Older Workers in a Globalizing World: An International Comparison of Retirement and Late-Career Patterns in Western Industrialized Countries

Older Workers in a Globalizing World

Older Workers in a Globalizing World An International Comparison of Retirement and Late-Career Patterns in Western Industrialized Countries

Dirk Hofäcker Researcher, University of Bamberg, Germany

Edward Elgar Cheltenham, UK • Northampton, MA, USA

© Dirk Hofäcker 2010 Dissertation at the University of Bamberg, 2008, under the original title: ‘Late Careers under Globalization. An international comparison of retirement and latecareer patterns among older workers in Western industrialized countries’. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited The Lypiatts 15 Lansdown Road Cheltenham Glos GL50 2JA UK Edward Elgar Publishing, Inc. William Pratt House 9 Dewey Court Northampton Massachusetts 01060 USA

A catalogue record for this book is available from the British Library Library of Congress Control Number: 2009937926

ISBN 978 1 84844 817 9 Printed and bound by MPG Books Group, UK

02

Contents Foreword by Hans-Peter Blossfeld Acknowledgements 1 2 3 4 5 6

vi x

Introduction: the ‘two-faced pension crisis’ State of the art in social science research Globalization, institutional strategies and late careers The macro-perspective: late careers and retirement in international comparison The micro-perspective: a four-country comparison Conclusions

References Index

1 12 107 146 239 270 282 317

v

Foreword In recent years, older workers’ late careers and their retirement transitions have become a ‘hot topic’ for social scientists, policy makers and the public audience. This is partly due to the looming financial crisis of the national public pension systems, resulting from a combined effect of both rising life expectancy and declining fertility rates. In addition, globalization has triggered increasingly rapid economic and social changes that have profoundly transformed national employment systems. Earlier research has demonstrated how these unprecedented changes have altered the employment careers and family decisions of young adults entering the labor market as well as men and women in the middle of their life course. Based on this empirical evidence, it is especially youth that can be regarded as the ‘losers of globalization’, as their job security and wage levels declined and their employment relationships became ever more flexibilized (see Blossfeld et al. 2005; Buchholz et al. 2009). While women have become more integrated into paid employment (though often at the expense of more flexible forms of work that have become more widespread under globalization), the employment lives of mid-career men have remained remarkably stable under globalization, with only moderate increases in shifts between unemployment and employment (Blossfeld and Hofmeister 2006; Blossfeld, Mills and Bernardi 2006). Given these developments regarding gender and labor market cohorts, the question arises how older employees and those approaching retirement age fare under globalization. Have they been able to profit from the often strong employment protection which they acquired throughout their mid-career ages? Or has their labor-force attachment weakened as their qualifications and skills have become increasingly outdated in the process of accelerated globalized change? Indeed, comparative evidence shows that both have been the case: on the one hand, older workers’ labor-force attachment has weakened in most industrialized countries, and their employment participation has declined quite steadily between the 1970s and the late 1990s (Blossfeld, Buchholz and Hofäcker 2006). At the same time, these developments often were supported by so-called ‘golden handshakes’, i.e. generous early retirement benefits offered by either the welfare state or the employer. They made early employment exit an attractive option for a group of workers that otherwise enjoyed high vi

Foreword

vii

employment protection and seniority wages. Only in very recent years has this decline come to a halt. In some countries, most recent labor market figures even indicate early signs of a trend reversal, though even in these cases older workers’ employment rates have remained far below the levels of the 1970s. This early retirement trend, however, has become increasingly disputed in an era characterized by demographic aging and rising social expenditures for the elderly. In recent years, many policy makers thus have developed strategic targets for raising employment among older men and women. Most notable examples in this respect have been the so-called Stockholm and Barcelona targets by the European Union which aim to reach an average employment level of 50 percent among older workers aged 55 to 64 years and a five-year delay in the average age of retirement. However, it is still unclear which strategies should be implemented to achieve these goals. Does it suffice to raise only the formal retirement ages, as has been done in a number of countries such as Germany, Italy or France? Or do further measures need to be taken to enhance also the employability of older workers? Despite the fact that there have been an increasing number of studies that have analyzed these issues (e.g. Gruber and Wise 1999, 2004, 2007), most current reforms have tended to concentrate on a one-eyed reform of pension systems and the cutback in early retirement incentives to achieve the much-required trend reversal. Even though in a number of countries the employment rate of older workers has risen, the still unsatisfactory magnitude of late-career employment indicates that a more comprehensive policy approach will be required. It seems to be not sufficient to focus on the retirement decision of older workers alone. Instead, one needs to take into account the entire labor market situation of late-career employees and the institutions affecting it. Politically relevant studies of early retirement thus have to go beyond an investigation of the economic attractiveness of retirement incentives. Simultaneously they have to consider also the country-specific characteristics of labor markets, production systems and systems of education and training which determine the employment chances of older workers in modern societies. This means that a mere ‘incentive strategy’ by the state does not seem to work. The fact that employers often still typify older workers as ‘redundant’, ‘inflexible’ and ‘physically or emotionally less resilient’ (see Schröder, Hofäcker and Müller-Camen 2009) indicates that a joint strategy of employers, unions and policy makers is necessary to bring a lasting increase in employment levels among the older work force. In this respect, Dirk Hofäcker’s work on globalization and older workers constitutes a considerable advancement in cross-nationally

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Older workers in a globalizing world

comparative research on late careers and retirement. It builds a bridge between the previously often disconnected scientific areas of economic retirement research and the sociological life-course approach. His simultaneous focus on both welfare and production regimes provides a helpful ‘key’ to understanding the origins and the country-specific developments of early retirement, as well as the difficulties in reversing them. Hofäcker’s book is thus able to identify the ideal-typical political strategies by which modern societies have responded to the critical situations of older employees in a rapidly changing global labor market. He shows that nation-specific approaches molded by different ‘institutional regimes’ have been quite divergent, resulting in cross-nationally varying degrees of older workers’ labor-force participation. The combination of aggregated evidence from large-scale data sources such as the OECD or Eurostat data with individual-level longitudinal data from the European Community Household Panel allows Hofäcker to do both: (1) adequately disentangle the dynamic nature of late-career trajectories and retirement transitions; and (2) point to the inter-individual variation of late careers even within countries, for example between workers with different human capital resources. His book, though, does not just stop with a convincing scientific analysis of late-career processes of senior workers in globalized labor markets. In his final chapter, Hofäcker also develops concrete policy suggestions for an integrated strategy to reverse early retirement. Moreover, he identifies the respective problematic groups on national labor markets that policies would need to take specific care of to avoid detrimental consequences for social inequality. That makes this book highly valuable not only for a general academic audience, but also for policy makers and practitioners in the field of labor market analysis and intervention. I wish this book a large readership. Only by applying such an integrated approach as presented here will modern societies be able to adequately deal with the double challenge of demographic aging and early retirement. Professor Hans-Peter Blossfeld, Otto-Friedrich University Bamberg

REFERENCES Blossfeld, H.-P. and H. Hofmeister (eds) (2006), Globalization, Uncertainty and Women’s Careers in International Comparison, Cheltenham, UK and Northampton, MA, USA: Edward Elgar. Blossfeld, H.-P., S. Buchholz and D. Hofäcker (eds) (2006), Globalization, Uncertainty and Late Careers in Society, London and New York: Routledge.

Foreword

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Blossfeld, H.-P., E. Klijzing, M. Mills and K. Kurz (eds) (2005), Globalization, Uncertainty and Youth in Society, London and New York: Routledge. Blossfeld, H.-P., E. Mills and F. Bernardi (eds) (2006), Globalization, Uncertainty and Men’s Careers: An International Comparison, Cheltenham, UK and Northampton, MA, USA: Edward Elgar Buchholz, S., D. Hofäcker, M. Mills, H.P. Blossfeld, K. Kurz and H. Hofmeister (2009), ‘Life courses in the globalization process: the development of social inequalities in modern societies’, European Sociological Review, 25 (1), 53–71. Gruber, J. and D. Wise (eds) (1999), Social Security and Retirement around the World, Chicago: University of Chicago Press. Gruber, J. and D. Wise (eds) (2004), Social Security Programs and Retirement around the World: Micro-estimation, Conference Report, Cambridge, MA: National Bureau of Economic Research. Gruber, J. and D. Wise (eds) (2007), Social Security Programs and Retirement around the World: Fiscal Implications of Reform, Chicago: Chicago University Press. Schröder, H., D. Hofäcker and M. Müller-Camen (2009), ‘HRM and the employment of older workers: Germany and Britain compared’, International Journal of Human Resource Management and Development, 9 (2/3), 162–79.

Acknowledgements Though a dissertation is written by one single author, there are a number of people and institutions involved in the wider context of this work to whom I would like to express my gratitude. First of all, I would like to thank my supervisor, Professor HansPeter Blossfeld, for creating the pleasant and productive work environment at Bamberg University in which this work developed and for so positively encouraging me in my work throughout the last few years. I also would like to express my gratitude to Professor Richard Münch and Professor Irena Kogan, who kindly agreed to be part of my doctoral committee. There were also a number of institutions involved in this work. First of all, I am indebted to the Volkswagen Foundation for generously providing support for the ‘Globalife’ project which made up the contextual framework for the majority of this work. Following my time in this project, the State Institute for Family Research at Bamberg University (ifb) has provided me with yet another pleasant environment in which this work finally could be finished. The IRISS-C/I visitors’ program at CEPS/INSTEAD in Luxembourg provided me with a very welcome opportunity to use and analyze data from the ECHP on-site, cofounded by the European Commission under the Sixth Framework Programme’s Research Infrastructure Action. I would like to thank the program coordinator of IRISS, Dr. Philippe van Kerm, and the entire program team in Differdange for making my stay a very pleasant experience in both academic and personal terms. Naturally, this work has benefited from a number of discussions and cooperations both within and outside my local working group in Bamberg, as well as the Globalife research project and the TransEurope Research Networking Programme, funded by the European Science Foundation. However, Sandra Buchholz deserves a special mention in this respect as a great colleague and good friend throughout the last few years. In the final stages, I very much appreciated the help from Jonathan Harrow (Bielefeld) with the language editing of the text. I would like to thank my parents, Gertrud and Günter Hofäcker, for constantly supporting me throughout the last few years. My final x

Acknowledgements

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thanks, however, go to my wife, Christiane Hofäcker, for all her love, help and understanding throughout all the time in which this work was written. Dirk Hofäcker, 2 April 2009

1. Introduction: the ‘two-faced pension crisis’ In many European countries, the debate about the future sustainability of pensions has come to dominate the public, political and scientific discourse. By the year 2004, around two-thirds of all Europeans (61 percent in the EU-15 countries) considered demographic aging to be a ‘major problem’, and a slightly higher proportion (72 percent) indicated a lack of confidence in the future of contemporary pension systems (Frommert et al. 2009). At the same time, a number of EU, OECD and World Bank studies were recently published that aimed to find a solution to the pressing question of how to build up socially adequate and at the same time long-term sustainable pension systems (e.g. Carone et al. 2005; European Commission 2003a, 2006; OECD 1998a, 2000d, 2003a; World Bank 1994). In fact, many modern societies in the Western hemisphere are nowadays confronted with a two-faced ‘pension problem’ (Auer and Fortuny 2000) or even ‘pension crisis’ (Ebbinghaus and Schulze 2007: 277f.; World Bank 1994). First, many European countries have experienced a trend towards rising life expectancy in recent decades. While in 1970 a newborn child in Europe had an average life expectancy of 71 years, this figure had risen to 79 years by 2005, though with considerable cross-national variations between the core EU countries and the post-socialist accession states. At the same time, birth rates have declined considerably. While the average (period) total fertility rate (TFR) was around 2.4 children per European woman in the 1970s, it declined to values around 1.5 in the mid-1990s, where it has largely remained since. Despite large cross-national variations, the TFR of any European country nowadays falls well below the so-called ‘replacement level’ of an assumed 2.1 children per woman required to ensure a stable population (see Table 1.1). As a result, recent population projections expect an overall population decline in Europe after the year 2020 (European Commission 2003c). However, not only the size but also the composition of the European population will change, as many countries will experience a substantial aging of their populations in future decades. In the next 50 years, the population above age 65 in the EU-25 is expected to rise by around two-thirds, 1

2

Austria Belgium Denmark Finland France Germany Greece Ireland Italy Luxembourg Netherlands Norway Portugal Spain

70.0 71.0 73.5 70.8 72.2 70.4 72.0 71.2 72.0a 70.3 73.6 74.2 67.1 72.0

1970 75.5 76.1 74.9 74.9 76.9 75.2 77.1 74.9 76.9 75.4 77.4 76.6 73.9 76.8

1990 79.5 79.4 77.9 78.9 80.3 79.0 79.3 79.5 80.4 79.3 79.4 80.1 78.2 80.7

2005 +9.5 +8.4 +4.4 +8.1 +8.1 +8.6 +7.3 +8.3 +8.4 +9.0 +5.8 +5.9 +11.1 +8.7

Δ1970–2005

Average life expectancy at birth

2.29 2.25 1.95 1.83 2.5 2.03 2.39 3.9 2.42 1.98 2.57 2.5 2.83 2.9

1970 1.45 1.62 1.67 1.78 1.78 1.45 1.39 2.11 1.33 1.61 1.62 1.93 1.57 1.36

1990

1.40 1.62 1.72 1.72 1.89 1.31 1.25 1.97 1.26 1.63 1.73 1.75 1.47 1.25

2002

Total (period) fertility rate

Table 1.1 Key demographic developments in Europe and the United States, 1970–2002/5

−0.89 −0.63 −0.23 −0.11 −0.61 −0.72 −1.14 −1.93 −1.16 −0.35 −0.84 −0.75 −1.36 −1.65

Δ1970–2002

3

Sources:

Notes:

74.7 73.8 71.9 70.9 69.6 69.2 70.0 69.8 71.4 71.4

77.6 77.4 75.7 75.3 71.5 69.4 71.5 71.0 75,6 75.1

OECD 2004a, 2005a, 2007b.

a = data from 1971, b = data from 2004.

