilled older workers find it increasingly difficult to adapt to the technological changes associated with the knowledge-based global economy. The increasing use of automated machinery places new demands on both the technical skills and the intellectual aptitudes of production workers. We therefore expect that unskilled workers in plants will be more quickly replaced by smaller numbers of higher qualified workers operating sophisticated computer-controlled equipment. We also expect that late-career

Globalization, accelerating economic change and late careers

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employees who were trained for skilled work in industry and trade will have difficulties, because their manual skills and job qualifications are becoming quickly obsolete by these technological advancements. The new knowledgebased work in globalizing societies is generally dependent on research and development and puts a premium on product innovation speed. Firms’ rising factory automation often also means a re-definition of whole work processes and, connected to this, a stronger need for more theoretically qualified employees. Thus, as the routine manual work associated with industrial manufacturing increasingly declines, there is a rising demand for more autonomous, theoretically qualified, and intrinsically motivated workers (Castells 2000). However, employers’ willingness to invest in re-training older vocationally trained employees or to equip them with the skills needed for the new jobs will likely decrease with age, because older workers have a higher likelihood to leave the firm sooner than their younger counterparts. In addition, young people often have the modern theoretical qualifications and are still relatively inexpensive in modern globalized societies (Blossfeld et al. 2005). Second, globalization seems to encourage a dual shift in the production process of modern societies. On the one hand, faster technological advancement and the rise in automation make it possible to increase the output from a shrinking labor force. In this process, traditional occupational structures are rapidly transformed, which makes many of the older jobs superfluous (Castells 2000). On the other hand, shifting production to countries where production costs are lower and labor is cheaper moves jobs from highly industrialized countries to less-developed ones. The accelerated global division of work has sometimes affected even whole industries (mining, steel, ship building, and textiles, for example) and the jobs related to them. Since the share of older employees in these obsolete industries is higher than in more modern ones (see Blöndal and Scarpetta 1998), late-career employees will be particularly affected by the decline of these obsolete economic sectors. In sum, we expect that in a globalized market, more firms will have to lay off workers to stay competitive – and older workers who often have relatively high seniority wages and obsolete skills and occupations may most likely be affected by this development. Third, the higher productivity growth in the industrial sector than in the service sector will lead to increasing competition among workers seeking jobs in the service sector. However, work in the service sector is highly diverse, from cleaning workers to business consultants, from truck drivers to financiers, from fast-food workers to waiters in first-class hotels, from kindergarten teachers to university professors, from nurses to medical doctors, and from street sweepers and garbage collectors to heads of administrations. Again, we expect that young workers have a better chance to get the more attractive semi-professional and professional service positions, because they are generally better educated than their older competitors and more often hold the necessary college and university certificates for modern service jobs. In contrast, older workers with obsolete manual qualifications will be rather constrained to those service jobs with lower status, poorer working conditions, and lower pay.

8

Sandra Buchholz, Dirk Hofäcker and Hans-Peter Blossfeld

Fourth, in many countries older employees have a socially acknowledged alternative role outside the labor market, namely as pensioners. Thus, early retirement programs in some countries represent a policy response to cope with increasing labor market problems and rising unemployment of older workers. However, while this strategy of sending older employees into retirement might appear to be a costly but appropriate measure to ensure “social peace,” it might even encourage employers to discriminate (through mass layoffs) against older workers precisely because the alternative role of the pensioner is available.

STRATEGIES TO ADAPT THE QUALIFICATION STRUCTURE OF THE WORKFORCE TO ACCELERATING STRUCTURAL CHANGE There are two opposite ideal-typical strategies to adjust the qualification structure of the workforce to the demand of accelerated structural change (see Figure 1.2). One basic model is to retire older employees with their obsolete skills earlier (employment exit) and to hire young people with modern education. The implication of this model means a shorter working life for older employees. Of course, this model only works if there is a sufficient number of qualified young people available to replace them. This is still the case in most modern societies (see Blossfeld et al. 2005). The alternative is to rely on the further qualification and re-training of older workers, so that they are able to successfully adapt to the changing demands of workplaces and the emergence of new jobs (employment maintenance). Although there is a complex coexistence of employment exit and employment maintenance strategies in every modern country, we hypothesize that the logic of

Keep the older workforce

Shed the older workforce

<< Basic logic >>

Employment maintenance

Employment exit

Late-career mobility patterns: late-career job mobility, late-career employment mobility Figure 1.2

early retirement; transitions into welfare state subsystems

Schematic illustration of ideal-typical strategies to adapt the older workforce to structural change and the resulting late-career mobility patterns

Globalization, accelerating economic change and late careers

9

historically grown configurations of national institutions systematically suggests the adoption of one of the two strategies. But before we develop this argument, we first discuss the two strategies in more detail. Strategy 1: employment exit based on early retirement Many Western industrialized countries have responded to accelerating economic change by offering older employees incentives to leave the labor market early. One of the most common policies has been to provide early retirement programs. In various countries, welfare programs, such as unemployment or invalidity insurance benefits, serve the same function (see Guillemard 1991). Early retirement schemes allow for shedding older employees from the labor market before they reach the mandatory retirement age. The programs offer older workers only slightly reduced pension benefits compared with the benefits they would receive if they continued working and retired at mandatory retirement age. Although early retirement programs are quite expensive, they seem to be advantageous for all relevant actors who face the consequences of accelerated structural change in the labor market. Employers can use them as a relatively cheap individual strategy to adjust their workforce to a quickly changing environment (Blossfeld and Stockmann 1998/99). Due to the comparatively high level of early retirement pensions in many countries, older employees often perceive them as a means to gain more leisure time while maintaining the same standard of living. In addition, the steady receipt of benefit payments guarantees early-retired financial security in an increasingly uncertain economic world. Finally, nation states also may have an interest in implementing early retirement schemes, because they provide an effective instrument for national economies to keep the qualification structure of the workforce competitive and to offer incentives for companies to keep their production within the country. Furthermore, early retirement schemes that encourage older workers to leave the labor force early (and offer younger workers the chance to find jobs in the labor market) provide an effective means to lower the unemployment rate of a nation. This is particularly the case in those countries where the structural unemployment rate (long-term unemployment) is high. Early retirement may therefore indirectly help to safeguard jobs and to protect a society from the adverse effects of high unemployment rates. It is therefore not surprising that early retirement options have become widespread, especially in countries with rigid insider-outsider labor markets in Central and Southern Europe as well as in countries with unprecedented structural change, such as in post-socialist transition countries (see Hofäcker and Pollnerová, this volume). Strategy 2: maintaining an older workforce in the labor market Countries that are ideologically less prone to state intervention, such as the United States or the United Kingdom, and countries which have a long history in

10 Sandra Buchholz, Dirk Hofäcker and Hans-Peter Blossfeld actively supporting employment attachment of men and women throughout the life course, such as the Scandinavian countries, are less keen on using early retirement as a means to adjust the qualification structure of the workforce to the accelerated structural change of job positions (OECD 1995, 1998). Instead, these societies maintain the older workforce in the labor market and re-train them. Two different maintenance strategies have to be distinguished. First, the nation state might rely on the mechanism of a flexible, unregulated labor market to allocate (older) employees to new jobs. We call this strategy “market-induced maintenance.” It has been used in countries such as the United States in past decades. Though this strategy has been comparatively successful in terms of higher economic activity rates of older age groups, it may not be supported unanimously by all of the labor market actors. On the one hand, employers often favor this system, because it allows them to react flexibly to economic changes, and it keeps the wages of older employees low. On the other hand, companies have to spend an increasingly significant amount of their resources on re-training programs for older workers. Policymakers often favor this policy, because flexible labor markets and company re-training usually keep down the extent and rigidity of unemployment and reduce the overall burden of welfare support. The higher activity rate of older people also increases tax revenue. However, such advantages come at the cost of a higher job mobility rate and a lower wage, job quality, and prestige for older employees. In addition, due to the fact that public pension schemes in these countries usually only partly compensate for the level of wages earned, some groups of employees have to continue to work for financial reasons after receiving a pension. Second, there is the public-induced maintenance strategy of Scandinavian countries. In this approach, older workers are enabled by firms or the state to adjust to the changes in their workplace, to take over new jobs, or to obtain new employment through advanced training and refresher courses. These (re-) training measures may therefore take place either within a firm, as a form of continuing on-the-job training, or they may be state-sponsored efforts aimed at workers who have lost their jobs and are actively searching for new ones. Keeping (older) workers employed is the aim of this social-democratic policy; long-term unemployment or early retirement is ideologically not accepted. Rather unemployment is considered as an opportunity to adapt individual qualification profiles to the new needs of the changing labor market. Such lifelong (re-) training ideology can be expected to ensure older workers’ adaptability and employment continuity as well as their re-entry chances after job loss. The idea is that (re-) trained older employees with long work experience may actually be attractive to employers, as this approach provides continuity if not institutional memory, reduces the search costs and lost time in training new workers, and avoids potential difficulties (such as court cases about age discrimination) if older workers were dismissed. The added benefit for employees is that they remain useful and have the opportunity to earn higher pensions.

Globalization, accelerating economic change and late careers

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Adapting strategies and mobility patterns For our longitudinal study, the distinction between employment exit and employment maintenance strategies is of empirical importance. Depending on the kind of strategy used, late-career mobility patterns are expected to differ strongly by country in the age of globalization (see Figure 1.2). In employment maintenance regimes, we expect that globalization intensifies job turbulence and late-career mobility across time and cohorts. This means we anticipate older employees to be increasingly mobile both between and within firms. We also anticipate, especially in market-induced maintenance regimes, a destabilization of late careers in the sense of increasing job losses, more short-term unemployment spells, and more re-entries into employment. On the other hand, in employment exit regimes, we expect that globalization will push older employees increasingly out of the labor market early. Thus, when we compare late careers across time and cohorts, we expect to observe fewer job-to-jobmoves, less re-entries from unemployment into employment, but more transitions from employment to long-term unemployment and an increasing rate of early retirement (or to any of the functionally equivalent welfare programs, such as receiving invalidity insurance benefits). Employment maintenance and employment exit policies can be considered as the ideal-typical extreme points on a continuum. Modern societies are complex economies and will never completely adopt only one or the other extreme strategy. However, the extent to which employers and the state in a particular society use employment exit measures instead of measures of maintaining the older workforce, depends on how far nation-specific institutional structures foster one over the other alternative. Such structures will also influence whether late-career workers will be more or less likely to retire early or be mobile within the firm or in the labor market.

GLOBALIZATION, LATE CAREERS AND INSTITUTIONAL FILTERS Though we have argued that globalization is expected to affect the mobility patterns of older employees, we do not assume that such influences will be homogeneous across all countries or that we will find a convergence of late employment trajectories across all modern societies. Instead, we expect that national institutional settings will have a mediating effect on how an older labor force is adjusted to structural change, and in this way, will indirectly affect patterns of labor force mobility and employment exit. Country-specific institutions and historically grown social structures determine how late careers are re-shaped under globalization. As Mills and Blossfeld (2003) have argued, institutions and social structures have a certain inertial tendency to persist (Esping-Andersen 1993) and act as an intervening variable between global macro forces and the responses of individual actors on the micro level (Regini 2000; Mayer 2004). But when we consider institutional structures as filters of global

12 Sandra Buchholz, Dirk Hofäcker and Hans-Peter Blossfeld processes on late-career workers, neither a pure welfare state perspective (on pull effects) nor a pure labor market perspective (on push effects) is sufficient. An appropriate approach to cross-national differences has to rely on both systems (DiPrete et al. l997): (1) the pension systems or more general welfare arrangements, which promote or hinder the exit from employment (pull effect) and (2) institutions, which promote or hinder the continuation of employment of late-career workers (push effect) including occupational structures, employment relations systems, and employment-sustaining policies (see Figure 1.1). Pension systems and welfare arrangements In times of accelerating structural change in the economy and rising labor market pressure, public policy may introduce incentives, which reward or penalize employers (and older workers) keeping an older workforce employed. Early retirement schemes play a central role here, as they provide both opportunities and financial incentives for employment exits before the legal retirement age. The recent decrease in old age employment in many Western industrialized countries can be attributed to a large extent to such early retirement options and incentives (Blöndal and Scarpetta 1998; Gruber and Wise 1998). Therefore, in the analysis of country-specific late career pathways, primary attention needs to be paid to the various characteristics of contemporary national pension schemes. First, the minimum number of years required to qualify for a public pension needs special attention, since it has a strong effect on the actual use of employment exit options, particularly on early retirement. Second, the cumulated duration of previous pension contributions may play a central role in systems where the pension benefit is highly contribution-based. In these countries, the incentive to remain in the labor force will be relatively high unless early retirement is compensated for by a strong non-actuarial formula. On the other hand, there are also penalties for work beyond retirement age in some countries. Third, the generosity of benefits has an important effect as well. For example, if both the level of pensions in general as well as the compensation level of early retirement benefits are comparatively generous and allow for a decent standard of living in old age, urging older employees to withdraw earlier from work constitutes a socially acceptable strategy to relieve the labor market. However, in less generous systems where (early) pension benefits are low, older individuals are forced to remain in the labor market for years to make ends meet. This prolongs the work life, often beyond official retirement and often forces shifts to low-paid, part-time, or temporary jobs, or even to work in the informal economy. Empirically, Central and Southern European countries have high levels of wage replacement through public pensions and attractive early retirement schemes. Such countries appear to follow a policy of encouraging early retirement, which is a reasonable strategy against the background of industrial or still heavily agricultural economies whose rigid labor markets were characterized by high levels of employment protection and restricted opportunities to adapt qualifications to changing global market needs. The opposite model is provided

Globalization, accelerating economic change and late careers

13

by countries with liberal welfare regimes (e.g., Britain and the United States), which have relatively low levels of pension benefits and offer no or only moderate incentives for early retirement (Blöndal and Scarpetta 1998; Gruber and Wise 1999, 2004). We therefore expect that in these countries, individuals will try to stay in the workforce even at the expense of downward job mobility. Pension systems in Scandinavian countries can be expected to take a position between the two groups just discussed. Scandinavian pensions are fairly generous, but mostly offer only very moderate early retirement incentives. Instead, one partly finds options for a more gradual entry into retirement in these regimes. Due to fundamental changes in national retirement systems over the last decades, we have to extend our view beyond the public pension system. Nowadays, many retirement systems are characterized by a coexistence of three pillars: a public pension system, an occupation-based pension system, and private pension plans established by individuals. An analysis of pension systems and their effects on job mobility and employment exit patterns has to consider all three pillars and their importance in the various national contexts as well as how they encourage or discourage employment. An additional important feature is how portable the pensions are in case of job or even firm changes. Finally, in addition to explicit (public or private) pension programs, other welfare state subsystems, such as invalidity benefits or unemployment insurance, also have an important impact on the employment of older people, as Guillemard (1991) has argued. These programs often work as functional equivalents or possible extensions of early retirement schemes, without explicitly being labeled as such. An appropriate analysis and description of national pension systems therefore needs to be based on a broad consideration of all possible pathways to retirement, including these subsystems. This will be achieved in the respective country-specific chapters in this book. Occupational structures and labor market boundaries So far, we have concentrated our discussion on institutional filters pulling latecareer workers out of the labor market. But attention also needs to be paid to occupational structures, employment relations systems, and employmentsustaining policies, which, depending on their design, can push the older workforce out of the labor market. Since globalizing societies are characterized by accelerating economic change, there is an increasing tension between the demands from technological advancements at the workplace and the newly created job positions, on the one hand, and the qualification structure of workers in terms of vocational, technical, and professional skills, on the other hand. We hypothesize that labor market structures and labor market policies that enable or hinder employees to adjust their qualification profiles and to move to other jobs and occupations have an important influence on late-career mobility patterns and the retirement behavior of older people.

14 Sandra Buchholz, Dirk Hofäcker and Hans-Peter Blossfeld It is well-known that educational systems play a particularly important role for the organization of occupational labor markets and the rigidity of mobility structures in modern societies. Countries with educational tracking and welldeveloped vocational training systems often create rigid boundaries between occupations and qualification levels and reduce the mobility between jobs and occupations, particularly when the access to jobs is based on nationally recognized training certificates (Allmendinger 1989; Müller and Shavit 1998; Blossfeld and Stockmann 1998/99). The best example is the dual system of vocational training in many German-speaking countries where both theoretical learning in school and practical training at the workplace are highly standardized, and the training concludes with a recognized certificate that serves as a precondition for entry into specific jobs and occupations. This system also produces a strong differentiation over the life course between un- and semiskilled workers and the vocationally trained. In these countries, it is not easy, in fact it is almost impossible, to shift older aged employees who have lost their job in the process of accelerated structural change to other occupational positions. Early retirement therefore is often used as a policy response to the rigidity of occupational structures. This contrasts sharply with countries such as the United Kingdom or the United States, where people can relatively easily acquire vocational skills via on-the-job training. In these countries, we therefore expect higher levels of job-to-job or occupational mobility in old age. In addition to these differences in vocational training systems, training opportunities over the entire life course strongly determine the chances of an older workforce adapting to globalization-induced changes (Blossfeld and Stockmann 1998/99). In some countries such as Germany, Italy, and Spain, vocational training is more or less limited to a short period early in the life course. Other countries, in particular the liberal and the Scandinavian ones, more readily pursue the idea of life-long learning and enhance the chances (as well as the flexibility) of their older workforce to adapt to new demands. Consequently, we expect a stronger long-term life course effect of initial vocational training in Central and Southern Europe, because these countries lack institutionally provided opportunities for (re-) training. In these countries, the adaptation to structural and technological change is mainly achieved via generational replacement in the labor market (Blossfeld and Stockmann 1998/99). Employment relations systems Countries also differ with respect to the basic relationship between employers and employees and make it more or less easy to shift market risks to employees (Soskice 1999; Ebbinghaus 2000, 2002). On the one hand, there are open employment relationships in countries such as the United States and Britain (after Margaret Thatcher) that can be characterized as being decentralized, dualistic and based on free market forces. In such “uncoordinated market economies” (Soskice 1999), unions and employee representation boards play only a rudimentary role, so that workers are relatively unprotected from market

Globalization, accelerating economic change and late careers

15

forces and depend on individual labor market resources (such as human capital) (DiPrete et al. 1997). On the other hand, in many European countries, we find relatively “coordinated market economies” (Soskice 1999) where unions are strong and centralized procedures of negotiation are common. Uncoordinated and coordinated economic systems strongly differ in the level of employment protection. While job protection is highly developed in European countries with strong unions, we find relatively low levels of job protection in countries with uncoordinated economies. We hypothesize that in contexts where job protection and employment security are low, it will be easier for employers to react to the demands of structural change by simply shedding older employees with outdated qualifications. The easier it is for employers to dismiss their employees, the more we expect employees to exit into unemployment or to move between jobs. When personal wealth and welfare benefits are low, people will seek employment in other jobs demanding lower qualifications, or into specific precarious work forms such as (marginal) part-time work, fixed-term contracts or insecure forms of self-employment. Thus, the consequences of few employment protections accompanied by low welfare and pension benefits are low rates of early retirement, more flexibility in the labor market, and a trend toward more older workers employed in non-standard forms of work. On the other hand, in nations where employment protection is well developed, there are fewer opportunities for employers to shed their older employees through formal dismissal. In this case, strong legal restrictions protect individuals and older employees from being dismissed or forced to accept lower wages. However, restricted opportunities do not necessarily mean that we will find low rates of exit from the labor force before legal retirement age in these countries. If pension schemes (state, private insurance, occupational) provide financial incentives to exit the labor market early, we can expect a bifurcation based on individual qualifications. A high proportion of workers with obsolete qualifications will take the opportunity to retire early, while employees with skills that are still needed will stay in their jobs until retirement age. In sum, we expect more early retirement and low mobility rates (especially downward mobility) among older employees in highly protective employment systems. Employment-sustaining policies of the welfare state The likelihood of early labor force exits is influenced not only by occupational structures and employment relations systems but also by active, employmentsustaining policies aiming directly at employment maintenance and the reintegration of unemployed older workers into employment. The general aim to facilitate employment and to re-integrate unemployed workers applies to older as well as to younger employees. Policy may include such diverse measures as state supported and temporary jobs, limiting the duration of unemployment benefits (to increase the incentive for early re-entry into the labor market) as well as “activation” programs designed to re-train and re-integrate (older) employees into the labor market (DiPrete et al. 1997). In

16 Sandra Buchholz, Dirk Hofäcker and Hans-Peter Blossfeld general, these measures increase older employees’ attachment to the labor market and will lead to more job changes and ensure low rates of labor force withdrawal before the standard retirement age. In fact, many Scandinavian welfare states show that these policies work and lead to relatively high employment rates until retirement age. In Sweden, this pattern can be traced back to a labor market policy that placed much emphasis on full employment and used a combination of macro-economic policies to keep employment high (Calmfors 1993). Countries such as Italy, the Netherlands and Germany have fewer active labor market policies to support the re-entry into the labor market after a job loss, and if they were used, they were disproportionately targeted to the younger population. Late careers and institutional contexts – a conceptual frame Based on our discussion, we expect late-career mobility patterns to vary with nation-specific institutional filters as reflected in both the labor market and the welfare state. These filters interact with each other and are expected to lead to a considerable diversity in country-specific mobility patterns when one examines late-career employment at the individual level. Table 1.1 synthesizes our expectations and presents a categorization of different institutional regimes and their effects on late careers based on the discussed dimensions. In our research on late careers, we follow the well-known distinction of modern societies into different welfare regimes and categorize countries into liberal, social-democratic, and conservative (Esping-Andersen 1999), Southern European (Ferrara 1996), and post-socialist regimes (Mills und Blossfeld 2005). In liberal countries, we expect that low levels of employment protection foster a comparatively high level of labor market mobility among older workers. In addition, this is facilitated through a comparatively non-standardized educational system, leading to weak occupational boundaries and greater reliance on on-thejob training. The comparatively low levels of income security from public pensions in these countries lead us to expect that these mobility patterns will often continue even beyond formal retirement age. Early retirement transitions should therefore play a rather moderate role in liberal countries. In social-democratic countries, we also expect early retirement to play a moderate role and to find long work lives, though not due as much to market forces as in liberal countries. Rather, life-long (re-) training, active labor market policies and pension systems make late-career work patterns more durable and flexible. All in all, we expect that the high level of labor force participation in social-democratic countries is achieved by a lower level of job mobility than in liberal countries. In conservative and Southern European countries, on the other hand, we expect rather high rates of labor market exits through early retirement. Due to a relatively regulated employment relations system (insider-outsider labor market), the increasing need to restructure and rationalize work processes can hardly be

Liberal

Country showcases in this book

Resulting modal late career pattern

Active, employment supportive programs

Re-training programs

Sweden, Denmark, Norway

Relatively continuous careers, few early exit

Mobility within the labor market USA, Great Britain

Maintenance (public-induced)

Maintenance (market-induced)

Privatized pension Highly compensating universal pension systems, low generosity of public provision systems with strong public pillar

Low involvement of the state

Employmentsustaining policy

Pension system

High importance of on-the-job training

Occupational system

Moderate employment protection (strong in Sweden; weaker in Denmark)

Social-democratic

Germany, the Netherlands

Strong tendency towards early exit

Employment exit

Generous public pension system; strong early retirement incentives

Few active employment programs

Certification based occupations

High employment protection

Conservative

Institutional contexts and their impact on late careers in the globalization process

Employment relations Flexible labor markets system with low employment protection

Regime

Table 1.1

Italy, Spain

Strong tendency towards early exit

Employment exit

Generous pension schemes; strong earlyretirement incentives

Few employmentsustaining policies

Rigid occupational structures

High employment protection and elaborated insideroutsider market

Southern European

Post-socialist

Czech Republic, Estonia, Hungary

Country-specific path-breaking

Country-specific

Country-specific

Country-specific

Protection varies by country (stronger in Czechia; weaker in Estonia)

18 Sandra Buchholz, Dirk Hofäcker and Hans-Peter Blossfeld achieved by dismissing workers. Also, occupational boundaries created by highly standardized vocational training systems do not allow the older workforce to shift easily into newly created jobs and occupations. In order to meet the demands of the economy in a globally changing market, pension systems and other welfare systems therefore need to provide incentives for older workers to withdraw from the labor market early. Trends in post-socialist countries, however, remain hard to predict. Although these countries share a common origin, the socialist regime, they are obviously integrated into the world market on quite different roads. All kinds of institutions are still undergoing dramatic transformations in these countries, and the availability of data is still relatively restricted. However, the collapse of socialism and the rapid transition from closed planned to open global economies call for massive changes in the labor market. This situation initially increased the heavy use of early retirement schemes in transition economies. But due to small pension benefits and limited financial resources of post-socialist governments to secure old peoples’ decent standard of living, we expect older workers to be increasingly forced to work in these countries, so that part-time employment and other forms of precarious work should have spread in late career – even well beyond official retirement age.

THE ROLE OF CHARACTERISTICS OF THE WORK CONTEXT AND THE INDIVIDUAL There are not only differences in late careers between countries due to institutional variations, but also within countries across industries and individual resources. In particular, we assume that the work context and individual characteristics are important factors for the extent to which globalization affects older workers. Characteristics of the work context The first and most obvious aspect of the work context is the industry in which an individual is employed. We expect that specific industries will be more affected by global changes than others. In classical industries, such as manufacturing or textile, global technological changes and the growing international division of work will especially affect workers with rather traditional qualifications. Older employees in such sectors should therefore show a higher probability of job mobility or a higher rate of early retirement than employees in growing economic sectors such as the service sector. We also expect firm size to be an important factor for the job careers of older employees. The “crisis of mass production” (Castells 2000) means large firms have to change their Tayloristic organizational structures to accommodate more flexible modes of production. Often this involves massive downsizing, outsourcing, and the use of supplier networks, and jobs such as in production or

Globalization, accelerating economic change and late careers

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development that were once performed within (large) firms are increasingly performed by outside suppliers. In order to downsize and outsource, larger firms first have to reduce their staff, and one can assume that older employees are especially affected by these decisions, because they are often more expensive and their re-training is less profitable. In many employment exit oriented regimes, the over-proportional existence of occupational pension schemes in larger firms has equipped employers with an efficient tool to control the size and composition of their workforce by offering early retirement incentives to their employees. Following this line of argument, we hypothesize a higher probability of early retirement for employees in large firms rather than in small firms. Characteristics of the individual Jobs may vanish entirely, because an industry is declining (e.g., mining) or because a specific type of work has become obsolete (e.g., through new technology), so a worker’s occupation and qualification will be very important for his/her late career in the age of globalization. We suggest that employees with low qualifications doing unskilled or semi-skilled jobs should be much more affected by economic restructuring processes than highly qualified employees with better job positions. Thus, they should be more mobile or retire earlier – depending on the pension system. In addition to the variation among persons in dependent employment, labor force status itself is important. For example, it is not surprising that – as Blöndal and Scarpetta (1998) show – the self-employed have a very low likelihood of leaving the labor market early. The nature of their work itself (running one’s own business) often does not permit retirement. In addition, the self-employed often lack early retirement schemes altogether and do not have other sources of income, which makes it an economic necessity for them to work as long as possible. Special attention needs to be paid to the question of how self-employed individuals are treated by national public pensions, because they vary markedly among countries. We expect that if the self-employed are not or only partly included in pension schemes, their late-career patterns will deviate more from those of the “regular” workforce. Finally, we expect gender-related differences in late careers, because female and male employment patterns still differ in most societies. We know that, due to gender-based labor market segregation, women are found in different types of jobs than men (e.g., service jobs in the tertiary sector). We therefore expect that women will be affected to a lesser extent than men by the production sector’s need to rationalize. On the other hand, women’s actual retirement decisions are often dependent on their husband’s retirement decision, which due to age differences between spouses may lead to women withdrawing earlier from employment. Previous research on “coupled retirement” (Drobniþ 2002; Blöndal and Scarpetta 1998) has in fact shown that many couples “coordinate” their retirement transition. Thus, the influence of coupled

20 Sandra Buchholz, Dirk Hofäcker and Hans-Peter Blossfeld retirement has to be considered in country studies – especially when studying women’s late careers.

SUMMARY OF THE KEY EXPECTATIONS We have argued that processes of economic globalization have produced an accelerating divergence between the demands of rapidly changing workplaces and new jobs and the qualification structure of older employees. Societies can respond to this problem either by allowing redundant employees to leave the labor market earlier via early retirement programs (employment exit strategy) or by adapting older workers’ skills and qualifications to new job demands (employment maintenance strategy). Which strategy dominates in a specific country depends on the nation-specific institutional context that serves to filter or to mediate the effects of globalization on the individual. In countries with rigid labor markets, generous pension systems, high levels of employment protection, strong labor market boundaries (due to rigid occupational structures), and few active employment programs, we expect a strong trend towards early retirement for workers whose qualifications have become redundant. We predict to find this pattern in Central and Southern European countries. However, countries can use an alternate strategy of maintaining an older workforce – either through an active and highly involved state, as found in the Scandinavian countries, or through the reliance on market mechanisms and low welfare benefits, as found in liberal countries. We also expect to find differences within countries, since the characteristics of working contexts or of individuals themselves are important determinants of the extent to which globalization affects the individual. We suggest, for example, that it will be the older employees in declining industries and occupations who will be hit most strongly by globalization. DATA AND METHODS We use individual-based longitudinal data and event history methods (Blossfeld and Rohwer 2002) to test our hypotheses regarding the impact of globalization on late careers. The majority of data used in this study comes from retrospective or longitudinal panel surveys. In Germany, they include the German SocioEconomic Panel (1984–2002) and the German Life History Study (birth cohort 1919–21). The study on the Netherlands uses information from several waves of the Aanvullend Voorzieningen Gebruik Survey (1979, 1983, 1987, 1991, 1995, and 1999). The Swedish analysis draws on the Swedish Level of Living Survey (1991, 2000), while the Norwegian study uses a sample from the FD-trygd database (1992–97) pooled with firm-specific data from various other register sources. Denmark also used register data from the IDA database (1980–2001). The Hungarian study employs data from the cross-sectional Household Monitor

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Survey (2003), which models individual employment careers longitudinally for the time period 1988–2003. The Estonian study uses the Family and Fertility Survey (1997) as well as the Estonian Labor Force Survey (1989–2002). The British Household Panel Survey (1991–2002) was used for the United Kingdom and the Health and Retirement Survey (1975–2000) for the United States. The analysis of Italy was based on the Italian Longitudinal Household Survey (1997, 1999, and 2001), while the Spanish analyses used the Spanish Labor Force Survey (1964, 1969, 1974, and 1976–2003). Due to data limitations and an absence of adequate longitudinal data, the Czech Republic employs only a crosssectional data set (Czech Labor Force Surveys since 1995). Due to the low labor force participation of women in the cohorts under study, some country studies only have data on the late careers of men. For those countries with high labor force participation among older women (i.e., liberal, social-democratic, and post-socialist countries) the national studies also provide empirical analyses for female late-career transitions. For our purposes, event history methods were ideal, as they allow for a “causal-type” analysis of events that indicate changes from one state to another. This approach is also ideal for examining the empirical consequences at the individual level and allows us to include events at the meso and macro level. The analyses examined the transition in the late employment course within the labor market and out of the labor market. Statistical applications included piecewise constant exponential, logistic, Cox proportional hazard and logit models. Since technical and mathematical aspects of the models and methods have been specified elsewhere (Blossfeld and Rohwer 2002), we focus in this book on substantive results instead of methodological discussions. As with any secondary data analysis, the comparability of the analyses was dependent on the various datasets available, which led to slight differences in the analyses.

STRUCTURE OF THE BOOK After this introductory chapter, Chapter 2 sets the country studies into context by providing a short comparative description of selected economic and institutional trends: retirement trends, quantitative and qualitative aspects of old age employment and unemployment as well as a first test of the relation between national institutional settings and old age employment rates. Then twelve country-specific chapters follow. The book is divided into five sections by welfare state regimes. The first section contains the conservative regimes of Germany (Chapter 3) and the Netherlands (Chapter 4). This is followed by the Southern European regimes of Italy (Chapter 5) and Spain (Chapter 6), the liberal regimes of the United States (Chapter 7) and Britain (Chapter 8), the social-democratic regimes of Sweden (Chapter 9), Norway (Chapter 10), and Denmark (Chapter 11), and finally the post-socialistic regimes of the Czech Republic (Chapter 12), Estonia (Chapter 13), and Hungary (Chapter 14). Chapter 15 synthesizes the results, confronts the expectations from this introductory

22 Sandra Buchholz, Dirk Hofäcker and Hans-Peter Blossfeld chapter with the evidence in the country-specific chapters and discusses the added value of this approach in the field of late-career and retirement studies and globalization research. Each of the following country studies presents an overview of late-career processes and institutional backgrounds. To allow for a systematic comparison with the theoretical framework, countries have been ordered according to the institutional classification outlined above. Taken together, the various country studies will allow us to systematically investigate the influence of globalization on late career pathways in different institutional regimes of modern societies.

BIBLIOGRAPHY Allmendinger, J. (1989) ‘Educational systems and labor market outcomes,’ European Sociological Review, 5(3): 231–250. Blöndal, S. and Scarpetta, S. (1998) ‘The Retirement Decision in OECD Countries,’ OECD Working Paper No. 202, OECD Economics Department. Blossfeld, H.-P. and Hofmeister, H. (2006) Globalization, Uncertainty and Women’s Careers in International Comparison, Cheltenham, and Northampton, MA: Edward Elgar. Blossfeld, H.-P. and Rohwer, G. (2002) Techniques of Event History Modeling, London: Lawrence Erlbaum Associates. Blossfeld, H.-P. and Stockmann, R. (1998/99) ‘Globalization and changes in vocational training systems in developing and advanced industrialized societies,’ International Journal of Sociology, I–III. Blossfeld, H.-P., Mills, M. and Bernardi, F. (2006) Globalization, Uncertainty and Men’s Careers in International Comparison, Cheltenham, and Northampton, MA: Edward Elgar. Blossfeld, H.-P., Mills, M., Klijzing, E. and Kurz, K. (2005) Globalization, Uncertainty and Youth in Society, London: Routledge Advances in Sociology Series. Calmfors, L. (1993) ‘Lessons from the Macroeconomic experience of Sweden,’ European Journal of Political Economy, 9: 25-72. Castells, M. (2000) The rise of the network society. The Information Age: Economy, Society and Culture, Oxford: Blackwell. DiPrete, T. A., de Graaf, P. M., Luijkx, R., Tahlin, M. and Blossfeld, H.-P. (1997) ‘Collectivist versus Individualist Mobility Regimes? Structural Change and Job Mobility in Four Countries,’ American Journal of Sociology, 103: 318–358. Drobniþ, S. (2002) ‘Retirement Timing in a Household Context,’ International Journal of Sociology, 32(2). Ebbinghaus, B. (2000) ‘When Labour and Capital Collude: The Varieties of Welfare Capitalism and Early Retirement in Europe, Japan and the USA,’ Working Paper PSGE, No. 00.4, Center for European Studies, Cambridge: Harvard University.

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Ebbinghaus, B. (2002) Exit from Labor. Reforming Early Retirement and Social Partnership in Europe, Japan and the USA, Cologne: University of Cologne. Esping-Andersen, G. (1993) ‘Post-industrial class structures: An analytical framework,’ in G. Esping-Andersen (ed.) Changing Classes, London: Sage. Esping-Andersen, G. (1999) Social Foundations of Postindustrial Economies, Oxford: Oxford University Press. Gruber, J. and Wise, D. (1998) ‘Social Security and Retirement: An International Comparison,’ American Economic Review, 88(2): 158–163. Gruber, J. and Wise, D. (1999) ‘Social Security and Retirement around the World,’ Chicago: University Press. Gruber, J. and Wise, D. (2004) ‘Social Security Programs and Retirement around the World: Micro-Estimation (National Bureau of Economic Research Conference Report)’ Chicago: University Press. Guillemard, A.-M. (1991) ‘Die Destandardisierung des Lebenslaufs in den europäischen Wohlfahrtsstaaten’, Zeitschrift für Sozialreform, 37(2): 620–639. Mayer, K.U. (2004) ‘Whose Lives? How History, Societies and Institutions Define and Shape Life Courses’, Research in Human Development, 1(3): 167– 187. Mills, M. and Blossfeld, H.-P. (2003) ‘Globalization, Uncertainty and Changes in the Early Life Courses,’ Zeitschrift für Erziehungswissenschaften, 6, 188– 218. Mills, M. and Blossfeld, H.-P. (2005) ‘Globalization, Uncertainty and the Early Life Course: A Theoretical Framework,’ in H.-P. Blossfeld et al. (eds) Globalization, Uncertainty and Youth in Society. London: Routledge. Müller, W. and Shavit, Y. (1998) ‘Bildung und Beruf im institutionellen Kontext. Eine vergleichende Studie in 13 Ländern,’ Zeitschrift für Erziehungswissenschaft, 98(4): 501–533. OECD (1995) ‘The Transition from Work to Retirement’, OECD Social Policy Studies No.16, OECD: Paris. OECD (1998) ‘Maintaining Prosperity in an Ageing Society: the OECD study on the policy implications of ageing’, Ageing Working Papers, OECD: Paris. Piore, M. J. and Sabel, C. F. (1984) The Second Industrial Divide: Possibilities for Prosperity, New York: Basic Books. Regini, M. (2000) ‘The Dilemmas of Labour Market Regulation’, in G. EspingAndersen and M. Regini (eds) Why deregulate labour markets?, Oxford: Oxford University Press. Soskice, D. (1999) ‘Divergent Production Regimes: Coordinated and Uncoordinated Market Economies in the 1980s and 1990s’, in H. Kitschelt, P. Lange, G. Marks and J. D. Stephens (eds) Continuity and Change in Contemporary Capitalism, Cambridge: Cambridge University Press: 101–135. Tanzi, V. (2000) ‘Globalization and the Future of Social Protection’, IMF Working Paper WP/00/12, New York: International Monetary Fund. Waters, M. (2001) Globalization, 2nd Edition, London and New York: Routledge.