Sweden Switzerland UK USA Czech Republic Hungary Poland Slovakia EU-15 EU-19

80.6 81.3 79.0 77.8b 76.0 72.8 75.1 74.0 79.0 78.6 +5.9 +7.5 +7.1 +6.9 +6.4 +3.6 +5.1 +4.2 +7.6 +7.2

1.92 2.10 2.43 – 1.91 1.97 2.2 2.41 2.41 2.35

2.13 1.59 1.83 2.08 1.89 1.84 2.04 2.09 1.65 1.71

1.65 1.40 1.64 2.01 1.17 1.30 1.24 1.19 1.57 1.50

−0.27 −0.70 −0.79 – −0.74 −0.67 −0.96 −1.22 −0.84 −0.85

4

Older workers in a globalizing world 80 1970 2005 2050

70 60 50 40 30 20 10

SPA ITA GR PT DE SL CZE AT PL SK HU BEL FR FI IRL UK LT LV SE DK NL LU USA NOR EU15 EU19

0

Note: 1For the figures reported above, ‘working age’ is assumed to describe the population between 15 and 64 years of age. The term ‘retirees’ applies to those above 65 years, which is, despite some variations between nations and the sexes, the most usual formal retirement age in EU countries (e.g. Blöndal and Scarpetta 1999; Fenge 2001). Though the correspondence is not perfectly accurate, this ratio has proven to be a useful proxy indicator for comparing the relation of workers to non-workers in a given population (Lisiankova and Wright 2005: 79f.). Source:

OECD 2005a.

Figure 1.1

Age dependency ratio, 1970–2050 (projection): working age/ retired population1

while the ‘frail elderly population’, that is those aged 85 years and older, will more than triple in the same time span (Lisiankova and Wright 2005: 76ff.). In the long run, this will result in an overall decline of the labor force as well as an increasing share of older workers within it (Burniaux, Duval and Jaumotte 2004). A large body of economic literature has investigated the future economic consequences of this trend and warns us that, if aging remains unaddressed, it may severely constrain labor markets and pose a threat to productivity and growth (e.g. Börsch-Supan 2004; Carone et al. 2005; Lisiankova and Wright 2005). At the same time, national welfare states will come under an increasing strain as the ratio of individuals of working age to those beyond (formal) retirement age will change dramatically. While, currently, there is one retiree for around four working-age1 individuals, this ratio will fall to around 1:2 by the year 2050 (Figure 1.1). The demand for transfers and services consumed by the elderly (such as healthcare, residential services, housing, pensions, etc.) will hence increase sharply, while the ‘base’ of (employed) workers and taxpayers to pay for this rising expenditure decreases in absolute and relative numbers

Introduction: the ‘two-faced pension crisis’ 100

5

NOR USA UK POR DK SPA GRE GER FIN NL ITA BEL A FR SWE

90 80 70 60 50 40 30 20 10

19 60 19 63 19 66 19 69 19 72 19 75 19 78 19 81 19 84 19 87 19 90 19 93 19 96 19 99 20 02 20 05

0

Source: OECD 2008.

Figure 1.2

Employment rate, men, 60–64 years, 1960–2006

(Lisiankova and Wright: 74). This rising imbalance between social security contributors and recipients puts an increasing burden on national health and pension insurance systems that may only be met adequately by increases in citizens’ social security contributions or government spending (Auer and Fortuny 2000; OECD 2003a). Yet, mere population aging does not pose the only major challenge facing modern welfare states at the onset of the twenty-first century. Almost every OECD country has experienced a significant and rising trend towards an ever earlier withdrawal of older workers from the active labor force that has intensified since the mid-1970s (Auer and Fortuny 2000; European Commission 2003b: 167ff.). Publicly supported early retirement systems, which were initially intended to balance out the economic downturns in the aftermaths of the oil price shocks, have become saturated, triggering a largescale decline of older workers well before the official retirement ages. The present situation in Europe is that, despite the fact that formal retirement ages are often set at age 65, the labor-force participation of senior workers already starts to decline after age 50, with an ‘exit peak’ around age 60 (European Commission 2003a; Eurostat 2006). For an illustration, Figure 1.2 presents the development of employment rates of older European and North American men of direct pre-retirement age, that is aged 60–64 years, for the time period 1960–2006.

6

Older workers in a globalizing world

It clearly demonstrates that, in almost any Western country, male workers of the above age group have experienced a significant decline in their labor-force participation since the 1970s. The most dramatic declines in this age group took place in a number of Western European countries (especially in Austria, Belgium, France, the Netherlands and, to a lesser extent, Spain), as well as in Finland, where by the mid-1990s only between one-tenth and one-third of men of pre-retirement age still actively participated in gainful employment.2 Declines were least pronounced in the Scandinavian countries of Sweden and Norway, where employment participation fell less steeply and around one-half or more of all older workmen were still participating actively in employment. AngloSaxon countries as well as the still strongly agrarian countries of Southern Europe, where many individuals are self-employed farmers (Portugal and Greece), exhibit only slightly lower employment rates in later life. Though more recent figures from the late 1990s and the early twenty-first century seem to point to a halt, or even partial reversal of the early retirement trend, the withdrawal of the vast majority of European men from active employment is still taking place well before mandatory retirement age and remains clearly below the level of the early 1970s. In addition, comparative data show that employment rates not only differ markedly between developed nations, but simultaneously show considerable levels of variation within countries. Many comparative reports have, for example, pointed to significant differences as a function of the educational levels of older workers, highlighting that older workers with higher education tend to stay longer in employment than those with only basic schooling (e.g. Auer and Fortuny 2000; European Commission 2003c; Eurostat 2006; Zaidi and Fuchs 2006). Other studies have pointed to cross-industrial differences, with early retirement being more widespread in traditional industries while occurring more rarely in the private service sector and agriculture, though the pattern revealed is not always unambiguous (Ebbinghaus 2006a: 175ff.; Jacobs, Kohli and Rein 1991b; Naschold and de Vroom 1994). Despite these individual-level differences, however, there remains a solid pattern of early exit before pension age in almost any European country that has proven largely resistant over the last few decades. Politicians and scientists have increasingly come to regard this early-exit trend as a long-term unsustainable labor market development. It can be regarded as a ‘waste of individual life opportunities’ (European Commission 2004a: 3): if older workers do not have the opportunity to continue their employment career and collect further pension or insurance benefits, their future living standard may deteriorate and remain below an adequate level. From an economic angle, early retirement may additionally be

Introduction: the ‘two-faced pension crisis’

7

seen as a serious loss in a nation’s productive capacity that would bar it from reaching its ‘full potential for labour supply to sustain economic growth’ (European Commission 2004a: 5; see also Gruber and Wise 1998; Herbertsson and Orszag 2003). This may easily turn into a comparative disadvantage in competition with countries such as the United States where demographic aging is less pronounced and average retirement ages are higher (Willets 2003). Finally, early retirement amplifies the imbalance between pension insurance contributors and recipients and therefore further increases the already high ‘dependency ratio’ between the working population and the economically inactive retired population. If current early-exit trends continue, this ratio will continue to deteriorate in the next few years as the ‘baby boomer’ generation approaches the end of employment life (European Commission 2003b: 157). In response to these developments, the European Union recently enacted the so-called ‘Lisbon Strategy’ to maintain and increase employment growth. Part of this strategy was to lay down two major political targets. The so-called ‘Barcelona target’, agreed upon at the Barcelona European Council of 2002, demands that every European Union member state seek for ‘a progressive increase of about five years in the effective age at which people stop working in the European Union’ by 2010 (European Commission 2003c: 163). In addition, the so-called ‘Stockholm target’, agreed upon at the Stockholm European Council Meeting in 2001, explicitly demands an increase in the employment rate of older workers. It sets ‘an EU target for increasing the average EU employment rate among older women and men (aged 55 to 64 years) to 50 percent by 2010’ (European Commission 2003c: 159). Member states can achieve this aim by either increasing the employment of older workers in general or reactivating the unemployed and inactive aged 55 years and older. Though both targets can be considered to represent only first basic benchmarks which future policy will have to go beyond in order to adequately handle demographic aging (Carone et al. 2005: 41), most EU countries still fall short of both targets, and the EU policy objectives appear to be a long way from being achieved (European Commission 2004a: 8, 2004b: 15, 2004c: 9). Recent EU reports still describe the situation of older European workers as being ‘worrying’ (European Commission 2004a: 8) and their labor market situation as continuously ‘precarious’ (European Commission 2004b: 15, 2004c: 9). Despite some notable employment increases for older workers since the late 1990s and several policies and practices designed to improve their opportunities (Mandl, Dorr and Oberholzner 2006; Walker 1997, 2006; Walker and Taylor 1998), older workers ‘still start exiting the labour market on a very large

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Older workers in a globalizing world

scale by the time they reach 55 years of age’ (European Commission 2005: 26). Only eight countries out of the EU-25 have until recently reached the Stockholm target of a 50 percent employment rate, while a large number are still well below this target with employment rates between 30 and 40 percent (European Commission 2003c: 178ff., 2007: 5). No single country has yet succeeded in raising its average retirement age by the required five years (European Commission 2004b: 27).3 Early retirement therefore still represents a significant socio-political challenge for Europe which is currently far from being adequately met politically. Given its eminent social and political relevance, an increasing amount of research has been dedicated in recent years to a more thorough analysis of both demographic aging and early exit, their causes and possible strategies for dealing with them. Although a large number of questions still remain to be answered (Börsch-Supan 2004: 7), demographic, economic and sociological research has in recent years contributed significantly to a better understanding of the phenomenon of demographic aging.4 Especially regarding the phenomenon of declining fertility, substantial contributions from social science research have provided deeper insights into the object of research on several analytical levels: ●

●

●

First, they considered fertility decline as a multidimensional phenomenon that cannot be understood in isolation, but needs to be linked to central parallel life-course transitions such as educational careers or labor market entry (Blossfeld et al. 2005; Mills and Blossfeld 2003). Second, they raised the awareness that fertility decline needs to be viewed in the context of broad historical changes in contemporary economies and societies. Contributions by sociologists and demographers, for example, explored the relation between trends in fertility and general value changes from materialist to postmaterialist values (Lesthaeghe and van de Kaa 1986; Surkyn and Lesthaeghe 2002; van de Kaa 1987, 2001), changes in the educational background and the employment role of women in modern societies (Blossfeld 1995; Blossfeld and Huinink 1989) and recent increases in structural economic insecurity due to increasing globalization (Blossfeld et al. 2005). Third, comparative research from both sociology and political science pointed to the significance of national contexts for the nation-specific mediation of the above processes. The cross-national variations in the extent of demographic aging could therefore be traced back to specific institutional figurations at the national level (so called ‘welfare regimes’ or ‘labor market regimes’) that lead to

Introduction: the ‘two-faced pension crisis’

●

9

internationally different outcomes at the individual life-course level of young adults (Blossfeld et al. 2005; Mayer 2001). Fourth, findings on the macro-level were connected systematically to developments on the life-course levels of individuals both theoretically (Blossfeld 1996) and empirically. These micro–macro interactions contributed greatly to improving our understanding of the effects of differential institutional contexts on the fertility crisis.

While a comparative sociological life-course perspective has proved to be very sophisticated and fruitful in the analysis and understanding of fertility processes, there have been only a few attempts to apply a similar perspective to the analysis of late careers and retirement. Research on the phenomenon of early retirement has remained comparatively undifferentiated: ●

●

●

Most existing research has focused largely on the timing of the transition from work to retirement (Blöndal and Scarpetta 1999; OECD 1995). However, it stands to reason that decisions to exit employment only mark the end of individual considerations embedded in the general life-course and employment situation of older workers. A theoretical approach that intends to explain early retirement therefore cannot afford to treat retirement in an isolated fashion but needs to place it in a broader multidimensional life-course context. Until now, however, such an analysis has been largely missing. Most research has disregarded or remained considerably vague with regard to a thorough analysis of the various origins and causes of the recent early retirement trend. Reference has frequently been made to general economic background effects such as the ‘oil crisis’ and its repercussions in terms of ‘mass unemployment’ as key drivers of the rising introduction of early retirement opportunities (e.g. Guillemard 2001; OECD 2003a). However, the question then remains why the trend towards early retirement continued and in some countries even amplified in the subsequent decades characterized by economic recovery, thus making it into a key characteristic of modern societies. With regard to explaining cross-national differences in the extent of early retirement, most research has often concentrated one-sidedly on the connection between labor-force exit patterns and the institutional early retirement incentives contained in pension systems and other public transfer programs (e.g. Blöndal and Scarpetta 1999; BörschSupan 2000; Duval 2003a; Gruber and Wise 1999a, 1999b, 2004; OECD 1995). Hence, policy recommendations arising from this

10

Older workers in a globalizing world

●

research often suggested a raising of retirement ages as well as a cut in early-exit generosity as a ‘cure’ for the dilemma of early retirement. However, despite some trends indicating a modest reversal in early retirement, evidence for Germany suggests that recent reforms of retirement ages and early-exit pathways have been far from sufficient to bring about a permanent reversal and a paradigmatic change (Eichhorst and Sproß 2005a, 2005b; Hirschenauer 2007; Sproß and Burkert 2007). Early retirement patterns will hence need to be explained by taking a broader look at the national welfare and labor market conditions that set the boundaries for both the exit and the continuation of older workers’ late careers, not least in order to arrive at more comprehensive political recommendations. Finally, empirical evidence pointed to observable inter-individual differences in the retirement behavior of different groups of workers, such as the self-employed and dependent employees, high- and low-skilled, blue- and white-collar workers, and so on. However, virtually no study has systematically connected these cross-nationally varying micro-patterns and their development in a systematic empirical fashion to nation-specific institutional configurations at the macrolevel. As a consequence, little is known about the differential effects of institutional settings and reforms on various groups of older workers, a connection that may prove to be crucial in the implementation of policy strategies to reverse early retirement. This is even more surprising, considering that corresponding analyses for other phases of the life course have enjoyed a high popularity in recent sociological research, and datasets would, in principle, permit such an analysis.

Against this background, the aim of this work is to develop and test a comprehensive life-course approach to understand early retirement transitions in modern societies, with a specific focus on the enlarged Europe and North America. I shall start with a comprehensive review of main approaches in the current scientific debate about the phenomenon of early retirement, including developments in life-course sociology, comparative welfare and labor market research as well as economic retirement analysis (Chapter 2). In doing so, I shall trace the development of theoretical knowledge about early retirement processes and highlight the strengths and complementarities of existing approaches. However, I shall also point to remaining research deficiencies and open questions. I shall then develop my own theoretical framework that draws on existing retirement research while simultaneously extending it to a broad and comprehensive analysis of older workers’ late-career patterns (Chapter

Introduction: the ‘two-faced pension crisis’

11

3). I shall identify the multidimensional phenomenon of globalization as the main contextual force that has contributed to a general deterioration in the labor market situation of older workers and has fostered their premature withdrawal from the active labor force. However, I shall argue that globalization has been filtered differentially by national institutions, resulting in cross-nationally different ‘modal patterns’ of late career and retirement. As relevant national context characteristics, my approach will consider a broad spectrum of institutional backgrounds ranging from national education and training systems to specific welfare and labor market characteristics that influence both the opportunities of older workers to continue their labor market careers and their opportunities to retire. Subsequently, I shall test the above framework empirically (Chapter 4). Institutional and labor-force (macro) data from selected European and North American countries will be used to reconstruct the late careers of older workers and their interconnectedness with national institutional filters. In addition, results from a cross-national analysis of micro-data from the European Community Household Panel (ECHP) will demonstrate how various groups of older workers have been differentially affected by globalization, and how this affectedness varies with specific national contexts (Chapter 5). My analysis concludes with a final summary of results (Chapter 6), including political recommendations and an outlook on the future of early retirement trends and political strategies to reverse them.

NOTES 1. For the figures reported above, ‘working age’ is assumed to describe the population between 15 and 64 years of age. The term ‘retirees’ applies to those above 65 years, which is, despite some variations between nations and the sexes, the most usual formal retirement age in EU countries (e.g. Blöndal and Scarpetta 1999; Fenge 2001). Though the correspondence is not perfectly accurate, this ratio has proven to be a useful proxy indicator for comparing the relation of workers to non-workers in a given population (Lisiankova and Wright 2005: 79f.). 2. This value is nowadays also reached by Italy, though here older workers’ participation rates were already modest in the 1970s and declines hence were somewhat less pronounced. 3. Germany takes a midfield ranking within Europe, but still lags way behind the two target dimensions in terms of both employment rates (45.4 percent in 2005, Eurostat 2007: 44) and retirement ages (average of 61.3 years in 2004, Kraatz, Rhein and Sproß 2006: 1). 4. See Billari (2005), Kohler, Billari and Ortega (2006) or d’Addio and Mira d’Ercole (2005) for comprehensive overviews of recent research.

2. 2.1

State of the art in social science research INTRODUCTION

The framework to be developed in this work in order to explain late careers in modern societies naturally ‘stands on the shoulders of giants’ in so far as it refers back to existing theories aimed at analyzing the changing relation of work and retirement in recent decades. Though intensive public and scientific dispute about early retirement is a more recent phenomenon, early retirement represents a long-term process whose first lines can be traced back empirically to the 1950s (Hofäcker and Pollnerová 2006). Nonetheless, in the economic boom period of the 1950s and early 1960s, most societies still welcomed a thorough labor-force integration of older workers – possibly to guarantee the supply of manpower in the economically flourishing post-war economies. Since the 1970s, however, early retirement significantly started to increase in most Western societies (ibid.: 28ff.) and so did public and scientific attention to it. The American Business Week journal, for example, reported in 1972 that formal retirement ages had increasingly lost their importance in the US, and that early retirement had ‘won accepted status’ (Business Week 1972). Older workers increasingly were identified as a problematic group in the labor market that suffered disproportionately from economic downturns and deteriorating labor market conditions and faced a high risk of becoming pushed out into unemployment or involuntary retirement (Rosenblum 1974, 1975; US Government 1971). National and international organizations such as the International Labour Organization (ILO) or the United Nations (Feldman 1975; Schuchat 1975) soon became aware of this process. A major international labor conference in 1979 entitled ‘Older Workers, Work and Retirement’ was followed by the subsequent launch of an ‘Older Workers Recommendation’ (Auer and Fortuny 2000: 38; ILO 1980). This ILO recommendation opposed age discrimination in the labor market and demanded that the ‘employment problems of older workers should be dealt with in the context of an overall strategy for full employment which gives due attention to all population groups and ensures that employment problems are not shifted from one group to another’ (ILO 1980). Member states were expected to ensure that 12

State of the art in social science research

13

older workers ‘can continue working under satisfactory conditions’ (ibid.) and that their retirement remains a voluntary decision. In the social sciences, a cross-nationally comparative scientific study initiated by Casey and Bruche at the Wissenschaftszentrum Berlin identified early retirement as a serious adjustment problem in a period characterized by rising mass unemployment in general and the deteriorating labor market situation of older workers in particular (Casey and Bruche 1983). This comparative study marked the starting point for a number of further international comparative studies that were undertaken in OECD countries to describe and explain the continuous decrease in older workers’ labor-force participation. Against this background, the goal of this chapter is to give a summary overview of the main approaches in the social sciences that have attempted to reconstruct and explain the current trend towards early retirement. Given the increasing number of publications devoted to this topic and the space constraints of this work, the following overview naturally cannot completely cover all existing approaches, nor can it sketch all approaches in their full complexity. In the following, I shall therefore describe the main strands of research that have contributed to present knowledge on early retirement, their theoretical assumptions and their main results. In doing so, I shall consider contributions from the economic and social as well as political sciences. Although this disciplinary differentiation may not always be perfectly clear cut owing to interdisciplinary elements in existing research, I shall use it in order to highlight more clearly the differential ‘main foci’ of the various approaches to understanding the phenomenon of early retirement. Following the outline in the introductory chapter, I shall pay specific attention to four key questions: 1. 2.

3.

4.

The conceptual approach: How do existing approaches conceptualize the work–retirement transition in theoretical terms? The explanation of the emergence of early retirement: How do existing approaches explain the emergence of early retirement and its development over time? Macro-level variations: How do existing approaches explain the observable cross-national variation of early retirement between different (groups of) countries? Micro-level explanations and micro–macro interactions: Which interindividual differences are considered by existing approaches? How are they explained? And how far are they related to nation-specific backgrounds?

Each theoretical approach will be reviewed critically against the background of these questions at the end of each of the following sections. It

14

Older workers in a globalizing world

needs to be noted that the focus on the emergence of early retirement and its differential development both across countries and across individuals entails that some frequently discussed theoretical approaches will not be considered explicitly in this work. There is, for example, a large body of literature that establishes a relationship between health and retirement (see Deschryvere 2004 for a detailed and up-to-date overview). At the individual level, this assumption indeed seems highly plausible. Evidence from international comparative studies shows that ‘declining health condition with age accounts substantially for the decline in male and female participation rates with age’ (Kalwij and Vermeulen 2005). Older workers with health problems have been shown to be more likely to leave the active labor force, even when pension benefits are not yet available (Bound, Stinebrickner and Waidmann 2007). However, with regard to the emergence and development of early retirement, health conditions do not seem to provide an adequate explanation. Throughout recent decades, health status at older ages has generally improved owing to medical advances (Jacobzone 1999). Furthermore, gradual changes in the occupational structure of modern societies away from physically demanding manual tasks to less straining work have lessened the significance of age-related health problems (Auer and Fortuny 2000). Recent studies in fact show that, while in industrial times health was one if not the most important predictor of retirement transitions, its significance has clearly diminished (Costa 1996; Queen 1990). Hence, at the macro-level, there appears to be an apparent contradiction between continuous increases in the health status of older workers and a trend towards their ever earlier retirement. Therefore I shall include the health argument only partly in this work. For my micro-data models in Chapter 5, I shall indeed use health status as a key control variable in order to capture the individual determinants of retirement decisions adequately. However, I will not treat health issues as a theoretical concept on its own to explain the phenomenon of early retirement as such. A related argument that has been frequently advanced in scientific debate on early retirement, especially in the labor sciences, has been the reference to productivity declines in later age that foster the redundancy of older workers. The results of research in this field are very diverse. On the one hand, a number of studies indeed point to an inverted U-shaped pattern of workers’ productivity with age, with a maximum in their 40s and more or less steep declines thereafter (see Skirbekk 2003 for an overview). On the other hand, however, a more detailed assessment of older worker’ tasks suggests that a differentiation needs to be made between physical and cognitive skills (such as problem solving, learning and speed) – which indeed are reported to decline with age – and communicative and

State of the art in social science research

15

verbal abilities, which remain more or less constant (ibid.). At the same time, older workers usually can resort to higher work experience and, in contrast to widespread prejudice, do not exhibit higher absenteeism rates than younger ones. The individual productivity of older workers across the life course hence ‘does not appear to be substantially impaired by ageing per se’ (Auer and Fortuny 2000: 24). Even if there were a productivity decline with age, there appears to be no good argument that could relate the development of older workers’ productivity levels to the early retirement trend of the previous decades. As for health, changes in the occupational structure from manual to more communication-oriented skills may, ceteris paribus, even have worked in favor of older workers’ employment chances, as they rather have reduced the more physical type of activities where older workers would be potentially faced with productivity problems. However, older workers may be disadvantaged not only through a depreciation of their individual productivity over the life course but rather by a gradual devaluation of the skills that they process as a consequence of organizational or technological changes. In other words, while the absolute level of the skills attained by older workers throughout their lifetime may have remained largely constant, the relative value of these skills can have depreciated over time as their acquired skills are no longer demanded and have become replaced by other skills that are more widespread among younger or mid-career employees. In my theoretical argument, I therefore shall focus on this latter idea of relative skill depreciation as a possible background of early retirement trends rather than considering the development of lifetime productivity patterns as such. I shall start my overview of theoretical explanations by discussing the economic theory of retirement (section 2.2) that has proven to be the most influential theoretical approach in public and scientific debates about early retirement up to now and has provided the conceptual basis for various OECD publications on this topic (e.g. Blöndal and Scarpetta 1997, 1999; Duval 2003a; OECD 1995, 1998b, 2003b). The economic theory traces the labor market exit of older workers back to the financial withdrawal incentives built into public (early) pension systems and other welfare-state institutions. Given these incentives and the fact that individuals generally tend to favor leisure time over work, it is assumed that older workers will leave the labor force at the soonest possible date when pension payments compensate them adequately for their potential labor income in the case of employment continuation. As incentives to leave employment before the mandatory retirement age have expanded significantly in recent years (Blöndal and Scarpetta 1999), older workers have tended to leave active employment ever earlier. As a consequence, most of the

16

Older workers in a globalizing world

economically oriented literature identifies the abolition or reduction of existing early retirement incentives as a key strategy to reverse the existing early retirement trend. Though economic approaches have pointed to significant statistical associations between public social security incentives and the actual employment behavior of older workers, sociologists have criticized this view for not explaining why these early-exit pathways have developed and how they have changed over time (Kohli 2000: 22 Kohli and Rein 1991: 8). Classical sociological life-course theory hence places the development of (early) retirement more explicitly into the broader historical context of the development of modern societies. The basic assumption is that, under the increasing forces of urbanization and industrialization since the late nineteenth century, a tripartite life course has developed, centered on a phase of (mostly dependent) employment, and based on consecutively passing through the three phases of education, employment and retirement. In this respect, retirement systems became one of the main ‘organizational foundations’ of the tripartite life-course structure, as they gradually helped to create a relatively ‘uniform and structurally demarcated life phase . . . for the majority of the population’ in which individuals of a certain age group were financially safeguarded through state benefits (Kohli 1985: 9f., author’s translation). Its power to exert control over individual life courses, however, visibly eroded as economic restructuring and mass unemployment triggered an ever earlier withdrawal from the labor force long before the mandatory retirement age. A joint comparative study in six countries conducted by Martin Kohli and others (1991) colorfully described the role of pre-retirement systems and other welfare-state programs, such as unemployment or invalidity insurance, in triggering this process, and emphasized the role of firms in implementing these pathways. Section 2.3 will summarize the key findings from this work and its implications for analyzing older workers’ employment transitions. Though the path-breaking work by Kohli et al. represented a first important milestone in the analysis of early retirement, it did not yet develop or use an explicit and generalized ‘conceptual grid’ for the analysis of the differential retirement patterns across countries. In this respect, life-course sociology benefited greatly from new developments in the political sciences, especially from Gøsta Esping-Andersen’s typology of three different ‘worlds of welfare’. Based on a comprehensive analysis of the state–family–market nexus in developed industrial societies and its consequences for individual welfare and societal stratification, EspingAndersen differentiated three different type of welfare state: the largely residual and ‘basic-needs’-oriented ‘liberal’ welfare states of the AngloSaxon world, the generous, all-embracing and full-employment-oriented