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3 Men’s late careers and career exits in West Germany Sandra Buchholz 1

GLOBALIZATION AND CAREER EXITS IN GERMANY Globalization processes such as increased internationalization, deregulation and liberalization (Mills and Blossfeld 2005) have had a strong impact on the German labor market and economy. Rising global interconnectedness has noticeably changed the demands on enterprises and markets (Castells 2000), putting the concept of market regulation in Germany (Mayer 1997; Soskice 1999) more and more under pressure. Unemployment rates have risen dramatically in the last two decades, and employers and enterprises complain about the rigidities of the comparatively highly regulated employment system in Germany (strong unions and workers’ councils, an active role of the state, etc.). Market deregulation in Germany has remained relatively moderate, with the core of employment even today highly protected. That core has been the employment stability of mid-career men, protected largely through welldeveloped institutionalized regulations; recent empirical studies confirm that such stability is high for German men at mid-career (Kurz et al. 2002; Wagner 2000). Efforts at reform have been undertaken, such as through the 1985 Employment Promotion Law (Beschäftigungsförderungsgesetz) that extended sub-contracting and fixed-term contracts while weakening severance schemes (Mückenberger 1985), but even more recent reforms have not fundamentally affected this protection. One could assume that high levels of protection and regulation for this core of employment even under a worsening labor market situation and rising needs of flexibility in firms could be achieved by offering enterprises flexibility at the margins of employment, such as the employment of older workers.2 The systematic shortening of older persons’ working lives in this context is a socially peaceful strategy by labor market actors that offers employment flexibility within a regulated system and takes pressure off the German labor market. The use of early retirement schemes and welfare state subsystems such as unemployment insurance are a common solution firms use today when faced with increasing economic competition and uncertainty (Wübbeke 1999). The ability to adapt an older workforce to structural and technological changes induced by globalization is also quite limited in Germany (Blossfeld and Stockmann 1999). An infrastructure for life-long learning is lacking, the occupation structure is rigid and closed, and a well-ensconced seniority system limit the possibilities to readjust older employees to changed needs of the (labor) market.

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The aim of this chapter is to study if and how older male employees3 in Germany experienced their labor market position as having become more flexible and whether there has been a systematic shortening of their working life since the mid-1970s. Therefore, I compare the transition to non-employment after age 55 for two West German male birth cohorts (born 1919–21, and born 1929–36) as well as the transition into unemployment in their late careers for men born between 1929–40. My approach combines aspects of social change as well as the development of social inequality in later life. Two questions guide my research: did the labor force participation of older employees change across cohorts, or in other words, do older employees of later cohorts exit employment earlier than earlier cohorts? And is the process of early withdrawal from employment socially selective? In the next section I describe relevant aspects of the German institutional context and the employment structure. Next I outline my research hypotheses, and follow it with descriptions of the data, methods and empirical results before concluding with a short summary and discussion.

INSTITUTIONAL CONTEXT AND GENERAL DEVELOPMENTS I begin from the assumption that globalization shapes individual employment careers at the micro level via institutions (Mills and Blossfeld 2005), and that national institutional settings produce specific logics that influence how older employees are affected by globalization (Buchholz, Hofäcker and Blossfeld, this volume). Therefore, I give a short overview of the relevant developments in these areas for Germany and a description of the three institutional systems that have a major impact on employment patterns of older employees: the economic system, labor market boundaries arising from occupational structures, and the welfare state. Type of economy and employment structure Germany has been characterized as a flexibly coordinated economy (Soskice 1999; Mayer 1997). Long-term, institutionalized forms of cooperation based on trust are at the core of employment relationships in these economies. Characteristics of this type of economy include strong unions, an active role of the state in the market, workers’ participation, collective wage agreements, a strongly standardized occupational system, a comparatively strong seniority system and extensive safeguards against dismissal. Older employees in particular have a high level of employment protection, guaranteed by law, with the degree of protection rising with age. As one example, mass lay-off schemes have to consider age and seniority; as another, workers’ councils have to support the employment of older workers. All in all, it is nearly impossible to dismiss older employees in Germany.

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The employment structure in Germany changed in the last decades noticeably. As in most other developed countries, Germany has experienced severe changes in the employment shares and situation of the three core sectors: (1) the huge shrinking of the agricultural sector, (2) cyclical fluctuation and reduction of the classical production sector since the ending of the “golden age” (Carlin 1994) in the early-1970s, (3) massive restructuring in firms and organizations (through rationalization, downsizing, outsourcing, or lean production) due to rising global competition and technological development, especially in the classical industrial sector (Bieber et al. 1991; Döhl et al. 1995; Kilper 1996), (4) the expansion of the public sector until the mid-1980s (Geißler 2002) and (5) a rising labor demand for personal and business services (Schmid 1998). The share of the production sector has remained relatively high in Germany (Castells 2000), while the growth of private services in the tertiary sector has been moderate due to the high costs of personal services (Schmid 1998). According to these sectoral shifts, the occupational structure also changed in the last decades (Geißler 2002): until the 1970s, almost half of the employees were blue-collar workers, until 2000 their share was reduced to a third. At the same time, the share of white collar workers and civil servants increased strongly from around 20 percent in 1950 to almost 60 percent in 2000. The proportion of self-employed decreased just a little, while the share of family workers in the employment structure declined strongly and almost vanished in 2000 due to the massive shrinking of the agricultural sector. Older employees’ share in declining industries and occupations is comparatively high: they often work in the industrial and agricultural sector, and their share is quite low in expanding sectors such as the public or service sector (Blöndal and Scarpetta 1998). Many older employees are blue-collar workers, and relatively few are white-collar workers or civil servants (Mayer and Huinink 1990). Consequently, older men are found especially in sectors or jobs that are shrinking and strongly exposed to economic pressure and rationalization. Labor market boundaries Germany has a closed occupational structure produced by relatively high standardization and certification. This limits the possibilities for employees to be mobile on the labor market. Occupational differentiation is quite old in Germany. But especially since the expansion of the educational system in the 1960s and 1970s, the German system is highly standardized and stratified compared to other countries (Allmendinger 1989): since then, the pattern has been to follow general schooling with vocational training or attendance at a technical college or university.4 Today, most young people enter vocational training in the dual system for about 3 years. Successful participants receive a standardized certificate, which allows them to move between firms, but at the same time hinders moves between occupations, since vocational training is very specific.

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Consequently, the strong German certificate system produces labor market boundaries along different occupations. Changing occupational tracks, even if abilities in different occupations might be comparable, is almost impossible for those without the appropriate certificate.5 In this respect, the German system differs strongly from those of other countries. An extreme counterexample is in this context the U.S., where occupations are less standardized, occupational changes are possible, and qualification takes place via training on the job (Allmendinger 1989). Compared to today, the share of un- and semi-skilled was very high in earlier cohorts (more than 50 percent; Geißler 2002), including the cohorts under study here. The cohorts born around 1930, whose youth and vocational training phase fell in the immediate postwar period, had very low qualifications (Mayer and Huinink 1990). But although most members of earlier cohorts did not receive a standardized vocational training, occupational definitions should play an important role for their mobility chances later because they are in competition with those in later cohorts who have obtained standardized certificates that help to cement occupational boundaries. Cohorts that experienced labor market entry in less standardized times face a similar situation. Aside from strong occupational definition, another important characteristic of the German system is the lack of opportunities to enter vocational training over the whole life course (Blossfeld and Stockmann 1999). Vocational training in Germany is more or less limited to a short period in one’s youth, and it is difficult to acquire vocational degrees in later life. Consequently, there is a longterm life course effect of occupational qualification that makes it hard for older German employees to adapt to structural changes in the economy and to the need for new “qualification-profiles.” The expectation is that structural adaptation in Germany will be mainly realized through generational replacement rather than by transferring new qualifications to the existing labor force (Blossfeld and Stockmann 1999). Welfare arrangements The welfare state offers for elderly and older employees in Germany are extensive. The pay-as-you-go public pension system is mandatory for the majority of employees, with only the self-employed or those with incomes below the official minimum earnings threshold not covered. Some professions, and in particular the civil servants, have their own mandatory retirement systems, but they are very similar to the public pension system (Rürup 1998; Drobniþ 2002). Public pensions are roughly proportional to earned income, averaged across the life course, and the system is designed to extend the achieved standard of living into the retirement years. Coverage is very high and public pensions constitute the major source of income for the elderly (Börsch-Supan 1998). Consequently, the role of private pension benefits is low, both in terms of the share that receive private pensions and in terms of the proportion private firm pensions constitute of total retirement income (Börsch-Supan and Schnabel

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1997). The German public pension system is quite generous by international standards, with net retirement incomes at about 70 percent of pre-retirement net earnings for long-time contributors. The corresponding U.S. net replacement rate is only about 50 percent (Börsch-Supan 1998). The legal retirement age in Germany is age 65, and it is very unusual to work beyond retirement age: less than 3 percent of those over age 65 are still employed (Wagner and Wachtler 1996). Even working until age 65 is unusual, and several institutionalized paths exist for retiring beforehand (Rürup 1998; Drobniþ 2002). Especially the pension reform in 1972 and the introduction of a flexible retirement age, opened extensive pathways out of employment before reaching age 65, and doing so is not linked with a strongly reduced pension level. In fact, pension loss is quite moderate, and the reductions bear no relationship to reductions that would be actuarially neutral (Arnds and Bonin 2002); transitions to early retirement are thus not “costly” for individuals. Enactment of the 1972 pension reforms had a dramatic impact on the employment of men aged 60–64 (Figure 3.1). In 1970, their labor force participation rate stood at a very high 73 percent, but within 4 years, that rate had

80% 70% 60% 50% 40% 30% 20% 10% 0% 1970

Figure 3.1

1974

1978

1982

1986

1990

1994

1998

Men’s labor force participation rate in age group 60–64 years, 1970–2000

Source: Own calculations based on OECD Labour Market Statistics; OECD: Paris.

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dropped by around 10 percentage points. By 1980, the rate was about 30 percentage points lower than only a decade before. The rate of decline has slowed since and it stabilized at around 30 percent in the 1990s, which is a rate less than half of what it had been in 1970. Besides the public pension system, there exist extensive “welfare state subsystems” (Guillemard 1991) that enable an earlier withdrawal for older employees in Germany. Unemployment insurance plays an important role in this context. Employers, often working with unions and workers’ councils, have made more and more use of this option to get rid of older employees before the official as well as the flexible retirement age. Workers are dismissed at age 57 (and 4 months) and for the next 32 months can claim regular unemployment insurance benefits. When this intermediate period ends at age 60, they become eligible for a special retirement scheme that is designed for workers who have experienced a longer period of unemployment (dubbed “old age pension following unemployment”). Older employees are further encouraged to become unemployed through additional employer compensation payments on top of the unemployment benefits (Arnds and Bonin 2002).

18%

15%

12%

9%

6%

3%

0% 1978

1980

1982

1984

1986

1988

Age group 25–54

Figure 3.2

1990

1992

1994

1996

Age group 55–59

Comparative male unemployment rates, 1978–2000

Source: Own calculations based on OECD Labour Market Statistics; OECD: Paris.

1998

2000

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Unemployment among older workers rose dramatically, especially during the 1990s (Figure 3.2). Until the mid-1980s, men’s unemployment rate in late career was quite similar to the rate in young- and mid-career stages, even if at a slightly higher level. But in the 1990s, the unemployment among men aged 55–59 has increased strongly compared to unemployment in age group 25–54. Although the course of the two curves is still comparable, the unemployment rate in old age developed on a much higher level and is nowadays with 13 to 16 percent much higher than the rate in mid career. Apparently, unemployment insurance has become more and more a pathway to retirement in Germany and can therefore definitely be described as a “pre-early retirement solution.” German welfare state focuses less on active, employment-sustaining measures than on providing economic security for those who are out of the labor market through generous early retirement schemes and unemployment insurance. We thus find a strongly transfer-oriented welfare state that tries to buffer employment insecurities by mitigating the effects on the not-employed population, or in short by decommodifying instead of creating jobs (EspingAndersen 1999).

HYPOTHESES REGARDING GLOBALIZATION’S EFFECTS ON MEN’S LATE CAREERS IN GERMANY Regime hypothesis: how is an older German workforce adapted to structural change? How late careers are re-shaped under globalization, and how an older workforce is adapted to structural changes, should be a result of a dialectic interplay of institutions (Buchholz, Hofäcker and Blossfeld, this volume). Based on the institutional description above, late careers in Germany should be re-shaped in a very specific way, namely by a shortened work life and an increased withdrawal from employment. Thus, the depending process for studying late careers in Germany should be the transition out of employment. Other forms of mobility or flexibility among older employees within the labor market (e.g., increasing job mobility, occupational mobility, interrupted careers) should be very rare because (1) employment regulations and an elaborate seniority system make it hard to dismiss and flexibilize older employees in Germany, (2) labor market boundaries between occupations and a lack of vocational training opportunities over the whole life course effectively prevent it, and (3) the quite generous welfare arrangement creates no real need for older persons in Germany to have a labor market-related income. Social change hypothesis: increasing early withdrawal and unemployment for older workers? The German labor market is comparatively highly regulated (Soskice 1999), and firms have limited possibilities to react to economic cycles by increasing

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flexibility among their employees. One strategy to do so would be to make adjustments possible (that is, to reduce staff) by sending older employees into early retirement and utilizing unemployment insurance programs. Additionally, older employees should be especially affected by globalization and economic restructuring processes because their share in the diminishing industries and occupations is very high. Because of the lacking institutional infrastructure in Germany, the re-adjustment of an older workforce to new situations and demands should be strongly limited. On the contrary, adapting to structural changes should run in Germany via generational exchange (Blossfeld and Stockmann 1999). Globalization is described as a self-intensifying process (Mills and Blossfeld 2005) – the pressure to increase flexibility that has been induced by globalization should therefore have become stronger and stronger since the mid-1970s. Thus, I expect that older employees of later cohorts will have to exit employment earlier than men of earlier cohorts will have to. One can expect that unemployment will have become increasingly important as a “pre-early retirement solution” since the late-1980s. Transitions into unemployment should most clearly show the effects of increasing globalization on late careers because here an early exit can clearly be traced back to the needs of employers for more flexibility in their labor force. On the other hand, in the case of early retirement, withdrawal from the labor market can be based on both (1) the employers’ need to shed workers and (2) the individual decision to retire early out of personal motives (e.g., to have more leisure time). Social selectivity hypotheses: who is affected by an early exit from employment? Branch of industry I expect that employees of the shrinking and declining sectors, namely the extractive and transformative sectors, should drop out of employment earlier than employees in the service sector. Especially those in the transformative or classical industrial sector should experience a higher risk of dropping out of employment early and into unemployment. Since the 1980s, the industrial sector has shrunk considerably, and the need to reorganize has sharply increased due to rising competition from other countries (Castells 2000). Furthermore, the potential for rationalization and reorganization in this sector, based on the use of new technologies such as computer programmable machinery, should be very high when compared to the service sector, where rationalization is less possible as “products” are attached to persons. Compared to employees in the private sector, employees in the social service or public sector are likely to leave employment later and be better protected against unemployment.

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Firm size Due to the crisis of mass production (Castells 2000), employees in large firms will likely exit employment earlier and have a higher risk of unemployment than employees in small firms. Qualitative studies in industrial sociology have found that large firms in Germany, especially in the industrial sector, use downsizing strategies to cope with changing demand. Within the regulated German economic system, the possibilities of enterprises to become more flexible relative to their own employees are strongly limited (e.g., numerical flexibility). Instead, enterprises introduced flexibility by using supplier networks. Production or development work formerly done within firms is now performed by outside suppliers. In this way, larger enterprises shift their market risks, including the risks of variations in their orders to their suppliers (Bieber et al. 1991, Döhl et al. 1995, Kilper 1996). To downsize, larger firms first have to reduce their workforce. One can assume older employees will be especially affected by this strategy because in the German context, the social cost of such rationalization can be borne in a “socially peaceful” manner. At the same time, older employees should be more higher valued in small firms owing to their occupational experience and knowhow. By contrast, know-how in large firms can more readily be institutionalized in organizational processes and departments. Finally, based on promotion and seniority rules of internal labor markets, late-career employees are often more expensive in large firms than in small firms. Occupational class and qualification Because the jobs performed by employees with low qualifications (i.e., the unskilled workers, or employees with poor general education) become obsolete if firms rationalize and introduce new computer-based technologies, they will likely drop out of employment earlier and have a higher risk of unemployment than employees with high(er) qualifications. An open question is how or if the occupational middle class (i.e., skilled manual workers, masters, low service class, routine non-manual employees) is affected by an early exit from employment and by unemployment in late career. On the one hand, the low service class as well as some skilled manual professions are more highly qualified than routine non-manual employees. But on the other hand, industrial reorganization (e.g., lean management where a large number of middle management positions as well as skilled positions in the production process were abolished) should have affected the low service class, masters, and skilled manual workers more strongly than routine non-manual employees who work in service positions that are less exposed to flattening of hierarchies and rationalization in industrial societies. The self-employed should show a clear trend toward working even at an advanced age. As the self-employed are not covered by the public pension system, it is logical to assume they will try to extend their active labor market

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career. Furthermore, the self-employed in Germany are normally in professions requiring high levels of qualification, and such positions should be comparatively shielded from globalization.

DATA AND METHODS The two main data sets in Germany that offer longitudinal information at the individual level are the German Life History Study (GLHS) and the German Socio-Economic Panel (GSOEP). The GLHS provides a rich set of detailed information on educational and employment histories as well as on household- and family-related issues on a monthly basis. In the GLHS different birth cohorts were interviewed retrospectively, but only the cohort born 1919–21 is suited to study retirement and withdrawal from employment, as it is the only one for whom the entire employment history was collected (Brückner 1993). When “earlier cohort” is used below, this GLHS 1919–21 cohort is meant. Later retirement cohorts are reconstructed using the GSOEP, a yearly panel begun in 1984 (Haisken-DeNew and Frick 2002). Though this panel includes all residents (including immigrants, foreigners and those in former East Germany after 1990), to make it comparable with the GLHS data, my sample includes only men of German nationality up to age 67 living in West Germany. I use information until 2002. The employment career before the first wave of the panel is caught by a rough retrospective overview on a yearly basis since age 15. When “later cohort” is used, it refers to the cohort born in 1929–36. In both earlier and later cohorts, I study the transition out of employment after age 55. The earlier birth cohort was at risk for dropping out of employment in the late-1970s and early-1980s; the later birth cohort was at risk for dropping out of employment in the late-1980s and in the 1990s. The period when employment in old age was high lasted until the mid-1970s, a time before the period studied here. Both cohorts under study were affected by the reforms in the early-1970s and the introduction of a flexible retirement age. Additionally, as the late careers of both cohorts came after the 1973 Oil Shock, both should be affected by forces associated with globalization. For studying transitions to unemployment in late career since the mid-1980s, I extended my GSOEP sample to use information for persons born in 1929–40. Transitions to unemployment cannot be studied for the early cohort 1919–21 as its unemployment rate was too low: my GLHS sample had only 34 transitions to unemployment in late career. I have defined persons to be “at risk” when they reach age 55.6 My observation window opens then and the persons under study are followed until they drop out of employment, defined as a person making a transition and reaching a destination state. I model time-varying employment information for this observation window, so when a person changes jobs and starts to work in another branch of industry at age 58, I use this new information for the time after age 58.

Men’s late careers and career exits in West Germany Table 3.1

65

Explanatory variables Variables

Measures or categories used

Age intervals

55–57, 58–59, 60–61, 62–63, 64 plus / 62 plus

Periods/time intervals

1984–88, 1989–93, 1994–98, 1999–02

Characteristics of earlier career Labor force experience Unemployment experience

cumulative duration of employment (up to age 55) cumulative duration of unemployment (up to age 55)

Indicators for vertical structure Occupational class Qualification Occupational prestige

based on Erikson–Goldthorpe (1992) classification 5-point scale on the basis of Casmin Treiman (1977) prestige score

Indicators for horizontal structure Firm size 4 categories based on the number of employees based on Singelmann classification (1978; cf. Castells Branch of industry 2000), modified by collapsing private market services into one category Sector current job in public or private sector

My earlier cohort includes an “at risk” population of 351 men. The later cohort includes 347 men, 85 of whom are right censored by panel mortality. The GSOEP sample for studying unemployment in late career includes 566 men (124 censored by panel mortality; 50 persons are censored by the end of the panel in 2002). For my longitudinal analyses, I use logistic regression models and survivor functions (Blossfeld and Rohwer 2002). Explanatory variables7 are shown in Table 3.1.

RESULTS Late career patterns in Germany Late careers in Germany are very stable (Table 3.2) and the German system could be called an “employment exit regime” (Buchholz, Hofäcker and Blossfeld, this volume). The main transition older employees experience is an early withdrawal from employment: more than 80 percent of the men in my samples leave their last job in working life by age 63 at the latest. Mobility within the labor market is comparatively low in late career: almost 90 percent of older male employees in my study stay in the same job after age 55. The vast majority does not change firm or occupation, make career moves, or even experience changes in their employment contract within a firm. Among the

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Table 3.2

German men’s labor market mobility after age 55 years (frequencies) Birth cohort 1919–21

Job mobilitya Interrupted careerb Unemploymentc Early exitd

11.4 % 1.1 % 10.0 % 82.6 %

Birth cohort 1929–36 13.0 % 2.9 % 20.8 % 87.6 %e

Source: Calculations based on the GSOEP and the GLHS. Notes: a Any kind of job changes in late career (e.g., reducing working hours, intra- and inter-firm mobility). b Employment interruptions in late career, re-employment after unemployment. c Transitions to unemployment. d Dropping out of employment permanently before age 64. e For the calculation of early retirement in cohort 1929–36 panel-mortal persons were excluded.

few who are mobile, most change job only once, in a kind of seniority mobility: movement within a firm that is lateral or upward but not downward. Employment mobility is also very low for older employees in Germany. More than 97 percent of men studied have just one uninterrupted employment episode after age 55. A drop out of employment or into unemployment is usually permanent: new employment or labor market re-entry is unusual. Leaving employment is therefore a clear-cut transition for the large majority of older employees in Germany. Although the percentage of men leaving employment before the official retirement age of 65 is a little higher in the later (87.6 percent) than in the earlier (82.6 percent) cohort, a detailed comparison of the timing has to be tested with the following longitudinal analyses. But already the fact that men of the later cohort have a higher risk of unemployment indicates that German men have experienced some weakening in their labor market participation in the last decades, and drop out of employment earlier than men born around 1920. The development of early employment exit and old age unemployment Men of the later cohort withdraw earlier from employment after age 55 than do men of the earlier cohort: the two survivor functions presented in Figure 3.3 show a difference of around 10 percentage points at age 58 (81 percent vs. 91 percent still employed). At age 59 the difference grows by 5 more percentage points (68 percent vs. 83 percent still employed) and remains quite stable until male employees of the two cohorts get closer to the flexible retirement age of 63. These results are quite revealing because the early retirement reform in 1972 and the worsening labor market situation after the Oil Shock affected both cohorts. Table 3.3 shows the development of unemployment in late career for men born in 1929–40. In the transition to unemployment after age 55, evidence for a

Men’s late careers and career exits in West Germany

67

change of older employees’ labor market situation in Germany can be found: since the mid-1980s, older German men face a rising risk of becoming unemployed. The unemployment risk in late career was significantly higher in the 1990s than in the mid- to late-1980s. Although no significant effect was found in this model for 1999–02, the rising unemployment trend stayed positive in this period as well. In other models (see Table 3.5), a significant effect for this time period was found, if at a low level (D = 0.90). Furthermore, the analyses of unemployment (Table 3.3) support the thesis that this is a pre-early retirement solution. The risk of experiencing unemployment is significantly higher for employees aged 58–59 compared to employees up to age 57. As described above, if older employees are dismissed at this age, they can claim regular unemployment insurance benefits and, after an intermediate period in unemployment (normally at age 60), enter a special retirement scheme designed for employees who have experienced a longer period of unemployment. Financial security is guaranteed without gaps for them. Thus, unemployment insurance can be seen as a bridge to retirement for later cohorts and a possibility for German employers to get rid of their older employees several years before the official and flexible retirement age. 100%

80%

60%

40%

20%

0% 55

56

57

58

59

60

61

Birth cohort 1919–21

Figure 3.3

62

63

64

Birth cohort 1929–36

Men’s transition to non-employment after age 55 years

Source: Calculations based on the GSOEP and the GLHS.

65

66

67 Age

68

Sandra Buchholz

Table 3.3

Men’s transition to unemployment after age 55 years (logistic regression model) Birth cohort 1929–40

Constant Age 55–57 (ref.) 58–59 60–61 62 plus Periods 1984–88 (ref.) 1989–93 1994–98 1999–02

-3.95**

Events Total episodes Censored episodes -2*diff (logL)

128 2,922 2,794 23.49

– 0.46* 0.12 -0.46 – 0.91** 0.94** 0.37

Source: Calculations based on the GSOEP. Notes: ** Effect significant at p < 0.01 * Effect significant at p < 0.05.

The role of micro-level characteristics for the withdrawal from employment Transitions to non-employment The withdrawal from employment depends strongly on individual and working context characteristics. Horizontal and vertical employment structure indicators affect the timing when older men leave employment (Table 3.4). In both cohorts, employees in the transformative and extractive sectors drop out of employment earlier than do employees in the social service sector (Model 2, Table 3.4). These results support the hypothesis that it should especially be among employees of the declining primary sector and the industrial sector, where exposure to globalization, rising competition and market insecurity are very high, that one should see a weakening in labor market position and a shortened work life. Because occupational class is controlled in the model, the effects, especially in the industrial sector, cannot be attributed to a higher share of workers in those sectors. Regardless of the occupational position, employees of the transformative and extractive sector leave employment earlier compared to the social service sector in both cohorts. In the earlier cohort, the significant effect of the transformative sector is linked with firm size: if firm size is included in the model, the significant effect for the

Men’s late careers and career exits in West Germany

69

transformative sector disappears (Model 3, Table 3.4). It seems as if big firms in the industrial sector make use of early retirement schemes to realize downsizing strategies in the earlier cohort. In the later cohort, the effect for industry remains highly significant even when controlling for firm size. The need for flexibility previously found only in the largest industrial firms and for the earlier cohort appears to have spread to the whole transformative sector for the later cohort. Economic restructuring by getting rid of older employees is apparently no longer a phenomenon of only some parts of the industrial sector but now of the whole sector. While in the earlier cohort the effect of sector can be attributed to downsizing strategies of large industrial firms, in the later cohort the trend of making older employees redundant seems to spread across sectors (Model 2 and 3, Table 3.4). Although the effect of the private service sector is only marginally significant, the results by industrial branch in the later cohort point to a kind of hierarchical order of sectors, reflecting the expected need for rationalization in each sector. At one extreme are the transformative and extractive sectors where employees leave very early, while the social service (or public sector) where employees stay the longest stands at the other. The private services fall in the middle. As hypothesized, large firms make more use of early retirement measures than do small and mid-sized firms in both cohorts (Model 3, Table 3.4). In times of rapidly changing environments and markets, large firms have to adapt their organizational structure from a Tayloristic mass production to a more flexible mass production. Often this is connected with massive downsizing. The impact of firm size has changed across cohorts: in both cohorts employees in large firms drop out of employment earlier than employees in firms with up to 200 employees. But for men born 1929–36, the effect is already noticeable if they are employed in firms with 200 to 2,000 employees. In the 1919–21 cohort, only employees in the largest firms leave employment earlier. The needs for greater flexibility once found only in very large firms and among the earlier cohort have spread in the later cohort. Making older employees redundant is no longer a phenomenon of only the very large firms, but has spread to mid-size firms for the later cohort as well. As expected, self-employed men leave employment very late compared to men in other occupational classes. The self-employed in Germany are not covered by the public pension system and usually work in professions requiring high levels of qualifications, which helps shield them from globalization effects. Compared to other occupational classes, employees of the high service class who occupy a similar structural position also leave employment late in both cohorts. The impact of occupational class seems to have changed across cohorts. In the 1919–21 cohort, there is a division between the self-employed and high service class and all other occupational classes. But three significantly different occupational groups and a splitting of the occupational middle class can be observed in the 1929–36 cohort:8 (1) the self-employed who leave employment, as expected, very late; (2) the high service class members and routine nonmanual employees; and (3) members of the low service class, masters and

– 1.43** 1.92** 2.94** 3.70**

– 1.42** 1.89** 2.90** 3.67** -0.01 -0.36 – 0.50* 0.63** 0.35+ 0.55** 0.51* -0.47

-0.01 -0.26 – 0.37+ 0.51* 0.35+ 0.61** 0.58** -0.69

-0.38 – 0.48* 0.60** 0.35+ 0.60** 0.57** -0.54

-0.01

-6.26**

-6.18**

3

– 1.41** 1.86** 2.84** 3.56**

2

-6.10**

1

Birth cohort 1919–21

Men’s transition to non-employment after age 55 years (logistic regression model)

Constant Age 55–57 (ref.) 58–59 60–61 62–63 64 plus Development of career until age 55 Labor force experience Occupational class Self-employed Higher service class (ref.) Lower service class Routine non-manual employees Masters, technicians Skilled manual workers Un- and semi-skilled workers Missing occupational class

Table 3.4

-0.58+ – 0.61+ 0.35 1.20** 1.02** 0.79** 1.10**

-0.01

– 0.96** 1.39** 2.18** 2.68**

-3.34**

1

-0.94* – 0.73** 0.32 1.02** 0.88** 0.67* 1.04**

-0.01

– 0.98** 1.47** 2.30** 2.78**

-3.65**

2

Birth cohort 1929–36

-0.83+ – 0.84** 0.39 1.20** 1.02** 0.81** 0.72

-0.01

– 1.02** 1.51** 2.37** 2.93**

-4.20**

3

continued

Notes: ** Effect significant at p < 0.01 * Effect significant at p < 0.05 + Effect significant at p < 0.10.

Source: Calculations based on the GSOEP and the GLHS.

Events Total episodes Censored episodes -2*diff (logL)

Branch of industry Extractive sector Transformative sector Services Social services (ref.) Missing branch of industry Firm size Up to 20 employees 20 to 200 employees (ref.) 200 to 2,000 employees More than 2,000 employees Missing firm size

Table 3.4

381.67

1

397.62

1.02** 0.37* 0.01 – 0.61+

2

Birth cohort 1919–21

349 2,471 2,122 404.62

0.19 – 0.14 0.47** 0.14

0.85* 0.25 -0.03 – 0.46

3

175.61

1

190.06

1.19** 0.61** 0.39+ – 0.94*

2

Birth cohort 1929–36

265 1,796 1,531 206.86

0.33 – 0.40* 0.61** 2.11**

1.22** 0.69** 0.39 – 0.53

3

72

Sandra Buchholz

technicians as well as skilled and unskilled manual workers who drop out of employment very early. The split in the broad occupational middle class in the later cohort is quite interesting. Members of the low service class as well as masters and technicians form a quite homogenous group, together with skilled and unskilled workers, all of whom leave employment earlier compared to routine non-manual employees, despite the fact that their qualifications are higher (models not shown). Maybe this could be explained by the fact that the low service class as well as skilled manual positions are affected by reorganization measures and rationalization, too. The introduction of lean production and lean management, as one example, abolished not only unskilled positions, but also a large number of middle management and skilled manual positions. By contrast, routine non-manual positions should be less exposed to rationalization because of their service character. Transitions to unemployment in late career For transitions to unemployment in late career micro-level patterns comparable to transitions to non-employment after age 55 were found. To summarize: (1) Employees in occupational positions potentially exposed to rationalization and reorganization measures, such as low service class, masters and technicians, as well as skilled and unskilled workers, experience a relatively high risk of late career unemployment. The self-employed, the high service class and routine nonmanual employees, or rather employees with high general education, are (more) protected against unemployment (Models 1 to 4, Table 3.5). (2) The employment sector also has a strong impact on the risk of becoming unemployed. Generally, employees in the public or social service sector are sheltered when compared to employees of all private sectors. Employees in the transformative sector where the need to restructure and maintain flexibility is supposed to be high have the highest risk of unemployment in late career (Models 2 to 4, Table 3.5). (3) There is also a clear effect of firm size. The larger the firm, the higher the risk of experiencing unemployment in late career stages (Models 3 and 4, Table 3.5). This is in line with the hypothesis that especially large, Tayloristic firms should be put under pressure by globalization. An interesting difference to the analyses on transitions to non-employment is the fact that the impact of the employment sector is even stronger: for transitions to unemployment, there is a highly significant difference between the private service sector and the classical industrial sector as well as between the private service and social service sector (Models 2 and 3, Table 3.5). This supports the assumption that in the later cohort, a hierarchical order of sectors exists for the withdrawal from work. This is especially true in firms in the transformative sector, where a high need for rationalization and reorganization under the impact of globalization could be assumed. These firms make use of the German unemployment insurance to shed older employees. Public sector employment is highly protected and lies at the other extreme of the scale, while the extractive and private service sector are in the middle.

Men’s late careers and career exits in West Germany Table 3.5

73

Men’s transition to unemployment after age 55 years, birth cohort 1929– 40 (logistic regression model) 1

Constant Age 55–57 (ref.) 58–59 60–61 62 plus Periods 1984–88 (ref.) 1989–93 1994–98 1999–02 Characteristics of career development until age 55 and current job Labor force experience Unemployment experience Treiman prestige Occupational class Self-employed Higher service class (ref.) Lower service class Routine non-manual employees Masters, technicians Skilled manual workers Un- and semi-skilled workers Missing occupational class Qualification Lower secondary degree without occupational qualification Lower secondary degree with occupational qualification (ref.) Upper secondary degree without occupational qualification Upper secondary degree with occupational qualification College or university degree Branch of industry Extractive sector Transformative sector Services (ref.) Social services Missing branch of industry

2

3

4

-5.45**

-5.52**

-6.18**

-3.77**

– 0.51* 0.22 -0.24

– 0.55* 0.32 -0.13

– 0.60** 0.39 0.04

– 0.57** 0.34 -0.13 – 1.25** 1.36** 0.82

– 1.12** 1.18** 0.61

– 1.32** 1.39** 0.88

– 1.38** 1.46** 0.92+

0.01 0.03

0.01 0.01

0.01 0.01

-1.37+ – 0.94* 0.19 1.53** 1.19** 1.06** 1.99**

-1.70* – 1.26** 0.15 1.16* 0.87* 0.83* 2.24**

-0.01 -0.01 -0.01

-1.34 – 1.33** 0.16 1.38** 1.02** 1.01* 2.04** -0.01 – -0.01 -0.51+ -1.87**

0.81 0.58* – -1.57** 0.91

0.90 0.63* – -1.62** 0.51

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Sandra Buchholz

Table 3.5

continued 1

2

Firm size Up to 20 employees 20 to 200 employees (ref.) 200 to 2,000 employees More than 2,000 employees Missing firm size Sector Private sector (ref.) Public sector Events Total episodes Censored episodes -2*diff (logL)

3

0.13 – 0.44+ 0.87** 1.72*

4

-0.63+ – 0.47+ 0.96** 2.20** – -1.78**

77.04

122.03

136.98

128 2,922 2,794 122.99

Source: Calculations based on the GSOEP. Notes: ** Effect significant at p < 0.01 * Effect significant at p < 0.05 + Effect significant at p < 0.10.

Due to small sample sizes (just 34 transitions to unemployment), longitudinal analyses for unemployment could not be calculated for the 1919–21 cohort. Nevertheless, simple descriptive analyses show that almost all employees (85 percent) who became unemployed in this cohort were employed in the industrial sector. This supports the assumption that it is the industrial firms strongly exposed to globalization and rising competition which make use of German unemployment insurance.

CONCLUSIONS The aim of this chapter was to study how or whether globalization processes affected older male employees in Germany. It was assumed that the withdrawal of older employees from working life by sending them into welfare state systems was a way to cope with the rising needs for flexibility in the quite highly regulated German system. The results show that employees of later cohorts experience a shortening of their work life and a higher risk of unemployment, or in other words, there has been a change in older persons’ labor market participation. Early retirement measures and unemployment insurance seem to

Men’s late careers and career exits in West Germany

75

have become institutionalized programs to realize economic restructuring and to take pressure off the national labor market. Becoming unemployed and the early withdrawal from employment are strongly affected by individual characteristics and by work context. Employees in large firms in the industrial sector, and in occupations potentially exposed to rationalization, are particularly likely to leave employment early and have to face unemployment in their late careers. Such early exclusion from employment seems to have become stronger across cohorts, inasmuch as the effects seen by industrial branch, firm size and occupational position are more developed in the later than in the earlier cohort. All in all, differences are found more horizontally, that is, by firm size or sector. Vertical differences are less marked: compared to much of the occupational and well-qualified middle class, being poorly qualified or working in unskilled positions does not significantly increase the risk of dropping out of employment early or of becoming unemployed. What is the impact of this development on pensioners in Germany? First, compared to many other countries, the living standard of the (male) elderly is high due to a generous, extensive pension system and welfare benefits. However, reforms have reduced its generosity relative to 1972, and changes in 1992 mean pension losses rise if one retires early. Even if there is still an incentive for early retirement after the 1992 reform (reductions are less than if they were actuarially neutral), early retirement now is more “costly” than it was for earlier cohorts (Börsch-Supan and Schnabel 1997). The German pension system also extends labor market inequalities into retirement. The size of a German pension can differ substantially, as it depends on one’s previous earnings and years of contribution. Thus, early withdrawal from employment is especially disadvantageous financially for the older workers who earned comparatively little during their working life and were employed in low occupational classes. The financing and form of the pension system is currently much debated, especially in light of demographic aging. Current governmental efforts are directed at reversing the strong tendency to take early retirement, though they will only fully be put into effect several years from now. For future research on this topic, it would be highly interesting to study if a change of direction was successful. This research question has to be studied with the cohorts now following.

NOTES 1 2

I would like to thank Karin Kurz for very helpful comments and support. Other groups marginalized on the German labor market, such as women (Buchholz and Grunow 2003) or new entrants (Kurz et al. 2001) may find themselves in a comparable position.

76 3

4 5

6

7

8

Sandra Buchholz The focus is only on men because the labor force participation of women of the cohorts under study was very low, especially in old age (around 30 percent due to strong male breadwinner orientation). For more detailed overviews see Kurz, Steinhage and Golsch (2001) or Lange (1986). Such certificate-based occupational boundaries should exist much less for highly qualified persons (e.g., persons with university degrees). But for those with completed vocational training, or for the un- and semi-skilled, occupational definitions restrict their mobility chances in the labor market. Due to selecting just those men still employed at age 55 means I cannot make statements for those who were no longer employed at age 55. Studying just the first transition out of employment after age 55 means not every transition is into early retirement or permanent exit from the labor market. However, the dropout rate of male employees in Germany before age 55 is quite low (Arnds and Bonin 2002). As for transitions, descriptive analyses show that for the majority of men in my samples, the first is also the last transition out of employment. The re-entry rate stands at less than 3 percent. I control for missing information in the different explanatory variables. Although the effects of missing information are sometimes significant, there are not many missing cases. Additional analyses where the reference group of occupational class was changed supported this result.