State of the art in social science research

17

welfare states of ‘social democratic’ Scandinavia, and the ‘conservativecorporatist’ welfare states of Central and Southern Europe. For each of these regime types, Esping-Andersen derived a specific ‘profile’ of public welfare and labor market policies that has shaped significantly the labor market careers of men and women in modern societies, and older workers in particular. While Esping-Andersen’s approach largely concentrates on the relationship between state institutions and the individual when explaining employment patterns among older workers in modern societies, it largely neglects the importance of firm contexts and the relationship between employees and employers. It stands to reason that any adequate analysis of the contextual framework of older workers’ late-career transitions simultaneously needs to consider the perspective of employers and firms and their embeddedness in public welfare and labor market policies. This explicit focus on all three groups of labor market actors has been a key component in most recent industrial relations research. Inspired by Hall and Soskice’s differentiation of several production regimes and different ‘varieties of capitalism’ (Hall and Soskice 2001; Soskice 1999), several studies have investigated the employment situation of older workers from a more industrial-relations-oriented perspective. More recent works by Ebbinghaus and others have connected these findings explicitly to EspingAndersen’s classification of welfare regimes and have pointed to mutual interdependencies or ‘elective affinities’ between public and firm policies on older workers (Ebbinghaus 1998, 2000, 2002, 2003, 2006a; Ebbinghaus and Manow 2001). Section 2.4 will give an overview of key findings from these two strands of institutional research. Since the 1990s, many sociologists have incorporated the above institutional classifications into a more elaborate cross-national analysis of life-course patterns in modern societies. The basic underlying assumption was that regime-specific configurations of welfare states and labor markets systematically influence the nature and timing of various employment and life course transitions resulting in regime-specific patterns of life-course structures and labor market mobility. Sociologists hence took up the above institutional ‘classification’ and analogously developed the idea of different ‘life-course regimes’ or ‘mobility regimes’ (DiPrete 2002; DiPrete et al. 1997; Leisering 2003; Mayer 2001, 2004, 2005). Hence, this approach theoretically extended the focus in retirement research beyond mere retirement systems and their possible welfare-state pendants to a whole set of life-course policies influencing older workers’ late careers and their exit from employment. The last part of section 2.4 will give an overview of this innovative strand of research, often referred to as the ‘political economy of the life course’. However, I shall argue that, despite significant advances

18

Older workers in a globalizing world

in theoretical terms and an increasing availability of both data and data analysis methods, only very few studies have yet applied this approach to a systematic empirical analysis of late careers. Returning to the four key questions outlined earlier, section 2.5 will give a final summary overview of the theoretical approaches discussed in the previous sections. It will highlight the main contributions of the different approaches to our understanding of older workers’ late careers, but will also point to their possible deficiencies and to questions that remain open. This critical discussion of existing research approaches will provide the theoretical background for my own theoretical approach to be developed in Chapter 3.

2.2

THE ECONOMIC APPROACH: INCENTIVES TO RETIRE

Among the differential approaches that have set out to explain the trend towards early retirement in modern industrialized societies, economic approaches have proved to be the most influential up to now. Arguments in this approach have become integral parts of a number of recent OECD studies and make up a core component of the organization’s policy recommendations (e.g. Blöndal and Scarpetta 1999; Duval 2003a; OECD, 1995, 1998b, 2003b). The main thematic focus of economic analyses of early retirement is on investigating the relationship between public social security systems and individual labor-force supply. First predecessors of the economic line of argument can be traced back to the 1950s (see Quinn, Burkhauser and Myers 1990: 41ff. for an overview). However, the number of empirical publications on the social security effects on various (early) retirement patterns rose significantly in the late 1970s and early 1980s, when retirement before the mandatory age appeared to be on the rise following the oil crises (see for example Boskin 1977; Burkhauser 1979; Burkhauser and Quinn 1983; Burtless and Moffit 1984; Fields and Mitchell 1984). While most of these studies initially had a US focus, the last two decades have witnessed a notable increase in cross-national research endeavors applying econometric methods to compare the differential patterns of the transition from work to retirement in Europe and America (e.g. Blöndal and Scarpetta 1999; Duval 2003a; Gruber and Wise 1998, 1999a, 1999b, 2004):1 ●

A highly influential study was provided by OECD researchers Sveinbjörn Blöndal and Stefano Scarpetta (1999). Based on pooled

State of the art in social science research

●

●

19

macroeconomic time-series data for the period between the 1970s and mid-1990s, both authors analyze the effects of pension systems as well as other social security transfers on the labor supply decisions of senior workers aged 55 to 64 years (1999) in 15 different countries, with special emphasis on possible work disincentive effects on labor supply in old age. Duval’s (2003a) and Johnson’s (2001a, 2001b) approaches partially resemble the perspective of the above studies. Based on (partly historical) macroeconomic time-series data from the 1880s (Johnson) or 1960s (Duval) to the present, both authors provide an econometric analysis of the effects of pension systems (Johnson) plus other welfare systems (Duval) on labor-force participation in various OECD countries. However, in contrast to Blöndal and Scarpetta, both authors take a more detailed look at the effects of pension systems on different age groups of older workers (50 to 54 years, 55 to 59 years, 60 to 64 years, 65 to 69 years). This in-depth perspective allows them to analyze the effects of pension and social security programs on older workers’ labor-force behavior in some more analytical detail. Most recently, the economists Jonathan Gruber and David Wise have provided three studies that thoroughly consider the effect of early retirement incentives on older workers’ labor-force demand. In their first study (Gruber and Wise 1999b), the two authors use macroeconomic data to describe the incentives inherent in social security systems and the resulting pension wealth accrual patterns based on a thorough consideration of 11 different country studies, and they relate these systematically to the aggregated labor-force participation patterns of older workers. In their second cross-national compilation (Gruber and Wise 2004), the two economists extend their perspective to the strength of possible reforms of early retirement systems on different categories of workers. Based on evidence from various country-specific micro-data sources, the authors simulate the labor market responses of several pension reform options. In their most recent publication (Gruber and Wise 2007), the authors turn to an investigation into the effects of possible pension reforms on the cost of social security benefits and government revenues.

The following sketch of the economic approach relies largely on these large cross-national research studies, as they allow not only a thorough sketch of theoretical assumptions underlying the economic approach but also a broad and comprehensive empirical overview of their applicability in a large number of different countries. Occasional reference to additional

20

Older workers in a globalizing world

country-specific studies is added to supplement the cross-national findings where appropriate. 2.2.1

Basic Ideas

The economic explanation of early retirement: theoretical background The key assumption of the economic approach is that older workers can be regarded as rational, utility-maximizing individuals who are trying to maximize their lifetime income and select their optimal retirement timing by considering the given financial opportunities and constraints (Herbertsson 2001: 34). National pension systems and other welfare-state programs play a central role in their individual decisions, as they define under which material conditions older workers can potentially leave the labor force at a given age (Gruber and Wise 2002: 14). Two basic characteristics of pension systems are ascribed a central role in determining the incentives for older workers to withdraw from employment. The first is the legal age at which social security or pension benefits are available to potential retirees. As it can be assumed that the majority of older workers basically value leisure over work, they can be expected to leave the labor force at the earliest time point when pension benefits become available (Gruber and Wise 2004: 17f.). Usually this would be the mandatory pension age; however, in recent decades, many governments have gradually enacted ‘early retirement plans’ that allow older workers to retire and receive pension benefits before the ‘standard’ eligibility age (Duval 2003a: 29). Other pension systems allow older workers to leave the labor force and draw early pension benefits after a certain minimum number of contribution years (Fenge 2001: 58f.). However, significant inter-individual variations in the actual age of labor-force withdrawal indicate that mere eligibility ages cannot serve as sole predictors of individual retirement decisions. In order to encourage a rational, utility-maximizing individual to retire, pension eligibility needs to be linked to a material compensation that is high enough to ensure an adequate living standard (Purcell 2000) and to offset the financial benefits of continuing one’s own labor market career (e.g. Blöndal and Scarpetta 1999; Gruber and Wise 1999b). At first sight, it hence can be assumed that general pension replacement rates, defined as the average share of income that is compensated by pension payments, play a central role in determining older workers’ retirement decisions. However, nationwide averages of replacement rates or those of a ‘typical’ industrial worker (as for example reported by the OECD or Eurostat) can only serve as very general proxies for expected retirement income as they often tend to differ between groups of workers (e.g. those with longer as against those with shorter work

State of the art in social science research

21

Retire Social security systems

Older worker

Setting incentives through generosity and pension patterns Source:

?

Continue work

Own illustration.

Figure 2.1

Schematic representation of the retirement decision (at a given age t)

histories, with different levels of earnings or from different types of households; Blöndal and Scarpetta 1999: 16).2 Depending on the particular national pension system, the level of transfer payments furthermore may differ significantly with regard to the age at which a worker quits employment and starts to claim benefits. In order to capture the effect of pension systems on the individual retirement situation more precisely, economists hence introduce the concept of so-called pension wealth (PW). The fundamental idea behind this concept is to compare the monetary outcome of continuing employment with that of labor-force withdrawal and pension receipt at a given age t (see Figure 2.1). If a worker decides to remain in employment at age t, he implicitly abandons the receipt of pensions to which he is entitled at the respective time point. At the same time, he pays further contributions to the social security system that are added to his pension account and will normally increase his future annual transfer level. Economic theory now assumes that the decision by an individual worker to either remain in employment or exit into retirement will depend crucially on the relationship between the expected income streams from (1) instant pension receipt (in the case of exit) and (2) continuing to work and pay further contributions that increase the future value of pension payments. Workers hence continuously evaluate the difference between two alternative pension streams: ‘one starting sooner with smaller annual amounts and another beginning later but with higher benefits per year’ (Quadagno and Quinn 1997: 136).3 If the future increase in pensions more than outweighs the forgoing of pensions plus the necessary (present) investments in social security, the worker will remain in the labor market, as he can expect

22

Older workers in a globalizing world

that further employment will increase his lifetime income.4 If the gains from continuing in employment one more year just compensate those of withdrawing at age t, the system is regarded to be ‘actuarially fair’ (i.e. the lifetime income streams from continuing to work and exiting employment are identical), and a worker hence may decide on retiring or continuing employment based on his individual preferences. If, however, the increase in future pension levels does not adequately compensate for the contributions to the social security system at time t, that is if the adjustment in future benefits for continued work becomes too small to compensate for forgoing benefits at time t, continuation of work will negatively affect lifetime income, implying that an ‘implicit tax’ is imposed on future earnings (Blöndal and Scarpetta 1999; Fenge and Werding 2004; Gruber and Wise 1999b). Such a pension accrual pattern hence discourages older workers from employment and provides strong incentives to leave the labor force. Retirement incentives and work disincentives therefore can be regarded as basically ‘two sides of the same coin’ (Quadagno and Quinn 1997: 137). The historical development of early retirement incentives In ‘traditional’ pension systems the age at which pension-induced withdrawal incentives peak is expected to be the regular standard retirement age. However, in many countries, insufficient actuarial adjustment, generous pension replacement rates and high social security payroll taxes have caused pension wealth accrual to turn negative even before reaching mandatory retirement age.5 Using data from various OECD-type countries, economic theorists were able to demonstrate that early-exit incentives through public pension systems have risen significantly since the 1970s when economic growth slowed down and labor markets experienced a significant distortion (e.g. Blöndal and Scarpetta 1999; Duval 2003a; Gruber and Wise 1999b, 2004). Table 2.1 illustrates this development by showing the pension wealth accrual rates for an average worker in the early 1970s and mid-1990s between the mid-50s and what is usually considered to be the regular retirement age (i.e. age 55–65).6 The results demonstrate that, in the majority of cases, early-exit incentives were at moderate levels in the early 1970s, but expanded significantly in the following two decades. By the mid-1990s, any of the considered countries except Australia provided significant financial incentives for a labor market withdrawal before age 65 through the PW accrual patterns of its national pension system. In addition to early retirement opportunities induced by the regular pension system, one also needs to consider the influence of additional public welfare programs such as unemployment or disability insurance that can facilitate an effective labor market withdrawal even before the

State of the art in social science research

Table 2.1

23

Pension wealth accrual rates in OECD countries, 1971 and 1995

Country

1971

1995

Δ 1971–1995

Australia Canada Finland France Germany (W) Ireland Italy Japan Netherlands Norway Portugal Spain Sweden United Kingdom United States

0 0.4 0.1 −0.2 −0.9 −0.5 −6.5 −2.1 −0.4 −0.4 −0.4 −0.6 −0.1 −0.7 −0.8

0 −0.6 −2.3 −1.4 −1.3 −1.3 −8.6 −2.8 −0.5 −1.3 −0.4 −1.2 −1.8 −0.4 −1.1

0 −1 −2.4 −1.2 −0.4 −0.8 −2.1 −0.7 −0.1 −0.9 0 −0.6 −1.7 0.3 −0.3

Note: Changes in pension wealth (measured as a multiple of annual earnings) for a 55-year-old person as a result of working for ten more years. Source:

Blöndal and Scarpetta 1999: 72.

earliest formal pension eligibility age (Blöndal and Scarpetta 1999: 26ff.). Unemployment benefits often have been granted to older individuals who face difficulties in re-entering the job market. Eligibility conditions (such as the requirement to remain available for the job market) often have been relaxed for these types of worker so that – despite still being registered as unemployed – these workers have effectively withdrawn from the labor market. In a similar way, eligibility criteria for disability insurance were frequently relaxed to additionally include workers unable to find a job within the labor market (see for example Casey et al. 2003: 16f.; OECD 2002a: 15f.). Both programs were often used by firms to effectively ‘shed’ their older workforce by providing them with a financially buffered exit from employment. In combination, early retirement systems and additional welfare-state programs have hence helped to build ‘bridges’ into retirement for redundant older workers: while ‘regular’ pre-pensions have been most effective in reducing labor supply in the initial pre-retirement ages (i.e. age 60 to 64 years), unemployment and disability benefits have proven to be more relevant for older workers in their late 50s (Duval 2003a: 10ff.).

24

Table 2.2

Older workers in a globalizing world

Pension wealth and social security wealth accruals for singles on average wages, 1971 and 1995

Country

Australia Canada Finland France Germany (W) Ireland Italy Japan Netherlands Norway Portugal Spain Sweden United Kingdom United States

Social security wealth

Pension wealth

1971

1995

Δ 1971–1995

Δ 1971–1995

0 0.4 −0.8 −0.1 −1.5 −0.5 −6.5 −2.1 −0.7 −0.4 −0.4 −1.4 −1.7 −2.4 −0.8

0 −0.6 −5.4 −4.9 −4 −3.1 −8.6 −2.8 −4.8 −1.3 −5.3 −2.8 −2.5 −1.7 −1.1

0 −1 −4.6 −4.8 −2.5 −2.6 −2.1 −0.7 −4.1 −0.9 −4.9 −1.4 −0.8 0.7 −0.3

0 −1 −2.4 −1.2 −0.4 −0.8 −2.1 −0.7 −0.1 −0.9 0 −0.6 −1.7 0.3 −0.3

Note: Changes in pension or social security wealth (measured as a multiple of annual earnings) for a 55-year-old person as a result of working for ten more years. Source: Blöndal and Scarpetta 1999: 72.

Hence, in many cases, welfare programs have amplified pension-induced early-exit incentives. Table 2.2 gives an impression of the magnitude of these additional withdrawal incentives by contrasting the mere pension wealth accrual rates from Table 2.1 (right column) with social security wealth accrual rates that simultaneously consider exit incentives through unemployment programs after age 55. The general trend in social security wealth accruals largely corresponds to the results found for pension wealth accrual rates. By the mid-1990s, virtually every country (again except Australia) was providing incentives for a labor-force withdrawal before reaching mandatory retirement ages, and, for the most part, these incentives increased significantly between the early 1970s and mid-1990s. However, a comparison of social security and pension wealth accruals shows considerable cross-national variation in the importance of additional exit incentives provided through social security systems. In most of the English-speaking countries (Australia, the United Kingdom, the United States and Canada), their impact appears to be low. Here, it

State of the art in social science research

25

is more regular pension incentives as well as additional private and occupational pension programs that provide incentives for early laborforce withdrawal (Börsch-Supan 1992: 542; Gruber and Wise 1999a: 20; OECD 2002a: 16f.). In contrast, additional welfare programs appear to be highly important in many European welfare states. In France and Finland, for example, unemployment insurance was used massively to allow older workers to leave the labor market before regular retirement age (Blanchet and Pelé 1999; Hytti 2004). In addition, country study evidence suggests that, in the Netherlands, disability insurance was used in a similar manner to facilitate labor-force withdrawals – a phenomenon that has frequently been referred to as the ‘Dutch disease’ (e.g. Aarts, Burkhauser and de Jong 1996; Muysken and Rutten 2002). German policy makers employed a combination of both kinds of welfare-state program to facilitate older workers’ labor-force withdrawal (Arnds and Bonin 2003; Börsch-Supan and Schnabel 1999: 153ff.). Both unemployment insurance and disability insurance hence have significantly amplified and extended early-exit incentives through the regular pension. Explaining cross-national differences The suggested relationship between the social security incentives outlined above and the labor supply of older workers can be confirmed empirically when one relates social security wealth accruals for workers aged 55 to 64 years with the employment rates for the same age group (see Figure 2.2). Systematically comparing the (early) retirement incentives with the respective employment participation of older workers yields a clear correlation between exit incentives through social security systems and older workers’ actual withdrawal behavior. Employment rates are especially low in those Central and Southern European countries where retirement incentives have developed most extensively. In contrast, in most English-speaking and Nordic countries (with the notable exception of Finland), retirement incentives are clearly lower and the average retirement age has remained high (Gruber and Wise 1999b: 20). The significant connection between the two dimensions is confirmed by the comparatively high level of explained variance (R2=49%). Economists furthermore emphasize that early retirement incentives have in fact preceded the drop in labor-force participation levels in the elderly and were not introduced retrospectively as measures to accommodate pre-existing employment withdrawal patterns (Gruber and Wise 1998: 162, 1999b: 37f.; see also Johnson 2001a, b for a similar empirical proof). Recent studies additionally show that pension incentives remain an important predictor of retirement behavior even when other institutional

26

Older workers in a globalizing world

Labour Force Participation 55–64

80 NOR

SWE

y = 3.0206x + 67.239 R2 = 0.4882

70 US UK

IRL

POR GER

CAN

60 AUS

SPA 50 ITA –9

FIN –7

FRA –5

NL 40 –3

–1

Social Security Wealth Accrual After Age 55

Note: Changes in social security wealth (measured as a multiple of annual earnings) for a 55-year-old person as a result of working for ten more years. Source:

Own illustration based on Blöndal and Scarpetta 1999: 72.

Figure 2.2

Social security wealth accruals and labor-force participation rates for singles on average wages, aged 55–64 years, 1995

characteristics of countries are taken into account (Fischer and SouzaPoza 2006). Hence, economists concur that there is a ‘strong relationship between social-security incentives to quit work and the labor force departure of older workers’ (Gruber and Wise 1998: 162).7 Despite cross-national differences with respect to cultural traditions and institutions, individuals in different countries appear to respond similarly to given retirement incentives (Gruber and Wise 2002: 5). Gruber and Wise therefore emphasize the ‘overwhelming’ role that social security systems have played for the marked decrease in older workers’ labor-force supply by providing ‘enormous incentives to leave the labor force early’ (ibid.: 2). Explaining inter-individual differences By investigating the institutional design of pension and social security systems, economic theory hence provides an important explanation for both the increase in early retirement and the cross-national variations in observed retirement behavior. At the same time, the concept of (variations in) social security wealth accruals can also be used to explain interindividual differences in retirement behavior within countries (Blöndal and Scarpetta 1999: 42f.):

State of the art in social science research ●

●

●

●

●

27

Workers with a long work history can be expected to have accumulated enough pension capital to withdraw from the labor force early, while those with shorter contribution periods or interruptions will need to remain longer in employment in order to increase their pension wealth. Workers with low wage levels will possibly be more likely to retire, as pension benefits are often more generous for them owing to flat-rate components and/or minimum and maximum pension ceilings. In addition, withdrawal incentives provided though generous welfarestate programs such as disability or unemployment insurance may provide financially attractive alternatives when they consider their low earnings and often unstable employment careers (Blöndal and Scarpetta 1999: 18; Casey et al. 2003: 16; Herbertsson 2001: 34). Self-employed individuals can be expected to retire later, as they are often not covered as adequately by public pension plans and have higher retirement ages or lower benefit levels (Blöndal and Scarpetta 1999). Hence, they will invest longer in private income sources that follow a more actuarially fair accrual pattern (Auer and Fortuny 2000). Highly educated older workers with high incomes and investments in private savings may also gain considerably from remaining within the labor force. Findings from Blöndal and Scarpetta (1999: 43) show that, even when controlling for earnings, these workers are more likely to continue working – a possible indication of higher work motivation due to a more diversified field of responsibility. Older workers in large companies usually have better access to additional occupational pension components. Economists consider the effects of these additional sources on retirement timing to be ambiguous. On the one hand, they may postpone retirement owing to more actuarially fair accrual patterns than in public pension plans, especially in so-called ‘defined contribution plans’ where workers’ (pre-defined) contributions are charged the currently prevailing interest rate. On the other hand, however, occupational pensions have often been used by firms in need of restructuring or facing the repercussions of recession to facilitate an earlier labor-force withdrawal for older workers through relaxations of eligibility patterns and accrual rates (e.g. Auer and Fortuny 2000: 20f.; Blöndal and Scarpetta 1999: 46; OECD 2002a: 16f.; Quinn and Quadagno 1997: 142). This has been practiced most frequently with so-called ‘defined benefit plans’, where it is not the workers’ contributions but the level of pension benefits the firm is obliged to pay that is fixed. These plans have often been awarded earlier

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to employees in order to facilitate labor-force withdrawal and staff downsizing. Policy recommendations Economic theory does not confine itself to a mere reconstruction and explanation of existing retirement patterns. It acknowledges that, under the most recent demographic developments, the previously described trend towards early retirement cannot be maintained and will lead to adverse effects not only on pension financing and overall social expenditure (Gruber and Wise 2007; Herbertsson and Orszag 2003; OECD 2002a) but also on economic growth (Börsch-Supan 2004; Conde-Ruiz and Galasso 2004). To reverse the early-exit trend, most economists recommend reforming current pension systems and cutting back existing retirement incentives. Quinn and Quadagno (1997: 146) argue that, when considering that early-exit incentives have played a major role in reducing the labor-force supply of older workers before mandatory retirement in the US, ‘there is no reason why they cannot be equally successful at the reverse – encouraging workers to stay active in the labor market longer than they currently do’. They hence call for manifest changes in the existing early retirement options and a shift to generally less generous benefit schedules (ibid.: 30f.). Likewise, Gruber and Wise argue that changes in the provision of social security programs can be expected to play a key role in reversing the trend towards early retirement (Gruber and Wise 1998: 162; 1999a: 39). Finally, research focusing explicitly on European countries also calls for actuarial adjustments in current pension benefit systems and a decrease in the implicit tax rate on continued work to encourage older workers to leave the labor force later (Jousten 2001: 41). Policy makers are hence advised by economists to ‘consider lowering the probability of early retirement by amending pension systems to make early retirement a less attractive choice’ – a strategy that ‘might exert considerable influence in the short term’ (Fischer and Souza-Poza 2006: 18). These recommendations frequently make up a central part of policy-relevant reports and research papers published by the OECD that demand a reduction in implicit tax rates and a more neutral design of pension systems, a closing of financially attractive early retirement pathways, and raising of the official retirement age (e.g. Blöndal and Scarpetta 1999; Casey et al. 2003; Duval 2003a; OECD 1998a, 2006, 2010a: Ch. 5). However, many OECD studies increasingly emphasize that reforms of the social security incentive structure need to be integrated into ‘a broad approach to reform’ (Casey et al. 2003: 23) that also considers the improvement of ‘framework conditions’ (OECD 2002a) such as measures aimed at improving the employment situation of older workers.8

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2.2.2

29

The Potential of Economic Theory for Explaining Early Exit: A Critical Review

By linking retirement incentives built into pension systems and their development over time to labor-force participation patterns of senior workers, economic theory undoubtedly has contributed significantly to the understanding of early retirement processes. Statistical analyses have demonstrated that the concept of pension and social security wealth provides a fruitful explanation of both cross-national and inter-individual differences in retirement patterns. The growing number of retirement incentives through pension and supplementary welfare benefit systems were furthermore identified as a major driver of the growing trend towards an ever earlier retirement in recent decades. Despite these major contributions to our understanding of work and retirement patterns, the economic explanation of early retirement also reveals a number of deficiencies that call for further examination of the phenomenon. One major problem that has been criticized frequently is that the approach conceptualizes retirement transitions and individual decisions to leave employment in a very narrow sense. The general idea of the approach rests on the assumption that the transition from employment to economic inactivity can be modeled as a voluntary choice of individuals under given institutional (i.e. pension and social security) framework conditions that provide incentives for or against a permanent labor-force withdrawal. By concentrating on the individual decision aspect only, the approach takes a dedicated labor-supply-side view while largely neglecting the labor demand side – a perspective that the two ILO researchers Auer and Fortuny reject as ‘merely wishful thinking’ (Auer and Fortuny 2000: 40). It stands to reason that this one-sided focus on free individual choice and the institutional ‘pull factors’ that influence it does not adequately reflect the decision-making process of older workers. Dorn and SouzaPoza (2005) support this critique when they show that, in the majority of modern industrialized countries, involuntary retirement is of significant importance for labor-force withdrawal processes and, in some countries, even accounts for the majority of actual retirement transitions. Both authors furthermore emphasize a sizeable and significant negative correlation between the relative importance of involuntary retirement and the overall labor-force participation of older workers, implying that, in countries where early retirement has been most pronounced, involuntary retirement has made up a significant proportion of it (Dorn and Souza-Poza 2005: 10ff.). Hence, it can be assumed that other factors that ‘push’ older workers out of employment constrain their possibilities of continuing an employment career. The simultaneous existence of these ‘push factors’

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turns the individual decision situation into a much less ‘free’ and ‘voluntary’ decision of individuals than the mere concentration on retirement incentives suggests. It has therefore been argued that econometric models apply an ‘overly narrow view of decision making’ (Kohli and Rein 1991: 8) and have ‘clear limitations’ when applied in the analysis of practical retirement behavior (Orszag 2003). Critics of the economic approach stress that, in addition to incentives for labor supply, developments on the labor demand side need to be considered, such as labor demand shocks, unemployment and employers’ initiatives to adjust their staff to changing economic environments. Hutchens (1999), for example, highlights the significance of firms’ behavior in shaping early retirement trends. He shows that generous early retirement provisions through additional social security systems may not only influence an older worker’s individual ‘willingness’ to retire but also provide firms with a manageable ‘tool’ to shed older workers during recessions or in times of sluggish economic growth. Using micro-data for 19 industrialized countries, Dorn and Souza-Poza (2005) show that these measures are in fact common in several countries. Hence, firms play an active role in early-exit implementation by making financially attractive ‘offers that cannot be refused’ (Hutchens 1999: 676) to older workers that combine generous social security benefits with private pensions provided by the firm. Thanks to the opportunity to externalize (major) parts of the cost of employee shedding, firms act as ‘retirement gatekeepers’ without having to bear the full cost of shedding an older worker (ibid.: 659). Though workers usually suffer hardly any financial losses, their individual decision-making situation becomes more constrained. As a result, social security benefits have the unintended effect of increasing non-employment among the elderly and increasing the incidence of involuntary early retirement. Their retirement choice remains free in so far as they agree to exit employment given the generous financial compensation and the often only restricted likelihood of continued employment. However, it becomes involuntary in so far as older workers have to forgo potentially preferable options such as a continuation of employment (Quadagno and Quinn 1997: 138f.). These ‘alternative work scenarios’, however, do not enter the analytical perspective of economic theory and nor do the institutions that may possibly influence them, such as labor market training and education and training policies. Older workers may not just suffer a high risk of redundancy in times of economic downturns. They are often also most vulnerable to labor market shocks and changes in the economic environment. Several studies show that, in times of rapid technological change, older workers run a significantly higher risk of becoming obsolete due to the erosion of their