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Mayer, K. U. and Huinink, J. (1990) ‘Alters-, Perioden- und Kohorteneffekte in der Analyse von Lebensverläufen oder: Lexis Ade?’ in K. U. Mayer (ed.) Lebensverläufe und sozialer Wandel, Opladen: 442–459. Mills, M. and Blossfeld, H.-P. (2005) ‘Globalization, Uncertainty and the Early Life Course: A Theoretical Framework’, in H.-P. Blossfeld, M. Mills, E. Klijzing and K. Kurz (eds): Globalization, Uncertainity and Youth in Society, London: Routledge Advances in Sociology Series. Mückenberger, U. (1985) ‘Die Krise des Normalarbeitsverhältnisses (Teil 1 und 2)’, Zeitschrift für Sozialreform, 31 (7 + 8): 415–434, 457–475. Rürup, B. (1998) ‘Rentner, Ruhestand’ in B. Schäfers and W. Zapf (eds), Handwörterbuch zur Gesellschaft Deutschlands, Opladen: 536–551. Schmid, G. (1998) ‘Arbeitsmarkt und Beschäftigung’, in B. Schäfers and W. Zapf (eds), Handwörterbuch zur Gesellschaft Deutschlands, Opladen: 22–34. Singelmann, J. (1978) The Transformation of Industry: from Agriculture to Service Employment, Beverly Hills, CA: Sage. Soskice, D. (1999) ‘Divergent Production Regimes: Coordinated and Uncoordinated Market Economies in the 1980s and 1990s’, in H. Kitschelt et al. (eds) Continuity and change in contemporary capitalism, Cambridge: 101– 135. Treiman, D. J. (1977) Occupational Prestige in Comparative Perspective, New York: Academic Press. Wagner, A. (2000) ‘Krise des Normalarbeitsverhältnisses? Über eine konfuse Debatte und ihre politische Instrumentalisierung’, in C. Schäfer (ed.) Geringe Löhne – mehr Beschäftigung? Niedriglohnpolitik, Hamburg: 200–246. Wagner, P. S. and Wachtler, G. (1996) ‘Erwerbstätigkeiten von Rentnerinnen und Rentnern. Empirische Aspekte eines bislang “unterbelichteten” Phänomens der Arbeitsgesellschaft’, Arbeit, 1: 7–21. Wübbeke, C. (1999) ‘Der Übergang von sozialversicherungspflichtiger Beschäftigung in den Rentenbezug zwischen sozialpolitischer Steuerung und betrieblichen Interessen. Eine Untersuchung der Ursachen des Frühverrentungstrends in Westdeutschland für den Zeitraum von 1975 bis 1990 auf Basis der IAB-Beschäftigtenstichprobe’, Mitteilungen aus der Arbeitsmarkt und Berufsforschung, 32: 102–117.

4 Labor market exits of older men in the Netherlands An analysis of survey data 1979–99 Kène Henkens and Matthijs Kalmijn

INTRODUCTION In the past decades there have been enormous changes in the age at which older men (and women) leave the labor market. All Western societies have seen a sharp decrease in the labor market participation of older adults and the Netherlands has been no exception (Kohli et al. 1991). Older men’s labor market behavior has often been analyzed before in the Netherlands. Several studies focused on the use of different exit paths, including unemployment (Henkens, Sprengers and Tazelaar 1996; Sprengers 1992; Kapteyn and De Vos 1998), disability (Aarts and De Jong 1990), and early retirement (De Vroom and Blomsma 1991; Henkens 1998). Other studies have compared the use of the main exit paths, and focused on how they were inter-related (Fouarge, Schils and Huynen 2004; Heyma 2001). Though most such studies used a panel design, their data cover only a limited time period. Few studies have examined long-term trends in the labor force participation of older workers, though exceptions exist in several retrospective analyses of the careers of older workers in cohorts born between 1903 and 1937 that are based on the NESTOR-LSN survey from 1992 (Liefbroer and Henkens 1999; Van Solinge and Fokkema 2000). Few studies, however, cover the whole “golden age of early retirement,” which began at the end of the 1970s and supposedly ended in the 1990s. In this chapter, we analyze labor force exits over a 20-year period (1979–99) using a set of data that has not been previously used for this purpose. We analyze six waves of a large-scale national social survey, the Aanvullend Voorzieningen Gebruik (AVO) Surveys, conducted in 1979, 1983, 1987, 1991, 1995, and 1999. These surveys are repeated cross-sections which allow us to study aggregate changes in labor market participation of older men as well as trends in labor market participation for specific educational groups. We are not only able to assess how many men are working and not working, but we can also assess what position men have when they do not work. This is important because disability is an important exit route for older workers in the Netherlands. In addition to analyzing stacked cross-sections, we also examine the 1999 survey in more detail, among other reasons because it includes a question about the age at which older men left the labor market. This allows us to analyze some basic determinants of early labor market exits of older men, including effects of age,

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time period, labor market experience, and job characteristics at the point of labor market exit. Before turning to the data and the results, we briefly outline the Dutch context of older men’s labor market exits.

BACKGROUND The decline in participation rates of older workers cannot be seen in isolation from structural developments in the Dutch labor market. From the beginning of the 1970s, large cohorts of the baby boom generation entered the labor market. In the same period, women’s labor market behavior started to change dramatically due to the process of modernization. Women’s employment in the Netherlands has been characterized by a radical and rapid change over the past decades. The large baby boom cohorts and the structural increase in female labor supply made it difficult to absorb these newcomers in the labor market. Changes in the labor market position of older men are also related to the demand side. The increased global interconnectedness has led to a need of greater flexibility in and rationalization of production processes. As a result of new technology, the demand for workers able to put it to use increased, with a corresponding decrease in the demand for unskilled workers. Workers with upto-date knowledge were found primarily among those who had recently completed their education. Unskilled workers were over-represented among the older and mid-career workers. These older workers needed to adapt to the new developments or were at risk of being put out on the street together with the obsolete capital goods. It has been argued recently that globalization creates more insecurity on the labor market for vulnerable groups, including youth and ethnic minorities (Blossfeld et al. 2005). A similar effect may be operating for the older worker, not only because they are more likely to be unskilled, but also because if they are skilled they may be less able to adjust to new technologies. The confrontation of changes in labor supply and demand is reflected in a sharp increase in unemployment from the late 1970s until the mid-1980s (see Figure 4.1). The level of unemployment remained high over more than a decade. The Netherlands has experienced a period of economic prosperity since the second half of the 1990s, resulting in a drop in unemployment. Compared to many other countries in Europe, Dutch economic growth in that period was above average and the unemployment rate below average. The introduction and extension of early retirement regulations as a response to the rapid increase in unemployment in the early 1980s is reflected in the decrease of the average age at which older workers are eligible for early retirement. Figure 4.1 shows how the official retirement age dropped below 60 in 1991. The 1990s economic boom was followed by a slight increase in the age at which older workers become eligible for early retirement. More so than in other European countries, government policies were aimed at increasing employment opportunities for newcomers to the labor market.

Labor market exits of older men in the Netherlands 81 14

65

12

64

Age

8 62 6 61

Unemployment (in %)

10 63

4 60

2

59

0 1978

1982

1986

1990

Eligible retirement age

Figure 4.1

1994

1998

2002

Unemployment rate

Trends in eligible retirement age and unemployment in the Netherlands

Source: Netherlands Bureau for Economic Policy Analysis, and Ministry of Social Affairs and Employment.

Efforts to decrease youth unemployment went hand-in-hand with indicators that many older workers were having difficulty coping with the demanding working conditions. The intertwining of demographic and labor market developments in the Netherlands had resulted in an early exit culture, one supported through a complex system of early exit pathways. The government financially supported early retirement experiments because of the expected social consequences: positive effects on youth employment and a greater freedom of choice for older workers. From the employers’ viewpoint, however, the job opportunity argument in favor of early retirement was of secondary importance. Employers regarded early retirement as an effective means to gradually shed relatively expensive, less productive elderly employees, leading to a reduction or rejuvenation of staff. The dominant exit culture is reinforced by strong seniority-based salary systems. Many Dutch employers associate aging workers with increasing labor costs and not with increasing productivity (Remery et al. 2003). As a result employers are not inclined to hire or train older workers; participation in training programs decreases quickly after age 40 (Ester, Muffels and Schippers

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2003) and chances of re-entering the labor market after unemployment are low. The mobility of older workers is dominated by exit mobility (retirement). Although external job mobility after age 55 increases slightly, less than four percent of workers aged 55–64 are externally mobile per year (Ester, Muffels and Schippers 2003). Extending the work lives of older workers has been, and still is, of low priority for most employers in the Netherlands (Remery et al. 2003). The three most important pathways out of the labor force are, and have been, early retirement (VUT), disability and unemployment. The first early retirement schemes were introduced in 1976, providing employees with the opportunity to terminate their jobs voluntarily before reaching the legal retirement age of 65. Initial experiments were aimed at the education sector and the construction sector. Other industrial branches soon followed. The early retirement scheme is not a welfare state scheme but a collective agreement between trade unions and employers at sector and firm levels. Both workers and employers contribute to the cost of the schemes. Two welfare pathways to non-employment were also very popular: disability and unemployment. The disability scheme in particular was frequently used to lay off older workers. The use of this scheme not only for medical reasons but also for labor market motives was “legitimated” by the social partners and the government (De Vroom 2004). Moreover, the three types of outflow are not independent: restrictions in one invariably result in increases in the others. The differences between skilled and unskilled workers are also important here. It is generally argued that the process of globalization and the rise of the knowledge economy are closely connected due to the skill-biased process of technological change. In the economic literature, there is ample debate about whether the deskilling of the labor force is one of the most important effects of globalization. The increased demand for skilled workers in the knowledge economy implies that personal skills are becoming more and more salient for a worker’s income level and career perspective. As a result, the unskilled worker will face lower wages and higher chances for retirement whereas the highly skilled worker will receive higher wages and better protection. This implies important differences between groups of workers based on their educational qualifications as well as differences between occupational categories. Demographic changes play an important role in the direction of the trend. The policies that were aimed at encouraging early retirement were developed at a time when those born before World War II were entering old age. The 1930–40 cohort was relatively small; this was the period of very low fertility just before the baby boom. This cohort passed the age of 50 in 1980, the period in which early retirement was becoming more common. The large postwar baby boom generation will enter old age soon, and this makes early retirement increasingly difficult to pay for. It is to be expected that early retirement policies will become less generous, and the trend is already moving away from early retirement.

Labor market exits of older men in the Netherlands 83 DATA, METHODS, AND MEASURES The goal of this chapter is to analyze the labor market exit behavior of older men in the Netherlands between 1979 and 1999, the period in which most economic and policy changes occurred. Our first set of research questions focuses on change at the aggregate level: 1 2 3

How has the labor market participation of men aged 50–64 changed between 1979 and 1999? Given that older men are not employed, how has the share of disability, unemployment, and early retirement changed between 1979 and 1999? What do these changes look like among different educational groups?

These questions will be answered by analyzing the stacked six waves of the Aanvullend Voorzieningen Gebruik Surveys 1979, 1983, 1987, 1991, 1995, and 1999 (AVO). We focus on men aged between 50 and 65. The total number of older men in these combined surveys is 6,851. Because the AVO survey is quite large, it is an ideal source of information on the elderly. Moreover, the AVO has used more or less similar question wording over time, which makes it a good source of information on change. We used the personal weights that AVO provides to make the data representative with respect to basic characteristics. The second set of questions focuses on the basic determinants of early labor market exit: 1 2 3 4

What is the effect of individual aging on labor market exit, and how does this differ between the different types of exit? What is the effect of education and experience on labor market exit, and how does this differ between the different types of exit? What is the effect of job characteristics on labor market exit, and how does this differ between the different types of exit? What is the effect of specific period-measures on labor market exit, and how does this differ between the different types of exit?

These questions will be answered by analyzing men aged 50–80 in the 1999 wave of the AVO survey. In this survey, men who were not employed were asked at what age they last left the labor market. In addition, men who were not employed answered questions about their former occupation. This information allows us to analyze some determinants of labor market exit in an event-history framework. For men younger than age 65, we can also use this information to analyze the exit path. After all, it is plausible that the current position of “younger” older men is similar to the position they had when leaving the labor market. Finally, the event-history analysis allows us to examine year-to-year changes in labor market exit, since the histories of the older men in 1999 cover a large part of the 1979–99 period. The number of men in this analysis is 1,430 (without the type of exit) and 1,075 (including the type of exit). The total number

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of labor market exit events in the analysis is 755 (without type of exit) and 269 (with type of exit).

MEASURES The central dependent variable is labor market exit. We focus on three aspects of the retirement transition of older male workers: 1 2 3

transition to non-employment (exit); transition to unemployment/disability; transition to early retirement.

In some analyses, these are combined. Our first independent variable is the period in which the transition occurs. In the stacked cross-sectional data, the period is the year of survey (1979–99). In the event-history data, it is the year of observation, which ranges from 1975–99. The second variable is individual age. This variable is broken down in broad categories in the cross-sectional data and in two-year age categories in the eventhistory analysis. Education is also included, both in the stacked cross-sectional analyses and in the event-history analyses. Education is broken down in three categories: only primary education, secondary education, and tertiary education. To have no more than a primary education is uncommon today, but it is a significant category among the elderly (more than 22 percent). We subsequently look at several characteristics of the job. First we look at labor market segments, based on the current or most recent job. We distinguish between the manufacturing sector, trade and transport, government, other services, and the agricultural sector. It can be assumed that certain types of jobs are better protected than other jobs and that workers in such jobs will be less likely to experience an exit from the labor market. We assume that compared to workers in the private sector, the government sector employees are relatively well protected from the forces of globalization. In addition, we consider occupational characteristics. More specifically, we look at four broad classes of occupation, again using information on the current or most recent job. We converted detailed occupational codes into the EGP-class scheme and make a distinction between lower manual, higher manual, lower non-manual, higher non-manual, and self-employed. We also look at several career aspects. Next to men’s current age – an indicator of experience – we look at the age at which men began their careers. We expect that men who began their working life early will also retire early. In addition, we include a time-varying covariate indicating the length of time men were employed by their current employer.

Labor market exits of older men in the Netherlands 85 Table 4.1

Descriptive statistics of variables in the study Descriptives Proportion (or mean)

Year (stacked cross-sectional analyses) 1979 1983 1987 1991 1995 1999 Age (stacked cross-sectional analyses) 50–54 55–59 60–64 Education (stacked cross-sectional analyses) Primary education Lower or intermediate education Higher vocational or university Job characteristics (event-history analyses) Lower manual Higher manual Lower non-manual Higher non-manual Self-employed Missing Irregular working hours Supervisor Manufacturing sector Trade and transport sector Government sector Other services Agricultural sector Sector missing Individual characteristics (event-history) Primary education Lower or intermediate education Higher vocational or university Years with current employer Age labor market entry Single (0–1)

0.19 0.15 0.17 0.13 0.17 0.18 0.37 0.34 0.29 0.30 0.53 0.17 0.14 0.14 0.20 0.16 0.10 0.26 0.14 0.22 0.22 0.18 0.19 0.10 0.03 0.27 0.22 0.56 0.22 21.2 17.6 0.05

N 6,851 1,320 1,032 1,168 896 1,176 1,259 6,851 2,501 2,344 2,006 6,851 2,080 3,594 1,177 1,430 200 200 286 229 143 372 200 315 315 257 272 143 43 386 1,430 315 801 315 – – 72

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Finally, we look at marital status. We make a distinction between men who are never-married singles and other men. We have to keep in mind that this information is not time-varying; it is based on the time of the survey, while the labor market exit can have occurred earlier. In addition, we look at information about whether the wife works. This information is available because the AVO data are household data. We use the question about current employment and the question about the age at departure from the labor market. Hence, this variable is time-varying (although we still need to assume that the wife is still living with the husband at the time of the survey). The role of the partner is potentially important. The partner is not only a source of informal support and affection but also plays an important role in structuring one’s use of time, in monitoring one’s behavior, and in the confirmation of behavior (Lee 1988). This might even hold more during retirement, when husband and wife are directly faced with one another (Van Solinge and Henkens 2005). The importance of having a partner can be twofold. First, having a partner can be considered a resource that makes older workers less vulnerable to layoffs (Kalmijn and Luijkx 2005). As such workers with a spouse are less likely to exit employment, particularly via the unemployment/ disability route. With respect to couples, it can be expected that a non-working spouse increases older workers’ demand for leisure and the likelihood of early exit.

RESULTS Stacked cross-sectional analyses Figure 4.2 shows the trend in non-employment for different age groups. Nonemployment includes disability, unemployment, and early retirement. The most significant trend is the increase in the percentage of men aged 60–64 who are not employed. This percentage has increased from 50 percent in 1979 to 80 percent in 1991. In the 1990s, no further increase occurs but the trend is also not reversed. The somewhat younger elderly also reveal a trend, albeit a smaller one. The percentage of men aged 55–59 who are not working increased from about 30 percent in 1979 to 40 percent in 1991, but since 1995, this percentage has declined again, possibly indicating a reversal of the trend toward early retirement. The 50–54 age group shows no real trend: their non-employment percentage fluctuates around 20 percent. It is also of some interest to examine the oldest group (age 65–69). The official retirement age in the Netherlands has been age 65, so most men will not be working after that age, and the data indeed show around 95 percent of this group being non-employed. Nevertheless, there is a small percentage of men who keep working beyond the official retirement age, and they are most likely to be self-employed. Figure 4.3 presents the non-employment percentages for different educational groups. For the sake of simplicity, we combine men aged 55–64. The figure first

Labor market exits of older men in the Netherlands 87 100%

80%

60%

40%

20%

0% 1979

1983 65–69

Figure 4.2

1987 60–64

1991

1995 55–59

1999 50–54

Percentage of non-employed men by age and period

Source: AVO 1979, 1983, 1987, 1991, 1995, 1999.

shows that all educational groups have experienced declining labor force participation. Interesting, however, the tempo of change is different for the least educated (only primary education). In the early period, the non-employment percentage of the least educated was much higher than among the higher educated. The increase in non-employment since then has occurred faster for the higher educated, however, so that the educational groups converged by the end of the 1980s. After 1991, however, we see a clear downward trend in nonemployment for the higher educated, whereas for the least educated, the increase in non-employment continues. Hence, after 1991, educational groups diverged. For older men, non-employment is a heterogeneous category. In Figure 4.4, we present separate figures on the type of non-employment (again, for men aged 55– 64). More specifically, we focus on the non-employed only and calculate the percentage that is unemployed, disabled, and that has taken early retirement. In other words, these are relative numbers. The numbers allow us to assess whether there are trends in the relative importance of different forms of non-employment. Interestingly, the trend toward increasing non-employment is almost exclusively the result of early retirement. The relative share of early retirement has increased while the relative share of disability has decreased. In 1979, disability was the most common exit route for 55–64 year old men; twenty years later, it was early retirement.

88

Kène Henkens and Matthijs Kalmijn 100%

80%

60%

40%

20%

0% 1979

1983

Only primary education

Figure 4.3

1987

1991

Secondary education

1995

1999

Tertiary education

Proportion of non-employed men aged 55–64 years by education and period

Source: AVO 1979, 1983, 1987, 1991, 1995, 1999.

Event-history analyses In the 1999 AVO, information was available about the timing of retirement and characteristics of the last or current job. To analyze the data, we applied discretetime event-history models. The data were reorganized into a person-month file which contained time-constant and time-varying variables for each respondent in each month. The person-month file is analyzed by (multinomial) logistic regression models in which the occurrence of an event rather than experiencing no event is the dependent variable. In Table 4.2, the event is defined as the early departure from the labor market. The analyses in this table are based on men of all ages in 1999, but the eventhistory analysis is limited to person-months in which men were aged 50–64. Note that we need to assume that the men who left did not return. This is not a strange assumption, because other sources suggest that returning after leaving the labor market is a relatively rare phenomenon among older men (Fouarge, Schils and Huynen 2004). In Table 4.3, this analysis is restricted to married men. In Table 4.4, we make a distinction between different types of non-employment (unemployment and disability on the one hand, and early retirement on the other

Labor market exits of older men in the Netherlands 89 100%

80%

60%

40%

20%

0% 1979

1983 Retired

Figure 4.4

1987

1991 Disabled

1995

1999

Unemployed

Type of non-employment of men aged 55–64 years by year

Source: AVO 1979, 1983, 1987, 1991, 1995, 1999.

hand). Unemployment and disability are combined because the number of cases is limited. This is a competing risk model, which is estimated by applying multinomial logistic regression on the person-months file. This analysis is limited to men aged 50–64 at the time of the survey. The reason for this is that the survey failed to ask how men left the labor market when they left early. Hence, we need to assume that the current situation is the same as the situation at labor market exit, and that is only true for men who were younger than 65 at the time of the survey. For example, a 60-year old man who was unemployed at the time of the survey and reported having left the labor market at age 55 can reasonably be assumed to have left the labor market at age 55 through unemployment. We look at effects of the following sets of characteristics: (a) age and period, (b) job characteristics, (c) work history, and (d) education. We start by discussing the effects of age and period. Period is defined as the year of observation in the life history. Although the coefficients fluctuate somewhat, they generally confirm the cross-sectional picture obtained from Figure 4.2. Early labor market exit chances increase considerably from the mid-1970s and they decrease somewhat after the early 1990s. This is evidence of a reversal of the trend toward early retirement. In

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Table 4.2

Results of logit analyses to explain early retirement of older male workers in the period 1979–99 in the Netherlands 1

Period Before 1978 1978–79 1980–81 1982–83 1984–85 1986–87 1988–89 1990–91 1992–93 1994–95 1996–97 1998–99 Unemployment rate Average age eligible for early retirement Age 50 years 51–52 53–54 55–56 57–58 59–60 61–62 63–64 Job characteristics Lower manual (ref.) Higher manual Lower non-manual Higher non-manual Self-employed Missing Irregular working hours (0–1) Supervisor (0–1) Manufacturing sector (ref.) Trade and transport sector Government sector Other services Agricultural sector Sector missing

2

– 0.40 0.77* 0.83** 1.02** 1.01** 1.35** 0.93** 1.25** 1.15** 0.90** 0.70** 0.08** -0.13** – 0.52* 1.28** 1.75** 2.60** 3.44** 2.98** 2.84**

– 0.52* 1.28** 1.75** 2.56** 3.45** 2.98** 2.85**

– -0.09 -0.25 -0.68** -1.31** -0.53** -0.03 0.33** – -0.02 0.21 -0.06 -0.80** -0.04

– -0.09 -0.24 -0.67** -1.31** -0.52** -0.04 0.34** – -0.02 0.21 -0.04 -0.79** -0.05

Labor market exits of older men in the Netherlands 91 Table 4.2

continued

Individual characteristics Primary education (ref.) Lower or intermediate education Higher vocational or university Years with current employer Age labor market entry Single (0–1) Events N Chi2 (df) R²

1

2

– -0.22* -0.17 0.03** -0.03* 0.20

– -0.23* -0.20 0.03** -0.02 0.21

755 12,275 975.3 (35) 17.76%

755 12,275 962.7 (26) 17.53%

Source: Calculations based on the AVO 1999. Notes: ** Effect significant at p < 0.01 * Effect significant at p < 0.05.

Model 2, the period dummy-variables are replaced by two trend indicators: the aggregate unemployment rate in the given year and the average age at which men are eligible to retire in the given year (see Figure 4.1). These two indicators have the expected effects: early labor market exit chances are simultaneously increased by higher unemployment rates and by lower official early retirement ages. The effects of age are also as expected. The older a person is, the higher the exit chances, with peak exit chances reached at age 59–60 (Table 4.2 and Table 4.3). Thereafter, the exit chances decline somewhat with increasing age. When looking at the type of exit in Table 4.4, we see a much stronger positive effect of age on early retirement than on disability and unemployment. This is also consistent with what one would expect. The models included several characteristics of the person’s job. The first variable to look at is the occupational class a person is in (or was in, in cases when he retired early). One would expect differences between occupational groups, in part because the nature of the work varies: some men do heavy physical work or less attractive work and we would expect that for these workers, early labor market exits will be more likely. Moreover, the opportunities to retire early will also be different for different occupational groups. As we can see from the tables, there is only a modest effect of occupation. The clearest effect is that the self-employed have much lower exit chances than virtually all other categories, a finding which has been observed

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Table 4.3

Results of logit analyses to explain early retirement of married male workers in the period 1979–99 in the Netherlands 1

Period Before 1978 1978–79 1980–81 1982–83 1984–85 1986–87 1988–89 1990–91 1992–93 1994–95 1996–97 1998–99 Unemployment rate Average age eligible for early retirment Age 50 years 51–52 53–54 55–56 57–58 59–60 61–62 63–64 Job characteristics Lower manual (ref.) Higher manual Lower non-manual Higher non-manual Self-employed Missing Irregular working hours (0–1) Supervisor (0–1) Manufacturing sector (ref.) Trade and transport sector Government sector Other services Agricultural sector Sector missing

2

– 0.40 0.74* 0.66* 0.97** 0.87** 1.20** 0.73** 1.11** 1.02** 0.77** 0.57* 0.08** -0.09* – 0.64* 1.30** 1.83** 2.70** 3.61** 3.19** 2.69**

– 0.64* 1.30** 1.83** 2.70** 3.60** 3.19** 2.70**

– -0.18 -0.24 -0.64** -1.32** -0.53* 0.04 0.33** – -0.14 0.14 -0.04 -1.05** -0.04

– -0.18 -0.23 -0.63** -1.31** -0.52* 0.04 0.34** – -0.14 0.14 -0.03 -1.04** -0.04

Labor market exits of older men in the Netherlands 93 Table 4.3

continued

Individual characteristics Primary education (ref.) Lower or intermediate education Higher vocational or university Years with current employer Age labor market entry Age difference spouses Wife works Events N Chi2 (df) R²

1

2

– -0.12 -0.07 0.04** -0.03 0.01 -0.31*

– -0.13 -0.08 0.03** -0.03 0.01 -0.31*

548 9,891 834.6 (36) 19.70%

548 9,891 825.9 (27) 19.50%

Source: Calculations based on the AVO 1999. Notes: ** Effect significant at p < 0.01 * Effect significant at p < 0.05.

before (Henkens and Siegers 1995) and which has to do with the poorer financial opportunities to “retire” early. Table 4.4 confirms this: the self-employed are less likely to retire early but not less likely to become disabled. Self-employed are mostly not eligible for early retirement; these arrangements are restricted to employers covered by Collective Labor Market Agreements (“CAO’s”). Moreover, we see that the higher non-manual occupations also have lower exit chances than the other classes. Differences between lower non-manual workers and manual workers are small, and this also applies to differences within the manual classes. A second variable is the sector in which men work, where we do not expect to see strong effects. Although there are hundreds of different early retirement schemes in the Netherlands, there is relatively little difference in the age of early retirement and benefit levels between organizations in the public and private sector. Tables 4.2 and 4.4 confirm this: the effects of the sector in which men work are small. The only clear effect that we can see is the lower exit chance of workers in the agricultural sector. A third aspect of the work that men do or did is whether they supervise other workers. One would expect that the intrinsic rewards (more challenging work) of working in supervisory positions will be higher and the likelihood of early retirement consequently lower. The results in Table 4.2 and 4.3 show however, that men who are supervisors are more likely to leave the labor market than other

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Table 4.4

Results of multinomial logit analyses to explain the chances of becoming unemployed/disabled for work, or early retired of older male workers aged 50–64 years in the Netherlands Unemployed/disabled

Age Job characteristics Lower manual (ref.) Higher manual Lower non-manual Higher non-manual Self-employed Missing Irregular working hours (0–1) Supervisor (0–1) Manufacturing sector (ref.) Trade and transport sector Government sector Other services Agricultural sector Sector missing Individual characteristics Primary education (ref.) Lower or intermediate education Higher vocational or university Years with current employer Age labor market entry Single (0–1) Events N Chi2 (df) R²

0.20**

Early retired 0.46**

– -0.09 -0.47 -1.02* -0.03 -0.16 -0.37 0.55 – 0.31 -0.29 0.40 -1.26 -0.28

– -0.50 -0.38 -0.82* -1.92** -0.34 0.50* 0.44* – 0.13 0.17 0.11 -2.19* -0.00

– -0.86** -1.17** -0.00 0.02 1.19**

– 0.15 0.23 0.04** -0.05 -0.64

103

166 6,299 459.1 (36) 17.79%

Source: Calculations based on the AVO 1999. Notes: ** Effect significant at p < 0.01 * Effect significant at p < 0.05.

men. We have no good explanation for this finding, but the effect was consistent under alternative specifications of the variables and models. The data also allow us to look at two aspects of a person’s work history. The data contain one question about the age at which men began their career. One would expect that for two persons who are of the same age, the person who

Labor market exits of older men in the Netherlands 95 began his career earlier would be more likely to leave the labor market. The results show that this is indeed the case. Age of course has a very strong effect on early labor market exit, but variations in the length of the career after holding age constant also have an effect. The later men began their career, the less likely it is that they leave the labor market. In Table 4.4, we also see that the age at which men begin their career only affects early retirement and not disability and unemployment. Men who begin their career early are more likely to retire early, but they are not more likely to become disabled or unemployed earlier. A second work history aspect also has an effect. We see that men who were less mobile near the end of their careers, as indicated by a large number of years they were with the current employer, are more likely to leave the labor market. Education is one of the most important determinants of employment careers and we can see it plays a role in the careers of older workers. More specifically, we see a small effect of education on labor market exit. The lower educated are more likely to leave early than the higher educated. The results in Table 4.4, however, show that educational effects greatly depend on the type of exit. There is a very strong effect of education on exit through disability and unemployment. The lower educated have 2.4 times higher odds of leaving the labor market this way than the moderately educated. There is no effect of education on the odds of early retirement. We conclude by discussing the effects of marital status. In Table 4.2, we see that single men are not less likely to exit early, in contrast to what we expected. We expected that leisure is more valuable for married men, and hence, that married men would retire more quickly. Apparently, this is not the case. However, we do see in Table 4.4 that single men are more likely to retire under unfavorable conditions; they are more likely to become disabled or unemployed. This is in line with other findings (Kalmijn and Luijkx 2005) and has been explained in terms of the protection that marriage can offer men. Adverse selection of single men into unemployment and disability is also an explanation. Another interesting finding can be seen in the model that focuses on (currently) married men only (Table 4.3). Here we find that when the wife works, the husband is less likely to exit the labor market early. This finding is in line with the notion that leisure considerations are an important element in the retirement decision. When the wife does not work, leisure will be more valuable for the couple, and the husband may decide to leave the labor market early (Drobniþ 2002). We also examined whether there is an effect of the age difference of the wife and husband. We expected that the younger the wife, the longer men stay in the labor force. Although this is a plausible argument, we do not find an effect of the age of the wife.

CONCLUSIONS In this chapter, we presented an analysis of 20 years of retirement in the Netherlands. Our analyses show that early exit became a widespread

96

Kène Henkens and Matthijs Kalmijn

phenomenon from the late 1970s onwards. Induced by rising unemployment figures, early retirement regulations were established and the ages of eligibility dropped over the years. Due to the high benefit levels, workers also became increasingly inclined to use the opportunity to retire early. Employers also saw benefits in the early retirement of their older workers. They also used social security regulations such as disability and unemployment to guide older workers out of the labor force. The exit culture, as it has been called, spread to all sectors of the Dutch economy, and only among workers in the agricultural sector do we find somewhat later retirement, in turn possibly due to the high number of the self-employed in this sector. As a category, the self-employed remain in the workforce considerably longer than wage-earners, primarily because they are less likely to use the early retirement exit route. Also, higher non-manual classes retire later, in part because such classes are less likely to become disabled or unemployed. The unemployed and disability pathways are strongly biased towards the lower educated workers. All educational groups have experienced the trend toward declining labor force participation. The tempo of change is different for the least educated (those with only a primary education), however, as their non-employment percentage was much higher in the early period than it was among the higher educated. The increase in non-employment since then was faster for the higher educated, so the educational groups converged. After 1991, we see a clear downward trend in non-employment among the higher educated, while among the least educated, the increase in non-employment has continued. Work histories have an impact on retirement behavior. Those who start their career earlier also retire earlier, though the more recent work history seems to be more important. Those workers who are mobile between firms at the end of their careers retire substantially later than those who remain with their employer, primarily, because they do not opt for early retirement. This may suggest that inter-firm mobility and early retirement are different strategies to adapt to the changing demands of the job. Those workers who adapt by changing their jobs may feel less pressure to retire early. Moreover, new work may bring new challenges, and a lack of challenging work is one of the most important workrelated determinants of early retirement (Henkens 1998). However, we lack information on whether inter-firm mobility was upward or downward and it remains difficult to establish a causal relationship between mobility and retirement behavior. Do people retire later because they have invested in their late careers by changing employers? Or are workers who do not want to retire more likely to invest in their late careers? The importance of the family in explaining early retirement trends is visible in the vulnerability of single male workers in their late careers. They have a considerably higher chance of becoming unemployed or disabled. With respect to couples, the analyses show that a non-working spouse increases the older workers’ demand for leisure and the likelihood of early exit. Earlier analyses of labor market trends have often pointed to the role of globalization (Blossfeld et al. 2005). Central elements of this transformation are

Labor market exits of older men in the Netherlands 97 the internationalization of markets and the rise of new information and communication technologies. These changes have led to a process of globalization in which economic, social, and cultural relations between individuals and between countries have changed. One of the more important consequences of globalization, so it is believed, lies in the labor market. An influential hypothesis is that globalization has led to heightened competition among firms and to an increase in the power of markets. On the individual level, these changes result in increasing uncertainty in the labor market and an increasing need to be flexible in one’s employment behavior. In practical terms, globalization is believed to mean more temporary work, fewer fixed-term contracts, more part-time work, more job changes, and higher risks of short-term unemployment. Globalization also means that workers in vulnerable positions – such as young workers or ethnic minorities – are more likely to suffer, and the hypothesis is that flexibility goes hand in hand with insecurity. For older men, this argument has been made as well, and this group also possesses skills that are more likely to lose their value in a rapidly changing technological environment. They would also be less able to adjust to new technologies. Together, one would expect negative outcomes for older men’s working lives. From the data we have analyzed, it is difficult to say whether such arguments are valid or applicable to the Dutch case. It is clear that the disability route is often used, especially among less educated older workers. Yet the low participation rates for these older workers are not necessarily a problem inasmuch as the financial position of men on disability insurance has long been more attractive than it would have been if they only had unemployment benefits. It is also clear that the early retirement route has increasingly been used. While this indeed points to a declining “integration” of older men in the labor market, it does not mean that their financial position was worse, since many early retirement schemes were highly attractive in monetary terms. In other words, older workers are indeed more often excluded from the labor market, but this has not been a sign of their worsening socioeconomic position. To what extent globalization contributed to this trend cannot be assessed with the data we analyzed. Nevertheless, it is telling that the trend toward declining participation seems to be reversing for the better educated – under the pressure of demographic change – while it continues for the less well educated. Other research designs are needed to estimate the possible role of globalization more conclusively.

BIBLIOGRAPHY Aarts, L. and De Jong, P. (1990) Economic Aspects of Disability behavior. Erasmus Universiteit: Rotterdam. Blossfeld, H.-P., Mills, M., Klijzing, E. and Kurz, K. (2005) Globalization, Uncertainty and Youth in Society, London: Routledge Advances in Sociology Series.

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De Vroom, B. (2004) ‘The shift from early to late exit: changing institutional conditions and individual preferences: The case of the Netherlands’, in E. Overbye (ed.) Ageing and the Transition to Retirement: a comparative analysis of European welfare states. Aldershot: Ashgate, 120–154. De Vroom, B. and Blomsma, M. (1991) ‘The Netherlands: An extreme case’ in M. Kohli, M. Rein, A.-M. Guillemard and H. Van Gunsteren (eds), Time for retirement. Comparative studies of early exit from the labor force (pp. 97– 126). Cambridge: Cambridge University Press. Drobniþ, S. (2002) ‘Retirement timing in a household context’, International Journal of Sociology – special issue: M.E. Sharpe. Ester, P., Muffels, R. and Schippers, J. (2003) De organisatie en de oudere werknemer, Bussum: Coutinho. Fouarge, D., Schils, T. and Huynen, B. (2004) To Retire or Continue Working? An analysis of the early retirement behaviour of Dutch Workers, Tilburg: OSA. Henkens, K. (1998) Older Workers in Transition. Studies on the early retirement decision in the Netherlands, Utrecht University. Henkens, K. and Siegers, J. (1995) ‘Employment and Early Retirement’, in T. Jaspers, J. Schippers, J. Siegers and I. van Berkel (eds) Working policies? Facts, analyses and policies concerning employment and non-participation in the Netherlands, Wolters Noordhoff: Groningen, pp. 105–118. Henkens, K., Sprengers, M. and Tazelaar, F. (1996) ‘Unemployment and the older worker in the Netherlands: Re-entry into the labour force or resignation’, Ageing and Society, 16(5): 561–578. Heyma, A. (2001) Dynamic Models of Labour Force Retirement. An empirical analysis of early exit in the Netherlands, Tinbergen Institute, University of Amsterdam. Kalmijn, M. and Luijkx, R. (2005) ‘Has the reciprocal relationship between employment and marriage changed for men? A comparison of cohorts born in the Netherlands between 1930 and 1970’, Population Studies (forthcoming). Kapteyn, A., and De Vos, A. (1998) Social security and labor force participation in the Netherlands. American Economic Review, Papers and Proceedings (88), 164–167. Kohli, M., Rein, A., Guillemard, A.-M. and Van Gunsteren, H. (eds) (1991) Time for retirement. Comparative studies of early exit from the labor force. Cambridge: Cambridge University Press. Lee, G. (1988) ‘Marital intimacy among older persons’, Journal of Family Issues 9(2): 273–284. Liefbroer, A. and Henkens, K. (1999) ‘Labour market careers of successive cohorts of older men in the Netherlands: changes in age at retirement and length of working lives’, Genus, 55(1–2): 101–120. Remery, C., Henkens, K., Schippers, J. and Ekamper, P. (2003) ‘Managing an aging workforce and a tight labor market: views held by Dutch employers’, Population Research and Policy Review, 22(1): 21–40. Sprengers, M. (1992) Explaining Unemployment Duration. An integrative approach. Universiteit Utrecht.

Labor market exits of older men in the Netherlands 99 Van Solinge, H. and Henkens, K. (2005) Couples’ adjustment to retirement: a multi-actor panel study. Journal of Gerontology: Social Sciences 60B (1): S11–S20. Van Solinge, H. and Fokkema, T. (2000) ‘De beroepsloopbanen van oudere vrouwen’, Tijdschrift voor Politieke Ekonomie, 22(3): 27–44.