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human capital and the only short amortization period for investments in their further training (Ahituv and Zeira 2001; Bartel and Sicherman 1993; Hægeland, Rønningen and Salvanes 2007). Structural changes in the economic and occupational structure devalue the qualifications of the employed elderly, make them more vulnerable to labor-force disengagement and increase their risk of an involuntary early exit. Likewise, these changes deteriorate the labor market re-entry chances of older individuals who have lost their jobs, for example owing to corporate downsizing, shutdowns or the termination of non-permanent working contracts. These individuals are then also more likely to end their job search efforts and accept early retirement options instead. It can hence be argued that, by referring theoretically to the supply side only, economic theory disregards important restrictions of retirement behavior and neglects relevant actors, resulting in a systematic overestimation of a single explanatory factor. The disregard of relevant context conditions, however, also points to a second shortcoming of the economic approach. Economists have put enormous effort into a detailed analysis of existing incentives and their labor market consequences on both the macro- and the micro-level. However, they often remain rather vague when it comes to a causal explanation of why incentives for early retirement actually exist, why they have increased so drastically in recent decades and why cross-national differences in incentives have developed and broadly persisted over the last two decades (Kohli 2000: 20). Put more plainly, existing economic approaches report correlation, but not causation. Gruber and Wise themselves admit that their theoretical approach ‘simply says that in some instances, the provisions were adopted for a particular reason. And, the data show that they worked’ (Gruber and Wise 1999a: 36f.). Some reference is made to the fact that existing early retirement incentives were introduced in times of economic recession to move older, less qualified workers in declining sectors out of the work force and create employment opportunities for the young (Quadagno and Quinn 1997: 140f.). Likewise, Gruber and Wise report in their cross-national study that in some countries the introduction of early retirement incentives was linked to the expectation that more job opportunities would be created for the young (Gruber and Wise 1998: 162; 1999a: 36). However, these results are often based only on ‘anecdotal evidence’ (Gruber and Wise 1998: 62) and fail to elaborate sufficiently on why their extent shows marked deviations across countries. In addition, it remains puzzling why retirement incentives continued to be maintained even in times of economic recovery. The theoretical critiques of the economic approach obviously have serious implications for its policy proposals. Assuming that not only supply-side but also demand-side factors exert a significant influence on

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older workers’ labor-force behavior implicitly leads to the conclusion that, to achieve a reversal of current early retirement trends, as Orszag has put it, ‘much more [is] required than just changing incentives’ (Orszag 2003). OECD economists agree that, though it appears to have become obvious that retirement incentives through social security systems have significantly impacted on individual retirement decisions, future research is well advised to ‘pay greater attention to other influences, such as preference for leisure or demand-side factors’ (Duval 2003a: 29). This refers especially to context conditions and institutions that may influence the employment situation of older workers, that is general economic background (unemployment), active and passive labor market policies and industrial relations (Dorn and Souza-Poza 2005: 5f.). If, in contrast, only the financial pressure on older workers to remain in employment is increased through closing early retirement pathways (as implied by most economic policy proposals) without simultaneously improving the employability of older workers, there may be an increasing risk of a ‘privatization of employment risks’ (Ebbinghaus 2005: 42, author’s translation), without a necessary increase in old age employment.

2.3 2.3.1

SOCIOLOGY OF THE LIFE COURSE Classical Life-Course Theory: The Standardized Life Course

Classical sociology of the life course: basic principles In contrast to economic research, which largely concentrated on the effects of financial incentives on retirement behavior under given institutional conditions without performing a detailed analysis of their development and historical embeddedness, life-course sociology connects pension systems and retirement behavior explicitly with the social and historical development of modern societies. Within the framework of life-course analysis, the transition to retirement is considered as a central lifecourse transition that has developed in modern, industrial societies, but has experienced major transformation in recent decades which have often been characterized as marking a transition from an industrial to a ‘post-industrial’ or ‘post-Fordist’ society (Myles 1993). Life-course research represents a field of study that can look back on a long history in the social sciences. As Mayer (2004, 2005) has shown, its first predecessors can be traced back to the early twentieth century. In its early years, life-course sociology focused strongly on deriving general aspects of human development in all types of society. It took, however, until the late 1970s and early 1980s for the attention of life-course research

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to shift explicitly to analyzing the specific characteristics of life courses in industrialized modern societies. Given the corresponding thematic focus of this work, I shall concentrate mainly on these more recent theoretical approaches. Within these differential life-course approaches, I shall differentiate between two strands of life-course approaches in the following. A first phase of life-course research, which I shall term ‘classical’ or ‘traditional’ (section 2.3), refers to approaches developed in the late 1970s and 1980s, often summarized under the label of the theory of the ‘institutionalized life course’ (e.g. Kohli 1985). These have largely followed a macro-sociological focus and concentrated on decomposing the typical structure of aggregated life courses in modern industrial societies, its relatedness to public institutions and its development over time. In contrast, the term ‘modern life-course theory’ (section 2.4) will be used to refer to more recent approaches in the 1990s that are based more explicitly on a micro-sociological foundation and longitudinal data (Blossfeld and Huinink 2002; Mayer 2000). These approaches have attempted to analyze the reciprocal relationship between individual agency and institutional frameworks from an internationally comparative perspective and have often been referred to as ‘political economy of the life course’ (Mayer 1997). In public understanding, the term ‘life course’ often tends to refer to individual biographies. In contrast to this explicit micro-perspective, early life-course sociology approached life courses from more of a macrostructural perspective, regarding life courses as a specific regular, institutionalized but, at the same time, dynamic ‘pattern’ of social structure itself. Hence, individual life trajectories and biographical decisions cannot be explained by focusing solely on the individual motives of individuals (as often done in psychology) but need to be reconstructed as developing in socially constrained, regulated and predetermined situations (Marshall and Mueller 2002: 2). In this sense, most sociological approaches in the 1980s did not focus primarily on individual life courses themselves, but on the aggregation of individual behavior and action into a societal ‘pattern’ that itself influences individual lives by providing a structural and cultural framework for action (Blau 1977). Aggregated life-course patterns thus become a ‘social blueprint of the organisation of individual lives’, a ‘social timetable’ (Buchmann 1989: 91) and a reference point for individual action (Naegele et al. 2003: 18). They constitute their own form of social structure (Marshall and Mueller 2002: 2), a social entity or a fait social on their own (Kohli 1985: 7). The database of this research often originated either from process-produced data from administrative sources or from social surveys frequently driven by a specific research focus. By its very nature, most of this data was cross-sectional, that is it allowed a ‘snapshot

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picture’ of society at a specific point in time, but did not allow the tracing of individual life-course trajectories across longer time periods (Mayer 2000). One of the most influential early approaches developed in this period has been Martin Kohli’s concept of a tripartite, standardized and institutionalized life course developed in the late 1980s (Kohli 1985) and extended in later years (e.g. Kohli 1994, 2003). Martin Kohli’s key assumption is that life courses in modern societies have developed into a tripartite ‘standard’ life-course pattern that applies to the majority of the (male) population and thereby constitutes ‘the most fundamental structure of modern life courses’ (Kohli 1994: 222, author’s translation). Based on an exemplary historical analysis of life-course patterns in Germany in the 1960s and 1970s, Kohli postulates that modern life courses follow an orderly and chronologically standardized sequence of life phases and transitions, organized around working life, and are split into three successive stages: a period of (work) ‘preparation’ in state-based school systems, a core period of ‘activity’ in the labor market and a final period of post-employment life in the state-financed ‘retirement’ status (Kohli 1985, 1986, 1990). Boundaries between the different life phases are clearly defined so that transitions from one state to the next tend to be smooth and unique (Marshall and Mueller 2002: 2, 17). The clear distinction between the three subsequent life phases is guaranteed by standardized chronological age limits which define specific legal duties or eligibility criteria and thereby exert a strong structuring influence on individual life courses (Buchmann 1989: 90; Kohli 1985: 8; Leisering 2003: 214; Mayer and Müller 1989: 49f.). Owing to this explicit interconnectedness with legal criteria, life courses in modern societies appear to be highly standardized for the majority of the population with only a little variance in the timing of the central life-course events. Under this tripartite life-course pattern, retirement developed into ‘a life stage of its own, to be expected by the majority of the population, of considerable length and structurally set apart from gainful work’ (Arza and Kohli 2008: 3; Kohli 1985: 10), and thereby became one of the cornerstones of the new life-course pattern. In the last two decades, however, the tripartite life-course scheme in general and the institution of retirement in particular have increasingly become eroded. Together with three fellow researchers – Anne-Marie Guillemard, Martin Rein and Herman van Gunsteren – Kohli initiated and conducted a joint research project in the late 1980s to describe these transformations in more detail and to analyze how and why the nature and timing of retirement transitions have undergone manifest changes. Among other things, they made a considerable effort to investigate in more detail the role of all three labor market

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parties (employees, employers and the state) not only in the implementation of retirement as an institution but also in its recent erosion. The (partly opposing) contributions from the edited volume arising from this joint research (Kohli et al. 1991) provided the basis for a long-standing and yet still unsettled debate about modern late-career and retirement patterns. In the following, I shall first describe Kohli’s theoretical approach in more detail, and then turn to key findings from the above-mentioned study. Subsequently, I shall address Kohli’s critiques and alternative approaches in life-course sociology to understand and analyze late careers and retirement patterns in modern societies. The development towards a tripartite life course From a present perspective, the existence of a tripartite life course and a clearly demarcated phase of retirement may be perceived as a self-evident phenomenon. Kohli, however, points out that that these modern, structured life-course patterns represent a historically rather new phenomenon that has emerged and expanded gradually since the onset of industrialization, reaching its peak in the 1960s and early 1970s (Kohli 1985, 2003). Pre-industrial societies were characterized by the central importance of agriculture and crafts, and dependent wage employment was only marginal. Life courses in this early ‘household economy’ were largely centered on people’s own family property (farm or firm) and the cross-generational survival of the family household as a collective entity. Owing to high mortality risks, life courses were unpredictable and unstable, so that central life-course transitions (such as marriage, the transfer of the farm to the younger generation, etc.) occurred at rather random intervals, and hence no standardized life-course pattern could develop (Kohli 1985: 4f.; Mayer 2005: 25). Old age as a specific life phase existed only for a minority of individuals, and the withdrawal from active work was dependent more on functional criteria (such as the individual capacity to work) than on standard age limits (Kohli 1985: 4ff., 1994: 222). These conditions changed substantially in the ‘early industrialized’ period starting in the middle of the nineteenth century. Infant mortality and mortality in general declined owing to improvements in medical standards, shifting up life expectancy while simultaneously reducing its variance. At the same time, the rise of industrial capitalism fundamentally transformed the economic structure of societies and led to the gradual replacement of the former household economies by industrial societies relying on institutionalized nationwide markets for wage labor. Both demographic pressures (resulting from the rapid population growth) and changes in the economic structure triggered a massive urbanization process moving manpower into the booming industrial centers. At

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the same time, however, this process separated individuals from their local origins which had previously guaranteed their social integration and individual wellbeing. Without the financial support and protection of their families, industrial workers were often doomed to rely on their physical work capacities, which, however, proved to be an unstable source of income owing to low levels of workplace safety and high risks of unemployment in a still volatile, untamed early capitalist economy. These conditions increased social tensions between the bourgeoisie and an increasingly pauperized proletariat. In the face of the growing class struggles that threatened to endanger social peace, national governments increasingly took over responsibility for the living and working conditions of their national workforce by introducing specific standards with regard to work and employment systems and by guaranteeing workers a decent minimum level of material security. The most important milestones in this ‘institutionalization’ of specific ‘boundaries’ for life courses were the introduction of compulsory schooling and work and old age insurance systems (Kohli 1985: 9f.). The introduction and expansion of a compulsory and formalized period of education with standardized schooling ages provided individuals with the basic qualifications required for later employment and gradually standardized their entry into the labor market. At the same time, contribution-based pension insurance systems guaranteed workers a decent material standard of living when they could no longer earn labor market income based on their individual work capacity.9 Together, education and pension systems hence created standardized entries into and exits out of employment and thereby provided the basis of the tripartite lifecourse structure still prevailing in most modern societies. This chronologically standardized tripartite structure proved to be an effective mechanism for structuring and regulating labor market relations in early capitalism to the benefit of all actors involved: ●

●

Workers were granted material security beyond working capacity that provided reliable continuity even in discontinuous periods of employment. They received a general reference framework which they could safely anticipate, and based on which they could rationally plan and organize their life courses (Kohli 1994: 222). Employers could externalize responsibility for the training and the old age security of their employees to public support systems, while the safe anticipation of a guaranteed old age income ensured the loyalty of their work force. At the same time, age-graded transitions helped industrial companies to systematize and standardize the succession of younger workers to replace older ones (Kohli 1985: 14ff.).