5 Men’s late careers and career exits in Italy Wiebke Beckstette, Mario Lucchini and Antonio Schizzerotto

INTRODUCTION As in other OECD countries, globalization forces have also affected the Italian economy; the early-1980s were characterized by one of the heaviest economic crises since World War Two. The Italian labor market is quite rigid and inflexible, which makes it hard for enterprises to cope with increased market insecurity. It is well known that the Italian labor market is strongly segmented into an insider and an outsider market. Well-protected insiders are those male employees near the end of their careers who are employed in medium-sized and large firms. Nevertheless, since the beginning of the 1980s, the labor force participation of this part of the population has declined continuously, and from 1970 to 2002, the percentage of Italian men aged 50 to 64 years in the labor market dropped by about 20 percentage points. In the 1980s and early-1990s, special early retirement schemes were used to give firms which were under economic pressure more employment flexibility. For the first time, it was possible for large and mid-size enterprises to shed older employees before the legal retirement age. These early retirement schemes were also attractive for the employees, as they offered high financial security.1 But not all older employees in Italy are well covered by the social security system, and the system has an almost dualistic character: some groups are very well protected, others far less so. The Italian pension system has at least partly been used as a means to cope with rising labor market pressures and increased needs for economic flexibility. In fact, the social security system was more and more used as a proxy to address inadequate labor market policies (Kohli 1994). Thus, the pressure on the Italian pension system, already affected by continuing demographic aging, was further increased. In our chapter, we study the withdrawal from employment of Italian men2 born between 1926 and 1937. The first question we ask is whether an increased trend towards early retirement since the early-1970s can be found. In a second step, we study the withdrawal from employment of Italian men more closely, and study the impact of occupational class, employment sector and region on the withdrawal from employment. We start with a description of the Italian labor market in the last decades. We then discuss the regional diversity in Italy and the co-existence of very different

102 Wiebke Beckstette, Mario Lucchini and Antonio Schizzerotto labor market situations in North, Center, and South Italy. This is followed by a description of the Italian pension system. We then present our research hypotheses and the data used as well as the results of our longitudinal analyses. We conclude with an outlook where we discuss recent changes in the Italian pension system.

THE ITALIAN LABOR MARKET UNDER GLOBALIZATION In the years of rebuilding after World War Two, and during the economic revival of the 1950s, there was a trend toward more regulation and better employment protection. This trend reached its climax in the 1960s and 1970s (Ginsborg 1989): in 1966, a law limiting the right to fire in large firms and sanctions against unfair dismissal were issued, and in 1970, a new labor law (Statuto dei Lavoratori) enforced protection against unfair dismissal and enlarged the coverage to include companies with at least 16 employees (Auer 1993; Samek Lodovici 2000). The two oil crises, the rise of unemployment, and the inflation of the 1970s led by the beginning of the 1980s to one of the most severe economic crises since 1945. The management of many firms asked for more employment flexibility at that time, in order to be able to cope with increasing market insecurities and rising international competition. Companies which had more and more problems in using traditional measures were supported by the government, in an effort to stimulate the national economy (Treu 1993). Against union opposition, some labor market deregulation was introduced, but these measures bringing more flexibility largely affected those young workers just entering the labor market (Bernardi and Nazio 2005). The cumulative destruction of employment protection for new employees, and the constant high unemployment rate, enforced the existing insider-outsider labor market mechanisms that are typical for Italy. It also led, moreover, to a division of successive cohorts entering the labor market such that members of the older cohorts experience a higher employment protection because they can take advantage of measures introduced during the 1960s and 1970s. Special programs, namely the Cassa Integrazione Guadagni (CIG) and Cassa Integrazione Guadagni Starordinaria (CIGS), exist in Italy to guarantee income support during temporary and permanent job loss. In practice, these programs were used to shed older employees and to bridge the time until they could retire. These programs, however, are also very generous: an older employee approaching legal retirement age and in danger of losing the job can claim benefits at a replacement rate of 80 to 85 percent of the former wage, until public pension can be claimed (Garonna and Sica 1997). CIG and CIGS are limited to only big and mid-size firms – those typical of industrialized Northern Italy. During recessions, CIG and CIGS have been particularly popular, which is why they are sometimes also called “social shock absorbers.” These two programs played an important role in the Italian industrial sector’s recovery from the oil

Men’s late careers and career exits in Italy 103 crises and the subsequent economic turbulence of the 1970s and 1980s. The profound reorganization of the industrial sector was largely financed by CIG and CIGS (Tronti 1993).

GEOGRAPHICAL DIVERSITY IN ITALY Italy is characterized by strong geographical diversity: North, Center, South and the islands differ strongly from each other with regard to the economic structure, the organization of employment relations, and the strength of informal employment. A comparison of regions by indicators such as GDP, per capita income, share of agriculture (compared to the national share), and the unemployment rate confirm the thesis that the Northern part of the country is more economically developed (de Luca and Bruni 1993). The regions do differ in terms of paid social security benefits, due to the fact that some schemes, such as the pension system, operate better in the North, where more people are employed in the formal economy. Overall and nationally, the participation rate decreased and the unemployment rate increased during the 1980–91 recession. Splitting up the rates for the different regions shows that rising unemployment was a Southern problem: the rate remained quite stable in the Northern part of the country. Thus, the already existing discrepancy between the North and the South was intensified (Table 5.1). Italian regions differ as well with regard to the economic structure (see Figure 5.1). In the North, the industrial sector is strong – the model of the large Fordist factory has historically prevailed in this region. In the South, the share of the agricultural sector was very high even into the early-1980s. Italy is one of the European countries whose development towards a more service-oriented Table 5.1

Employment and unemployment rates by sex and region (in %)

Employment rate Center/North South National Unemployment rate Center/North South National

1980

1991

2002

Men Women Total

Men Women Total

Men Women Total

73.2 68.0 71.4

34.5 24.9 31.1

53.4 45.8 50.9

68.2 60.9 65.6

39.4 23.5 33.7

53.6 41.9 49.4

72.5 60.7 68.7

49.7 26.1 41.5

61.1 43.3 55.4

3.5 7.5 4.8

10.2 20.2 13.1

5.8 11.5 7.6

3.9 14.4 7.5

10.4 31.6 16.8

6.5 19.9 10.9

3.9 14.9 7.3

7.7 25.9 11.9

5.5 18.6 9.1

Source: de Luca and Bruni (1993); ISTAT Quarterly Labor Force Survey.

104 Wiebke Beckstette, Mario Lucchini and Antonio Schizzerotto 80% 70% 60% 50% 40% 30% 20% 10%

North/Center

South

North/Center

South

North/Center

South

0%

1981

1981

1991

1991

2002

2002

Primary sector

Figure 5.1

Secondary sector

Third sector

Sectors by region, 1981–2002

Source: de Luca and Bruni (1993: 32); ISTAT Quarterly Labor Force Survey.

economy is quite late. Today, the share of the service sector is a bit higher in Southern than in Northern and Central Italy. Furthermore, the importance of the informal economy has to be mentioned. Informal work exists to a certain extent in each national labor market. However, the share of informal jobs in Italy is estimated to be one of the highest in the European Union. Although official figures are not available, the underground economy is considered to be particularly strong in the Southern regions of the country and is supposed to have accounted for between 17 and 20 percent of overall employment in the 1970s. It is estimated to still be about 11 to 15 percent (Martinelli, Chiesi and Stefanizzi 1999). The “black” economy is most developed in the agricultural sector, as well as in construction and services (Garonna and Reboani 1994), but is strong in certain domains of production such as food, textiles, steel, and machinery as well (de Luca and Bruni 1993). It is important to include employees of the informal economy into the analysis, when analyzing the transition to retirement, as it can be assumed that these people do not have any protection in terms of future pension benefits. Most existing research distinguishes between North and South (called “regional dualism”), but given the facts, even a trisection of the country can be assumed. In the North-Western part of the country, we find the model of the

Men’s late careers and career exits in Italy 105 large Fordist factory prevailing,3 unemployment has been low, there are universalistic forms of regulations, and a strong presence and involvement of labor unions. On the other hand, the South has a much higher level of unemployment, with small firms, an irregular economy, and a history of the informal regulation of employment relations. In the “Third Italy” – the NorthEast and Central Italy – a system of small and dynamic firms embedded in family and community networks can be found. Thus, the region is an important dimension in our analyses.

THE ITALIAN MODEL OF THE WELFARE STATE The Italian welfare state provides a good protection for older employees – although not for all of them. The pension system is quite generous, both in its benefits and in its entry requirements. Old age pensions are the main source of income in old age, and there is thus no need for older persons to have a labor market-related income. The system has very few sanctions against early exit; rather, there are incentives for using early retirement schemes (Ferrera 1996). The Southern model of the welfare state Esping-Andersen’s (1990) welfare state classification assigns Italy to the conservative welfare regime category. Recent cross-country studies point out that Italy deviates somewhat from the other countries in the conservative cluster (Hofäcker and Pollnerová, this volume), making it hard to assign the country wholly to this type of welfare state. Southern European countries have some features that differentiate them from other conservative states (Ferrera 1996). The Southern European countries are the only members of the European Union that do not have a minimum income for individuals and families, but have a pension system with one of the highest replacement rates. At the same time, the minimum pensions (for instance, benefits for older people who are not able to fulfil the entry requirements) are lower, on average, in the Southern countries (European Commission 1993). The social security system described above leads to a polarization within the Southern European welfare states. It also generates an insider-outsidermechanism and can therefore be regarded as a dualistic system (Ferrera 1996). On the one hand, there are recipients who are well (if not hyper-) protected, while on the other hand, there are those who are under-protected. As a result of this discrepancy, Southern European welfare states should be distinguished from the strongly homogeneous Central European systems. The hyper-protected are predominantly employees in the public sector as well as those white collar employees who enjoy high job security (garantismo). The under-protected are typically employees in small firms and who lack job security. For families, it is important that at least one member stays in the core of garantismo.

106 Wiebke Beckstette, Mario Lucchini and Antonio Schizzerotto The Italian pension system before 1992 The pension system in Italy is based on three pillars: the state-related, legal pension, the occupational pension, and the voluntary, private pension. The legal pension, also called basis pension, is the most utilized source of income for the older population. As the legal contribution rate for pensions of dependant workers is relatively high (about 33 percent) and the tax relief for people receiving occupational pension is rather low, there is almost no incentive for investing in additional private pensions. The private pension is regarded as a safe haven for financial investment, not as a source of an additional pension. However, there is no standardized scheme of public pensions. Many different pension programs exist next to one another. There are different schemes for employees in the private sector, for civil servants, and for the self-employed, each with different rules concerning contributions and possible benefits (MISSOC 1994). The national pensions absorb a large fraction of the Italian GDP,4 and pensions form the largest portion of social security expenditures5 (Brugiavini and Fornero 2001). Before the reforms of the 1990s, the Italian pension system was mandatory and financed redistributively. It offered seniority pensions in addition to the classical old age pensions, and for those over 65 and not integrated into the public pension system, the national funds made a minimum pension (pensione sociale) as well as non-contributory benefits for disabled persons possible (Spataro 2002). The legal retirement age is relatively low, and set at age 55 for women, and age 60 for men employed in the private sector, age 65 for employees in the public sector. For self-employed women and men, it is set at age 60 and age 65 years, respectively. Furthermore, pensions are vested after 15 years of contribution. The pension level is based on average earnings during the last five years worked. Unlike in many other welfare states, pensions are not based on contributions paid during the entire time in employment (Franco 2001). The replacement rate for old age pension is about 70 to 80 percent of the wage earned during the last five years of the career. Many employees, especially the selfemployed and those in the South, do not fulfill the requirements for these generous benefits. The first early pension schemes in Italy were established for older employees in 1968 (Calceon and Greiner 1995), and the replacement rate was relatively low, which meant little incentive to leave the labor market early: as a result, these early retirement schemes were relatively unpopular. In 1981, the first steps were taken to encourage the early withdrawal of older workers whose jobs were threatened. Intended initially only for certain categories of workers and employees, this program was regularly extended. Today one can leave the labor market before the legal retirement age, provided that 15 years of insurance contribution have been paid. The main aim of the early pension scheme is to address the “qualifying period,” defined as the interval between the point when work stops and the point when old age pension begins, so that the ultimate amount of benefits is equivalent

Men’s late careers and career exits in Italy 107 to what the worker would have received if he or she had continued working up to the standard age of entitlement (Calceon and Greiner 1995). The geographical distribution of early pensions reveals a considerable imbalance between North and South. About one half of all early pensions are paid in North-West Italy (Piedmont, Valle d’Aosta, Lombardy, Liguria), although this region contains only 26.1 percent of the total population and 28.2 percent of the recorded employed labor force. The South and the islands receive only 16 percent of all early pensions, but account for 36.9 percent of the workforce. These geographical imbalances reflect the distribution of industrial activity and its structure, with the biggest production units being in the North-West. The so called seniority pensions (pensioni di anzianità) cover workers, irrespective of age, if their contributions have continued for the minimum number of years specified (Ferrera and Gualmini 2000; Marano and Sestito 2004). People who have been employed for 35 years and have paid insurance contributions can leave the labor market with a replacement rate of about 70 to 80 percent. Employees in the public sector have even more generous conditions and can retire very early, given the minimum number of years they need to contribute (20–25 years in the public sector, 20 years in the central government with a replacement rate of about 94 percent, and 25 years in the local government with a replacement rate of 100 percent) (Ferrera and Jessoula 2003). Disability pension provided by the state is paid for an initial three years and must be re-approved; after three successful extensions, it is then paid permanently. Although the number of persons receiving disability pensions has sharply declined in recent years, disability pension can be seen as a possible retirement path (Giarchi 1996). These pensions have far lower entrance criteria, since unlike old age pensions, vesting in disability pensions occurs already after only five years’ worth of contributions. It is assumed that self-employed persons are over-represented among disability pension recipients, as it may be difficult for them to build up a record of 15 years’ contribution in order to qualify for a retirement pension (Calceon and Greiner 1995). Regional analysis of disability pensions fairly accurately reflects differing levels of economic development. In the late-1980s, early retirement programs appeared to be used as a labor market measure, both to try to limit unemployment and to support economic restructuring and reorganization. Seniority pensions were increasingly used to facilitate early withdrawal – a favorable option not only for older employees but also for employers, as it relieved them from economic pressure. Thus, in addition to the CIG and CIGS, the seniority pension is the most important welfare means to make the rigid Italian labor market more flexible.

HYPOTHESES We expect that the Italian system copes with increasing labor market pressure at least partly by excluding older employees, and we therefore characterize Italy as

108 Wiebke Beckstette, Mario Lucchini and Antonio Schizzerotto an “employment exit regime” (Buchholz, Hofäcker and Blossfeld, this volume). The process under study in our analysis is thus the exit from the labor market. In terms of social change, we assume that the extension of early retirement schemes and the generous seniority pensions, combined with globalization influences and economic restructuring since the early-1980s, should lead to an increasing withdrawal from the workforce. Industrial sector employees, when compared to service sector employees, should face an earlier exit. This sector is more affected by the rising international competition and faces a higher need for rationalization than other sectors (Castells 2000). The employment protection for public sector employees is much better than for private sector employees. Hence, we assume that public sector employees will stay longer in the labor market. On the other hand, employees in the public sector also have a privileged position in the system due to the seniority pensions, suggesting the opposite, namely that public sector employees will leave employment earlier than private sector employees. Which of these effects predominates can be only assessed after conducting the analysis. How persons with different qualifications are affected by early retirement processes is a further question to be analyzed, though we suggest that more poorly qualified employees will be more under pressure and will have a higher risk of leaving the labor market earlier. The self-employed are compulsively integrated into the Italian pension system, but their security is weaker compared to other occupational groups. Therefore, it can be assumed that the self-employed will show a tendency to work up to legal retirement age or even beyond it. Furthermore, the self-employed are in professions which often are less affected by changes attributed to globalization. Finally, we assume that the three regions exhibit different labor market exit patterns. In the North-West region and in the “Third Italy,” we expect that early withdrawal will prevail due to the concentration of large companies in the former, and better employment security and social protection in both areas. In the South, however, employees are less well protected, which likely leads employees to try to remain in the labor market as long as possible in order to improve their pension benefits.

DATA, VARIABLES AND METHODS The empirical analyses are based on data from the Indagine Longitudinale sulle Famiglie Italiane (ILFI), a longitudinal study carried out in five waves and conducted by the University of Trento, the Instituto Trentino di Cultura, and the Italian National Statistical Institute (ISTAT). The representative sample of the ILFI includes 9,770 individuals and 4,457 households. The first three waves were carried out in 1997, 1999, and 2001. For all individuals, retrospective information on education, employment, family, and residence was taken from birth up to the time of the interview.

Men’s late careers and career exits in Italy 109 By using event history analysis, we modeled the exit patterns of older male employees born between 1926 and 1937. Our sample included a starting population of 629 Italian men, split into two birth cohorts (1926–32 and 1933– 37) to test for the development of early employment exit over time. Both cohorts under study were affected by the oil crises of the 1970s and the ensuing economic recession. Additionally, older persons supported by CIG and CIGS might appear to be leaving employment later than they actually do, since though they are no longer actively working, they still have a formal work contract. Therefore, the effect of early exits will be underestimated – though such exits should affect the younger cohort more strongly. The youngest persons in our sample were age 64 at the last interview, so almost all those included in our sample had already left the labor market. Moreover, all members of the cohorts under study fall under the earlier Italian pension system (e.g., the system in place before the reforms in 1992 and 1995). The age of 45 was chosen as the starting point for observing the withdrawal from employment, because a considerable number of employees leave employment before age 50. Labor force experience is measured by the number of years in the labor market before reaching age 45. This variable measures both labor market attachment and number of contribution years. The occupational class is measured by dummies, following the Erikson-Goldthorpe classification (1992). We control for the regions (North, South and Third Italy), as they represent very different labor markets. Additionally, we control for employment in the “black” economy. Employees of the “black” economy are persons who indicated not to have a work contract, but for whom we have information, for instance, on payment or sector. Because some industries are supposed to be more strongly affected, we included dummies for sectors. We have split the third sector into public and private services, thus distinguishing between primary, secondary, private third, and public third sectors. Age effects are controlled by using piecewise constant exponential models.

RESULTS The late career We categorized Italy as an employment exit regime because the institutional features of the labor market and the pension system support early withdrawal. Therefore, we expected to find that Italian older employees should show low mobility within the labor market. Our results support our hypotheses (see Table 5.2): late careers are highly stable in Italy, and mobility within the labor market after age 45 is quite low. In our sample, 75 to 80 percent of the men stay in the same job after age 45. This means that the majority of older employees is not mobile on the labor market. Additional and more detailed analyses have shown that most of the job

110 Wiebke Beckstette, Mario Lucchini and Antonio Schizzerotto Table 5.2

Italian men’s labor market mobility after age 45 (in %) Birth cohort 1926–32

Birth cohort 1933–37

20.0 1.5

25.7 4.0

Job mobilitya Interrupted careerb Source: Own calculations based on the ILFI.

Notes: a Any kind of job changes in late career (e.g., reducing working hours, intra- and inter-firm mobility). b Employment interruptions in late career.

mobile men in our sample changed job only once after age 45, and stayed in this job until they left the labor market. Furthermore, these analyses have shown that if Italian men change their job after age 45, it is usually within a firm, and they do not experience a worsening of their occupational status. The results shown in Table 5.2 also indicate that more than 95 percent of the men in our sample have an uninterrupted career after age 45. This means that if older employees drop out of employment, they drop out permanently and will enter retirement. The development of early exit in Italy and the role of individual and working place characteristics for the timing of exits Figure 5.2 shows the survivor functions for transitions to non-employment among men in the two birth cohorts. The two survivor functions are quite similar – though there is a slightly stronger tendency toward early exit at younger ages for the later cohort (at age 51, the difference is around 6 percentage points, at age 59, it is 7.5 percentage points). We did not expect to find strong differences between the two cohorts, because both of them were affected by the oil crises and the ensuing economic recessions. Additionally, we overestimate the employed men, because those claiming benefits from CIG and CIGS still might label themselves as employed, although they are no longer working. Unfortunately, we cannot control for this with our data. Table 5.3 shows the results of more complex analyses for the transition to nonemployment of Italian men. In these analyses, we did not split our sample into two birth cohorts, but instead introduced dummies for different time periods since 1972. As can be seen, older employees in Italy withdrew earlier starting in the early-1980s, probably prompted by the recessions at the time. The early retirement programs of the Italian social security system were also improved during the reference period (1982–91), so there was a greater incentive to leave the labor market earlier. Labor force experience, however, has no effect on the timing of employment withdrawal of Italian men. Experience in the labor market has differential, moderately contradictory effects on the timing of an employment exit. On the

Men’s late careers and career exits in Italy 111 one hand, seniority pensions allow older employees to leave the labor market (after differing numbers of years of contribution that are necessary for vesting) with a quite high pension benefit: that supports taking an early exit. On the other hand, seniority rights in the labor market increase the likelihood of staying in the labor market. We assumed, that region has a crucial influence on the exit from employment in Italy, and expected that the economy in the North is more exposed to globalization effects as here the large industrial firms are located. It was these firms that were put under particular economic pressure since the 1970s. To carry out restructuring and rationalization, these firms made use of special early retirement programs. Therefore, we hypothesized that older employees in the North should show a greater tendency to withdraw from the labor market earlier than older employees in the rest of the country. The results shown in Table 5.3 support this assumption: compared to men in Third Italy and in the South, older employees in the North retire earlier. Compared to Third Italy, inhabitants of the South show a smaller likelihood of leaving the labor market early – but this negative effect is not significant. Having a closer look at the exit from employment in the different regions (Figure 5.3), we can see that there is not, in fact, a trisection of the country. Rather, a new geographical dualism appears: Northern Italy versus South and Third Italy. Northern employees leave

100%

80%

60%

40%

20%

0% 45

47

49

51

53

55

57

59

61

63

65

67 Age

Birth cohort 1926–32

Figure 5.2

Birth cohort 1933–37

Italian men’s transition to non-employment after age 45 years

Source: Own calculations based on ILFI.

112 Wiebke Beckstette, Mario Lucchini and Antonio Schizzerotto Table 5.3

Transition to non-employment (piecewise constant exponential models)

Age 45–52 53–55 56–57 58–59 60–61 62–63 64–65 66 plus Periods 1972–81 1982–91 (ref.) 1992–01 Labor force experience Geographical differentiation North-West Italy South Italy Third Italy (ref.) Missing information Occupational class Self-employed High service class Low service class Routine non-manual employees Technicians, masters Skilled workers (ref.) Un- and semi-skilled workers Missing information Type of work Regular work (ref.) Informal work Missing information Sector Primary sector Secondary sector Third sector private (ref.) Third sector public Missing information Events Total episodes Censored episodes -2* diff (logL)

1

2

3

-6.38** -5.79** -5.00** -4.81** -4.17** -4.43** -4.48** -3.81**

-6.32** -5.72** -4.91** -4.69** -3.96** -4.06** -4.06** -3.26**

-6.52** -5.90** -5.07** -4.84** -4.06** -4.11** -4.05** -3.21**

-0.88** – -0.03

-0.93** – 0.08 0.00

-0.92** – 0.07 0.00

0.28* -0.11 – 0.49

0.29* -0.09 – 1.01

-1.28** -1.62** -0.29+ -0.29+ 0.17 – 0.04 -1.11

-1.23** -1.61** -0.01 -0.04 0.26 – 0.13 -0.70 – 0.22 -0.79**

497.92

672.13

0.32+ 0.43** – -0.13 0.10 520 10,437 9,917 714.97

Source: Own calculations based on the ILFI (only men, birth cohorts 1926–37). Notes: ** effect significant at p < 0.01, * effect significant at p < 0.05, + effect significant at p < 0.10.

Men’s late careers and career exits in Italy 113

100%

80%

60%

40%

20%

0% 45

47

49

51 North

Figure 5.3

53

55

57

South

59

61

Third Italy

63

65 Age

Men’s transition to non-employment by geographical region

Source: Own calculations based on ILFI (birth cohorts 1926–37).

employment very early, and between ages 55 and 60, they differ from employees in South and Third Italy by 10 to 20 percentage points. This is explainable by the fact that this age interval is exactly the interval when early pensions are usually drawn. The estimates confirm our expectations about occupational class as well. Employees with lower qualification levels are more strongly affected by rationalization processes and have fewer possibilities of adapting their qualifications to the new requirements. They are therefore confronted with a larger risk of early exit. The higher service class and the self-employed, by contrast, have a clearly higher likelihood of staying in the labor market. For selfemployed, this can be accounted for partly because they are insufficiently covered by the pension system. Both occupational classes are less affected by rationalization processes and economic restructuring. We used informal work as a control variable. Those who are informally employed are covered less by the social security system than those who are regularly employed. This makes us expect that informally employed persons should show a clear tendency towards late exit. In our analyses, we do not find significant differences between regular and informal employment.

114 Wiebke Beckstette, Mario Lucchini and Antonio Schizzerotto Italy is a country in which the service sector orientation emerged very late, so that there is still a large need for rationalization and reorganization in the industrial sector. Employees in the industrial sector face in particular an early exit from the work force, and it is a sector notably hard hit by globalization effects, increasing competition, and market uncertainties. In addition, agricultural sector employees leave the labor market earlier than service sector employees. This supports the hypothesis that employees in the first two sectors, which are declining, more frequently experience early exits from employment and early retirement. Persons employed in the public sector show a smaller likelihood of leaving the labor market early than persons employed in the private sector – but again this effect is not significant.

CONCLUSIONS AND OUTLOOK The exclusion of older employees seems to be an important means for addressing the need for greater flexibility within the strongly regulated labor market, as well as to carry out economic restructuring in Italy. The results show that older employees experienced a shortening of their working life since the early-1980s. Early retirement schemes were instituted in order to support that restructuring and to unburden the national labor market. Furthermore, the transition out of the labor market is structured by individual and working place characteristics. It is particularly those persons employed in the classical industrial sector and in occupational classes more strongly affected by rationalization who leave the labor market earlier. In the North of the country, Italian men retire significantly earlier than in the rest of Italy, and it is also this part of the country that was hardest hit by globalization forces. Enterprises used the pension system, and sent their employees into early retirement programs like CIG and CIGS, in their efforts to address this situation. But how did the trend toward early exit affect the Italian social security system? Italy faces a strong demographic shift. In 1992, 21.3 percent of the total population was aged between 60 and 80, but only 15.7 percent were aged under 15. This trend will continue: by 2040, those aged 65 and over, relative to the entire working population, will be 60.1 percent. In 1990, it stood at 20.4 percent. Table 5.4 shows further demographic indicators and compared with EU figures, they are well above average. A decreasing number of young employees will have to supply a growing number of older persons. At the beginning of the 1990s, the Italian public pension system was partly misused as a labor market program (Brugiavini and Fornero 1998). The necessity to lower public expenditures and to stop unequal treatment as well as the rapid expansion of the pension system, were the catalysts for reform. Before the reforms, the Italian system was characterized by strong divergence with regard to pension calculations, age of access to pensions, and the contribution rates. These differences produced replacement rates and rates of return that were noticeably different, and this in turn, created privileged positions

Men’s late careers and career exits in Italy 115 Table 5.4

Demographic indicators

Demographic dependency ratioa (aged 65 plus/aged 15–65) Life expectancy at birth Men Women Life expectancy at retirement Men aged 65 aged 60 Women aged 65 aged 60

2000

2010

2020

2030

2040

2050

26.6

31.5

37.2

46.4

60.1

63.5

76.2 82.6

77.9 84.4

79.2 86.2

81.4 88.1

81.4 88.1

81.4 88.1

16.2 19.9

17.0 21.0

18.3 22.3

19.6 23.7

19.6 23.7

19.6 23.7

20.2 24.6

21.5 25.9

22.9 27.5

24.5 29.1

24.5 29.1

24.5 29.1

Source: Ministry of Labor and Social Policies (2002). Note: a Ratio of the population aged 65 and over to the population aged 15 to 65.

and inequality not only among workers in the different pension schemes, but even within each scheme (Benetti 2002). Compared to other European countries, Italy provides disproportionately many benefits in old age, disability, and shortterm unemployment, whereas large families, long-term unemployment, and illness is only little secured.6 One aim of the reforms was to re-establish an equilibrium between incomes and expenditures, and to secure social justice at the same time. The first pension reforms wanted to abolish the intolerable financial loads by shortening the pension (reform of 1992). Subsequent reforms led to a gradual transition to a contribution-based pension formula by introducing principles of insurance-statistic suitability and a flexible retirement age (reform of 1995). The accelerated abolition of the remaining differences between civil servants, private sector employees, and the self-employed relative to taking an early pension (reform of 1997) were a further step. As the transition will take a full generation, and in order to provide further protection for current employees (including through early pensions), the main load of adjustment is borne by the current and next generations (Brugiavini and Peracchi 2004). After employers tried to adapt through the generational exchange of their workforce, they are now facing dramatic demographic developments with an almost opposite phenomenon. Since young workers are missing, the employers are dependent on creating attractive incentives for their older employees to stay in the labor market as long as possible; the performance of the enterprise will suffer otherwise. For this new phenomenon, it is interesting that Italy is falling back to using the social security system instead of using labor market

116 Wiebke Beckstette, Mario Lucchini and Antonio Schizzerotto instruments. The latest reforms to the pension system, slated to beginning 2004, plan to keep employees beyond the legal retirement age in the labor market. Without additional contributions, they can be rewarded through additional pension benefits.

NOTES 1

2 3 4

5 6

Small firms (i.e., with less than 15 employees) have always been allowed to dismiss their employees without any restrictions. Moreover, people working in these small firms have not been supported by special measures, either easing their early retirement or supplying them with generous unemployment subsidies, in the manner the CIG and CIGS have. We limit our analyses to Italian men as the labor market participation of women in the cohorts under study, at under 15 percent, is very low. Italy has a law limiting the right to fire workers in large firms. In 1998, Italy paid 15.6 percent of its GDP for public pensions, while public pensions in France, Germany and Great Britain consumed 12.8 percent, 11.9 percent and 11.4 percent of the GDP (Artoni and Casarico 2001). 61.5 percent in Italy compared to 48.8 percent in France and 51.1 percent in Germany. Following some OECD estimates, benefits for older persons (mainly pensions) absorbed 15.6 percent of GDP in Italy (1991), as compared to 9.3 percent, on average, in the EU. Benefits for other groups (including families) average 3.2 percent of GDP, as compared to the 7.7 percent EU average (Ferrera 1997).

BIBLIOGRAPHY Artoni, R. and Casarico, A. (2001) ‘The Italian pension system in the European context’, Paper prepared for the Conference “The Welfare State, poverty and social exclusion in Italy and Great Britain”, Certosa di Pontignano, 6–8 April, 2001. Auer, P. (1993) ‘Sequences in Rigidity and Flexibility and Their Implications for the Italian Labor Market’, in Büchtemann, C. (ed.) Employment Security and Labour Market Behaviour. Interdisciplinary Approaches and International Evidence, Ithaca, New York: ILR Press. Benetti, M. (2002) ‘The Italian Pension System’, Paper presented at the “European regional meeting of the International Social Security Association: New and revised approaches to social protection in Europe”, Budapest, 13–15 November 2002, International Social Security Organization (ISSA). Bernardi, F. and Nazio, T. (2005) ‘Globalization and the Transition to Adulthood in Italy’, in H.-P. Blossfeld, M. Mills, E. Klijzing and K. Kurz (eds) Globalization, Uncertainity and Youth in Society, London: Routledge Advances in Sociology Series.

Men’s late careers and career exits in Italy 117 Brugiavini, A. and Fornero, E. (1998) ‘A Pension System in Transition: The case of Italy’, Paper prepared for the International Workshop “International Pensioners’ Incomes Conference”, organized by IFS, London, 19–20 March, 1998. Brugiavini, A. and Fornero, E. (2001) ‘Pension Provision in Italy’, in Disney, R. and Johnson, P. (eds) Pension Systems and Retirement Incomes across OECD Countries, Cheltenham, Northampton, MA: Edward Elgar. Brugiavini, A. and Peracchi, F. (2004) ‘Micro-Modeling of Retirement Behavior in Italy’, in Gruber, J. and Wise, D. A. (eds) Social Security and Retirement around the World: Micro-Estimation, Chicago: University of Chicago Press. Calceon, F. and Greiner, D. (1995) ‘The Labour Market and the older workers: ITALY’, in OECD (ed.) The Labour Market and Older Workers, Paris: OECD. Castells, M. (2000) The rise of network society, Oxford/Malden: Blackwell Publishers. de Luca, L. and Bruni, M. (1993) Unemployment and labour market flexibility in Italy, Genese: International Labour Office. Erikson, R. and Goldthorpe, John H. (1992) The Constant Flux. A Study of Class Mobility in Industrial Societies, New York: Clarendon Press. Esping-Andersen, G. (1990) The Three Worlds of Welfare Capitalism, Princeton, New York: Princeton University Press. European Commission (1993) Social Protection in Europe, Brussels. Ferrera, M. (1996) ‘The “Southern Model” of Welfare in Social Europe’, Journal of European Social Policy 6(1): 17–37. Ferrera, M. (1997) ‘The Uncertain Future of the Italian Welfare State’, West European Politics 20(1): 231–249. Ferrera, M. and Gualmini, E. (2000) ‘Reform Guided by Consensus: The Welfare State in the Italian Transition’, in M. Ferrera and M. Rhodes (eds) Recasting European Welfare States, London: Frank Cass. Ferrera, M. and Jessoula, M. (2003) ‘Reconfiguring Italian pensions. From policy stalemate to comprehensive reforms’, Paper prepared for the 15th Annual Meeting of the Society for the Advancement of Socio-Economics, Aix en Provence, 26–28 June 2003. Franco, D. (2001) ‘Italy: The Search for Sustainable PAYG Pension System’, International Seminar on Pensions; 5–7 March 2001, Sano-shoin, Hitotsubashi University, Tokyo, Japan; Banca d'Italia, Research Department, Roma. Garonna, P. and Reboani P. (1994) ‘Italy’, in G. Bosch (ed.) Times are changing. Working time in 14 industrialized countries, International Institute for Labour Studies: Geneva. Garonna, P. and Sica, F. (1997) ‘Intersectoral Labour Reallocations and Flexibility Mechanisms in Post-War Italy’, in H. Siebert (ed.) Structural Change and Labor Market Flexibility. Experience in Selected OECD Economies, Institut für Weltwirtschaft an der Universität Kiel, Tübingen: Mohr.

118 Wiebke Beckstette, Mario Lucchini and Antonio Schizzerotto Giarchi, G. G. (1996) Caring for Older Europeans. Comparative Studies in 29 countries, Aldershot: Arena Press. Ginsborg, P. (1989) L’Italia Contemporanea, Torino: Einaudi. Kohli, M. (1994) ‘Work and Retirement: A Comparative Perspective’, in M. Riley, R. L. Kahn and A. Foner (eds) Age and Structural Lag. Society’s Failure to Provide Meaningful Opportunities in Work, Family and Leisure, New York: John Wiley. Marano, A. and Sestito, P. (2004) ‘Older Workers and Pensioners: The Challenge of Ageing on the Italian Public Pension System and Labour Market’, Working Paper 32/04, Center for Research on Pensions and Welfare Policies, Moncalieri (TO). Martinelli, A., Chiesi, A. M. and Stefanizzi, S. (1999) Recent social trends in Italy 1960–1995, Montreal and Kingston: McGill Queen’s University Press. Ministry of Labour and Social Policies (2002) National Strategy Report on Pensions, Rome. MISSOC (1994) Social Protection in the Member States of the Community, European Commission, European Commission: Brussels. Samek Lodivici, M. (2000) ‘Italy: the Long Times of Consensual Re-regulation’, in Esping-Andersen, G. and Regini, M. (eds) Why Deregulate Labour Markets? Oxford: Oxford University Press. Spataro, L. (2002) New Tools in Micromodeling Retirement Decisions. Overview and Applications to the Italian Case, Center for Research on Pensions and Welfare Policies: Turin. Treu, T. (1993) ‘Employment Protection and Labour Relations in Italy’, in C. Büchtemann (ed.) Employment Security and Labour Market Behaviour. Interdisciplinary Approaches and International Evidence, Ithaca, New York: ILR Press. Tronti, L. (1993) ‘Employment Security and Labour Market Segmentation: Economic Implications of the Italian Cassa Integratione Guadagni’, in C. Büchtemann (ed.) Employment Security and Labour Market Behaviour. Interdisciplinary Approaches and International Evidence, Ithaca, New York: ILR Press.

6 Men’s late careers and career exits in Spain Fabrizio Bernardi and Luis Garrido 1

INTRODUCTION The aim of this chapter is to investigate patterns of labor market exits in the late phase of men’s employment careers in Spain. Different authors have suggested that the globalization process has fostered deep transformations in the production systems and in the labor markets of OECD countries in the last decades (Castells 1996; Standing 1999; Soskice 1999). Central to this interpretation are two ideas: first, national firms have become more exposed to international competition due to the growing interconnectedness of financial, goods, and service markets; second, the global diffusion of information and communication technologies has enabled changes in production and organization strategies of firms. Following the theoretical framework put forward in the introduction of this volume, we interpret the globalization process as one of the underlying engines of the shift towards a knowledge-based economy and the parallel decrease in manufacturing employment (Burton-Jones 1999; Alderson 1997; Saeger 1997). In the case of Spain, structural changes both on the demand and supply sides of the labor market have been particularly acute and rapid. In 1970, the agricultural sector still accounted for 25 percent of total employment, the industrial sector for 37.1 percent, and the service sector for 36.5 percent. By 2003, the share of the agricultural and industrial sectors had declined to 5.6 and 30 percent, respectively, while the service sector had risen to 64.3 percent of total employment. Participation at higher levels of educational attainment has steadily increased across cohorts in tandem: in the 1921–26 male birth cohort, 88 percent had a primary education or less; this proportion declined to less than half (42 percent) in the cohort 1951–55 (Garrido 2004). We are interested in examining how these structural changes in the labor market have affected older male workers’ careers and exits from the labor market.2 More precisely, we address two general research questions. First, do employment patterns of older Spanish men change across cohorts? In particular, do older men nowadays exit on average earlier from the labor market than in the past? Second, is the process of early withdrawal from employment homogeneous or are some social groups more likely to exit employment earlier than others? In order to answer the first question, we compare the cohorts of men born between 1905 and 1940 and their employment patterns at older ages. With regard to the second question, we restrict the time span of the analysis and focus on early withdrawal from employment during the last two decades. Thus, we study

120 Fabrizio Bernardi and Luis Garrido transitions to non-employment after age 56 for Spanish men born between 1930 and 1940. The questions that drive our analysis are related to important policy issues. First, the Stockholm and Barcelona European Council in 2001 and 2002 set targets of increasing the employment of workers aged 55–64 up to 50 percent, and of delaying the average age of exit from the labor market by five years by 2010 (European Commission 2003). Second, they concern the future viability of the Spanish pension system. A number of authors, as well as the OECD, have pointed to the urgent need to reform the public pension system (Piñera 1996; García et al. 2005; OECD 2005), arguing that based on demographic projections and extrapolations from current employment trends, population aging will put the Spanish pension system under heavy pressure. However, one of the key assumptions of the simulation exercises that portray a gloomy scenario for the future of the Spanish pension system is that the ratio of pensions and the number of those over 65 (or even over 60) will remain fairly stable in the coming years (Jimeno 2002; Conde Ruiz and Alonso 2004). This ratio is a function of the employment levels of older workers. Thus, the results of our empirical analysis offer some hints on whether an overall increase in labor force participation of older workers – in line with the objectives set by the European Council – is likely to occur in Spain. Accordingly, the analysis can also cast some light on whether the assumption of a constant ratio of pensioners and of people over 65 for simulating future pension expenditures is realistic. The structure of the chapter is as follows: in the next section, some institutional features of the Spanish labor market and pension system are sketched. Then, the data, variables, and statistical models used in the empirical analysis are described. Next, the main results are commented upon, and finally, some general conclusions are drawn.

THE INSTITUTIONAL REGULATION OF LATE CAREERS IN SPAIN We will only discuss the main characteristics of the Spanish labor market and pension system.3 In doing so, we will selectively focus on those aspects that seem particularly important to define the institutional context of opportunities and constraints faced by the cohorts born in the first four decades of the past century in the late phase of their careers. The Spanish labor market: changes in the educational, occupational, and sectoral structure As we anticipated in the introduction, a crucial factor in order to understand changes in the employment patterns of older workers is the impressive increase in educational attainment that has occurred in Spain, as in other developed countries, in the second half of the last century. Table 6.1 shows the proportions

Men’s late careers and career exits in Spain 121 Table 6.1

1916–20 1921–25 1926–30 1931–35 1936–40 1941–45 1946–50 1951–55 1956–60 1961–65 1966–70 1971–75

Spanish men’s level of education by birth cohort (in %) No education

Primary or less

Secondary

Vocational training

University

Total

40.8 40.4 37.2 32.0 23.8 14.0 10.0 6.5 4.5 3.1 2.3 1.7

46.3 47.4 46.9 47.8 51.4 48.0 43.4 35.6 26.0 17.9 13.4 11.1

5.4 5.4 7.1 9.2 12.8 20.3 25.9 33.5 41.1 45.1 46.5 43.8

1.7 1.7 2.7 4.2 4.6 5.6 7.7 9.7 10.7 16.6 19.6 20.7

5.8 5.1 6.1 6.8 7.4 12.1 13.0 14.7 17.7 17.3 18.2 22.7

100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: SLF 2003; Garrido (2004).

that have reached different educational levels for each male birth cohort since the beginning of the past century. It is notable that more than 80 percent of the Spanish men born between 1920 and 1930 and who exited the labor market in the 1980s and 1990s had at most reached the primary level of education. Moreover, considering the cohort that is in its late career and in the process of retirement in the first years of the 21st century (i.e., the cohort born around 1940), still three out of four men have a primary education or less, while only 7 percent have a university degree. On the other hand, among the younger cohorts born around 1970, the future pensioners in about 30 years (i.e., those who are in the 2030–40 projections of pension expenditures), the proportion of those with only a primary education has declined to about 10 percent, while the proportion of those with a university degree has risen above 20 percent. With regard to the demand side of the labor market, one of its main features has been the comparatively late and limited rise of the industrial sector. It was not until the 1960s, when Franco’s dictatorial regime opened up the Spanish market to foreign investments, that large-scale factories for producing vehicles and manufactured goods for mass consumption started to flourish. However, the Fordist phase of industrial expansion was very short-lived and ended early with the oil crises during the second half of the 1970s. The upper panel of Table 6.2 shows that until recent years, Spain has been characterized by comparatively high levels of employment in agriculture, accounting for about 25 percent of total employment in the early-1970s. Industrial sector employment stagnated at the same time. As a consequence, industrial employment was higher than agricultural or service sector employment only for a short time span during the

122 Fabrizio Bernardi and Luis Garrido late-1960s and early-1970s (Requena 2001). Based on this, it might be argued that Spain has shifted almost directly from an agricultural to a post-industrial society. Parallel to these changes, deep transformations have also occurred in the occupational structure. The middle panel of Table 6.2 compares the occupational class structure for Spanish men since 1977.4 One key aspect is the comparatively high proportion of employers, which has increased notably over time, and that of urban self-employed workers: these two occupational groups accounted for about 18 percent of the total male employment in 2003. Among the employees, the service class (professionals, managers, directives, high-level technicians) as well as the technicians and administrative workers are the occupational groups that Table 6.2

Changes in the sectoral distribution, occupational structure and macroeconomic conditions over time Employment by sector

Agriculture Industry Services

1960

1970

1980

1990

2000

2003

39.8 28.6 27.0

24.9 37.3 36.5

19.1 36.1 44.9

11.9 33.5 54.6

6.9 30.8 62.4

5.6 30.0 64.3

Male occupational structure

Service class Lower level white collars Skilled and unskilled workers in the service sector Skilled and unskilled workers in agriculture Skilled and unskilled workers in the industrial sector Employers Urban self-employed Self-employed in agriculture

1977

1984

1991

1995

2000

2003

6.8 8.9

8.1 10.2

8.9 10.8

9.1 13.6

10.8 13.9

10.7 14.7

10.3

11.5

12.7

12.0

11.3

11.0

7.4

6.0

4.5

3.5

3.2

3.0

40.3 4.2 9.7 12.5

35.0 4.3 13.1 11.8

38.0 5.1 13.7 6.3

35.7 6.0 14.3 5.7

38.9 6.5 11.6 3.9

39.7 7.0 10.7 3.1

Macro-economic indicators 1970–73 1974–79 1980–84 1985–90 1991–94 1995–03 Average yearly variation in GDP Average yearly variation in number of employed persons

7.2

1.6

1.5

4.1

0.6

3.4

1.4

-1.4

-1.9

2.8

-1.9

3.5

Source: Spanish Labor Force Surveys, various years; Herce (2004).

Men’s late careers and career exits in Spain 123 have grown most. On the other hand, the proportions of self-employed as well as skilled and unskilled workers in agriculture have steadily contracted over time. Finally, the proportion of men employed in skilled and unskilled occupations in the industrial and service sectors has not changed much since 1977. Finally, the lower panel of Table 6.2 shows the macro-economic performance of the Spanish economy over time, measured by variation in GDP and by employment creation. After the impressive growth of the 1960s and early-1970s, with GDP increases above 10 percent in some years, two crisis periods can be seen. The first goes from the mid-1970s to the mid-1980s and reflects the consequences of the oil crises. In Spain, its effects lasted well into the 1980s, later than in many other OECD countries. The second crisis hit Spain in the early-1990s, with huge employment losses in a labor market that had not yet recovered to the pre-oil crisis levels. Since 1995, Spain, together with Ireland, has experienced the greatest growth in employment in the European Union (European Commission 2003). Considering the sectoral employment structure, the employment growth in Spain in recent years has been comparatively large in the construction industry, in hotels, restaurants, and consumer services, and in real estate, renting, and business activities (Ibidem).5 The Spanish pension system The pension system mainly consists of a compulsory contributory scheme administrated by the public sector and operating on a pay-as-you-go basis. A non-contributory public scheme was introduced in 1991, and it provides meanstested benefits for elderly and disabled people who do not fulfill the eligibility criteria for a contributory pension. In addition, public pensions can be supplemented by occupational and individual schemes. Occupational funded schemes are not widespread at the moment, though they may gain relevance in the future, while individual voluntary schemes have grown notably in recent years due to favorable tax incentives. One should note that a unified and state-administered pension system was introduced in Spain only in 1967 with the creation of a general social security system. Before that, the pension system was divided into a multitude of corporatist schemes. These schemes were managed by vertically-organized unions associated with Franco’s dictatorial regime and were based on actuarial criteria. The 1967 reform also laid the foundations of the structure of the Spanish pension system as a contributory system on a pay-as-you-go basis. Still, the characteristics of the pension system at the beginning of the 21st century are the result of a process of “permanent reform” almost since the first socialist government came to power in 1982 (Rodríguez Cabrero 2004; Chuliá 2005b). Although the system has not undergone radical structural changes, subsequent reforms have reinforced the contributory basis of the system (1985, 1997, and 2001 reforms), favored a progressive delay in the retirement age (2001 reform), and restricted access to the disability pension (1985 reform).6 As a

124 Fabrizio Bernardi and Luis Garrido result, in 2005, the eligibility period for an old age contributory pension amounts to 15 years of social security affiliation. In order to receive a full contributory pension, workers under the general regime (which covers the vast majority of all workers) have to retire at age 65 and accumulate a contributory career lasting at least 35 years. The level of pension benefits depends on the earning-related contributions made during the 15 years prior to retirement as well as on the number of years of contributions.7 The so-called “pension regulatory base” is calculated on the 15 years prior to retirement. A subject qualifies for a given percentage of the regulatory base as a function of the number of years of contribution. For instance, 15 years of contributions give the right to 50 percent of the regulatory base, while 35 years of contribution give the right to a full pension (i.e., 100 percent of the regulatory base). Early retirement is possible at age 60 for workers employed in unhealthy or dangerous occupations, and for all those who started paying contributions before 1967. There is, however, a penalty for early retirement in the form of reduced benefits as a function of the number of years before age 65 at which retirement is taken.8 Moving into unemployment has been an alternative pathway to early retirement. The unemployment protection law of 1984 established that dismissed workers over age 55 had, after the two years of unemployment insurance benefits, the right to a flat rate unemployment assistance benefit equal to 75 percent of the statutory minimum wage until age 65. It was particularly designed for those with family responsibilities and who had met all the requirements to be entitled to a retirement pension except for age. In 1989, the age for indefinite (i.e., until retirement) unemployment assistance benefit was reduced to 52 years. Thus, the combination of unemployment insurance benefit and unemployment assistance benefit could allow a dismissed worker to retire early from the labor market. As Toharia and Malo (2000: 321) explain, “the system became such that a person dismissed at age 47, having worked for the previous 4 years, with family responsibilities and with 15 years’ contributions to the pension system, could retire from the labor market.” Basically, “this worker would claim 2 years of unemployment insurance benefit, 3 years unemployment assistance benefit and then, at age 52, would qualify for the special scheme until reaching the age of 65” (Ibidem). Disability pensions also have traditionally served as the equivalent of early retirement: they can be claimed by subjects over 55 who are unable to work and give the right to receive a full pension in case of complete disability. In 1985, effective limits on the fraudulent use of disability pensions were put in place: disability pensions had accounted for 36 percent of total new contributory pensions in 1983, while ten years later they accounted for less than 20 percent (Serrano et al. 2004). The institutional regulation of late careers in Spain: summary Three structural and institutional features seem to be notable for the cohorts born in the first decades of the past century.

Men’s late careers and career exits in Spain 125 First, these cohorts were very poorly educated, with about 75 percent of those born around 1940 at most having completed a primary education. They are, therefore, likely to have been employed in unskilled occupations in the agricultural and industrial sectors. Second, the Fordist model of industrial production, that in principle guaranteed life-long employment and well-paid jobs to unskilled workers, started late in Spain compared to other OECD countries. Moreover, the oil crisis of the second half of the 1970s signaled its early end. Among the cohorts who retired in the last decades of the past century, the cohort born around 1940 (during and just after the Civil War) benefited most from this “short window” of Fordist employment, because they entered the labor market at a time of rapid employment growth in the industrial sector. One should also note that unskilled workers in factories engaged in large-scale manufacturing are likely to have been among the most exposed to international trade pressures during the 1980s and 1990s. On the other hand, they were also more likely to be unionized and thus protected from the risk of dismissal; they were also covered by collective bargaining agreements that offered protection in case of firm disbanding. Third, a unified pension system has existed only since 1967. Thus, the cohorts that retired in the 1980s, 1990s, and during the first years of the 21st century have benefited from the creation of a unified pension system and from its initial generosity (prior to the more restrictive reforms of 1985, 1997, and 2001). In particular, the cohort born around 1940 experienced the change to the contributory pay-as-you-go system at an earlier stage of its working life than the cohorts born in the first two decades of the century. Thus, the members of this cohort have been more able to fulfill the legal requirements for years of contribution that give access to the full pension benefits. In this sense, the cohort born around 1940 might have been better able to take full advantage of the institutionalization of the pension system.

DATA, METHODS AND VARIABLES The empirical analysis is based on data from the Spanish Labor Force Survey (SLF) for various years. In order to answer the first research question (i.e., whether older men’s employment patterns vary between cohorts), we have used the method of artificial cohorts, taking the SLF micro data for 1964, 1969, 1974, and 1976–2003. For each year, we have approximately 800,000 cases. We have defined 5-year birth cohorts from the 1906–10 birth cohort to the 1941–45 birth cohort, and followed their employment patterns over time. For instance, we know that the 1936–40 cohort was aged 50–54 in 1990, 51–55 in 1991, 52–56 in 1992 and so on. We can, therefore, reconstruct the employment pattern for this cohort by computing the employment rate for age groups that progressively shift by one unit each year. In this way, we are able to put together pictures of different samples of the same cohort at different ages in different years. The

126 Fabrizio Bernardi and Luis Garrido large number of cases of the yearly SLF surveys guarantees that the dynamic picture we compose is highly reliable. With regard to the second research question (i.e., whether some social groups are more likely to withdraw early from the labor market), we have performed an event history analysis of the transition out of employment between ages 56 and 64. SLF surveys have included retrospective questions on the date of exit from employment in months since 1994 and, if the exit occurred within the last 8 years prior to the survey date, on the characteristics of the last job.9 Thus, from each survey between 1994 and 2004, we extracted the data for the subjects who were 64 years old in each given year. In this way, we can investigate the process of early withdrawal from the labor market for the birth cohort 1930–40. The statistical model is a piecewise constant exponential model with 8 time intervals that correspond to the time-varying age of the subject between ages 56 and 64. The event under analysis is the transition from employment to non-employment. The time axis of the analysis for each individual begins at age 56 and is censored at age 64 for those who are still employed by that time and had not yet experienced the event in question. We drew a total of 10,503 cases, but since the information on the last job is available only if the exit from employment occurred in the last 8 years, we excluded those subjects who withdrew from the labor market before age 56. These subjects account for about 20 percent of the sample, so our final data set consists of 8,314 subjects.10 The key independent variables employed in the event history analysis are: the age of the subject (see above for the measurement), the historical period, the civil status, the level of education, the employment status, the occupational class, and the industry in which the subject was employed.11 The historical period is a time-varying variable referring to the calendar years between 1986 and 2004, which we divide into three eras: 1986–90, 1991–94, and 1995–2004. The first and third were periods of economic growth; the second was a period of economic recession and employment crisis. The civil status is a dummy variable equal to 1 if the man never married, and equal to 0 if the man is married, widowed or divorced at the time of the interview. Education was coded as: no education (reference category), primary education, vocational training, secondary education, and university education.12 With regard to the employment status, occupational class, and industry, it has to be noted that the SLF surveys do not include complete retrospective employment histories. In our analysis, we have had no better option than to consider the last occupation before the transition out of the labor market, or the occupation at age 64 for those who have not exited (right censored cases). More precisely, we defined the occupation at age 56 (when our time axis starts) as equal to the last occupation for those who have withdrawn from the labor market and equal to the occupation at age 64 for the right censored cases. This means we assume that subjects did not change occupations between age 56 and the time of the transition out of the labor market, or age 64. With this caveat in mind, we considered 4 employment status categories: employer, self-employed without employees, employed in the public sector, and

Men’s late careers and career exits in Spain 127 Table 6.3

Descriptive statistics for the key independent variables at age 56 years (Spanish men born 1930–40; SLF surveys 1994–2004; n = 8,314) Descriptives

Civil status Married, widowed, divorced Never married Education No education Primary Vocational training Secondary University Employment status Employer Self-employed without employees Employed in the public sector Employed in the private sector Occupational class Employer Urban self-employed Agriculture self-employed Service class Technicians, administrative workers Skilled and semi-skilled workers in the service sector Skilled and semi-skilled agricultural workers Skilled and semi-skilled industrial workers Unskilled workers in the service sector Unskilled agricultural workers Unskilled industrial workers Employment sector Agriculture Extractive Traditional manufacture (textiles, clothing) Manufacture of non-metallic products Manufacture of metallic products and machinery Manufacture of small machinery and equipment Construction Wholesale and retail services Transport Producer services Social services Personal services

93.0 7.0 100.0 28.0 57.5 3.2 3.3 8.0 100.0 6.2 24.5 15.1 54.2 100.0 6.2 12.0 12.5 6.7 9.5 4.4 3.8 24.3 4.3 4.4 11.9 100.0 21.6 2.2 7.0 4.2 7.3 2.9 13.9 11.1 7.1 4.3 12.3 6.2 100.0

128 Fabrizio Bernardi and Luis Garrido employed in the private sector (reference category). Then we distinguished between urban and agricultural self-employed, and defined 8 occupational classes among employees, based on the two digit ISCO codes. These are: the service class (reference category; includes professionals, managers, directives, and high-level technicians), lower level white-collar employees (lower level technicians and administrative workers), skilled and semi-skilled workers in the service sector, skilled and semi-skilled agricultural workers, skilled and semiskilled industrial workers, unskilled service workers, unskilled agricultural workers and unskilled industrial workers. In this way, we get to an 11-fold classification that, with the mentioned limitation that the SLF provides only two digit ISCO codes, resembles the Erikson and Goldthorpe’s (1992) class scheme. With regard to the employment sector, we have used an adapted, disaggregated version of the Singelmann (1978) classification scheme. Thus, we have distinguished among 12 sectors: agriculture (reference category), the extractive sector, traditional manufacturing (includes textiles and clothing), large scale manufacture of non-metallic products (includes the chemical sector), large scale manufacture of metallic products and machinery (includes vehicles), small machinery and equipment manufacturing, construction, wholesale and retail services, transportation, producer services, social services, and personal services (restaurants, domestic work, hairdressing, etc.). Though these distinctions are tentative, it might be argued that they point to differences in the organization of production and exposure to international competition. In particular, employment in the manufacture of non-metallic and metallic products tends to be in complex, large firms that produce on a large scale. Here unionization is more common, so it is more likely that older workers in such industries have regular employment histories and have regularly paid into the social security system. In the case of employment restructuring, it is therefore more likely that they benefit from some type of collective agreement and qualify for early retirement. Moreover, these kinds of firms are most exposed to international competition from countries where the cost of labor is lower. In Table 6.3, we present the distribution for the independent variables used in the event history analysis of the transition to non-employment for the 1930–40 birth cohort.

RESULTS We start our empirical analysis by investigating changes in older workers’ employment patterns across cohorts. Then we focus on the 1930–40 cohort and study whether some social groups are more likely than others to withdraw early from employment. The case of the 1930–40 birth cohort is interesting because members of this cohort reached their later careers during the 1980s and 1990s, and in those years were most exposed to employment restructuring pressures fostered by globalization.

Men’s late careers and career exits in Spain 129 Changes in old age employment patterns across cohorts To investigate changes across cohorts, we computed the employment rates at ages over 50 for different 5-year artificial cohorts that refer to subjects born between 1906–10, 1916–20, 1926–30, and 1936–40. Figure 6.1 shows that the cohorts born in the first decades of the century on average worked until older ages than cohorts born later on. Thus, while about 80 percent of the subjects born between 1906 and 1910 and about 60 percent of the subjects born between 1916 and 1920 were still employed at age 60–64, the same was true for only about 45 percent of those born between 1936 and 1940. In other words, between 1970 (when the 1906–10 birth cohort was 60–64 years old), and 2000 (when the 1936–40 cohort was the same age), the employment rate for subjects aged 60 to 64 has almost halved. In order to interpret this huge decline in employment at older ages, the cohort’s employment trajectories have to be placed into the relevant and changing, structural and institutional contexts. The employment careers of the cohorts born in the first decades of the century were completely disrupted by the outbreak of the Civil War in 1936. Moreover, these cohorts experienced the tremendous economic hardship of the postwar years with almost no possibility of savings.13 On the other hand, the cohort born around 1940 (during and just after the Civil

100%

80%

60%

40%

20%

1906–10

Figure 6.1

1916–20

1926–30

76–80

74–78

72–76

70–74

68–72

66–70

64–68

62–66

60–64

58–62

56–60

54–58

52–56

50–54

0%

1936–40

Employment rates by age for Spanish men, 5-year artificial birth cohorts

Source: SLF Survey 1964, 1969, 1974 and yearly from 1976 to 2004.

130 Fabrizio Bernardi and Luis Garrido War) benefited from the rapid employment growth in the industrial sector and from the improving living conditions in the 1960s. The members of this cohort who were employed in unskilled occupations in the manufacturing sector have also been more exposed to the employment restructuring fuelled by the globalization process of the early-1990s. But by that time, they could also benefit from the existence of a generous pension system and other unemployment protection measures that guaranteed the possibility of an early withdrawal with limited income loss. Differences in old age employment patterns by level of education, employment situation, and type of occupation With regard to the second research question (i.e., whether some social groups are more likely to withdraw early from the labor market), we focused on the employment patterns of Spanish men born between 1930 and 1940. Figure 6.2 shows the survivor functions for the transition from employment to nonemployment between ages 56 and 64 by level of education and Figure 6.3 by employment status. Thus, subjects with university education are more likely to keep working at older ages, while those with no education or vocational training

1.0

0.8

0.6

0.4

0.2

0.0 56

57

58

59

No education Vocational training University education

Figure 6.2

60

61

62

63

64

Primary education Secondary education

Survivor function for the exit from employment by education, Spanish men of the 1930–40 birth cohort

Source: SLF Survey 1994–2004.

Men’s late careers and career exits in Spain 131 1.0

0.8

0.6

0.4

0.2

0.0 56

57

58 Employer Public employee

Figure 6.3

59

60

61

62 63 Self-employed

64

Private employee

Survivor function for the exit from employment by employment status, Spanish men of the 1930–40 birth cohort

Source: SLF Survey 1994–2004.

are most likely to withdraw from employment. More specifically, at age 64 about 55 percent of those with university degrees are still employed while only about 30 percent of those with no education or vocational training are. The results are also rather clear-cut with regard to employment status. Employers are the least likely to withdraw early from the labor market: at age 64, almost three in four are still employed. They are followed by those who are self-employed, then by employees in the public sector. Finally, the employees in the private sector are the group with the highest likelihood of exiting employment between age 56 and 64: at age 64, only about one in four is still employed. In order to have a more complete understanding of the process of early withdrawal from the labor market, we have performed a multivariate event history analysis of the transition from employment to non-employment. We have estimated a piecewise constant exponential model, and we have divided the time interval into yearly intervals that correspond to the years between age 56 and age 64. Table 6.4 presents the estimated hazard ratios of this analysis.14 Model 1 in Table 6.4 is the baseline model, while we have added the effect of the occupational class in model 2, and the effect of the sector of employment in model 3. The results of this analysis show that the likelihood of withdrawal from employment increases with age. Thus, the transition to non-employment is about 8 times more likely at age 63–64 than at age 56–57. It is interesting to note that

132 Fabrizio Bernardi and Luis Garrido Table 6.4

Spanish men’s exit from employment (piecewise constant exponential model, Hazard ratios) 1

Age 56–57 (ref.) 57–58 58–59 59–60 60–61 61–62 62–63 63–64 Periods 1986–90 (ref.) 1991–94 1995–04 Civil status Married, widowed, divorced (ref.) Never married Education No education (ref.) Primary Vocational training Secondary University Employment status Employer Self-employed without employees Employed in the public sector Employed in the private sector (ref.) Occupational class Employer Urban self-employed Agriculture self-employed Service class (ref.) Technicians, administrative workers Skilled and semi-skilled workers in the service sector Skilled and semi-skilled agricultural workers Skilled and semi-skilled industrial workers Unskilled workers in the service sector Unskilled agricultural workers Unskilled industrial workers

2

3

1.00 1.37** 1.98** 5.60** 4.82** 4.78** 6.06** 8.16**

1.00 1.37** 1.98** 5.64** 4.89** 4.87** 6.20** 8.47**

1.00 1.38** 2.00** 5.72** 5.00** 5.01** 6.42** 8.84**

1.00 1.14** 1.00

1.00 1.15** 1.00

1.00 1.14** 1.01

1.00 1.10+

1.00 1.10+

1.00 1.19**

1.00 0.93* 1.06 0.96 0.55**

1.00 0.94+ 1.06 1.03 0.63**

1.00 0.87** 0.91 0.95 0.57**

0.23** 0.34** 0.68** 1.00

0.25** 0.39** 1.06 1.00 0.35** 0.58** 0.45** 1.00 1.41** 0.97 1.14 1.53** 0.71** 1.59** 2.07**

Men’s late careers and career exits in Spain 133 Table 6.4

continued 1

2

Employment sector Agriculture (ref.) Extractive Traditional manufacture (textiles, clothing) Manufacture of non-metallic products Manufacture of metallic products and machinery Manufacture of small machinery and equipment Construction Wholesale and retail services Transport Producer services Social services Personal services

1.00 1.67** 1.41** 1.93** 1.86** 1.46** 1.32** 0.93 1.38** 1.54** 0.64** 0.69**

Events Total episodes Censored episodes Log Likelihood

3

5,166 8,314 3,148 -8,236.6

-8,130.8

-8,025.3

Source: Calculations based on SLF Surveys 1994–2004. Notes: ** Effect significant at p < 0.01 * Effect significant at p < 0.05 + Effect significant at p < 0.10.

the effect of age is not linear and seems to reflect the institutional arrangement of the Spanish pension system: the likelihood of exit abruptly increases when the subjects get to age 60 and can qualify for early retirement old age pensions, partially declines thereafter, and it increases notably once more as the subjects approach age 64. With regard to the time period variable, early withdrawal from employment increased in correspondence with the deep economic crisis between 1991 and 1994. Although the effect is not large, in those years the likelihood of exit was nevertheless 14 percent higher than in the period of buoyant economic growth during the second half of the 1980s. Having never married also increases the chances of an early exit from employment, by 10 percent. A possible explanation is that unmarried men are less likely to have relatives (non-employed wives or children) who depend on their income. Thus, they might be less interested in maximizing their old age pension and more prone to incur the possible economic penalties associated with early retirement.

134 Fabrizio Bernardi and Luis Garrido Finally, the results of model 1 confirm the findings of the bivariate analysis made with the survivor functions. The likelihood of early withdrawal from employment for those with a university degree is almost half that of those with no education. With regard to employment status, the estimated hazard ratios suggest that the likelihood of early withdrawal is notably lower for employers and the self-employed than for employees. Among the latter, those employed in the public sector are less likely to exit employment than those employed in the private sector. In order to quantify these effects, it can be mentioned that for every employer who withdraws between age 56 and 64, there are almost four employees in the private sector who do so.15 For every self-employed who withdraws between age 56 and 64, there are three employees in the private sector who behave likewise. Finally, for two employees in the public sector who withdraw between age 56 and 64, there are around three employees in the private sector who act the same way. In model 2, we add the occupational class variable and drop the employment status variable, because they partly overlap. Two results are notable. First, among the self-employed, those employed in agriculture are slightly less likely to exit employment than urban self-employed when compared to the service class (managers, higher level technicians, professionals). Second, among the employees, those employed in unskilled or lower level occupations tend to withdraw from the labor market earlier than those employed in higher level occupations in the service class. In quantitative terms, the hazard ratio for unskilled industrial workers is 2.07, so their likelihood of exiting employment is about two times higher as that of the service class.16 There is one important exception to this general pattern: unskilled workers in the service sector are less likely to exit employment. Their hazard ratio is 0.71, in other words their likelihood of withdrawal is approximately two-thirds that of the service class. Overall, it is notable that among the employees, the occupational classes that are more likely to remain in employment at older ages are the service class and the skilled and unskilled working class in the service sector. These occupational classes are also those whose size is most likely to increase in the next decades. One can suggest various explanations to account for the difference between unskilled industrial workers, the most likely to exit employment, and unskilled workers in the service sector, the least likely. Unskilled workers’ jobs in the industrial sector are more exposed to international competition from countries with cheaper labor costs and face a higher risk of de-localization. On the other hand, unskilled jobs in the service sector are often held on an irregular basis (i.e., the employer does not pay contributions into the social security system), and thus it might take more years for workers in such jobs to qualify for an old age pension. Finally, unskilled manual occupations in the industrial sector, especially those involving outdoor work or tasks accompanied by high temperatures, are generally more physically demanding, and therefore the risk of health problems that lead to retirement is higher.

Men’s late careers and career exits in Spain 135 These explanations may help to interpret the results for employment sector effects in model 3. The findings of this model are consistent and largely overlap with those for occupational class. Thus, older workers are most likely to withdraw from employment if they are employed in the manufacture of nonmetallic and metallic products and in the extractive sector. On the other hand, workers least likely to leave the labor market are those who are employed in social and personal services. Workers engaged in the manufacture of nonmetallic and metallic products tend to be employed in complex, large firms that produce on a large scale where unionization is more likely. Thus, it is more likely that older workers have regular employment histories, and long-term contributions paid into the social security system. In the case of employment restructuring, it is therefore more likely that they benefit from some type of collective agreements and qualify for early retirement. Moreover, big firms that produce on a large scale are most exposed to international competition from countries where the cost of labor is lower. Finally, employment in the extractive sector tends to be more physically demanding than in the other sectors, so workers in this sector might be more likely to retire early due to physical disabilities.

CONCLUSIONS The aim of this chapter was to study the consequences of employment restructuring – fuelled in the last decades by the globalization process – for the careers of older men in Spain. In particular, we have addressed two research questions. First, we have investigated whether the transformations in the production system and occupational structure have been paralleled by changes in the employment patterns of older workers. Second, we have analyzed whether there are differences by level of education, occupational class, and employment sector in the process of early withdrawal from the labor market. The answers to both questions are very clear-cut. Our findings show that Spanish men of later cohorts have experienced a notable shortening of their working life. While about 80 percent of the men born between 1906 and 1910 were still employed at age 60–64, the same was true for only about 45 percent of those born between 1936 and 1940. We have argued that the later cohorts (born after 1930) have been affected in their late careers by the employment restructuring of the 1980s and 1990s. On the other hand, they have benefited from the existence of a generous pension system and other unemployment protection measures that guaranteed an early withdrawal with limited income loss. With regard to the second research question, considering the employment pattern of the cohort born between 1930 and 1940, the men most likely to withdraw early from the labor market are those who have low educational levels and are employed in unskilled occupations in the agricultural and industrial sector. In particular, it is those employed in the sectors most exposed to international competition, such as the manufacture of non-metallic and metallic

136 Fabrizio Bernardi and Luis Garrido products, or in the most physically demanding jobs, such as those found in the extractive sector. Conversely, the longest careers are found among subjects with a university degree, among employers and self-employed workers, among employees in the upper level occupations of the service class, and in skilled and unskilled occupations in the service sector, in particular in personal services. It is important to stress that in the cohort born between 1930 and 1940, only about 7 percent had a university degree, while in the cohort born around 1970 (who will retire between 2030 and 2040), the proportion has risen to over 20 percent. Moreover, the percentage of employers has increased, and the same is true for the service class. In other words, the occupational classes that have increased most are precisely those which, at least in the most recent experience of the cohort born between 1930 and 1940, show among the longest persistences in the labor market. The important implication of our findings is that if the old age patterns of employment we have highlighted for the cohort born between 1930 and 1940 persist into the future, the trend towards a shortening of the working life is likely to reverse, and the employment rate after age 55 will substantially increase. Therefore, our findings question one of the key assumptions of the simulation exercises for future pension expenditures, namely that the ratio of the number of pensions and the number of people over 65 will remain fairly stable in the coming years (Jimeno 2002; Conde Ruiz and Alonso 2004; García et al. 2005). Although forecasting exercises are always risky, the changes in the educational opportunities and occupational structure that have taken place in the last decades make it reasonable to predict that future cohorts will work, on average until older ages than the cohorts that have retired in recent years.

NOTES 1 2

3

4 5

The authors would like to thank Elisa Chuliá for her very useful comments and suggestions on a prior draft of the chapter. We focus only on men, because the female employment rate at age 55 in the cohorts of Spanish women born in the first half of last century was very low. Only about one woman in four of those born between 1936 and 1940 was employed at age 55, for example (Garrido 2005). These women working at older ages form a rather select group in terms of education and marital status. For a more exhaustive description of the functioning of the Spanish labor market and pension system see Chuliá (2005a, 2005b), Garrido (2004, 2005), Toharia and Malo (2000). See section on data, variables, and methods for a more detailed explanation of the occupational class scheme. The employment growth in Spain between 1997 and 2002 was: +47.3 percent in the construction industry, +26.8 in hotels and restaurants, +57.5 in real estate, renting, and business activities, and +33.8 in other social and personal activities. Corresponding average figures for the EU (before enlargement) were: +8.6 (construction), +10.4

Men’s late careers and career exits in Spain 137

6 7

8 9

10

11 12 13

14

15

16

(hotels and restaurants), +33.0 (real estate, renting, and business activities), and +13.8 (other social and personal activities). See Table 13, European Commission 2003: 42. For a detailed account of the subsequent reforms of the Spanish pension system, see Chuliá (2005b). Until 1985, the minimum contribution period was 10 years. With the reform in 1985, it was increased to 15 years, while the number of years included in the pension regulatory base was extended from 2 to 8. This was increased to 15 in 1997. The pension regulatory base is reduced by 8 percent for each year of early retirement before age 65. Before 1992, information on the last job is not available. The coding of the last occupation and sector of activity in 1992 and 1993 was also changed after 1994. For these reasons, we limit our analysis to the years after 1994. To check for possible sample selection bias, we performed an additional analysis starting from age 45, using educational level as independent variable. The effects for this variable are the same that we find in the more restricted age window between age 56 and 64. We are therefore confident that the pattern of results for the other independent variables is not overly biased. We have also checked for the influence of the region of residence. Since the findings for our key variables do not vary, we do not present these results here. The “vocational training” category includes both basic vocational training (known in Spain as FP1) and upper vocational training (FP2). The per capita rent in 1945 was 66 percent of the per capita rent in 1935. Only at the beginning of the 1950s it recovered to the pre-Civil War level (Alonso and Conde 1994). The hazard ratio is given by the ratio of the rate in group A and the rate in group B: rA/rB. This measure is also referred to as “relative risk” (Blossfeld and Rohwer 2001). If group A and B face the same likelihood of experiencing the transition under study, the hazard ratio is 1. If it is greater than 1, the likelihood of experiencing the transition is higher in group A than in group B. If it is smaller than 1, the opposite is true. For instance, an hazard ratio equal to 1.42 means that the likelihood of experiencing the transition is about 42 percent higher in group A than in group B; an hazard ratio equal to 2 means that the likelihood of experiencing the transition is two times (or about 100 percent) higher in group A than in group B; an hazard ratio equal to 0.5 means that the likelihood of experiencing the transition is in group A half of that in group B. This is because the hazard ratio for the employers is equal to 0.23. This means that their likelihood of withdrawal is one fourth that of the employees in the private sector. This is equivalent to saying that employees have a likelihood of withdrawal 4 times higher than that found among the employers. One should note that in model 2, we are also controlling for the level of education. If one excludes this last variable, the hazard rate for unskilled industrial workers increases up to 2.82.

BIBLIOGRAPHY Alderson, A. (1997) ‘Globalization and Deindustrialization: Direct Investment and the Decline of Manufacturing Employment in 17 OECD Nations’. Journal of World-Systems Research, 1, 1–24.

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Men’s late careers and career exits in Spain 139 Continuity and Change in Contemporary Capitalism, Cambridge: Cambridge University Press. Standing, G. (1999) Global Labour Flexibility. Seeking Distributive Justice, London: Macmillan Press Ltd. Toharia, L. and Malo, M. A. (2000) ‘The Spanish Experiment: Pros and Cons of the Flexibility at the Margin’. In G. Esping-Andersen and M. Regini (eds), Why Deregulate the Market?, Oxford: Oxford University Press.

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9 Late careers and career exits in Sweden Gabriella Sjögren Lindquist

INTRODUCTION In most OECD countries the demand for workers and their skills has undergone large changes over the last few decades. Researchers explain these changes primarily in terms of growing international trade and globalization, technological change, changes in work organization and higher unemployment (Wadensjö 1998). In Sweden, industrial, occupational and skill structures have changed substantially during the last decades. Manufacturing, mining and agricultural sectors have contracted, while the public and private service sectors have expanded. Production processes in Sweden have also changed over the last decades and now require more highly skilled blue and white collar workers than 30 years ago. The share of skilled labor has increased steadily during this period. Research indicates that change in the relative supply of skilled labor was the main driving force behind the growing skill share between 1970 and 1985, while an acceleration in the relative demand for skills was the main driving force behind the growing skill share in the late 1980s and 1990s (Hansson 1997 and 2000; Lindquist 2005). The present chapter studies Swedish workers’ late careers between 1970 and 2000. The aim is to examine older workers’ career patterns and whether they have changed during this period. Is there a difference in career mobility or labor market exits between cohorts? What affects the late career, and does this differ between cohorts? Are older workers able to pursue a late career when the demand for skills changes? The study is organized as follows. First, the change in labor demand in Sweden between 1970 and 2000 is examined. Second, an overview of Swedish institutions and their possible effects on the late career is provided, followed by a presentation of the data and methods used to examine older workers’ careers. Finally, an analysis of late careers in Sweden is undertaken, and I conclude with a summary of the study.