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Finally, national governments benefited from the tripartite lifecourse arrangement as it helped to ‘appease’ the working class and thereby reduced the risk of social upheaval. Standardized chronological age limits, on the other hand, facilitated the organization and calculability of public pensions (ibid.).10

While initially public pension benefits were low and often covered only a minority of the population, their relevance expanded significantly in the decades after the Second World War (Alber 1984; Kohli 1985: 9f., 1994: 223; Mayer and Müller 1989: 49f.). This period, often referred to as ‘Fordism’, was characterized by stable economic growth, low levels of unemployment, often lifelong work relationships with the same employer, rising wage levels and the development and expansion of the modern welfare state (Kohli 2003: 528; Mayer and Diewald 2007). Rising wealth and employment stability allowed men to specialize in paid employment and women in household and care work, thereby giving rise to the socalled ‘male breadwinner model’. State-based educational institutions had expanded until close to the attainment of full age and provided both general and occupation-specific knowledge and skills. Pension systems, which had strongly expanded since the 1960s, became generous and covered the vast majority of the population (Ebbinghaus and Schulze 2007: 274; Kohli 1985: 9f., 2000: 16; Kohli and Rein 1991: 19). Retirement increasingly came to constitute a normal as well as a distinctive and firmly established boundary between employment and inactivity, with a largely uniform beginning at formal retirement ages (Kohli and Rein 1991: 21). At the same time, it increasingly turned into a ‘moral institution’ as it provided a legitimate end of employment after which individuals were ‘rewarded’ for their previous contribution to the national economy (Kohli 1987). Hence, life courses in this ‘Fordist life-course regime’ were shaped far more strongly by public institutions and thus displayed a high level of continuity and reliability for the majority of (male) individuals. Chronological markers defined rights and duties at specific ages that differentiated the life sequences and the transitions between them. They thereby triggered the emergence of a standard normal tripartite pattern of the life course for the vast majority of the population, a process frequently described as an increasing ‘standardization’ and ‘institutionalization’ of the life course (Brückner and Mayer 2005; Kohli 1985, 1995; Mayer 1995; Mayer and Müller 1986). Employment and retirement in the post-industrial life course The institutionalized model of the chronologically standardized life course reached its zenith in the 1960s. However, since then, as Kohli noted in

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his 1985 essay, it has experienced a standstill or even a decline (Kohli 1985: 20ff.). Starting from the early 1970s, there have been several signs of a rising ‘de-institutionalization’ (Kohli 1994: 219; 2000: 21; 2003: 532). Several processes have been made responsible for this development towards a new, post-industrial life-course regime: ●

●

●

●

Frequent reference has been made to the rising economic deterioration in the aftermath of the oil crisis, resulting in large-scale and persistent unemployment (Brückner and Mayer 2005; Guillemard and Rein 1993; Kohli and Rein 1991; Mayer 2004, 2005). At the same time, the rising de-industrialization of modern economies due to technical advances and productivity gains led to a massive relocation of the work force from declining to growing industries and to new demands in terms of qualifications and skills, resulting in employers’ need to restructure their work force size and profile (Guillemard and Rein 1993; Kohli 2003; Mayer 2004). Faced with these changes, firms tried to achieve more flexibility by attempting to restructure employment relationships and introduce less binding work forms such as temporary jobs, subcontracting and informal work. The increasing significance of globalization and international competition for national labor and product markets further intensified the above developments (Blossfeld 2003; Kohli 2000; Mayer 2001, 2004). Some authors have additionally argued that these structural changes were paralleled by more general value changes and a trend towards a stronger importance of individualism (Beck 1996; Buchmann 1989; Inglehart 1977, 1997).

Until now, it has remained difficult to quantitatively measure the immediate effect of the above changes on life courses in general and the retirement transition in particular. Some studies, for example, have tested the influence of industrial restructuring on developments in older workers’ employment rates, but have not found a unanimous effect of de-industrialization (Ebbinghaus 2006a; Jacobs, Kohli and Rein 1991b; Naschold and de Vroom 1994; see also section 2.4.2). Similarly, Naschold and de Vroom (1994) investigated the effects of rising unemployment on senior workers’ labor-force participation, but found that early-exit trends preceded the rise in unemployment in the majority, so that the latter may be regarded more as an ‘amplifier’ than as a cause of the change in retirement patterns. It therefore seems to be more reasonable to assume that it was not necessarily the above phenomena in isolation, but rather their simultaneity and their mutual interconnectedness that caused a gradual

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erosion of the foundations of the industrial life course, that is stable full employment, constant economic growth, high job and firm tenure and progressive income levels and careers. As will be argued below, it has been not only these structural conditions but also the mutual consensus between different labor market actors that had been characteristic of the industrial life-course regime that have changed. Taken together, the above changes led Kohli and Rein to conclude in the early 1990s that ‘what has been the “normal life course” is being massively reorganized’ (Kohli and Rein 1991: 1). Patterns of entry into and exit out of employment became blurred, and the chronological standardization through state-defined age markers increasingly lost importance – a process which has frequently been described as a ‘flexibilization’ or ‘erosion at the margins’ of employment life (e.g. Buchholz 2008; Buchholz and Kurz 2005; Kohli 1994: 231; 1995: 156). According to this view, mid-career employment patterns, especially those of men, have remained largely stable. Their employment still dominantly takes place in standard full-time work relationships, and high levels of employment protection for the ‘employment insiders’ ensure relative continuity in labor market attachment (Blossfeld, Mills and Bernardi 2006; Kohli 1994: 231). Only very recent data point to some moderate increase of insecurity in men’s mid-careers, though even here results are not unambiguous.11 However, in contrast to relative mid-career stability, entry into the labor market has become more and more ‘de-standardized’: young people are often no longer able to smoothly enter the labor market after leaving the educational system. Studies from the early 1990s demonstrated that the phase of entry into first employment has been prolonged and even turned into a ‘permanent provisorium’ for many new labor market entrants, who were often confronted with initial unemployment after finishing education (Buchmann 1989: 101; Kohli 1994: 228f.). Recent analyses impressively confirm this picture for the recent decade by showing that employers disproportionately channeled rising labor market insecurities to young labor market entrants (e.g. Blossfeld et al. 2005; Bukodi et al. 2006; Mills and Blossfeld 2003).12 Fundamental changes also have taken place with regard to transitions out of employment, and, in the course of recent decades, the previously dominant institution of retirement has undergone a ‘fundamental re-definition’ (Kohli 1995: 158). Many sociological studies confirm the previous findings of a turning away from a standard universal retirement age and a move towards ever earlier and more variable ages of exit from the labor force (e.g. Blossfeld, Buchholz and Hofäcker 2006; Ebbinghaus 2006a; Hofäcker and Pollnerová 2006; Hofäcker, Buchholz and Blossfeld 2007; Jacobs and Kohli 1990; Kohli 1995: 162ff., 2000; Kohli and Rein

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1991; Kohli et al. 1991; Naegele et al. 2003). However, when explaining this trend, sociologists go beyond the economic approach by not only emphasizing the strong association between exit incentives and withdrawal behavior, but also providing an explanation of its emergence. According to Kohli and Rein (1991), the structural changes outlined above gradually eroded the tacit consent between the three labor market parties on a chronologically defined demarcation between work and retirement, and thereby threatened to endanger one of the most important moral foundations of the industrial life course. Early retirement, in turn, provided an acceptable compromise to arrive at a new consensus to ensure social peace and the functioning of labor markets. Under the described economic and technological changes, older workers came to exhibit competitive labor market disadvantages compared with younger colleagues owing to higher wage costs, acquired seniority rights and qualification deficiencies. Hence, employers increasingly attempted to shed their older work force in order to adapt its size, qualification and flexibility to the new demands of a post-industrial economy. Since simple dismissals were, however, often hampered by seniority rights and employment protection legislation, many governments supplemented firms’ laborshedding attempts by allowing redundant older workers a financially buffered exit before the official retirement age through the introduction of various early retirement opportunities such as early pensions, a topping-up of occupational pensions or the use of unemployment or invalidity insurance as alternative ‘welfare state subsystems’ (Guillemard 1991). These early retirement opportunities on the one hand accommodated the restructuring demands of national firms and therefore prevented them from relocating their production to foreign countries. On the other hand, they significantly reduced unemployment rates on the whole and were, in many cases, expected to open up employment opportunities for younger workers faced with rising employment precariousness. Individual employees’ agreement to these schemes was often ‘helped along’ by generous compensation through public benefits, thereby making exit paths financially advantageous to older workers. The ‘early retirement compromise’ hence represented a ‘flexible adaptation to the [described] context shifts’ (Kohli and Rein 1991: 13) on a societal level that satisfied the needs of employers, employees and national policy makers alike. It was the expression of a new ‘cooperative antagonism’ between all relevant labor market actors (ibid.: 15). The transition from an industrial to a post-industrial life course hence fostered the employment withdrawal of senior workers from two sides. It increasingly ‘pushed’ them out of employment, but at the same time motivated the negotiation of early retirement pathways as ‘pull factors’ that helped older workers to leave employment.

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Interpretation of the new life-course patterns (I): persistence of the tripartite life course? In contemporary sociology, there is hardly any serious debate about the occurrence of the developments described above. However, there is a vital and controversial debate about how their outcome should be interpreted sociologically, and what effects they have had at the individual life-course level. Martin Kohli has always maintained that until now the ‘basic tripartition of the life course is still firmly in place’ (Kohli and Rein 1991: 22). In his view, transitions between the three phases of the life course have become longer and fuzzier, but have not seriously changed the tripartite structure as such (ibid.). Kohli does not deny the existence of a trend towards increased flexibility in employment life, but accuses other researchers of having exaggerated its qualitative extent. Flexibilization may have taken place at the margins of employment, but Kohli regards these erosions as mere shifts in the positioning of the age markers rather than a de-standardization or fragmentation of the life course per se (Kohli 1994: 231, 1995: 156). Retirement processes represent an ideal showcase for his diagnosis of relative stability in life-course patterns. Kohli concedes that the transition from work to retirement has become broader and more diffuse in recent decades and that, in contrast to the fixed retirement ages in the standardized life course, different pathways to retirement nowadays allow individuals more variation with regard to their retirement timing (Kohli 2000: 17ff.). Even so, Kohli claims that these changes have only led to an increased flexibility of retirement transitions on the aggregate level and that no major distortions have taken place on the level of the individual (Kohli 2000: 21; 2003: 537). Based on German retirement data,13 Kohli argues that retirement transitions still occur in one unique step from fulltime employment to full-time inactivity and remain standardized in so far as they mostly occur at the earliest possible date – a finding in line with previous research by economists (see section 2.2). Attempts to make retirement transitions in Germany more flexible, for example through the introduction of partial pensions, have remained unpopular (Kohli 2000: 18ff.). The fact that the retirement transition is less and less connected to formal (early) retirement ages but is increasingly determined by the ages of access to other welfare transfer programs (such as unemployment or invalidity insurance) does not, in Kohli’s view, challenge the validity of age boundaries in general.14 What societies have done is to adapt previously fixed age limits to the new, flexible demands of a post-industrial society. In Kohli’s view, the observable transformations in retirement behavior hence do not reflect a decline in the importance of welfare-state institutions, but rather signal their success in ‘keeping up the sequential structure of the life

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course by creatively using welfare instruments’ (Kohli and Rein 1991: 26). Notably, the standardized life course does not just maintain its role as a central institution of modern Western-type societies. Referring to a study by Leisering (2002) on the institutionalization of retirement processes in China, Kohli (2003: 538) even observes indications of a global ‘universalization’ of the tripartite model beyond Western industrialized countries as state-regulated pension and welfare systems are starting to spread beyond the standard OECD countries. Interpretation of the new life-course patterns (II): individualization? Kohli’s adherence to the standardized life-course principle has, however, been met with criticism. Many sociologists argue that the standardized tripartite life-course scheme represents an over-generalization of a specific bygone historical period in one country, namely the German ‘economic miracle’ of the 1950s and 1960s, since when it has increasingly lost its empirical validity (e.g. Berger, Steinmüller and Sopp 1993). Rather, modern life courses display a ‘good deal of disorder’ (Marshall and Mueller 2002: 5), as individual employment careers have lost their continuity and now increasingly tend to approximate to a ‘random walk through various employment and non-employment statuses connected with risky transitions’ (Schmid, G. 2002: 3). ‘Flexibility’ and ‘insecurity’ instead of stability and continuity have come to characterize employment life (Naegele et al. 2003: 20), and the heterogeneity of life courses within society has risen. Occupational and employment insecurity is turning into a commonplace experience (Beck 1996: 227), and previously ordered life courses are being replaced by insecure ‘patchwork biographies’. For individualization theorists, these developments have brought about new life-course patterns in which institutional age markers lose their importance and more responsibilities are being transferred to the individual (Beck 1996; Beck, Giddens and Lash 1994). They, however, point to the Janus-faced nature of these new ‘contingent’ life courses (Heinz 2001, 2003). On the one hand, individuals are experiencing more individual freedom of choice as their biographies are being decoupled from the restrictions of the old industrial life-course order (Beck 1996: 216). On the other hand, individuals increasingly have to ensure life-course continuity by themselves and become agents of their own ‘career management’ (Heinz 2003) in increasingly individualized ‘risk life courses’ (Beck and Beck-Gernsheim 1994: 13, author’s translation). In recent years, these processes have been intensified by the forces of globalization, which are lessening the importance of national borders and nation-specific welfarestate protection, thereby creating a ‘world risk society’ (Beck 1999b, 2000, 2005).