CHANGE IN THE DEMAND FOR WORKERS AND THEIR SKILLS Industry structure Some sectors have been more affected than others by structural change and globalization. After the first oil crisis in the mid-1970s, Sweden underwent a

212 Gabriella Sjögren Lindquist major industrial restructuring. The steel, iron, mining, textile and shipping industries were the most affected, and employment in the industrial sector fell by 10 percent (the long-run trend after 1975 is shown in Figure 9.1). The public service sector expanded in the same time period, and began to employ workers who might otherwise have become unemployed when the industrial sector declined. The public sector employed 30 percent of all those employed in the economy in 1970, and reached a peak in 1993 when it employed 42 percent (see Figure 9.2). Since then, this share has contracted, to 35 percent by 2003. After two devaluations of the Swedish currency in the early 1980s the economy boomed. But in the long run the economy became over-heated, inflation increased and exports fell. By the early 1990s, the industrial sector began to contract again after a decade of stability (Figure 9.1), and the long-run trend is negative. Between 1990 and 2003, the employment share fell by 5 percentage points, as part of a longer trend (it fell by 13 percentage points between 1975 and 2003). The real estate, construction and finance sectors also contracted during the 1990s, while the consulting and insurance industries expanded. The telecommunications and computer industries expanded at first, but in 2000 this part of the market sharply declined. The long-run trend for the agriculture, forestry and fishing industries is negative, and their share of employment declined from 6 to 2 percent between 1975 and 2003. Labor force participation and unemployment The labor force participation rates are shown in Figure 9.3. In 1978, 80 percent of the Swedish population aged 16–64 participated in the labor force, a rate that peaked in 1990 at 84 percent, but that has declined again to 78 percent by 2003. Among men aged 55–59, the labor force participation rate decreased from 88 percent in 1978 to 83 percent in 2003. Women aged 55–59 have, on the other hand, increased their labor force participation from 67 percent in 1978 to 79 percent in 2003. The labor force participation rate of men in the 60–64 age group was 69 percent in 1978, bottomed out at 58 percent in 1993, and increased again to 64 percent in 2003. Women aged 60–64 increased their labor force participation from 39 percent to 56 percent between 1978 and 2003. During the 1990s, the Swedish economy suffered a recession which led to an increase in the unemployment rate as well as a decline in labor force participation on the part of both men and women. Unemployment rose from 1.5 percent to 8.2 percent between 1990 and 1993. The unemployment rate fell slowly thereafter back to 4.9 percent (by 2003). Figure 9.4 presents unemployment rates for different age groups. The unemployment rates are highest among the younger age groups. Occupational structure Workers are divided in Swedish statistics into nine occupational groups, and Table 9.1 shows the changes in the proportion of workers in each occupation

1985

1990

1995

Percent employees aged 16–64 years by industry, 1975–2003

1980

2000

Public service, hotels, restaurants and personal service

Wholesale and retail trade

Public service sector

Financial institutions, insurance, real estate and consulting

Transport, postal services and telecommunications

Wholesale and retail trade, restaurants and hotels

Construction

Manufacturing, mining and electricity

Agriculture, forestry and fishing

Note: Statistics Sweden changed their classification of industries in 1991 and 2002. Data is available from 1986 according to the 2002 classification. Two series in Figure 9.1 are affected by the new classification: the public service sector and wholesale and retail trade, restaurants and hotels. From 1987 on, the public service data also includes hotels, restaurants and personal services, so restaurants and hotels are no longer included together with wholesale and retail trade.

Source: Statistics Sweden, Labor Force Survey.

Figure 9.1

1975

0%

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30%

40%

50%

45%

40%

35%

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25% 1970

1975

1980

1985

1990

1995

2000

Public sector employment

Figure 9.2

Public sector employment (aged 16–64 years), 1970–2003

Source: Statistics Sweden, Labor Force Survey.

70% 60% 50% 40% 30% 20% 10% 0% 1978

1983

55–59 men

Figure 9.3

1988

60–64 men

1993 55–59 women

1998

2003

60–64 women

All

Individuals not participating in the labor force, 1978–2003

Source: Statistics Sweden, Labor Force Survey.

Late careers and career exits in Sweden 215 20%

15%

10%

5%

0% 1975

1980

16–24 years

Figure 9.4

1985 25–34 years

1990 35–54 years

1995

2000

55–64 years

All

Unemployment by age, 1975–2003

Source: Statistics Sweden, Swedish Labor Force Survey.

between 1968 and 2000. The total share of white-collar workers rose from 28 percent to 49 percent. The statistics sub-divide this category by qualification level and show that the share of low-skilled white-collar workers rose from 9 to 14 percent, the share of middle skilled from 16 to 20 percent, and the share of highly skilled from 4 to 15 percent. In 1968, as many as 20 percent of the workers were homemakers. Thirty years later, this stood at only 3 percent, a change primarily due to the increase in women’s labor force participation. Unskilled blue collar workers constituted 27 percent of all workers in 1968, a figure that had fallen to 22 percent by 2000, but that was matched by a rise in the percentage of skilled blue-collar workers from 13 to 17 percent. This suggests that the production process has changed, and that higher skills are required of blue-collar workers today than 30 years ago.

INSTITUTIONAL CONTEXT AND THE LATE CAREER IN SWEDEN Structural changes in the demand for workers and for skills affect the careers of all Swedish workers, but the question here is what the effects of such changes are on workers in their late careers. The labor market can react to the demand for

216 Gabriella Sjögren Lindquist Table 9.1

Occupational structure in Sweden, 1968–2000

Workers (in %) Unskilled blue-collar workers Skilled blue-collar workers White-collar workers (low level) and foremen White-collar workers (middle level) and supervisors White-collar workers (high level) Artists and academics Business owners Farmers Homemakers

1968

1974

1981

1991

2000

27 13

27 13

29 14

26 18

22 17

9

8

8

15

14

16

16

20

16

20

4 3 6 3 20

6 3 6 2 19

8 0 7 3 11

12 0.5 8 2 3

15 0.5 8 1 3

Source: SLLS.

new qualifications in different ways. One option is to rely on the existing labor force by retraining and re-qualifying it, another is to replace the existing labor force that has obsolete skills with workers possessing higher qualifications. Replacement means making an early exit from the labor market more readily available. Buchholz, Hofäcker and Blossfeld (in this volume) argue that society’s way of adjusting the labor force to structural changes depends on the institutional structure of the country concerned. They claim there are three institutions that particularly affect labor market mobility: the level of job protection, the strength of labor market boundaries (e.g., educational and occupational systems), and the extent of employment-sustaining and employment-exit policies (e.g., an active labor market policy and early retirement opportunities). Countries with a high level of job protection will re-educate the existing labor force rather than laying off workers. Intra-firm mobility will therefore be high for workers of all ages. In countries that prioritize active labor market policy and/or have an education system open to adults, workers will have the opportunity to renew their skills, and inter-firm and inter-industry mobility and labor force participation will be high. However, if early retirement opportunities are available, older workers may choose to leave the labor market in times of structural change rather than updating their current skills. In the following sections, the effect of the various Swedish institutions on late careers will be discussed. Generally, the work principle is a fundamental principle in Swedish labor market and social policy: work should be favored over cash support for workers below retirement age. However, institutions can work either for or against this principle, and they can also affect career mobility.

Late careers and career exits in Sweden 217 Employment protection legislation Swedish employment protection is strong. In July 1974, the Security of Employment Act (LAS) (SFS1 1974: 12, 1982: 80) was introduced, stipulating employment protection for the individual. The aim is to prevent employers from undertaking arbitrary dismissals: according to the Act, there must be a “just cause” for a dismissal. All workers also have the right to a minimum of one month’s dismissal notice, though most workers are covered by collective agreements providing longer periods of notice (Jans 2002). During this period, workers are entitled to time off to search for new jobs during working hours. The LAS also states that when enterprises are downsizing they have to lay off workers according to the principle of “last hired, first fired.” So workers with longer tenure are given priority over workers with shorter tenure, and tenure is counted twice (up to a maximum of 60 months) after age 45 in order to strengthen older workers’ position in the labor market. Laid-off workers with at least 12 months tenure have priority rights if the firm decides to hire a person (for any position the person concerned is qualified for) within 12 months following the lay-off. If two workers claim the same position, the worker with the highest tenure will be given priority. The employment protection legislation can have different effects on the careers of older workers. The “last hired, first fired” principle reduces interestablishment job mobility among older workers, primarily in two ways. First, since the length of tenure protects workers from being laid off in times of downsizing, workers – particularly those who are older – have incentives to stay with their current firm. Second, labor mobility among elderly workers may be restricted by the fact that older workers with shorter but double-counted tenure may be better placed in the lay-off order than younger workers with longer tenure. If the employer and the insiders do not approve of this inversion in the lay-off order, firms may feel unwilling to employ older workers. However, the effects of this legislation on job mobility and employment mobility are weakened by the possibility that is open to the firm and the union to deviate from its main principle. The “last hired, first fired” principle can be set aside by agreements between the local union and the employer. Between 1984, when this law was introduced (SFS 1984: 510), and 1997 when it was abolished (SFS 1996: 1424), all deviations from the “last hired, first fired” principle that affected workers over age 57.5 had to be approved by the central union in order to avoid an early exit from the labor market. The strength of labor market boundaries The education system and the occupational structure both have a major impact on the possibilities of a second career for older workers. If the education system is closed to older individuals and closely linked to occupations in the labor market, the chances of acquiring a second late career are undermined.

218 Gabriella Sjögren Lindquist The education system in Sweden is highly standardized. The government determines the national curricula for the lower educational levels (compulsory school, upper secondary school and municipal adult education) and for the higher educational levels (university and university college). The Swedish National Agency for Education (Skolverket) checks that the educational institutions for lower education follow the curriculum. The same applies to the higher educational institutions through the National Agency for Higher Education (Högskoleverket). The goal is to standardize education. In Sweden, education is open to adults at the level of the compulsory school, the upper secondary school and the university level, which makes it possible to engage in a second career. It is also possible to receive state-subsidized student loans up to age 50 (or even age 55 in certain situations), which further encourages a career change. One percent of all students at Swedish universities during the 1990s were age 55 or older, and 7 percent were over age 45. Among students taking part in adult education at the compulsory or upper secondary school levels in the 1990s, 12 percent were over age 45 and 2 percent over age 55. That is, a substantial percent of workers in the 45–54 age group do actually re-educate themselves to be able to have a second career, but few workers over age 55 take advantage of this opportunity (Wadensjö and Sjögren 2000). The occupational structure is not closely linked to the educational system and there are no defined occupational tracks of the kind found in Germany. This further improves the opportunities for workers to make a career change. Employment-sustaining policies Sweden pursues both passive (cash support) and active (activities to improve workers’ employment chances) labor market policies. The active programs can improve the chances of making a career change, while passive programs can provide a means of transition out of the labor market. Unemployed workers are entitled to unemployment insurance benefits for 300 days. Until 2001, older workers were entitled to 450 days, though until 1997 they had to be at least age 55 and between 1997 and 2001 they had to be over age 57. One condition for re-qualifying for unemployment insurance benefits is the need to be employed for at least 6 months (at least 70 hours per month or 450 hours over these six months) in a 12-month-period. However, some labor market programs count as employment. The costs for the active labor market policy compared to the total cost for labor market policy is higher in Sweden than in other countries in the European Union. In Sweden, active labor market programs are open to older workers to a greater extent than in other EU-countries (Wadensjö 2002). During the 1990s, for example, there were three labor market programs especially intended for older workers (Wadensjö and Sjögren 2000). Temporary Public Sector Jobs for Older Workers (OTA) were intended for long-term unemployed workers aged 55–64, though at most 9,000 such workers participated, which is less than policy-makers had predicted (Wadensjö and

Late careers and career exits in Sweden 219 Sjögren 2000). The other two were of the passive type, making early exit from the labor market easier. Temporary early exit compensation was available to the long-term unemployed over age 60, but could only be applied for during the second half of 1997. The compensation was the same as that granted by the unemployment insurance scheme, and it continued to be paid until regular retirement took over. This proved a popular program, with 18,956 individuals granted such early exit compensation (Wadensjö and Sjögren 2000). The generation-replacement program guaranteed compensation until retirement for workers over age 65, provided they left a job and were replaced by young longterm unemployed, but this program was not a success, and only 825 persons participated. No programs specifically for older workers currently exist. Employment exit policies The public pension system has recently undergone a major overhaul. The new pension system is being introduced gradually from 2001 on, with completion slated for 2019 (see Wadensjö 1999, for a discussion of the pension reform). Under the old system, a guaranteed minimum transfer was combined with an income-related component based on the 15 years when the highest labor market income was received. To receive full pension, workers must have worked for at least 30 years.2 The new system intends to increase work incentives by making the pension instead dependent on life-time income. The retirement age in Sweden is 65, but it is possible, under both old and new systems, to receive pensions starting at age 61 (and until 1998, at age 60). However, in such cases the pension is reduced by 0.5 percentage points for each month remaining until age 65, and that reduction is permanent. Of the Swedish workforce 80 to 90 percent has also been covered by private occupational old age pension schemes since the mid-1970s.3 Occupational pensions have amounted to approximately 10 percent of the wage, up to the ceiling that is applied in the social security pension system. For workers (except blue-collar workers in the private sector) with an income higher than the ceiling, the occupational pension has been approximately 65 percent of the income above the ceiling. Part-time pensions were introduced in 1976. To be eligible, an employee had to be at least age 60 (age 61 after 1994), and his or her working hours had to be reduced by 5 to 23 hours a week (altered to a maximum of 10 hours a week in 1994). A part-time pension was more favorable than drawing the old-age pension early, because it did not reduce the old-age pension after age 65. This, combined with the fact that the net compensation rate was generous, made part-time pensions popular. The new 2001 pension system has abolished this, so the last part-time pension was granted in 2000. According to Wadensjö (2003), part-time pensions affect the labor force participation of older workers in three ways. First, some potential full-time workers may accept part-time pensions, since the loss of income is compensated by the greater value of more leisure. Second, part-time pensions may provide an

220 Gabriella Sjögren Lindquist opportunity to work part-time for workers otherwise forced into an early exit on health grounds. Third, part-time work can improve a worker’s health (as compared to full-time work), thus reducing the number of sick leaves and disability pension benefits. An estimate of the effect of a part-time pension system on the total number of hours worked in the Swedish economy showed that the part-time system increased the total number of hours worked by elderly workers, particularly women. Until 2003 the disability pension system was constructed in a manner similar to the old age retirement benefits.4,5 Since 2003, benefits are based instead on the average of the three years with the highest income during the 5–8 years worked (depending on age) before the disability pension began. Between 1970 and 1997, it was possible to take medical reasons into account, together with labor market grounds, in granting disability pensions to workers over age 60 (between 1971 and 1975 they had to be age 63). Between 1972 and 1991 it was also possible to grant disability pensions to workers over age 60 (altered from older than age 63 in 1974) on the basis of labor market status alone. Since the maximum length of unemployment benefits was one year and 9 months for workers over age 55, this meant in practice that workers aged 58 years and 3 months who became unemployed could “retire with 58.3-pensions,” and receive transfers from two systems (Wadensjö 2002). The disability pension benefits granted on labor market grounds between 1972 and 1991, particularly in combination with unemployment benefits, mitigated against the work principle and accelerated transitions out of the labor market. HYPOTHESES REGARDING THE EFFECTS OF GLOBALIZATION ON LATE CAREERS IN SWEDEN Institutional hypothesis Swedish institutions work both towards and against the work-principle. Job protection is high, adult education is available at all levels and an active labor market policy makes opportunities open to older workers. These institutions work to promote a second labor market career. But there are also institutions that promote an early exit by way of passive labor market programs, disability pension schemes and possibilities to make an early withdrawal. There is thus more than one strategy to adapt an older workforce to structural changes under globalization, and we can expect both greater flexibility within the labor market among older workers as well as a shortening of older employees’ working lives. The strategy might be dependent on individual characteristics, occupational structure, or branch of industry. Social change hypothesis: increasing early exit? Little has changed in the relevant Swedish institutions during the period examined here (1970–2000). Adult education and active labor market policy

Late careers and career exits in Sweden 221 programs have been available for older workers during the entire period, and the level of job protection for older workers has remained nearly constant since 1974. The part-time pension system was available from 1976 and 2000, and between 1970 and 1997 it was possible to combine labor market grounds with medical reasons when granting disability pensions. However, there is a major difference between the labor market situation for older and younger cohorts. The recession and the high level of unemployment in the 1990s make us expect that older employees of younger cohorts leave employment earlier, as compared to workers of older cohorts as a whole. Social selectivity hypothesis: who makes a career and who exits? Occupation and branch of industry The production process has changed as a function of technological developments, and that affects the demand for high skilled workers within organizations. We can therefore hypothesize that workers in low skill positions have a higher probability of becoming unemployed than more skilled employees in the core workforce. Consequently, workers with higher educational attainment can be assumed to be more able to adapt their skills to technological change by means of re-education than less highly educated workers. Highly educated workers are therefore more likely to continue to pursue a labor market career in times of structural change. International competition has increased over recent decades in both the product and the service markets in Sweden as a function of reduced transportation costs and lower trade barriers (e.g., trade tariffs reduced or abolished and quotas abolished).6 Growing international trade leads to countryspecific specialization whereby less developed countries specialize in low-skill labor-intensive industries, while the more developed countries specialize in highskill capital-intensive production (Anderton, Brenton, and Oscarsson 2002; Baldwin 1994; Burtless 1995; Krugman 1995). We can therefore expect that older workers in low-skill labor-intensive industries in shrinking or declining sectors become non-employed to a larger extent than workers in other industries. The public sector expanded in terms of employment until 1993, and after that it started to shrink (see Figure 9.2). It is therefore hypothesized that older workers employed in the public sector became non-employed to a large extent in the 1990s. Firm size It is hypothesized that larger firms are more likely than smaller ones to have access to or develop systems for early retirement. This should increase the transition out of employment for older workers in times of downsizing.

222 Gabriella Sjögren Lindquist Job tenure According to the “last hired, first fired” principle, workers with shorter tenure will be laid off first when firms are downsizing. We can therefore expect that tenure with the firm will affect the probability of being unemployed, thus that the longer the tenure, the higher the probability is of staying with the firm.

DATA AND METHODS The empirical work is based on the Swedish Level of Living Survey (SLLS) (Erikson and Åberg 1987; Fritzell and Lundberg 1993). The SLLS provides retrospective working-life biographies and educational information on approximately one thousandth of the Swedish adult population (around 5,500 individuals). The first wave of the SLLS was conducted in 1991, with individuals aged 25–64 asked about their work histories, starting with the first job lasting for at least 6 months. These histories included all the individual’s employment and non-employment episodes up to the date of the interview in 1991. For an episode to be registered in the biography, it must have lasted for a minimum of one month. Information was gathered about episodes of employment, unemployment, study, parental leave, homemaking, and nonemployment for any other reason. The educational biographies include information about all periods of study, including the individual’s basic education. In a second wave conducted in 2000, all individuals in the 1991 survey were asked to update their work histories. New individuals were added to the 2000sample,7 and these were then asked for their full working-life biography. In the analysis the late career is defined as the worker’s career between the ages of 55 and 65. To analyze older workers’ careers, a sample of 621 individuals who were in employment at the age of 55 has been used. They are followed up until the year they exited the labor market. The individuals in the sample were born between 1915 and 1935 and hence turned 55 between 1970 and 1990. To see whether the late career pattern has changed over time, the sample has been divided into two cohorts. The “older cohort” includes workers born between 1915 and 1928 who started their late careers between 1970 and 1983. The “younger cohort” includes workers born between 1929 and 1935 who started their late careers between 1984 and 1990. To examine cohort differences in exits from the labor market, survivor functions have been estimated using the Kaplan-Meier product-limit method (Blossfeld and Rohwer 2002). To look further at older workers’ labor market careers and the transition out of the labor market, Cox proportional-hazards models8 are estimated (Blossfeld and Rohwer 2002). In the estimations, covariates are included which are expected to affect the risk of leaving employment as discussed above. The covariates included in the models are gender, labor market experience, tenure with the current employer, occupation, firm size and industry (Table 9.2).

Late careers and career exits in Sweden 223 Table 9.2

Covariates

Variables Gender

Measures or categories used Man versus woman

Labor market experience

Number of years in the labor market up to age 55

Job tenure

Tenure in months with current employer

Occupational position

6 categories: (a) unskilled blue-collar workers (b) white-collar workers (low level 1) (c) skilled blue-collar workers and foremen (d) supervisors and white-collar workers (low level 2) (e) middle level white-collar workers (f) white-collar workers (high level)

Firm size

4 categories based on number of employees: (a) up to 20 employees (b) 20 to 99 employees (c) 100 to 999 employees (d) more than 1,000 employees

Branch of industry

7 categories: (a) agriculture, forestry, fishing (b) construction (c) manufacturing, mining, electricity (d) wholesale and retail trade, restaurants, hotels (e) public services (f) financial institutions, insurance, real estate, consulting (g) transport, postal services, telecommunications

RESULTS The late career Table 9.3 indicates that on average, older workers have held 1.2–1.3 different jobs from the age of 55 onwards, including the job they held when they were age 55. There are no significant gender or cohort differences. In the older cohort, 85 percent of the men and 82 percent of the women remained in the job they had when they turned age 55 until they exited the labor market. The corresponding numbers for the younger cohort is 79 percent for men and 81 percent for women. Approximately 11 percent of the men and 15 percent of the women in the older cohort and 16 percent of the men and 15 percent of the women in the younger cohort changed jobs once in their late career. If older workers leave their employment they have very small chances of ever being employed again. Only 2 percent of both men and women in the older

224 Gabriella Sjögren Lindquist Table 9.3

Employees’ number of jobs and re-employment (621 employees) Birth cohort 1915–28 Birth cohort 1929–35

Average number of jobs No job changes in late career (in %) One job change in late career (in %) Two job changes in late career (in %) More than three job changes (in %) Re-employed if leaving employment (in %) Exit from employment before 65 (in %) Average age at exit Number of observations

Men

Women

Men

Women

1.19 0.52 85.2 11.1 2.8 0.9 1.7 50.9 63.25 3.06 108

1.22 0.51 82.0 15.3 1.8 0.9 1.8 61.3 63.04 3.00 111

1.26 0.56 79.3 16.0 4.3 0.5 3.7 73.9 61.40 3.00 188

1.26 0.63 80.8 14.5 2.8 1.9 2.8 77.6 61.63 2.79 214

Source: Calculations based on the SLLS. Note: Standard deviations are in italics.

cohort and 3 to 4 percent of men and women in the younger cohort who leave employment are re-employed. The descriptive statistics show that the late career in Sweden is quite stable and mobility within the labor market in late career is quite rare. For this reason, I focus my analysis on the transition to non-employment to see who stays in the labor market and who exits. Transition out of the labor market In Sweden, older workers can use several exit paths when leaving the labor market. For example, older workers leave the labor market by taking unemployment benefits, through early withdrawal of old age pension monies, and by taking the disability pension that is granted on the basis of labor market status and/or medical reasons and sickness insurance. In the analysis, an individual who leaves employment and becomes unemployed, disabled, sick or retired and does not re-enter into employment before age 65 is defined as having made an exit. Workers who exit the labor market before the normal retirement age of 65 have by definition made an early exit. The proportion of workers who make an early exit from the labor market is large in both cohorts: 51 percent of the men and 61 percent of the women in the older cohort and 74 percent of the men and 78 percent of the women in the younger cohort leave the labor market before age 65 (see Table 9.3). The average

Late careers and career exits in Sweden 225 100%

80%

60%

40%

20%

0% 55

57

59

61

Birth cohort 1915–28

Figure 9.5

63

65

Age

Birth cohort 1929–35

Transitions to non-employment by cohort

Source: Calculations based on the SLLS.

age at exit is significantly lower for the younger than for the older cohort. Both male and female workers born between 1915 and 1928 become non-employed at age 63, while both male and female workers born between 1929 and 1935 become non-employed at age 61.5. As can be seen from Figure 9.5, workers in the younger cohort drop out of employment at an earlier age than workers in the older cohort. The difference between the survivor functions is statistically significant at the 1 per cent level.9 This means that on average there is not only a significant difference in the average age at exit (of approximately 1.5 years, as shown in Table 9.3) between the cohorts, but also differences in survival at each point in time from age 55 onwards. Gender differences in the survival rates have also been tested for (results not shown), but they are not significant for either cohort. Who stays in the labor market? Table 9.4 shows the Cox proportional hazards estimates of the workers’ transitions out of employment, divided by gender within the cohorts, and including a composite measure for the cohorts as a whole.

226 Gabriella Sjögren Lindquist The Kaplan-Meier survival rates for men and women did not differ significantly (see above), and when additional covariates are controlled for using the Cox proportional hazards model, this is also true for the older cohort. But men in the younger cohort have a higher probability of staying in the labor market than women, and the difference becomes significant (in the Cox proportional hazards model) when work experience before age 55 is introduced. Men have significantly more work experience on average than women in the younger cohort: 34 years (st. dev. is 6.18) as compared to 24.5 years (st. dev. is 9.21) before either turned 55 years. Labor force attachment, measured in years of labor force experience up to age 55, has a negative effect on the chances of continuing to pursue a career. That is, the longer an individual already has worked and contributed to pensions, the higher is his likelihood to retire. According to the “last hired, first fired” principle, workers with shorter tenure will be laid off first when firms are downsizing. We can therefore expect that the longer the tenure with the firm, the higher the probability is of staying. The variable tenure measures the number of months with the last employer before exiting the labor market. As expected, tenure with the last employer increases the probability of continuing to work, though while this applies to women in both cohorts, it only applies to men in the older cohort. One explanation for the insignificance of the tenure variable for men in the younger cohort is that during the recession of the 1990s when firms needed to downsize they had to lay off workers according to the “last hired, first fired” principle. To the firms, this meant that they had to keep old workers who had the longest tenure and lay off younger workers with shorter tenure and hence lose young employees possessing high qualifications. To avoid this, many firms offered early retirement schemes to encourage some groups to leave the firms voluntarily. One large group to which these schemes were offered were older white-collar male workers in the private sector. The “typical” scheme was offered to workers over age 60 and gave them 72–75 percent of their wage until retirement at the age of 65 (see e.g., Hörte 1992; Isaksson and Johansson 1997; Landin 1997). This explanation is also supported by the results from the Cox model: men from the younger cohort in white-collar occupations have a lower probability of pursuing their labor market career than men in other occupations (see column 5). When examining occupational effects on the chances of remaining employed, unskilled blue-collar workers are used as the reference group. For the older cohort, we see that workers in all other occupations have a larger probability of pursuing their labor market careers than the reference group. The results indicate that firms kept their “core” workforce and re-qualified them, but replaced unskilled blue-collar workers in times of technological change during the 1970s and early 1980s. In the younger cohort, workers at all occupational levels had the same probability of exiting the labor market except for the male white-collar workers at low level 2 and supervisors, and white-collar workers at high level 1–2 and professionals. Workers in both categories had a higher probability of exiting.

Late careers and career exits in Sweden 227 One possible explanation for this is, as mentioned above, that when firms needed to downsize during the recession of the 1990s they offered older white-collar workers retirement schemes to encourage them to leave the firm. The firms could thereby keep high skilled younger workers even though the lay-off rules protected the older workers with longer tenure (see Isaksson and Johansson 1997 for a case study of a generous early retirement scheme offering 80 percent of the wage until the retirement age of 65 years targeted to workers aged 55 in the Swedish insurance company Folksam). The overall insignificance of skills for the younger cohort could be explained by the fact that the high unemployment of the early 1990s hit workers at all occupational levels. Employees’ withdrawal from employment is different by industry. In the analysis the public sector is used as the reference group. During the 1970s and 1980s, the public sector was growing and employees of all age groups had a low probability to become unemployed. In the 1990s, the public sector employment declined and during this period especially employees in the public sector that were older than 57 years had a high probability to become unemployed (Wadensjö and Sjögren 2000). The older cohort men in agriculture, forestry and fishing industries and in transport, postal services and telecommunication industries had a higher probability of exiting the labor market than men in the public sector during the 1970s and early 1980s. This is in line with what we could expect since the agriculture, forestry and fishing industry has contracted during the studied period (see Figure 9.1). During this period, the technological development in especially the telecommunication industry was high which could have led to an increase in early exits. Older cohort women in the trade, restaurant and hotel industries had a lower probability of exiting the labor market than women in other industries. This is an unexpected result. Interviewing administrators at the employment agencies, Wadensjö and Sjögren (2000) find that workers in the trade, restaurants and hotels industries are usually considered old and unattractive personnel by employers when they turn age 40. We could therefore have expected that workers in these industries would have a higher probability to leave earlier than workers in other industries. In the gender-combined models of the younger cohort we do not find significant effects for industry. Divided by gender, the younger cohort men in the agriculture, forestry and fishing industries and the manufacturing, mining and electricity industries had a higher probability of pursuing their labor market careers than men in the public sector during the late 1980s and 1990s. This result is probably due to the large shrinkage of the public sector since 1993. Even though the agriculture, forestry and fishing and manufacturing, mining and electricity sectors declined, the public sector shrunk even more during the 1990s. Younger cohort women in the transport, postal services and telecommunication industries had a higher probability of exiting the labor market than women in other industries.10

2.41+ 1.46 0.95 0.50 – 0.54 2.70* 0.29

1.84+ 1.40 1.01 0.57* – 1.06 2.28** 0.40*

1.31 1.25 1.46 0.51* – 1.58 1.53 0.29+

0.65 1.04 0.94 0.84 – 0.96 1.43 3.08**

– 1.11 0.99 1.02 1.03 1.18

– 0.36 0.77 0.59 0.50+ 0.61

– 0.44** 0.66* 0.56* 0.49** 0.41**

– 0.50* 0.52+ 0.54 0.61 0.47

1.06** 1.00**

1.01 1.00*

1.07* 1.00**

1

1.02* 1.00**

3

All

0.53**

2

1

Women

0.50+ 0.94 0.59* 0.76 – 0.99 0.96 2.38

– 2.05 1.07 1.87* 1.44 1.58+

1.08** 1.00

2

Men

1.00 0.86 1.48 0.93 – 0.97 2.76** 4.34*

– 0.87 0.93 0.73 0.87 0.94

1.06** 1.00*

3

Women

Birth cohort 1929–35

0.82

Men

All

Birth cohort 1915–28

Transition to non-employment after the age of 55 years (Cox proportional hazards models, hazard ratios)

Men Experience Labor force experience until age 55 Tenure in months with last employer Occupational class Unskilled blue-collar workers White-collar workers (low level 1) Skilled blue-collar workers and foremen White-collar workers (low level 2) and supervisors White-collar workers (middle level) White-collar workers (high level 1–2) and professionals Industry Agriculture, forestry, fishing Construction Manufacturing, mining, electricity Trade, restaurants, hotels Public sector Financial institutions, insurance, real estate, consulting Transport, postal services, telecommunications Missing information on industry

Table 9.4

continued

Notes: ** Effect significant at p < 0.01 * Effect significant at p < 0.05 + Effect significant at p < 0.10.

Source: Calculations based on the SLLS.

Number of individuals Number of events LR chi2

Firm size Up to 20 employees 20 to 99 employees 100 to 999 employees More than 1,000 employees Missing information on firm size

Table 9.4

219 205 67.29

108 101 48.10

– 1.39 1.61 1.20 3.93

2

1

– 1.44+ 1.88** 1.09 2.17+

Men

All

111 104 29.22

– 1.41 1.79+ 1.01 2.61+

3

Women

Birth cohort 1915–28

402 354 77.83

– 0.84 0.93 0.95 3.54*

1

All

188 157 45.38

– 0.97 1.21 0.87 3.35+

2

Men

214 197 58.89

– 0.85 0.82 1.26 4.04+

3

Women

Birth cohort 1929–35

230 Gabriella Sjögren Lindquist Older cohort workers in firms employing 20 to 99 workers or 100 to 999 have a lower probability of staying with their firm than older cohort workers in the smallest firms with up to 20 employees and the largest firms with more than 1,000 employees. The firm size is not of importance for the likelihood of exiting the labor market for the younger cohort. This result is probably due to the fact that the recession in the 1990s struck firms of all sizes in all industries.11

CONCLUDING REMARKS This chapter analyses the late careers of Swedish workers between 1970 and 2000. Structural and technological changes have affected the demand for workers and their skills and, consequently, the careers of all workers during this period. Swedish institutions work both for and against the work principle and career mobility. On the one hand, job protection is high, adult education is available at all levels, and there is an active labor market policy geared towards older workers. These institutions work in favor of a second labor market career for older workers. On the other hand, there are also institutions such as passive labor market programs and disability pension benefits that tend to promote an early exit. The analysis here shows that the late career includes few job changes: on average older workers had only 1.2–1.3 jobs after age 55. When they left the labor market, nearly 80 percent of the workers were in the same job they had had at age 55. The differences in job mobility between older workers in the 1970s and early 1980s (the older cohort) and older workers in the late 1980s and 1990s (the younger cohort) were found to be negligible. Workers in the older cohort had both a lower rate of early exit and a higher age (63 years) than workers in the younger cohort (61.5 years). This, together with low career mobility, led to the conclusion that the late career in Sweden is very stable and mobility within the labor market during one’s late career is rare. The main Swedish strategy to adapt an older workforce to structural changes is hence to be found in greater flexibility or through shortening working life. In light of this conclusion, an analysis was performed to see who stays in the labor market and who exits it. During the 1970s and early 1980s, skill had an important impact on the withdrawal from employment: more highly qualified older workers had a higher probability of remaining in employment than did very low-skill older workers. In the 1990s, older workers at different qualification levels were more equally likely to exit the labor market. However, male white collar workers on middle levels had a larger probability to leave early because of targeted pension plans. Downsizing firms could keep young workers with high qualifications but shorter tenure by offering older workers with longer tenure generous pension schemes. During the first period, older male workers in agricultural, forestry and fishing industries and the transport, postal services and telecommunication industries had a lower probability of remaining in the labor market than male older cohort

Late careers and career exits in Sweden 231 workers employed in the public sector. Female older cohort workers in the trade, restaurant and hotel industries had a greater probability of remaining employed. During the second period, male workers in the following shrinking industries had a lower probability of exiting the labor market: agriculture, forestry and fishing industries and manufacturing, mining and electricity industries since other sectors shrunk even more. Women in the same cohort in transport, postal services and telecommunication industries had a higher probability of exiting the labor market. The results suggest that during the first period, more highly skilled older workers were re-qualified and had a higher probability to remaining in the labor market than workers with very low skills. Firms kept their skilled core work force in times of structural change, but the career mobility was low for older workers. During the second period, Sweden had a very high unemployment rate which affected older workers in all occupations and led to a decrease in the length of the average working life.

NOTES 1

2

3 4

5 6

7 8

Since 1925 acts and ordinances have been published in the Swedish Code of Statues (Svensk Författningssamling, SFS). The statues are assembled in annual volumes with a keyword index. Statues are cited by the abbreviated name of the statue collection. An index to statues in force is published regularly under the title: “Register över gällande SFS–författningar.” When the pension system was introduced in 1960 (the first pensions were paid in 1963) there were temporary regulations about the years of work experience required to receive the full benefit. To qualify for full benefit, workers born before 1914 had to have worked for 20 years, those born in 1915 for 21 years and those born in 1916 for 22 years, and so on up to those born in 1923 who had to work for 29 years to receive full benefit (Schmidt 1974). The contractual pension schemes have changed during the late 1990s and early 2000 to be in line with the reform of the public mandatory scheme. The disability pension was calculated on a combination of actual labor income until the granting of a disability pension and an estimated labor income for the years on disability pension. The old-age pension is only calculated on actual labor income. A recent study on early retirement and disability pension is Andrén (2001). Examples of international trade agreements include free trade agreements between EC and the European Free Trade Association, EFTA, in 1973 (Sweden was a member of EFTA between 1960 and 1994 but joined EU in 1995); the Tokyo Round (completed in 1979) which continued the efforts of GATT (General Agreement on Tariffs and Trade made in 1948) to reduce tariffs progressively; and the Uruguay Round (completed in 1994) during which the WTO (World Trade Organization) was created. The data from the SLLS from 2000 is preliminary. Parametric models have also been estimated, where the distribution of the duration is based on specific parametric assumptions. The Gompertz, Weibull and exponential models gave results that are equivalent to the results from the Cox proportional hazards model. The results from the log-logistic model are not equivalent, the

232 Gabriella Sjögren Lindquist parameter estimates differ significantly from the parameter estimates from the Cox proportional hazards model. 9 Log-rank (Savage) and Wilcoxon-Breslow test were used to estimate cohort differences. Both tests are used, since the Wilcoxon-Breslow test stresses differences in the survivor functions at the beginning of the duration while the log-rank test stresses increasing differences at the end of the process time (Blossfeld and Rohwer 2002). 10 For both cohorts, the dummy variable “missing information on industry” has a significant effect on the chances to remain in the labor market. However, the group who did not report which industry their firm belonged to is very small. In the older cohort, 5.5 percent (12 workers) did not report which industry they worked in before they left the labor market. The same number for the younger cohort is 3 percent (also 12 workers). 11 As when controlling for industries, the dummy variable “missing information on firm size” is significant and the number of missing values is small. In the older cohort, 7 percent (16 workers) has not reported the size of their firm. The same number is 2 percent (8 workers) for the younger cohort.

BIBLIOGRAPHY Anderton, R., Brenton, P. and Oscarsson, E. (2002) ‘Whats Trade Got to Do with It? Relative Demand for Skills within Swedish Manufacturing’, Review of World Economics, Vol. 138, No. 4. Andrén, D. (2001) ‘Work, Sickness, Earnings and Early Exit from the Labor Market’, Ph.D. thesis, Department of Economics, Gothenburg University. Baldwin, R. E. (1994) ‘The Effects of Trade and Foreign Direct Investment on Employment and Relative Wages’, OECD Economic Studies No. 23. Blossfeld, H.-P. and Rohwer, G. (2002) Techniques of Event History Modeling, Mahwa, New Jersey: Lawrence Erlbaum Associates, Inc. Burtless, G. (1995) ‘International Trade and the Rise in Earnings Inequality’, Journal of Economic Literature, Vol. 33, No.2. Erikson, R. and Åberg, R. (1987) Welfare in Transition – Living Conditions in Sweden 1968–1981, Oxford: Clarendron Press. Fritzell, J. and Lundberg, O. (1993) Ett förlorat eller förlovat årtionde? Välfärdsutvecklingen mellan 1981 och 1991, Institutet för Social Forskning, Stockholm. Hansson, P. (1997) ‘Trade, Technology and Changes in Employment of Skilled Labor in Swedish Manufacturing’, in J. Fagerberg, P. Hansson, L. Lundberg and A. Melchior (eds) Technology and International Trade, Cheltenham: Edward Elgar Publishing Ltd. Hansson, P. (2000) ‘Relative Demand for Skills in Swedish Manufacturing: Technology or Trade?’, Review of International Economics, Vol. 8, No. 3. Hörte, S. Å. (1992) Bibehållen kompetens vid snabb reducering av antalet tjänstemän?, Göteborg: Institute for Management of Innovation and Technology.

Late careers and career exits in Sweden 233 Isaksson, K. and Johansson, G. (1997) Avtalspension med vinst och förlust. Konsekvenser för företag och medarbetare, Stockholm: Folksam och Rådet för arbetslivsforskning. Jans, A. (2002) ‘Notifications and Job Losses on the Swedish Labor Market’, Dissertation series No. 54, Swedish Institute for Social Research, Stockholm University. Krugman, P. (1995) ‘Growing World Trade: Causes and Consequences’, Brookings Paper on Economic Activity, No. 1. Landin, P. (1997) Tidigareavgångar före uppnådd pensionsålder: en studie av avtalspension, garantipension och pensionsersättningar bland tjänstemän under perioden 1990–1995, Stockholm: EFA. Lindquist, M. J. (2005) ‘Capital-Skill Complementarity and Inequality in Sweden’, Scandinavian Journal of Economics. SFS 1974: 12 The Security of Employment Act. SFS 1982: 80 The Security of Employment Act (the law substantially rewritten). SFS 1984: 510 The Security of Employment Act (change in the calculation of notice periods). SFS 1996: 1424 The Security of Employment Act (change in the calculation of notice periods). Wadensjö, E. (1998) ‘Arbetsmarknaden och välfärdspolitiken’, in J. Ekberg and H. Niklasson (eds) Att vara med nationalekonomer, Växjö: Centrum för Arbetsmarknadspolitisk Forskning. Wadensjö, E. (1999) ‘Sweden: reform of the state pension scheme’ in E. Reynaud (ed.) Social dialogue and pension reform, Geneva: ILO. Wadensjö, E. (2002) ‘Active strategies for older workers in Sweden’ in M. Jepsen, D. Foden and M. Hutsebaut (eds) Active strategies for older workers in the European Union, Brussels: ETUI. Wadensjö, E. (2003) ‘Deltidspension – Ett sätt att höja antalet arbetade timmar i ekonomin?’ in Arbetsliv och samhälle: bilagedel B till SOU 2003: 91, Stockholm: Fritzes offentliga publikationer. Wadensjö, E. and Sjögren, G. (2000) Arbetslinjen för äldre i praktiken. En rapport för Riksdagens Revisorer, Stockholm: Swedish Institute for Social Research.

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12 Employment exits of older workers in the Czech Republic Dana Hamplová and ŠtČpánka Pollnerová

INTRODUCTION The labor markets of socialist countries were characterized by high job security and stability. No open unemployment existed in the Czech Republic, labor shortages were chronic, and labor force participation rates of both men and women were high. Employment was concentrated in industry. For men, the statutory retirement age was low, at age 60. For women, it was even lower, since each child they raised meant retirement age sank: women with no children retired at 57, but women with five or more retired at 53. Until 1988, no general early retirement scheme existed. However, preferential treatment was given to specific groups of workers, including employees at higher risk for workplace injury or occupational illness, artists and pilots, and they could retire earlier, often with higher benefits. To some extent, disability pensions were used as an early retirement pathway (Biskup and Kortusová 2002). Nevertheless, until the early 1990s the employment rate in the immediate pre-retirement ages (55–59 for men and 50–54 for women) remained at 80 percent. To meet the demands of the command economy for labor, it was possible to accumulate pensions along with earnings. Many retirees thus participated in the labor market, with the result that working pensioners represented almost 13 percent of the labor force in 1987. Political, social and economic transformation led to market-oriented reforms, which opened the country to the impacts of globalization. The economy had to absorb both the effects of globalization and the transition to a market system at the same time (Fortuny, Nesporova and Popova 2003). These factors caused sharp losses in output that were followed by a decline in the size and a change in the structure of the demand for labor. For older workers, employment security was replaced by a high risk of dismissal, as they often cannot meet the new demands and are among the most disadvantaged groups in the labor market (KofroĖová et al. 2003). Employers are concerned with their low flexibility and unwillingness to adapt to new jobs or work conditions, their lack of knowledge of foreign languages, and their high wage expectations (Veþerník 2001a). The effect of structural changes on individual employment careers is filtered by institutions (Mills and Blossfeld 2005; Buchholz, Hofäcker and Blossfeld, this volume), which have also been adjusted during the transformation process. As in many other transformation economies, early retirement schemes have been used in the Czech Republic to stimulate labor force withdrawals rather than risk increasing unemployment (Flek 1999). In the first half of the 1990s, the

282 Dana Hamplová and ŠtƟpánka Pollnerová prospects of demographic aging sharpened the discussion about the financial sustainability of the pension system and the statutory retirement age has been increasing since 1996. However, the effects on the employment of older workers has been mitigated by union pressures to extend the availability of early retirement schemes and by increased tension in the labor market (Mácha 2002; Fortuny, Nesporova and Popova 2003). The scope of employment maintenance policies is limited due to insufficient public financial resources, and problems have arisen with the formulation, targeting and application of these programs (Nesporova 2002b). This chapter analyses the employment exits of older people participating in the Czech labor market during the period from 1995 to 2002, in the context of the relevant institutional settings. It asks whether there is any cohort change in employment exit patterns of men and women and what the role of social selectivity is in the exiting process. The chapter first discusses the economic transition of the country and then turns to those institutions that potentially have effects on the labor market participation of older workers: the characteristics of the educational system, the level of employment protection and the developments in labor market policy, and the design of the pension system. With this as background, we then formulate and test several hypotheses about employment exits. The data and results of the investigation are then discussed before we turn to a brief conclusion.

ECONOMIC DEVELOPMENTS AND INSTITUTIONAL BACKGROUND An economy in transition During the first period of transformation several market-oriented reforms were introduced in the Czech Republic such as complete price and foreign trade liberalization, currency convertibility, privatization of firms and a demonopolization of state control. Economic shocks both internal (strict macroeconomic policy) and external (globalization, the breakdown of trade relations with East Block countries) caused sharp declines in production and employment (Fortuny, Nesporova and Popova 2003). Gross domestic product decreased by 11.9 percent, and employment by 10.3 percent, between 1989 and 1993. In this first phase, the drop in the demand for labor was “solved” mainly by pushing working pensioners out of the labor market and to a lesser extent by early and “normal” retirements (Flek 1999). The Czech economy recovered already in 1993 to 1996. Economic growth, together with soft loans and a devalued currency, reduced pressures on large, formerly state-run firms to restructure and reduce their labor forces. Unemployment rates remained low in this period and total employment increased. Structural mismanagement, however, led to a currency crisis in 1997, which was followed by a restrictive macroeconomic policy and an economic recession (OECD 2000b). The drop in

Employment exits of older workers in the Czech Republic 283 Table 12.1

Macroeconomic indicators, 1989–2002 1990

1991

1992

1993

1994

1995

1996

Real GDP (1989 = 100)

98.8

87.3

86.9

86.9

88.9

94.1

98.2

Employment (1989 = 100)

99.1

93.6

91.2

89.7

90.4

92.8

93.4

0.7

4.1

2.6

3.5

3.2

2.9

3.5

..

..

..

4.3

4.3

4.0

3.9

1997

1998

1999

2000

2001

2002

Real GDP (1989 = 100)

97.4

96.4

96.9

100.0

103.1

105.1

Employment (1989 = 100)

91.6

90.4

88.1

87.9

88.2

87.8

Registered unemployment (%)

5.2

7.5

9.4

8.8

8.9

9.8

LFS unemployment (%)

4.8

6.5

8.7

8.8

8.1

7.3

Registered unemployment (%) LFS unemployment (%)

Source: UNECE Economic Survey of Europe, 2003, No. 2; CSO (2004). Note: The registered unemployment rate is based on the administrative data on the number of registered job seekers. The unemployment rate measured by the Labor Force Survey (LFS unemployment) is based on the ILO methodology. According to this methodology, all persons aged 15 and more who met all of the following three conditions during the reference period were defined as unemployed: were without work, were actively seeking work and were currently available for work.

output and steps toward firm-level restructuring were reflected in reductions in employment. The unemployment rate more than doubled from 1996 to 1999, and since 1997, labor market tension has increased the pressure on workers in pre-retirement age to leave the labor market (ýervenková and Kotýnková 2001). An economic recovery was achieved in 2000, but the economic growth has led only to a stabilization in employment for the period 2000–2002 (Table 12.1). The Czech Republic inherited a concentration of employment in industry and an employment share of 12 percent in agriculture. Flows into inactivity and voluntary job-to-job changes in the first half of the 1990s contributed to employment declines in industry and agriculture, as well as to increased employment in services (Mareš, Vyhlídal and Sirovátka 2003). By 2002, agricultural employment was less than half what it had been in 1990 (5 percent), while more than half the working population was in the service sector (at 56 percent) was now the largest. But as 40 percent of those employed in the civilian sector continued to work in industry and construction in 2002, one can speak of a continued “over-industrialization” in the economic structure (Figure 12.1).

284 Dana Hamplová and ŠtƟpánka Pollnerová 100%

80%

43%

50%

53%

55%

56%

44%

41%

40%

40%

60%

40% 45% 20% 12%

7%

6%

5%

5%

1990

1993

1996

1999

2002

0%

Agriculture

Figure 12.1

Industry and construction

Services

Civilian employment by broad sectors, 1990–2002

Source: CSO – Statistical Yearbooks of the Czech Republic 1995, 1997, 1999, 2003.

The educational system and returns to human capital The current educational and skill structure of older workers is a result of a socialist educational system strictly controlled by the state. The centralized system was linked to the needs of industry-based economy, with a strong emphasis on vocational training in secondary education and on higher technical education (MatČjĤ, ěeháková and Simonová 2004). Consequently, the share of the older population with secondary education is relatively high, and vocational training without a general certificate of secondary education is the most common level of education attained (Figure 12.2). Less than ten percent of older persons have a tertiary education. The extremely stratified structure of vocational schooling and the life-long narrow specialization of workers often fails current labor market needs, as well as making it difficult to adapt skills to new demands, and makes job changes among older workers problematic (Turnovec 1999). Programs of life-long learning are still almost non-existent and the possibilities for retraining older workers are limited (KofroĖová et al. 2003). During the socialist period, education was poorly rewarded in real wage terms; earnings were equalized (Veþerník 2001b; Münich 2003). But workers in heavy industry were favored as compared to those in other sectors. Since the economic transition, human capital has increasingly played a role in determining the labor

Employment exits of older workers in the Czech Republic 285

70+

Age groups

60–69 50–59 40–49 30–39 20–29 0%

20%

40%

60%

80%

100%

Percentage of population Basic Secondary with GCSE Without education and unknown

Figure 12.2

Secondary without GCSE University

Educational attainment by age groups, 2001

Source: CSO – Population Census, www.czso.cz.

market position of individuals. This can be demonstrated by the differences in unemployment rates by education (CSO 2004), or by the rise in returns to human capital: according to a recent econometric study (Münich 2003), experience and education obtained during the transition, and experience and education obtained under communism, have similar returns. Furthermore, this study shows the gains in returns to education were high for those with secondary and university education, but non-existent for individuals with basic education. Overall, more poorly educated workers have a lower ability to adjust to new technologies and new work organization, and therefore have the most difficulties in the labor market (Nesporova 2002a). Employment protection and labor market policy Under central planning, workers enjoyed a high degree of employment protection. The legislative framework adopted to conform to the market system have resulted in a medium level of employment protection in comparison with other OECD and transition countries (Casez and Nesporova 2003). No concessions to seniority are made with respect to dismissals, though collective agreements covering about one-third of the labor force often focus on protecting workers in pre-retirement age (Veþerník 2001a). The statutory retirement age is

286 Dana Hamplová and ŠtƟpánka Pollnerová not mandatory, so retirement eligibility is not a valid reason for an employer to give termination notice to employees. Active and passive labor market policies were introduced in the early 1990s to deal with the problem of unemployment that resulted from the economic transformation. Public employment services were established and play a significant role in linking available jobs to qualified jobseekers. A number of active labor market policy programs have been implemented, ranging from job creation measures, subsidized employment and sheltered workshops, to training programs. The employment promotion policy was highly successful initially (Nesporova 1999), and active employment measure expenditures peaked in 1992 (at 0.20 percent of GDP), but started to decline afterwards. The absolute numbers and percentages of the unemployed participating in active employment measures also fell (Sirovátka et al. 2002). When employment started to rise again, state employment policy changed in 1997 with expenditures on active labor market policy increasing from 0.03 percent of GDP (1997) to 0.15 percent by 2002. In comparison with some European countries with similar levels of general unemployment rates, however, the Czech Republic still spends a very low share of GDP on employment-sustaining measures: active labor market policy expenditures were two times higher in the United Kingdom, three times higher in Hungary and five to six times higher in Finland and Germany in 2002 (KofroĖová et al. 2003). Another negative feature of Czech employment policy is how little the focus is on training programs that could help adjust the disparity between skill structure and labor market demand, as well as improve the labor market position of disadvantaged groups. According to the National Employment Action Plan for 2003 (MLSA 2003), the Czech active labor market policy is slated to concentrate more on training programs and will include more older unemployed persons in these programs. Currently, a “creaming effect” leads to training targeted at younger jobseekers, so those over 50 are underrepresented (KofroĖová et al. 2003). Rather generous earnings-related unemployment benefits were instituted in 1990, with a payment duration of twelve months and benefits set at 60 percent of the previous net wage (90 percent if the job loss was due to restructuring). Payment duration and benefits have both been lowered (Veþerník 2001a for details), so since 1999, job seekers only received benefits for 6 months, at a level set at 50 percent of the previous net earnings (during the first 3 months) and then 40 percent (for the second 3 months).1 The generosity of benefits for people out of work is higher due to the unlimited duration of social assistance benefits (OECD 2000a). Nevertheless, early retirement benefits were often financially more attractive than unemployment-related benefits (RILSA/STEM 2000) and that contributed to low unemployment rates at pre-retirement ages. Pension system The public old-age pension system has undergone frequent reforms since the early 1990s, but its basic form is similar to that found in other nations: the

Employment exits of older workers in the Czech Republic 287 contributions of current workers finance the pensions of current retirees (i.e., pay-as-you-go system). A supplementary private (but state-supported) pension pillar was introduced in 1994, but it constitutes only a moderate part of retirement income. Under the old system, employees in certain occupations received preferential treatment and the self-employed were discriminated against: these were among the first aspects changed, though the main reforms only came into force in 1996. One of the most significant was to gradually rise ages at which full pension benefits can be drawn: by 2007, they are to stand at age 62 (up from age 60) for men and age 57–61 (up from age 53–57) for women.2 In principle, a pension can only be received after 25 years’ worth of contributions, but an extensive array of non-contributory periods is taken into account, including years spent in high school and at university, periods of unemployment, military service, childcaring, and so forth. Some flexibility exists, as people can defer retiring or could opt for early retirement. In the Czech Republic, two early retirement schemes exist. An early retirement scheme for employees dismissed from their jobs due to restructuring was implemented already in 1988. This was later transformed into an early retirement scheme for the unemployed, in order to relieve the labor market and ease the situation of dismissed older workers (Maška 1994).3 Those who met unemployment eligibility criteria could retire up to two years early, at a reduced pension benefit that reverted to the full benefit level when the statutory retirement age was reached. To compensate for a rise in the statutory retirement age, a second early retirement scheme became effective in 1996. It allows retirement up to three years before statutory retirement age (and after 25 years’ contribution) with permanently reduced pension benefits. Neither scheme was actuarially neutral – the reduction in pensions was lower than it would have been actuarially adjusted for early retirement age (OECD 2000a). This made the schemes popular, especially when the labor market situation worsened after 1997 (Figure 12.3), though the rising numbers of early retirees created a deficitary pension system. The government responded by increasing the reduction in pension levels for early retirees in July 2001. This action has apparently increased the attractiveness and importance of other pathways out of employment. According to an OECD study (2003: 142) “rising numbers of registered unemployed who are not actively looking for work imply that a growing group of older workers displaced by industrial restructuring chooses welfare benefits over early retirement benefits.” Also a greater exploitation of the eligibility for disability pensions is reported (Bruthansová, ýervenková and KoláĜová 2002). Reaching retirement age also does not automatically mean the termination of work contracts. Workers can postpone retirement, and for every three months of deferred retirement, their pension is increased. The pension law also allows for the accumulation of pensions concurrently with receiving income from a fixedterm contract or from self-employment, though a limit on pensioners’ earnings was set between 1996 and 2003. Pensioners who reached their statutory

288 Dana Hamplová and ŠtƟpánka Pollnerová 70,000

60,000

50,000

40,000

30,000

20,000

10,000

0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Figure 12.3

Numbers of newly awarded early pensions, 1989–2002

Sources: CSSA – Statistical Yearbook of Pension Insurance 1989–95, MLSA – Statistical Yearbook of Labour and Social Affairs 2002. Note: 1989–95, pensions awarded before age 55 for women and age 60 for men; 1996–2002, early pensions awarded before the standard retirement age (according to law 155/1995)

retirement age were allowed to earn wages only up to two times the minimum subsistence levels during the first two years. After these two years elapsed, unlimited accumulation of pensions with earnings was possible. A specific feature of the Czech pension system is a very high level of redistribution which creates different retirement incentives for different social groups (Table 12.2). For lower-income workers the difference between preretirement income and pension is small and before the 2001 reform pensions remained fairly high for them even in the case of early retirement. For workers with high(er) earnings (two or three times of the average wage), the hypothetical net replacement rate was only 30 to 40 percent of previous earnings. To maintain the same standard of living after retirement, they have to look for other sources of income, for example from employment. HYPOTHESES: EMPLOYMENT EXITS IN THE CZECH REPUBLIC Based on this institutional setting, we propose a set of hypotheses regarding the labor market behavior of older Czech men and women. We believe there has

Employment exits of older workers in the Czech Republic 289 Table 12.2

Net replacement rates, pensions awarded in 2001, old and new rules Old rules a

New rules a

Level of earnings (multiple of average wage in economy)

Level of earnings (multiple of average wage in economy)

Retirement at

0.5

1

2

3

0.5

1

2

3

Statutory retirement age

97

62

42

37

97

62

42

37

Early b – years before the statutory retirement age one year two years three years

94 91 88

60 58 56

40 39 37

36 35 34

92 88 83

59 56 53

39 37 35

36 34 32

Source: Own calculations based on PĜib (2003). Notes: a Old rules – regulation valid until June 30th 2001. New rules valid since July 1st 2001. b Early retirement with permanent reduction of benefit. Calculation for an insured individual with 40 years of insurance at statutory retirement age and average wage in economy in 2000.

been increasing pressure in the labor market due to the liberalization of the economy, though it has been channeled unevenly towards different social groups. Cohort changes The Czech Republic inherited a labor market in which employment was concentrated in industry. The transition to an open market economy created a need for changes in economic structure and rationalization. The pressure in the labor market increased especially during the economic recession after 1997 when state measures that protected big employers were gradually withdrawn. With reference to the typology of strategies to adapt (an older workforce) to structural change (Buchholz, Hofäcker and Blossfeld, this volume), we classify the Czech Republic as a regime with “employment exit strategies.” The Czech Republic has largely relied on the early retirement schemes to relieve the labor market in the transition period. The gradual rise in the statutory retirement age was compensated by a lower minimum retirement age, a factor that often plays a more important role in determining the average age at labor force exit (Turner 2003). Policies to help older workers adapt to new demands and remain employed, such as pursuing an active labor market policy or promoting adult education, are insufficiently developed. Our hypothesis here, therefore, is that the rise in tensions in the labor market should lead to an earlier employment exit in the younger cohorts.

290 Dana Hamplová and ŠtƟpánka Pollnerová Social selectivity hypothesis: the effect of education and the changing effects of human capital over time The increasing importance of market forces raises the role of human capital in determining the position in the labor market. More highly educated workers have a greater ability to adapt to new technologies and the reorganization of work, and should be better protected against job loss in times of structural change than will workers with lower educational attainments. In addition, the design of the oldage pension system creates incentives for lower-income (and often less welleducated) workers to retire early. The effect of education, however, might be lower in the post-retirement age as workers retire more often voluntarily and even more poorly educated working pensioners have a competitive advantage in the labor market as they are willing to accept low-paid jobs, are highly motivated to perform a job, and often have flexible (part-time, fixed-term) contracts (ýervenková and Kotýnková 2001; Veþerník 2001a). Our hypothesis is that the less educated groups of workers retire earlier and that the advantages of higher education will be seen more strongly in the early retirement age. Over time, the effect of education on employment exits should change. Social selectivity should increase, especially in the periods of growing economic difficulties and recession. This would reflect a tendency of the labor market to push out the least qualified first. Therefore, it is expected that the differences between educational groups should increase, and especially so after 1997.

RESULTS We do not have longitudinal data that would allow dynamic modeling of labor market exits. Instead, we use a series of annual cross-sectional labor force surveys and substitute individual life-course data through the use of “synthetic cohorts”. Moreover, our time-span covers only the second half of the 1990s. Strictly speaking, the analyses here are not directly comparable with the results from other chapters. However, we are able to track basic trends and can test basic hypotheses concerning labor market behavior of older people. Labor force survey data Labor Force Surveys have been collected quarterly since 1995. The data-sets target the Czech population over age 15. The selection procedure is strictly random. The age group over 50 consists of more than 325,000 men and 405,000 women. The data have a purely cross-sectional character; no information on timing, or on original or destination states is available. The economic status of respondents was recorded in two ways: the prevalent economic status (main status) and the economic status during the week the data was collected (week status). The analyses presented here are based on the week status, since retirement recorded under “main status” does not necessarily reflect withdrawal

Employment exits of older workers in the Czech Republic 291 from the labor market. This reflects an important peculiarity in the Czech pension system, inasmuch as it allows combining a full-time job with full pension benefits. However, nearly all working men who have already reached statutory retirement age are “working retirees,” and the type of their work may differ from standard employment. There is no information on the previous job for those not currently employed. Therefore, we cannot make use of any jobspecific indicators, or social class information. However, we do analyze the relationship between economic status and education, as education is a good predictor of labor market position and income (Chase 1998) and therefore we expect that it should show differences between occupational groups. Results for men Synthetic cohorts Employment exits are estimated using “synthetic cohorts,” defined as all men of age X in year Y, and of all men aged X+1, X+2, X+3 ... in year Y+1, Y+2, Y+3 … . Thus, “cohort 1938” consists of all men aged 57 in 1995, all men aged 58 in 1996, all men aged 59 in 1997, and so forth. Then we counted the proportion of people working at the given age by cohort. Age 57 is the earliest at which early retirement can begin, so it is considered to be the beginning of the possible “risk.” Economic status in pre-retirement and retirement age We are interested whether there is any cohort change in the employment exits, and if so, at which age this change occurs. We employ logit models to test this. However, it was not possible to construct one logit model for all ages. Men from younger cohorts are “right-censored” earlier, and logit models cannot work with empty cells. Therefore, six separate logit models for men aged 57, 58, 59, 60, 61, and 62 were estimated (Table 12.3). The data indicate there has been a decline in employment among older men, and we can conclude that men from younger cohorts exit the labor market earlier. There is an increase in the proportion of inactive people in the younger cohorts, and it is gradually moving toward ever younger ages. The 1940 and younger cohorts have higher odds of being non-employed already at 58. The 1943 cohort has higher odds of non-employment already by 57 (see Table 12.3). However, this trend toward increasing non-employment has been reversed in 2002 with the introduction of stricter conditions for granting early retirements. Effect of education on economic status Education is a good predictor of labor market risk, and it was expected that the probability of employment would vary by educational level, such that those with

292 Dana Hamplová and ŠtƟpánka Pollnerová Table 12.3

1938 1939 1940 1941 1942 1943

Proportion of working men based on expected counts from logit models with the dependent variable economic status at the week of data collection (separate estimates for different ages) 57

58

59

60

61

62

63

78.60 78.60 78.60 78.60 78.60 75.12

72.65 72.65 67.47 67.47 67.47 67.47

67.61 58.19 58.19 51.64 51.64 59.36a

43.24 37.85 37.85 37.85 45.77a

24.43 20.85 23.95 27.77a

17.98 17.98 17.98a

17.97 17.97

Source: Czech LFS, only men. Note: a Year 2002. Contrast simple for status (comparison category working), contrast repeated for cohort.

higher education should have a higher probability of working longer. It was also hypothesized that the disadvantages of those with less education will become stronger in periods of economic recession. Therefore, we investigated whether the impact of education on the likelihood of having a job differed between 1995–97 and 1998–2001. In statistical terms, it means that the interaction between education and period should be significant. The relationship between labor market status and education was tested using logit regression models (for selected models and their test statistics, see Table 12.4). Year 2002 was omitted due to legislative changes. Age was measured here as a continuous variable, and only men aged 55–70 were included in the analyses. All models included information on age, education and period, and these variables were all statistically significant. The probability of having a job declines with age, but the effect of age was non-linear; square and cubic terms of age significantly improved the model. The period from 1998–2001 was characterized by a decline in employment, as compared with 1995–97. The effect of education corresponded to our hypotheses. The lower the educational level, the sooner people drop out of employment. A hypothesis that the relationship between education and labor market status is age-specific was tested, and this expectation was confirmed. Interaction effects have significantly improved the model fit (Model 1, Table 12.4). To interpret the direction of the other interaction effects between education and age is not straightforward, and must take into account that a quadratic and a cubic term of age was included. Taking into account all terms of age we can observe that the differences between educational groups are increasing, and peak around retirement age or just before. However, once men reach statutory retirement age the differences start to decline. The hypothesis that the effect of education will vary across periods was confirmed. All educational groups experienced a decline in employment in

Employment exits of older workers in the Czech Republic 293 Table 12.4

Economic status in the week of data collection (working versus other) for Czech men aged 55–70 years (logistic regression)

Constant Age Square age Cubic age Period 1995–97 Period 1998–2001 (comp.) Primary Vocational (comp.) a Secondary Tertiary Age*Primary Age*Secondary Age*Tertiary Period 1995–97*Primary Period 1995–97*Secondary Period 1995–97*Tertiary Age*Period 1995–97 Age*Period 1995–97*Primary Age*Period 1995–97*Secondary Log-likelihood null-model Log-likelihood estimated BIC N

1

2

3

-237.630** 13.085** -0.232** 0.001** 0.230**

-237.559** 13.082** -0.232** 0.001** 0.232**

-238.442** 13.128** -0.232** 0.001** -0.063

-1.069**

-1.070**

-1.266**

-0.695** 0.490 0.009 0.023** 0.016** 0.090* -0.092** 0.008

-0.695** 0.490 0.009 0.023** 0.016** 0.089** -0.094**

-0.762* 0.480 0.012 0.024** 0.016** 0.523 0.056 0.005 -0.007 -0.002

-99,835.40 -70,469.58 -58,576.65 150,438

-99,835.40 -70,469.60 -58,588.54 150,438

-99,835.40 -70,468.86 -58,554.26 150,438

Source: Czech LFS, only men. Notes: a Vocational training with and without high school diploma. ** Effect significant at p < 0.01 * Effect significant at p < 0.05.

1998–2001 compared with 1995–97. However, the distribution and intensity of the decline is age-specific and education-specific (see Figure 12.4). Men with only a primary education had the highest decrease and this happened mostly at pre-retirement ages. Men with vocational training experienced a similar pattern, if at lower intensity. Even though men with tertiary education also faced a decline in their probability of having a job, this happened mainly in postretirement age. Therefore, in the second period the men with tertiary education have a lower probability that they will carry on working even after reaching statutory retirement age. Men with secondary education faced the smallest change.

294 Dana Hamplová and ŠtƟpánka Pollnerová

0.09 0.08 0.07 0.06 0.05 0.04 0.03 0.02 0.01 0 55

56

57

Primary

Figure 12.4

58

59 Vocational

60

61

62

Secondary

63

64 Tertiary

65 Age

Difference in probability of having a job by age and education between 1995–97 and 1998–2001 (men)

Source: Czech LFS, only men.

Furthermore, three-way interactions were included in the model to test if the relationship between age, education, and labor market position changed between periods, but data does not confirm it. The addition of the interaction term does not improve the overall model fit (Model 3, Table 12.4). Results for women We also analyzed the labor market participation for older Czech women, though these analyses are more complicated as the age they become eligible for retirement depends on the number of children they had. Unfortunately, information on the number of children is not included in the Labor Force Surveys, and thus we are not able to clearly determine when the exact risk of “being retired” starts for women. As age 53 was the first retirement age possible for women, we start our analyses there, though not every woman was eligible for retirement at this age. One should interpret the results only as a rough indicator of basic trends.

Employment exits of older workers in the Czech Republic 295 Synthetic cohorts Synthetic cohorts for women were created in the same manner as for men, but with “risk” beginning at age 53. For this reason, we work with younger birth cohorts for women (1942–47) than for men (1938–43). We applied logit models to test for differences between cohorts in age-specific employment participation, and as with the men, a set of models for different ages was estimated. The results proved generally similar to those found among men. The data indicate there was a decline in employment among older women, and we can conclude that the women from younger cohorts exit employment earlier. However, this effect was reversed in 2002 with the introduction of stricter rules for granting early retirements (see Table 12.5). Table 12.5

1942 1943 1944 1945 1946 1947

Proportion of working women based on expected counts from logit models with the dependent variable economic status at the week of data collection (separate estimates for different ages) 53

54

55

56

57

77.26 77.26 73.82 73.82 73.82 73.82

68.38 68.38 62.68 62.68 62.68 62.68

52.86 48.04 48.04 48.04 48.04 54.72a

36.80 32.37 32.37 36.17 40.63a

24.12 24.12 21.02 29.25a

58 22.75 19.26 19.26a

59 16.76 16.76a

Source: Czech LFS, only women. Note: a Year 2002. Contrast simple for status (comparison category working), contrast repeated for cohort.

Effect of education on economic status We tested the hypothesis that an educational effect can be found among women, and expected to find that the disadvantage of women with lower educational levels would become stronger during economic recessions. We thus tested whether the impact of education on the likelihood of having a job differed between 1995–97 and 1998–2001. We used logit regression models with age as a continuous variable (for selected models and their test statistics see Table 12.6). Year 2002 was omitted due to the changes in legislation. Only women aged 53– 62 were included. All models included information on age, education and period (1995–97 versus 1998–2001). The probability of having a job declines among women with age, and the age effect is non-linear. The squared age term improved the model significantly, but the cubit term had to be dropped due to collinearity. The effect of period was

296 Dana Hamplová and ŠtƟpánka Pollnerová also significant and there was a decline in the probability of having a job in the second period (1998–2001). The positive effect of education on the labor market attachment was confirmed also for women: the lower the educational level, the sooner a woman drops out of employment. The effect of education on the probability of having a job, however, is age-specific for secondary and tertiary education. Differences between secondary and lower education culminate at age 55, while differences between tertiary and less than tertiary education culminate at age 56. In other words, women with lower education tend to leave the labor market earlier, while women with secondary and tertiary education continue working. The difference in labor market attachment starts to decline by age 56 for women with a secondary education and age 57 for women with a tertiary education. Table 12.6

Economic status in the week of data collection (working versus other) for Czech women aged 53–62 years (logistic regression)

Constant Age Square age Period 1995–97 Period 1998–01 (comp.) Primary Vocational (comp.) a Secondary Tertiary Age*Primary Age*Secondary Age*Tertiary Period 1995–97*Primary Period 1995–97*Secondary Period 1995–97*Tertiary Age*Period 1995–97 Age*Period 1995–97*Primary Age*Period 1995–97*Secondary Log-likelihood null-model Log-likelihood estimated BIC N

1

2

3

155.643** -5.126** 0.042** 0.275**

155.413** -5.118** 0.042** 0.245**

155.495** -5.119** 0.042** -0.008

-1.297**

-1.283**

-1.725**

2.657** 4.977** 0.013* -0.033** -0.056** -0.051 -0.152** -1.191**

2.669** 4.978** 0.013 -0.033** -0.057** 0.022 -0.123**

2.842** 4.966** 0.021* -0.037** -0.057** 0.911 -0.601 0.005 -0.017 0.008

-76,892.71 -59,427.40 -34,790.37 118,934

Source: Czech LFS, only women. Notes: a Vocational training with and without high school diploma. ** Effect significant at p < 0.01 * Effect significant at p < 0.05.

-76,892.71 -59,431.65 -34,793.56 118,934

-76,892.71 -59,429.93 -34,761.94 118,934

Employment exits of older workers in the Czech Republic 297 0.07

0.06

0.05

0.04

0.03

0.02

0.01

0 53

54

55

Primary

Figure 12.5

56

57

Vocational

58

59 Secondary

60

61 Tertiary

62 Age

Difference in probability of having a job by age and education between 1995–97 and 1998–2001 (women)

Source: Czech LFS, only women.

Furthermore, a hypothesis was tested that educational differences increased in the period 1998–2001. It was expected that economic recession would push women out of employment unevenly and that disadvantages of women with lower educational achievements would be stronger. This hypothesis was confirmed. Even though all women experienced decreases in employment in 1998–2001 compared to 1995–97, this decrease was stronger for women with lower educational attainments (see Figure 12.5). The diversification of risk by educational attainment took place mainly in the pre-retirement/early retirement age, and culminated at age 55–56 and then started to decline.

CONCLUSIONS This chapter has examined the employment exit and labor market behavior of older workers in the Czech Republic and focused on the period of economic liberalization during the 1990s. In terms of globalization, this period can be viewed as a time when the Czech economy entered world markets and had to

298 Dana Hamplová and ŠtƟpánka Pollnerová adjust to the world economic system. We expected that the growing pressure on the labor market would force people out of the labor market earlier, since the Czech labor economy has the characteristics of an “employment exit regime.” Retirement and early retirement are used as alternative to unemployment among older workers. We also hypothesized that the tendency to push older workers out would be socially selective such that those with higher human capital would be able to stay in longer while those with less education will leave the labor market earlier. We also expected that the differences between educational groups will widen as economic pressures increase. The data confirm all of our hypotheses. There has been a tendency on the part of younger cohorts, both men and women, to leave employment earlier. However, this tendency to take early retirement has been reversed by legislative changes just at the end of the period under study, so we cannot conclude whether this reversal is permanent or just a temporary adjustment. The likelihood of remaining employed depends on education, and those with higher educational attainment have more secure attachments to the labor market and tend to work longer. However, the data do not give any information on the kind of job older employees have and on how many hours they work.

NOTES 1

2 3

According to a new employment act (adopted in 2004) unemployment benefits are equal to 50 percent of the previous net wage during the first three months and equal to 45 percent during the next three months. The duration of benefits is extended for older workers. According to a new pension act from January 2004, the statutory retirement age will further increase up to age 63 for men and age 59–63 for women. The scheme can be also used by certain groups of recipients of disability pension since 1998. It no longer exists for unemployed since 2004 and will be abolished for disabled in 2006.

BIBLIOGRAPHY Biskup, J. and Kortusová, M. (2002) ‘Disability Protection in the Czech Republic’, in A. Fultz and M. Ruck (eds) Reforming Worker Protections: Disability Pensions in Transformation, Budapest: International Labour Office. Bruthansová, D., ýervenková, A. and KoláĜová, M. (2002) Vývoj invalidity v ýR a ve vybraných zemích EU, Prague: RILSA. Casez, S. and Nesporova, A. (2003) Labour Markets in Transition: Balancing flexibility and security in Central and Eastern Europe, Budapest: International Labour Office. ýervenková, A. and Kotýnková, M. (2001) ZaþlenČní seniorĤ v sociální struktuĜe soudobé spoleþnosti, Prague: RILSA.

Employment exits of older workers in the Czech Republic 299 Chase, R.S. (1998) ‘Markets for Communist Human Capital: Returns to Education and Experience in the Czech Republic and Slovakia’, Industrial and Labor Relations Review, 51: 401–423. CSO (Czech Statistical Office) (2004) Labour Market in the Czech Republic 1993–2003, Prague: CSO. Flek, V. (1999) ‘Employment Structure and Unemployment in the Czech Republic’, Prague Economic Papers 3/1999: 195–208. Fortuny, M., Nesporova, A. and Popova, N. (2003) ‘Employment promotion policies for older workers in the EU accession countries, the Russian Federation and Ukraine’, Employment Paper No. 50, International Labour Office, Geneva. KofroĖová, O., Kotíková, J., Sirovátka, T., Winkler, J. (2003) ‘Problémy trhu práce a politiky zamČstnanosti’, souhrnná zpráva z výzkumné studie provedené v rámci programu Moderní spoleþnost, Prague, Brno: Masarykova Univerzita, RILSA, Národní vzdČlávací fond. Mácha, M. (2002) ‘The Political Economy of Pension Reform in the Czech Republic’, in A. Fultz (ed.) Pension Reform in Central and Eastern Europe Volume 2. Restructuring of Public Pension Schemes: Case Studies of the Czech Republic and Slovenia, Budapest: International Labour Office. Mareš, P., Vyhlídal, J. and Sirovátka, T. (2002) ‘NezamČstnaní na trhu práce dopady nezamČstnanosti, hledání zamČstnání, faktory marginalizace a úspČchu na trhu práce’, final report, Brno: RILSA. Maška, J. (1994) ‘PĜedþasné poskytování starobního dĤchodu’, Národní pojištČní, 3/94: 1–6. MatČjĤ, P., ěeháková, B. and Simonová, N. (2004) ‘Transition from Secondary to Tertiary Education: Communist and Post-Communist Patterns of Inequality’, paper presented at the meeting of the Research Committee 28 (RC28) on Social Stratification and Mobility, 7–9 May 2004, Neuchatel. Mills, M. and Blossfeld, H.-P. (2005) ‘Globalization, Uncertainty and the Early Life Course: A Theoretical Framework’, in H.-P. Blossfeld, M. Mills, E. Klijzing and K. Kurz (eds) Globalization, Uncertainty and Youth in Society, London: Routledge Advances in Sociology Series. MLSA (Ministry of Labour and Scial Affairs)(2003) Národní akþní plán zamČstnanosti na rok 2003. Prague: MLSA. Münich, D. (2003) Human Capital in Transition, Czech Students and Workers Adapting to the Market, Praha: CERGE-EI. Nesporova, A. (1999) Employment and Labour Market Policies in Transition Economies. Geneva: International Labour Office. Nesporova, A. (2002a) ‘Unemployment in the transition economies’, Economic Survey of Europe 2002, No. 2, Geneva: Economic Commission for Europe. Nesporova, A. (2002b) ‘Why unemployment remains so high in Central and Eastern Europe’, Employment Paper No. 43, Geneva: International Labour Office. OECD (2000a) Economic Surveys 1999–2000, Czech Republic, Paris: OECD.

300 Dana Hamplová and ŠtƟpánka Pollnerová OECD (2000b) ‘Recent Labour Market Developments and Prospects – Special Focus on the Evolution of Employment in the New OECD Member Countries’, OECD Employment Outlook 2000, 11–30, Paris: OECD. OECD (2003) Economic Surveys 2002–2003. Czech Republic, Paris: OECD. PĜib, J. (2003) Kdy do dĤchodu a za kolik? Praha: GRADA Publishing. RILSA (Research Institute for Labour and Social Affairs), STEM (StĜedisko empirických výzkumĤ) (2000) ‘Problém pĜedþasných odchodĤ do starobního dĤchodu a pracovní aktivity v dĤchodovém vČku s ohledem na oþekávaný vývoj dĤchodového systému a vývoj zamČstnanosti’, ZávČreþná zpráva. Internal Document, Prague: RILSA, STEM. Sirovátka, T., Kulhavý, V., Horáková, M. and Rákoczyová, M. (2003) ‘Hodnocení programĤ aktivní politiky zamČstnanosti na lokálním trhu práce’, final report, Brno: RILSA. Turner, J. (2003) ‘Raising the pensionable age in social security’, paper presented at 4th International Research Conference on Social Security, Social security in a long life society, Antwerp, 5–7 May 2003. Turnovec, F. (ed.) (1999) Czech Republic 1998: Facing Reality, Praha: CERGEEI. Veþerník, J. (2001a) ‘Labour market flexibility and Employment Security, Czech Republic’, Employment Paper No. 27, Geneva: International Labour Office. Veþerník, J. (2001b) ‘Earnings Disparities in the Czech Republic: Evidence of the Past Decade and Cross-National Comparison’, William Davidson Institute Working Paper No. 373, Michigan: William Davidson Institute.

13 Late careers and career exits in Estonia Kadri Täht and Ellu Saar

INTRODUCTION Central and Eastern Europe labor markets, including the Estonian, have been profoundly transformed since 1990. Until then, enterprises had been largely protected from world markets through centrally organized production and distribution, and due to the dominance of domestic producers in the home market (Cazes and Nesporova 2003: 2). The opening of national economies in post-socialist countries to global competition has forced domestic enterprises to adjust their inputs (including labor), production technology and outputs to market demands. In addition, decision-making has partly shifted from state institutions to global organizations, and that has played a decisive role in the “return to capitalism” (Smith and Pickles 2001). It has been argued as well that political globalization is having an impact on the labor market policies as well as the social policies in Central and Eastern Europe (Deacon 2000; PotĤþek 2004; Ferge and Juhász 2004). Global actors – primarily the IMF and the World Bank – have insisted, as conditions for lending money, on the adoption of privatization strategies and low welfare provisions. Pressures on government budgets combined with the pressure of global actors has encouraged the residualist welfare policies of the liberal state. There is a tension between the aspiration to introduce a social market economy, (or conservative corporatism) and residualism in these countries that has continued into the late 1990s (Deacon 2000). Vaughan-Whitehead (2003: 493) has argued more sharply that post-socialist countries are “too keen” to implement neo-liberal reforms in a much more radical way than might be expected from countries adopting the “European social model.” It was expected that the transition countries would be attracted by the Scandinavian model of the welfare state (Wagener 2002), but as Manning (2004) has pointed out, social and labor market policy is strongly path-dependent. So despite the fact that all Central and Eastern European countries have moved from state-controlled to market economies, not all have reacted the same way nor did they all possess the same means or capacities. For example, the Czech Republic has chosen a rather smooth transition scheme with regard to social security, whereas Estonia has opted for reforms that follow highly liberal economic principles and call for a modest role for the state (de Melo, Denizer and Gelb 1996). This has turned Estonia into a “reform laboratory” (Vodopiveþ 2000).

302 Kadri Täht and Ellu Saar The socialist labor market was characterized by full employment, no open unemployment, and strong regulations, which led to high employment security and job stability. Life-long employment with one firm or in one profession was supported by the system. However, the reforms stimulated massive restructuring of enterprises and a consequent reallocation of labor, with the result that overstaffing was reduced, social provisions were abandoned, and unemployment was made unavoidable (Wagener 2002). The result was a sharp decline in economic performance, and a drop in employment (Cazes and Nesporova 2003). The vast changes in the labor market affected different groups in different ways, particularly older workers. Working pensioners were the first group to be laid off throughout Central and Eastern Europe, and many countries introduced early retirement schemes to avoid the long-term unemployment of older workers. In Estonia as well, the sharpest decline in employment in the early 1990s was among older workers. Many post-socialist countries adjusted the statutory retirement age during the 1990s to make their pension systems more financially sustainable. In Estonia, the retirement age was set at age 55 for women and age 60 for men, and after several reform efforts in the early 1990s, eventually set it at age 63 for both sexes. The question asked in this chapter is whether and to what extent recent social and economic changes have affected the intensity and directions of job moves by late career workers, including exiting the labor market. To answer this, we have compared the labor market moves of workers in their late career during the 1980s and 1990s and also examine the role of individual and structural factors in older workers’ adjustment to the new labor market situation. We first describe the institutional context and general development of the Estonian labor market, and follow this with a description of data, methods and empirical results. The analysis is based on data from the Estonian Family and Fertility Survey and from the Estonian Labor Force Surveys. The chapter concludes with a discussion of the results and short summary.

INSTITUTIONAL CONTEXT Developments in the labor market structure Structural reforms, including the liberalization of trade and domestic prices, the elimination of many state monopolies, the privatization of state enterprises, the development of a private sector, and the redefinition of property rights as well as legal and regulatory systems have played an important role in shaping the dynamics of the Estonian labor market. The Estonian economy was closely bound up with raw material and product markets of the Soviet Union, of which it was a part until the early 1990s. Compared with West European economies, the Estonian was rather “over-industrialized:” this sector constituted about 40 percent of the total from 1959–89 (see Table 13.1). Thus, at the beginning of the transition period the employment structure in Estonia was not a result of a

Late careers and career exits in Estonia 303 Table 13.1

1959 1970 1979 1989 2000

Employed persons by economic sector Primary

Secondary

Tertiary

30 16 14 13 6

39 43 42 40 34

31 41 44 47 60

Source: Census data 1959, 1970, 1979, 1989, 2000.

natural (market-oriented) development but rather an artificial structure resulting from the economic needs of the former Soviet Union (Eamets 2001). The transition process brought fundamental changes to the composition of employment, both by sector and by branches. The share of the service sector increased dramatically, whereas the decline in the industrial and agricultural sectors accelerated. Blue-collar workers were particularly affected, and their numbers declined by almost 1.5 times from 1989–99, while the number of whitecollar workers declined by less than one third (Pettai 2001). The occupation structure of different age groups was also strongly affected. In 1989, the occupational distribution of late career workers did not differ much from the general distribution, though they were slightly over-represented in agricultural occupations as well as in elementary occupations. Both of those occupational groups were also affected by the structural changes. In addition, in 1989 almost 38 percent of late career workers were classified as skilled industrial workers, but by 2002, this had dropped to only 25 percent. Job protection and employment security Work experience and seniority were the main elements in job advancement and remuneration during the Soviet era, and there was high job security and stability, all of which changed dramatically when Estonia started its political and economic reforms. Trade union membership, to take just one indicator, declined from almost 100 percent to less than 20 percent by the end of the 1990s. The reasons for the decline can be found in the privatization process and in the increase in importance of small and foreign firms where the union presence is generally rather weak. The declining importance of manufacturing, where unions were strong, and the increasing importance of the service sector, where unions are weak, contributed to the decline in the importance and activity of trade unions (Varblane 2000). Trade unions were also seen as relics of the Soviet system. Parallel to decrease of union membership, the role of trade unions has been decreasing remarkably. In terms of employment protection legislation, Estonia falls in the middle among Central and Eastern European as well as OECD countries (Riboud,

304 Kadri Täht and Ellu Saar Sánchez-Páramo and Silva-Jáuregui 2002), but there is a general discrepancy between legislation and implementation. Employer violations of regulations are often not investigated and the government has not been active either in policing employers or in working with trade unions. Employment security is thus formally protected but is in practice weak. While weak protection is one explanation for the high flexibility in the labor market, another is that there are few entry and exit barriers (Arro et al. 2001). However, this is an employee perspective: one can also see it as the involuntary shifts driven by employers’ wishes (Täht and Unt 2002). Very little collective lay-off protection exists. Employers can thus quickly respond to changed market conditions, since job security is weak, dismissal policies are liberal, and subsidies do not exist for job preservation. The result is to leave the employees in a rather insecure position. Labor market boundaries In the socialist period, educational certificates played a major role in the access to specific jobs and careers, though the status match was more important. Planning guaranteed the provision of status-adequate job placements even without an appropriate skill match (Solga and Konietzka 1999) of the kind that might be found in Germany. The Estonian practice gave individuals flexibility between occupations, but hindered mobility between jobs requiring different qualifications and tended to restrict upward mobility. The status matching process weakened somewhat in the first half of the 1990s, but by the mid-1990s there was evidence of a new shift toward strengthening the status as well as the skill match (by establishing national qualification systems). The effect should be to strengthen labor market boundaries and restrict job-to-job moves. Nevertheless, the Estonian employment system has been characterized as very open and flexible (Freytag 2002). The Estonian version of an open labor market seems to have some distinct features related particularly to entry into the labor market and to the duration of unemployment. While open employment relations generally have relatively easy entry into the labor market and shorter spells of unemployment, in Estonia economically inactive people (especially those in younger and older age groups, as well as women), have difficulties entering the labor market (Helemäe and Saar 2003; Saar 2005). Two groups of the unemployed can also be identified, one of which leaves unemployment relatively quickly, and the other of which are the long-term unemployed (Eamets 2001). The labor force can furthermore be differentiated between outsiders and insiders. Another important feature of the Estonian labor market is the lack of opportunity for older workers to enter the educational system or to get training over the life course (Saar 2002). Despite the introduction of the life-long learning concept, the actual participation of older age groups in re-training and schooling programs has remained very low. In the Soviet era, it was often difficult to return to the education system once one had left it, and nearly impossible for older workers. This seems to have been carried over into the new market situation: in

Late careers and career exits in Estonia 305 1997, a majority of those aged over 40 considered themselves too old for studies (Vöörmann 2001). An Adult Education Survey indicated that for those older than age 54, the participation rate in training programs was three times lower than for those in the 20–39 age group (Helemäe, Saar and Vöörmann 1998). According to the same survey, retraining and schooling are accessible both in terms of supply as well as the means for participation largely to those in white-collar occupations, thus lowering the chances for a quick and successful return to the labor market for those losing a job in the industrial or agricultural branch. In addition, further training is mostly confined to the working population; the participation rate of the unemployed and pensioners is very low. Welfare regime Welfare provisions (i.e., unemployment benefits, retraining opportunities, etc.) have been, compared to other European countries, very low in Estonia. In 1998, average expenditure on passive labor market measures in the OECD countries was 1.4 percent of GDP. In Estonia it was only 0.16 percent (Riboud, SánchezPáramo and Silva-Jáuregui 2002). The story is similar for active labor market measures: only 0.08 percent of GDP in 1999 in Estonia as compared to the OECD average of 0.92 percent. The replacement rate of unemployment benefits has also been extremely low, and low expenditure on passive labor market measures results in low benefits. Until 1999, when the system was changed, unemployment benefits were a flat-rate payment, with a replacement rate of about 10 percent of average salary. The average replacement rate for Central and Eastern European countries during the same time was 50 percent, and for OECD countries, 60 percent. Benefits, again until the changes in 1999, only lasted from 3 to 6 months. Low unemployment benefits were introduced with the intent of creating incentives for a quick return to the labor market. However, when that does not occur the danger of becoming excluded both economically as well as socially rose sharply (Kutsar and Trumm 1999). While in 1989–91 unemployment did not exist, it became a reality in 1992. The falling GDP prohibited the appearance of high unemployment rates during the first half of the 1990s. The main reason for the rather moderate unemployment growth was due to the sharp drop in labor force participation. The full employment characteristic of the former socialist Estonia declined in the first half of the 1990s dramatically. By 1995 labor force participation dropped to only 62 percent. That decline in participation was most rapid and visible among the oldest workers (see Figure 13.1). Their economic activity rate declined although the official retirement age was raised by five years. In the middle of 1990s, the labor force participation rate of late career workers stabilized and even showed a slight increase. In the mid-1990s, the unemployment rate continued to increase, and by 1999 it reached nearly 13 percent. However, unemployment most strongly affected the youngest labor market participants; the lowest unemployment rates were found

306 Kadri Täht and Ellu Saar 100%

80%

60%

40%

20%

0% 1989

1991

1993

1995

15–24

Figure 13.1

1997 25–49

1999

2001 50–69

Labor force participation rate by age, 1989–2002

Source: Estonian Labor Force Survey, 1995–2002.

among older workers. The dramatic decline in employment among older workers was more likely achieved via an increase in the number of those who became inactive rather than unemployed. However, this does not mean that workers in late career would be less affected by unemployment and its consequences. In fact, the unemployment rate among such workers started to increase in the mid1990s, and the duration of unemployment episodes became longer for them. In 1992, 59 percent of late career workers returned to the labor market within 6 months, but by 2002 only half as many managed to do so. The share of the longterm unemployed among late career workers has increased substantially and by 2002 had reached about 67 percent. Among the 25–49 year old unemployed people, the share of the long-term unemployed was less (53 percent), and though still substantial, it was smallest among the 15–24 year olds (33 percent). Workers late in their careers can take advantage of early retirement schemes that allow them to leave the labor force before reaching the mandatory retirement age, while being compensated by only slightly reduced pension benefits when compared to the benefit levels given those retiring at the statutory age. Early retirement may be perceived more positively as a means to gain leisure time while retaining an adequate standard of living but it can also be an escape from

Late careers and career exits in Estonia 307 looming unemployment near the end of their working life. Some claimed that in post-socialist countries, early retirement policy was used as a substitute for welfare and unemployment benefits (Müller 2002). Special early retirement schemes existed both during the Soviet era and after the pension reforms of the 1990s, but such options were limited to specific professional groups, such as pilots, seamen, miners, or certain artists, specific occupational positions, and to the parents in families with particularly numerous or disabled children. The 1998 State Pension Insurance Act was the first to provide a possibility for early retirement up to 3 years before the statutory retirement age. That choice is penalized by decreasing the pension by 0.4 percent per month retired early. Those who choose to postpone retirement can defer their pension, the benefit of which is a pension level that is 0.9 percent higher per month of continuing to work without drawing pension. Despite this, in 2000 about 24 percent of all pensions were classified as early retirement pensions, a percentage that has nearly trebled in the last years. One should add that more than 80 percent of those drawing early retirement pensions were unemployed beforehand (Leppik and Kruuda 2003). The pension replacement ratio has remained rather low and stable in Estonia since introducing the pension scheme in 1956 (Figure 13.2). In the early 1990s, the replacement capacity plunged to half its previous level, and has only

45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 1965

Figure 13.2

1970

1975

1980

1985

1990

1995

2000

Pension replacement ratio in Estonia, 1965–99 (% average gross wage)

Source: Põldma 2000: 260.

308 Kadri Täht and Ellu Saar Table 13.2

Labor force participation rate of late-career workers, 1959–2000 (in %) Men

1959 1970 1979 1989 2000

Women

50–54

55–59

60–64

65–69

50–54

55–59

60–64

65–69

92 93 91 93 82

90 86 84 85 71

60 43 42 52 45

– 27 25 36 17

74 85 88 90 82

58 43 45 55 57

35 25 26 38 25

– 16 16 26 11

Source: Census data 1959, 1970, 1979, 1989, 2000.

gradually increased, only reaching the level of the late 1960s by the late 1990s. Pensioners constitute the majority of the lowest income deciles (Purga and Viies 1998), though one can now find more and more pensioner households in higher deciles. This is more an artifact of the general increase in inequality, since the income of pensioners has remained rather stable (Püss, Viies and Maldre 2001). Becoming a pensioner continues to strongly increase the poverty risk, though the highest risk is becoming unemployed or having an unemployed member in the household (Kutsar and Trumm 1999). Low pensions and a legal framework which allowed older workers to combine pensions and earnings without penalties worked as incentive to remain in the labor market beyond the statutory retirement age during the Soviet era. The 1970s did see a decline in the participation of older workers in the labor market, primarily reflecting improvements in the pension system (Puur 1993). In the 1980s, a growing discrepancy between the actual and the legal age of retirement could be observed, such that by 1989, both men and women ceased working about 4.5 years later than the statutory retirement age. At the statutory retirement age, almost nine tenths of both men and women were still economically active, and 5 years later, almost half of the older people were still working (Table 13.2). By 2002, about every fourth pensioner – somewhat more men than women – were still working (Tiit et al. 2004). In comparison, the Estonian case rather deviates from the pattern found in most European countries inasmuch as the economic activity of older workers has remained relatively high even in the 1990s.

HYPOTHESES The institutional context has therefore left a dual legacy in Estonia, both to maintain and to shed older workers, and it is hard to predict which tendency will prevail. In the 1980s, retiring at the statutory age provided a legal right to receive

Late careers and career exits in Estonia 309 a pension and therefore withdraw from the labor market, but the rather low statutory retirement age and the low replacement rates gave incentives to stay in the labor market as long as possible. In the 1990s, the uncertainties engendered by the transition to a market economy produced effects that both pushed older workers out of the labor force and encouraged them to continue working, though this in turn was also related to personal resources. Therefore, the retirement process in Estonia is not clearly related to age, but is more of a personal or career process, and occurs in response to institutional incentives and disincentives. We expect a general increase in flexibility, but also a greater insecurity in the labor market situation of workers near the end of their careers. We also hypothesize growing differences among social groups, both in terms of staying in the labor market as well as in retirement behavior. Regime hypothesis Because the transitions are ongoing, trends in post-socialist countries are hard to predict. Previous attempts to classify Estonian institutional patterns with respect to different institutional welfare regimes indicated the contradictions between the institutional rules operating, for example, in the educational system and in the labor market (Helemäe and Saar 2001). So on the one hand, Estonia seems to resemble liberal countries with respect to its low levels of employment protection and its low levels of old age income security. That lack of income security fosters jobto-job mobility until and even beyond formal retirement age, or to put it another way, means older workers stay in the labor market because they need the income. However, they may need to accept less attractive occupations in the process, which means downward mobility. On the other hand, some other features are close to those found in Southern European countries, especially the massive use of early retirement schemes and the strong insider-outsider logic. This leads to the expectation of finding rather high rates of early labor market exits as well as quite intensive moves into unemployment. Social change hypotheses Due to the vast restructuring in the economy and to the institutional settings during the 1990s, the previously quite stable status of late career workers in the labor market has changed and become more insecure and unstable. This is particularly noticeable in the increase of labor market mobility by late career workers as well as in exit from the labor market due to unemployment and inactivity. Due to the pension reforms in the 1990s, older workers are expected or even encouraged to stay in the labor market as long as possible. At the same time, the restructuring of industries, new technologies, and increasing market competition has made the labor market more oriented to younger workers. The result has been layoffs of older workers, making it both more difficult for this group to remain in the labor market and more difficult to return to it after becoming

310 Kadri Täht and Ellu Saar unemployed. Unemployment status creates a high risk of exclusion, which may make it especially attractive to withdraw from the labor market as soon as possible, a direction encouraged by early retirement schemes as well. We expect an increasing differentiation of older workers in terms of the timing of retirement, as well as a decreasing rate of older workers continuing to work after reaching the official retirement age. Social selectivity hypotheses There were far-reaching structural changes to the Estonian labor market in the 1990s. Restructuring combined with the privatization of the economy exerted a dual pressure on older workers’ labor market behavior. We predict that industrial and agricultural workers, especially those with poor qualifications or low skill levels, will show a higher probability of moving into inactivity as well as into unemployment than those in other branches and those with higher qualifications. We expect workers in the social service sector, by contrast, to have more stable careers in terms of labor market exits but also higher rates of job mobility as compared with employees working in transformative sectors. In individualist mobility regimes, workers gain stability through enhancing their human capital, in particular through education (DiPrete et al. 1997). We hypothesize that labor market risk will increasingly diverge as a function of educational inequality, and that the Estonian institutional environment has the effect of channeling uncertainties generated by globalization unequally. Thus, we suggest that the risk of unemployment and dropping out of employment will be higher in the 1990s for the less well educated than for the better educated older worker. We do not expect a significant impact of education on the distribution of labor market risks and opportunities during the 1980s, however, due to the high level of labor market regulation at the time. Tenure is often a resource as well. Due to the importance of seniority in a command economy, we suggest tenure predicts labor market risks. In the 1980s, the longer the tenure, the lower the risk of forced job mobility and exits from employment. In the 1990s, one should take into account that massive increases in worker flows were driven by increases in job flows (Haltiwanger and Vodopivec 1999). So short job tenure might indicate an unfavorable labor market allocation (closed enterprises), a low level of personal resources (that could not ensure continued employment in downsized and/or privatized enterprises) or a high level of labor market resources in the case of workers looking for a better job. We expect older workers with short tenure to be both most exposed to labor market risks (moving out of employment as well as into unemployment) and most successful in taking up labor market opportunities (moving directly from job to job). We expect job tenure to be of great importance as a personal resource, following individualist mobility regime pattern notions. An earlier analyses of mid-career men’s mobility pointed to the division in the Estonian labor market between a highly qualified, well protected, “core staff,” and workers with lower qualifications who failed to successfully integrate into stable

Late careers and career exits in Estonia 311 jobs (Saar and Helemäe 2002). Men with tenure lasting less than a year were the most vulnerable in terms of the risk of moving into unemployment, and we expect to find the same among late career men in the 1990s.

DATA AND METHODS We combine two different data sets in our analysis: the Fertility and Family Survey (FFS, collected in 1997) and the Estonian Labor Force Survey (ELFS, collected in 1989–2002). The FFS provides detailed retrospective information on job histories from 1934–97 of men born from 1924–73. It covers a long time frame and allows the analysis of labor market exits to extend from the 1980s to the 1990s (Katus, Puur and Sakkeus 2002). Our sub-sample includes 416 men over age 50, and 1,030 job episodes. Given the limited number of transitions from employment to unemployment, a substantive analysis of this process using the FFS data was not possible. For this reason we used the ELFS data instead to model the transitions from employment to unemployment, as well as to compare different periods in the 1990s. The ELFS 1995 was the first labor force survey conducted by the Statistical Office of Estonia. We use its data to cover the 1989–94 period, and the subsequent yearly (1998–02) ELFS surveys for 1997–02. As retrospective data of the different waves of the ELFS cover different periods of time, we use an annual format: for every respective year, the status at the beginning of year, all moves that characterize transitions under study, and continuing (right-censored) spells are taken into account. For our extended analysis, the main type of transition out of employment of workers over age 50 is moves from job to unemployment. Mobility has been modeled as competing risks with right censoring, in other words, those staying stable in employment within the observed year. We base our analyses of transitions on the annual data. To capture the time effect in the analysis of individual and structural characteristics on unemployment risks, we differentiate between 1992–94, 1997– 99, and 2000–02. This division mirrors the major recent trends or shifts in the Estonian economy, including the trends in late career workers’ unemployment patterns. In the early 1990s, unemployment was rather rare, especially among older workers, so our analysis starts with 1992. The years 1992–94 were the most turbulent in terms of restructuring the economy, and in that time, unemployment became more and more of an issue. The 1997–99 period marked the first time the labor market stabilized, though it was accompanied by an economic crisis in Russia which had a significant impact on the Estonian economy. The years 2000–02 can be seen as a stabilized labor market situation. We use logistic regression models both to compare the risk of a respective event occurring (of job mobility, out-of-employment transitions) by periods, as well as to identify relevant factors. In addition, survival analysis is used to observe the transition into retirement of different age cohorts.

312 Kadri Täht and Ellu Saar RESULTS Late career patterns in Estonia in the 1980s and 1990s Late career patterns in Estonia were very stable in the 1980s (our analysis is confined to men, as little difference existed in pension or retirement schemes for women at the time; while this was not true for unemployment patterns, unemployment analysis is controlled for gender). The vast majority stayed in the same job until retirement (see Figure 13.3), or to put it another way, mobility in the labor market was low, with only one tenth of the older male employees moving to a different job after age 50. If older workers left the labor market, they usually did not return. In the 1990s, male late careers increased both in flexibility and in instability. The frequency of job-to-job moves increased, as did unemployment and early moves to retirement. As in the 1980s, in the 1990s if the older male workers changed jobs, then it was just once: labor market mobility thus can be characterized as a one-way street. In terms of career moves, the rate of lateral and downward moves has been higher than for upward moves, but moves to

100%

80%

60%

40%

20%

0% 1980–89 Stable Moves to unemployment

Figure 13.3

Mobility of late-career men

Source: Estonian Family and Fertility Survey.

1990–97 Job-to-job moves Moves to inactivity

Late careers and career exits in Estonia 313 unemployment and inactivity have also started playing a greater role in late career patterns. In the early 1990s there were more job-to-job moves as well as moves to retirement, but from 1994 on, the rate of moves to unemployment increased rapidly. This confirms our earlier assumption that employees working beyond retirement age were the first to be pushed out of the labor market. By the mid-1990s, this reserve was exhausted and the risk of unemployment for older workers started increasing. An increase in insecurity and instability is also evident by the fact that late career men in the 1990s tend to withdraw from the labor market earlier than their counterparts did in the 1980s. The survivor function shown in Figure 13.4 indicates that men of birth cohort 1931–37 (the later cohort) withdraw from employment sooner than men of birth cohort 1924–30 (the earlier cohort). Though the official retirement age in the 1980s was lower than in the 1990s, there is a difference of around 10 percentage points already at age 58 between two cohorts. The difference decreases after age 60, but increases again to 15 percentage points. Thus, in the 1990s retiring from the labor market took place earlier, and labor market participation after retirement age was less frequent.

100%

80%

60%

40%

20%

0% 50

51

52

53

54

55

56

57

Birth cohort 1924–30

Figure 13.4

58

59

60

62

63

Birth cohort 1931–37

Men’s labor market exit after age 50 years

Source: Estonian Family and Fertility Survey.

61

64

65 Age

314 Kadri Täht and Ellu Saar In the 1980s, the actual age at retirement was more spread out across chronological age, or in other words, the connection to the official retirement age was weaker compared to the 1990s. Transitions into non-employment and job-to-job moves As previously noted, the withdrawal from employment did not depend on age in the 1980s but it did have an important impact on the risk of transitions to nonemployment in the 1990s. The results are presented in Table 13.3. In terms of moves into inactivity, there were no differences between occupational groups, or between employees of different industries in the 1980s. In the 1990s both characteristics became more important. However, the results of our analysis did not support our hypothesis that industrial and agricultural workers should have higher probabilities of moves into inactivity. As can be seen, the risk of dropping out of employment is lower for semi-professionals and agricultural workers. There are no differences between other groups. This can be interpreted as a sign of less competition between age groups in lower skill occupations (especially agricultural workers as less young people are interested in entering that occupation). Those working in the social service sector drop out of employment later than those in the transformative sector. There are no differences between the employees of other sectors. Therefore, contrary to our hypothesis, deindustrialization and de-agriculturalization did not support moves to inactivity by employees in these sectors. As expected, the impact of education on the risks of withdrawal from employment was quite low in the 1980s: only higher education had protective effect against being pushed out of the labor market. At the same time, job tenure was an important predictor of labor market risks in the 1980s: the longer the tenure, the lower the risk of exits from employment. In the 1990s, the impact of educational level increased: the higher the education level, the longer the employee managed to stay in the labor market. Longer tenure increases the risk of transitions into inactivity. The mechanisms here seem to be somewhat different from that of mid-career men, because for them longer tenure decreases the labor market exit (i.e., unemployment) risk (Saar and Helemäe 2002). We suppose that for older workers shorter tenure is an indication of their adaptation to new circumstances, while longer tenure lost its value as a protective factor and now indicates greater vulnerability. When talking about job-to-job moves, the effect of occupation as well as industrial sector was insignificant in the 1980s (see Table 13.3). In the 1990s, the importance of market location as a factor of job-to-job moves increased. Unskilled and agricultural workers were the least mobile group. In this respect, skilled non-manual and manual jobs provide greater mobility chances. However, this analysis does not indicate what kind of mobility (lateral, upward or downward) was more common. Employees in agriculture were more mobile than employees in the transformative sector, which seems to contradict the previous

Late careers and career exits in Estonia 315 Table 13.3

Men’s labor market mobility after age 50 years by period (logistic regression model) Job-to-job moves

Moves to inactivity

1976–89

1990–97

– 0.47 -0.52 -0.11** -0.32 -0.54

– 0.23 0.30 -3.42+ -0.41 -1.06**

– -0.70 -0.40 -0.22 0.05 0.59

– -0.97* -0.06 -1.33** -0.12 -0.34

– -0.25 0.94 0.01 -0.80 -0.56 0.77

– 0.85+ -1.52 0.39 0.23 -0.15 -0.12

– 0.45 0.30 -0.33 -0.74 -0.72 0.09

– 0.48 -0.22 -0.07 -0.38 -1.03+ 0.47

– -1.82+ -0.36 -0.00 -0.15+ -0.01+ 8.06+

– -0.70** -0.23 -0.20 -0.16+ 0.01 8.61+

– -0.53 -0.59 -1.21* 0.03 -0.02** -3.62**

– -0.75** -0.66** -0.95** 0.06+ 0.02+ -3.95+

90 470 372

207 584 642

71 572 397

198 579 615

Occupational group Managers and professionals (ref.) Semi-professionals Lower non-manual workers Agricultural workers Skilled industrial workers Unskilled workers Industry Transformative (ref.) Agriculture Mining Distributive services Producer services Social services Personal services Education Basic (ref.) Secondary Secondary specialized Higher Age Tenure Constant Number of events Number of episodes -2 log likelihood

1976–89

1990–97

Source: Estonian Family and Fertility Survey. Notes: ** Effect significant at p < 0.01 * Effect significant at p < 0.05 + Effect significant at p < 0.10.

result found for occupational groups’ differences. But one has to take into account, that there are large differences in the mobility rate of professionals and managers working in agriculture (significantly higher) and agricultural workers. Compared to late career men with basic education, men with secondary education were less likely to change jobs in both periods. The effect of job tenure was important in the 1980s: as job tenure increased, the likelihood of

316 Kadri Täht and Ellu Saar experiencing any job shift decreased. However, in the 1990s this effect diminished. Age was important for both periods, as increasing age decreases mobility chances. Late career workers’ unemployment risks in the 1990s Labor market mobility rates of late career men have increased since 1990. Initially, the vast majority were into inactivity, while later on, shifts into unemployment have become more common and are increasing in frequency. Labor market risks are unevenly distributed among different social groups. In the early 1990s, moves into unemployment (Table 13.4) were uncommon among late career workers, and educational level did not play a significant role in explaining unemployment risks. But educational differences have widened as unemployment among older workers has increased in the mid- and later 1990s, and those with the lowest educational levels are endangered the most, while higher educational levels serve as protection against unemployment. In terms of occupational group and unemployment risk, professionals and managers are the best-protected. As was evident from the shifts into inactivity, late career agricultural workers are less endangered by unemployment, due to the low competition for these jobs from young labor market entrants. The pattern is less clear by economic branch, as the unemployment risks have been changing. Compared with the transformative sector, nearly all other sectors have lower unemployment risks, significantly so in agriculture, but also in social services. Though social services have been a relatively secure sector for late career workers to be in, its protective power is decreasing. In producer services the risks of becoming unemployed are significantly lower. In general, it can be said that in terms of unemployment, those with higher education and in high level white-collar positions are in more secure positions. Age in general has become a more distinct feature of unemployment risk, and late career workers are endangered by the threat of complete exclusion from the labor market through (long-term) unemployment.

CONCLUSIONS AND DISCUSSION This study of late careers in Estonia has indicated that older workers have had lower unemployment rates than other age groups in the 1990s, which could mean that their positions in the labor market have remained rather secure and stable even during a time of transformation and structural change. This may be something of an artifact, however, as their lower unemployment was mainly the result of the many withdrawals from the labor market: employees working after retirement age were the first to be pushed out of that market in the early 1990s when the transition process began. The withdrawal of older employees from the labor force can be seen as a way to cope with flexibility needs. Comparing retirement patterns in the 1980s and

Late careers and career exits in Estonia 317 1990s shows that older employees in the 1990s experience a shortening of their working life. Participation in the labor market after retirement age has also become less common. Before this time, the Estonian pension scheme had encouraged workers to postpone withdrawing from the labor market, and the low pension replacement rate made earnings from work for pensioners economically necessary. Despite narrowed pathways to early retirement and an increased statutory retirement age, work careers have shortened in the 1990s. The situation of older workers became more complicated because the problems connected with downsizing enterprises were frequently resolved at the expense of older workers: they became the buffer group and were often simply pushed out of the market. Simultaneously, low pensions pushed many back into the labor market because they needed the additional income. Their return was hampered by a significant drop in employment levels. Instead of pull factors (favorable benefits), economic push factors constitute the driving force behind early exits from work. In the mid-1990s, the reserve of late career workers who could be pushed into inactivity was exhausted and the risk of unemployment for older workers started increasing. This is another aspect indicating the growing instability and insecurity of late career workers in the Estonian labor market. Similar to shifts into inactivity, shifts into unemployment seem to have become a one-way street: once out, it is very hard for late career workers to return to the labor market. In sum, under new labor market conditions the previously uninterrupted and stable careers have become more unstable and interrupted, but even more significant is that they now often end in unemployment or by taking early retirement. An early retirement scheme was introduced in 2000 in Estonia. On one hand, this has become a solution to deal with the insecure position of late career workers in the labor market. Instead of remaining unemployed, many older workers prefer to move into the more stable position (and role) of pensioner. On the other hand, the very availability of this scheme may further weaken the already weak labor market position of older workers. Employers may consider it socially more acceptable, when they are downsizing, to push older workers into early retirement. This could strengthen employers’ prejudices against older workers in situations where age is already treated as one of the most important features of an employee’s qualifications. Two groups of older workers had better chances to stay in the labor market as well as had lower risks of being excluded from employment. The first are the highly educated older workers. They, it is thought, are more able and motivated to adjust to changes in job requirements, and employers often value their experience (Fortuny et al. 2003). The second group are the low-skilled older agricultural workers, who do not move into inactivity despite the increasing importance of other employment sectors in the economy. Such workers also have been less exposed to the withdrawal from employment both in terms of inactivity as well as unemployment. The Estonian approach resembles that found in liberal welfare regimes because it provides few opportunities for early retirement, applies stricter criteria

-0.56 -1.29** -0.06 -2.00+ -0.43 -0.12

-0.14

-0.21

0.48 0.82 0.36

-0.67

2

0.24

1

1992–94

0.39 0.72* 0.29

-0.26

0.24

3

0.60+ 0.27 0.22

-0.36**

0.38**

1

-0.52* -1.72+ -1.14+ 0.06 -1.27+ -0.03

-0.20

0.32*

2

1997–99

0.44* -0.10 -0.15

-0.24

0.28*

3

0.58+ 0.52+ 0.49+

-0.23**

0.43+

1

Exiting employment into unemployment, comparison of different time periods (logistic regression model)

Gender (ref. = women) Nationality (ref. = non-Estonians) Education (ref. = higher education) Elementary or less General secondary Vocational secondary Occupational group (ref. = skilled industrial workers) Managers Professionals Semi-professionals Lower non-manual workers Agricultural workers Unskilled workers

Table 13.4

-0.69+ -1.41+ -0.19 0.51+ -0.79** 0.22

-0.13

0.55+

2

2000–02

0.55+ 0.32* 0.40**

-0.19

0.43

3

continued

693

-3.73+

1

680

-.28+

2

1992–94

82 2,213 672

-3.19+

1,475

1,443

184 4,093 1,407

-2.43+

-0.96+

3

-0.77+ -2.76+

2

-0.88+ -0.50 -0.22 -0.16 -1.34+ -0.44

-3.31+

1

1997–99

0.24 -0.26 -1.02** -0.28 -0.34 -0.25

3

Notes: ** Effect significant at p < 0.01, * effect significant at p < 0.05, + effect significant at p < 0.10.

Source: Estonian Family and Fertility Survey.

Number of events Number of episodes -2 Log likelihood

Industry (ref. = transformative sector) Agriculture Mining Distributive services Producer services Social services Personal services Being in statutory retirement age or more Constant

Table 13.4

2,791

-3.36+

1

2,724

-2.96+

2

2000–02

362 6,785 2,719

-2.94+

-0.96+

-0.06 0.15 -0.76 -0.87+ -0.20 0.23

3

320 Kadri Täht and Ellu Saar to unemployment and disability, and grants small and brief benefits. Nevertheless, some of its features resemble the practices in Southern European countries, especially its quite strong insider-outsider logic. Due to this differentiation of outsiders and insiders, the return of older workers to the labor market is rare. With the new market conditions, the generations which had acquired their experience under the “old,” Soviet-dominated circumstances, now find themselves in a situation where that earlier experience is largely useless or even obstructive: the new market favors the new, younger worker. Readiness for change, mobility and flexibility have become the watchwords, which means increasing competition for workplaces and new skills that are required from workers in their late careers. This has taken place at a time when push factors to stay in the labor market longer than before have been promoted, yet while the support for continuing to employ (including retraining and acquiring new skills) older workers has been rather underdeveloped. Under these circumstances, for older workers the rationality as well as the meaning of stability in terms of labor market position has changed. While that orientation used to be to stay in the labor market as long as possible, it has been replaced with a tendency to leave as soon as possible.

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Globalization, Uncertainty and Late Careers in Society (Routledge Advances in Sociology)

GLOBALIZATION, UNCERTAINTY AND YOUTH IN SOCIETY (Routledge Advances in Sociology)

Love, Heterosexuality and Society (Routledge Advances in Sociology)

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Challenging Hegemonic Masculinity (Routledge Advances in Sociology)

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Globalization and Uncertainty in Latin America

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Emotions and Social Movements (Routledge Advances in Sociology)

Capturing Globalization (Routledge Advances in International Relations and Politics)

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Globalization, Culture and Society in Laos

Society and the Holy in Late Antiquity

Law, Society, and Authority in Late Antiquity

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Society and the Holy in Late Antiquity

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Globalization, Uncertainty and Late Careers in Society (Routledge Advances in Sociology)

GLOBALIZATION, UNCERTAINTY AND YOUTH IN SOCIETY (Routledge Advances in Sociology)

Love, Heterosexuality and Society (Routledge Advances in Sociology)

Cohabitation, Family & Society: European Experiences (Routledge Advances in Sociology)

Changing Relationships (Routledge Advances in Sociology)

Challenging Hegemonic Masculinity (Routledge Advances in Sociology)

Globalization and Uncertainty in Latin America

Globalization and Uncertainty in Latin America

Youth Cultures: Scenes, Subcultures and Tribes (Routledge Advances in Sociology)

Feminism, Domesticity and Popular Culture (Routledge Advances in Sociology)

Bourdieu's Politics: Problems and Possiblities (Routledge Advances in Sociology)

Emotions and Social Movements (Routledge Advances in Sociology)

Capturing Globalization (Routledge Advances in International Relations and Politics)

Globalization and Transformations of Local Socio-economic Practices (Routledge Advances in Sociology)

Sociology of Diagnosis (Advances in Medical Sociology)

Cities and Society (Blackwell Readers in Sociology)

Globalization, Culture and Society in Laos

Society and the Holy in Late Antiquity

Law, Society, and Authority in Late Antiquity

Careers in Writing (Careers in)

Society and the Holy in Late Antiquity

Cities and Society (Blackwell Readers in Sociology)

The Obituary as Collective Memory (Routledge Advances in Sociology S.)

Korea Confronts Globalization (Routledge Advances in Korean Studies)

Careers in Writing (Careers in)

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Careers in High Tech (Careers in Series)

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Youth Crime and Youth Culture in the Inner City (Routledge Advances in Sociology)

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