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Apart from these macro-level conclusions, individualization theorists claim that the generalization of risks not only transcends national borders, but is also starting to erode the significance of classical social boundaries. As all individuals are increasingly exposed to life-course and employment risks, ‘insecurity prevails at nearly all positions within society’ (Beck 1999a: 10, author’s translation). Traditional distinctions within society as embodied in class structures are therefore losing their importance for determining life chances in individual life courses, so that modern societies are moving towards a ‘classless society’ (Beck 1994, 1996, 1999a, 2002; Giddens 1994, 2000). This thesis itself has been criticized thoroughly by sociologists involved in comparative stratification research who claim that social class has remained persistent or even has become more important in structuring the lives of individuals (Breen 1997; Eriksson and Goldthorpe 1992). Furthermore, recent empirical research (e.g. Blossfeld, Mills and Bernardi 2006; Blossfeld et al. 2005; Grunow, Kurz and Hillmert 2005) argues against the perspective of ‘classless’ societies when it shows that, under increasing globalization, the importance of classical human capital factors such as occupational background or educational attainment has remained stable or even increased. 2.3.2

Anne-Marie Guillemard: Early Retirement and the Destandardization of the Industrial Life Course

Using the example of theories postulating the advent of ‘post-Fordist’ or ‘individualist’ life-course regimes, the preceding section has pointed to some critics of the postulated stability in the general (tripartite) structure of the life course. However, empirical work in individualization theory has concentrated largely on analyzing career entries and mid-career (in)stability while largely neglecting late careers. In this section, I shall turn more specifically to critics who have challenged Martin Kohli’s concept of relative life-course stability with regard to the transition from work to retirement. The most influential approach in this respect has been the French sociologist Anne-Marie Guillemard’s concept of an increasing de-standardization of the retirement transition in modern societies. Guillemard takes an intermediate position between Kohli’s approach and the critique of individualization theory. On the one hand, she argues that the tripartite life-course pattern has undergone massive changes in recent decades, especially with regard to the retirement transition. On the other hand, however, Guillemard questions whether these de-standardization tendencies have resulted in an individualization of older workers’ late careers, entailing more decision opportunities for the individual.

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Early retirement in modern societies: de-standardization without individualization Guillemard follows Kohli’s description in so far as she also concurs that the 1960s and 1970s brought about a standardized life-course model in which pension systems established a distinct and chronologically clearly demarcated ‘third life-course phase’ of stable retirement (Guillemard 1989: 170, 1991: 622, 2005: 3). In contrast to Kohli, however, Guillemard argues that the dominance of this clearly structured life-course regime was restricted historically to this period and has since experienced a marked deterioration. Modern life courses consist of various sequences of flexible and diversified life-course phases, and there no longer appears to be any ‘standardized’ life-course pattern that holds for the majority of individuals. Guillemard hence speaks of a general ‘de-standardization’ in modern life-course patterns in the 1980s and 1990s (see Guillemard 1991). Especially in her earlier works, Guillemard uses the example of the transition from work to retirement to demonstrate this change in general life-course patterns (Guillemard 1989, 1991; Guillemard and Rein 1993; Guillemard and van Gunsteren 1991). In her view, changes in institutional regulations influencing retirement transitions triggered a complete reorganization of the retirement transition in the 1980s and 1990s, resulting in a constant decline of average retirement ages from the 1970s until the early 1990s. However, Guillemard argues that a mere shift in the average age of employment exit would not necessarily have entailed a de-standardization and transformation of the retirement transition. In this case, only the chronological age markers would have changed, while leaving the logic of a tripartite and calculable life course generally intact. However, Guillemard argues that the entire logic of labor market withdrawals has changed throughout recent decades. Both regular and early retirement programs that connect labor-force exit with the attainment of a specific chronological age limit are losing their importance in regulating the process of labor market withdrawal (Guillemard 1991: 635; Guillemard and van Gunsteren 1991: 375). In their stead, welfare-state subsystems such as disability or unemployment insurance have increasingly become the major ‘gatekeepers’ for the transition from employment to economic inactivity. These systems no longer utilize chronological age limits to determine the timing of labor market exit but use functional markers to define the boundaries of employment (ibid.: 378). For Guillemard, this moving away from chronological to functional age definitions entails a return to pre-industrial standards where the individual ability to work was a pre-condition for employment continuity. Like Kohli, Guillemard acknowledges that it was a ‘cooperative antagonism’ between different labor market actors which turned political ‘ad hoc’ solutions – which were initially planned to ease labor market stress for a transitional

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period – into permanent and socially accepted institutions (ibid.: 363). But, in contrast to Kohli, Guillemard assumes that this consensus was characterized by a notable degree of asymmetry in power relations. Despite the fact that all labor market parties shared an interest in the introduction of early retirement pathways, Guillemard emphasizes the leading role of employers in implementing and maintaining these labor-shedding programs (ibid.: 366). Transitions from work to non-work hence were no longer determined by stable and reliable state institutions, but often became a function of short-time economic developments and company strategies to cope with them (Guillemard 1991: 637; Guillemard and van Gunsteren 1991: 380ff.). Hence, as the economic situation deteriorated, the retirement transition no longer could be framed as a free decision to leave employment, as assumed by the neoclassical economic approach. The decision to retire practically shifted to the side of the employers, while employees were left ‘little room for making a personal choice’ (Guillemard and van Gunsteren 1991: 373) and practically ‘surrendered their right to a job’ (ibid.: 381). In this respect, it is of particular importance that the degree to which older workers were ‘pushed’ out of employment and into early retirement by their employers varied as a function of individuals’ social characteristics, such as the industry they worked in or the human capital they possessed (e.g. education, training and occupational class; ibid.: 380). This diagnosis puts Guillemard into explicit opposition to the described position of authors like Beck who interpret the transition from a standardized industrial to a de-standardized post-industrial society as a move towards more individualization and choice and a decreasing significance of social classes (see section 2.3.1). As the decision about the termination of individual employment careers shifted from the individual to the employer, individual freedom of choice became restricted for specific social groups among the older work force such as less skilled or manual workers. Therefore, the introduction of early retirement pathways led not only to an increase of older workers’ early exit on the aggregate level but also to the emergence and amplification of inter-individual differences in late careers (Guillemard and van Gunsteren 1991: 379). Early retirement therefore exacerbates existing patterns of social inequality by introducing new, additional differentiations within old age. It may be debatable to what extent this involuntary ‘push out of employment’ actually impaired older workers’ quality of life and increased inequalities among them. On the one hand, Hofäcker, Buchholz and Blossfeld (2006) argue that, within many welfare states, generous public compensation schemes often financially ‘buffered’ the early exit from employment, so that early retirement did not lead to a direct rise in material inequalities. On the other hand, however, early retirement systems

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introduced serious restrictions to the personal choice of one’s own career, leading to a loss of predictability in life (Guillemard and van Gunsteren 1991), an increase in retirees’ dissatisfaction with their situation and a subjective ‘retrospective devaluation’ of the previous life course (Lessenich 1995, author’s translation). Reversing the early retirement trend: the need for a paradigmatic change Most of Anne-Marie Guillemard’s initial contributions on the destandardization of retirement refer to the economic downturn periods of the late 1980s and early 1990s when public and private early retirement policies peaked. However, in later publications, Guillemard shows that since then the turn towards early retirement has been difficult to reverse (Guillemard 2001). Changes in retirement behavior triggered by the state-funded opening of ever earlier exit pathways have gone hand in hand with changes in expectations and anticipations on the side of both employers and employees. Employers increasingly perceive workers aged 50 and over as redundant and unemployable, and accordingly tend to disadvantage them in recruitment, training and retirement practices (Guillemard 2003a; Metcalf and Meadows 2006; Schröder et al. 2009; Taylor and Walker 1994). Even workers in their 40s have turned into a potential ‘risk group’ in the labor market which has become subject to age discrimination at the workplace (Guillemard 2001: 6f., Guillemard and Argoud 2004: 178). Furthermore, employers have become accustomed to early-exit policies as an ‘easy solution’ for personnel management, especially in times of a rapidly changing global economy (Guillemard 2001: 8; Guillemard and van Gunsteren 1991: 385). At the same time, employees have come to view early retirement ages as ‘normal’ and increasingly adjust their life plans accordingly (Esser 2005; Guillemard 2001; Guillemard and Argoud 2004; Leeson 2007; Scales and Scase 2000; van Dalen and Henkens 2005; von Rothkirch et al. 2005). Particularly less qualified and less educated older individuals who are faced with employment difficulties or unfavorable workplace conditions show a dedicated wish to retire early (Schimany 2004). Some workers even regard the promise of a financially buffered early retirement as a ‘common good’ or an ‘acquired social right’ that should not be waived in the course of current pension reforms (Abrahamson and Wehner 2003; Greve 2005; Guillemard 2003b: 674), while others see withdrawal from the labor market as a duty to ‘make place for younger workers’ (Künemund and Voges 1989). Both perceptions by employers and employees have become part of an overall ‘early-exit culture’ that contributes greatly to the currently observable difficulties in reversing existing retirement trends in many Continental welfare states (Guillemard 2003a, 2003b; Guillemard and Argoud 2004).

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Guillemard argues that a mere reduction of state-provided early retirement incentives and a turn to a more residual welfare policy as practiced by the Anglo-Saxon countries will not suffice to counteract the mutual compromise between employees and employers (Guillemard 2003b: 675f.). The necessary reversal of the still dominant early-exit trend will require policies to go beyond the changes in social security incentives suggested by many economists. Guillemard regards a ‘readjustment’ of strategies for all actors involved in the ‘early retirement deadlock’ – employers, labor unions and public authorities – as a necessary pre-condition for a successful early-exit reversal, and hence calls for no less than a ‘coordinated series of adjustments and a shift in welfare paradigms’ (Guillemard 2001: 11). On the one hand, governments will have to invest in active policies for maintaining the qualifications and skills of older workers that will allow them to continue their careers until higher ages (Guillemard 2003b: 676). When faced with the fact that, as a consequence of societal aging, staff profiles will generally become older, employers will need to value the benefits of older workers more and create a more productive work environment for them by, for example, including retraining at the workplace, age-mixed teams or the introduction of more flexible work schedules. Finally, employees will need to be ready to accept a more flexible organization of work lives and welfare entitlements that increasingly need to aim at providing security in discontinuous work (Guillemard 1991: 386). Japan and some Scandinavian countries are among the few countries where such measures have been successfully realized as part of a general ‘active aging culture’ (ibid.: 674). If the new consensus described above fails, Guillemard warns of adverse consequences, especially for the older work force itself. Governments would then tend to reduce their expenditure on pension benefits in order to maintain long-term financial stability. If the employability of older workers fails to be improved, employers likewise will increasingly try to ‘shake free’ of the early retirement cost burden by dismissing older workers or trying to reduce responsibilities for old age pensions (Guillemard and van Gunsteren 1991: 385f.). Employees would then be caught in a dilemma between decreasing material security in old age and an increasing deterioration of their labor market chances. 2.3.3

The Potential of Classical Life-Course Theory for Explaining Early Exit: A Critical Review

The results of classical life-course sociology from the 1980s and 1990s described above definitely provide significant and additional insights for an explanation of the early retirement trend.

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First, contributions by this strand of theory place the current early retirement trend in its historical context by treating it as a consequence of the transition from a Fordist life-course regime characterized by stable economic growth and economic stability to a post-Fordist life course shaped by economic downturns and the consolidation of long-term unemployment. While economic theory largely concentrated on labor-supply-side factors, Kohli and Guillemard highlight the simultaneous involvement of both demand- and supply-side factors in explaining the early retirement trend. Hence, they enrich our knowledge of why early retirement systems have developed. Second, they describe early retirement as the outcome of a mutual compromise between different parties – the state, the employer and the employee – which introduced early retirement as a short-term solution to labor market problems in times of economic recession which then turned into a permanent phenomenon. This broader analytical view on early retirement highlights that multiple actors need to be considered not only when explaining the early retirement trend but also when trying to reverse it. It helps to understand why the early retirement trend has remained so persistent and proved difficult to abolish in recent years. Third, it can be concluded from both Kohli’s and Guillemard’s findings that a theoretical model of retirement transitions based on the assumption of a free decision by an individual worker under given social security constraints most likely represents an oversimplification of actual retirement processes. Guillemard especially shows that workers often tend to be pushed out of employment and only have limited choice regarding the timing of their withdrawal from the labor market. A comprehensive explanatory model of retirement transitions therefore needs to include factors that affect older workers’ chances of continuing employment as well as incentives for a labor-force withdrawal as explanations of early retirement processes. Fourth, Guillemard and Kohli highlight that the ‘freedom to choose’ to retire may be unequally distributed among older workers. Especially those with low human capital resources are often regarded as redundant and costly, and hence they run a higher risk of being ‘pushed’ out of employment. Early retirement is therefore not a socially neutral phenomenon, nor has it eradicated or alleviated social class inequalities. Findings from classical life-course theory rather indicate that early retirement has exacerbated existing social cleavages along the established lines of educational attainment and occupational qualification, a finding which may help to shed further light on inter-individual differences in retirement behavior. Despite these significant contributions to our knowledge, the classical

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life-course approach also exhibits some notable deficiencies. Though it points to the involvement of multiple actors in shaping the retirement transition, the actual empirical analyses concentrate largely on the interplay between public incentives to leave the labor market as ‘pathways to retirement’. Active state policies (such as active labor market policy or lifelong learning) that could alternatively ensure older workers’ employability in a changing labor market often only play a secondary role in the comparative empirical analyses.15 As a consequence of this institutional perspective, the empirical focus of the approach often remains restricted to analyzing the variety of possible retirement pathways and their use while paying less empirical attention to the employment situation of older workers in which the decision to remain in or exit employment is embedded. Little reference is made, for example, to the labor market mobility of older workers (transitions into and out of unemployment, job-to-job changes) before exiting the labor market. Hence, in theoretical terms, the employment situation of older workers tends to be ‘overdetermined’ by institutional backgrounds that leave employees themselves little choice regarding their future employment patterns. While the economic approach possibly exaggerated the importance of individual choice in retirement decisions (and hence assumed an ‘undersocialized’ decision maker in an ideal situation), the individual labor market actor in the early life-course approach tends to be ‘oversocialized’ by institutional settings, and his or her active decision is largely kept out of the theoretical scope. Second, though Kohli and Guillemard include a larger number of countries in their analyses, they largely abstain from systematizing their results into a more general theoretical scheme for international comparison. The focus often lies on the description of particular nation-specific contexts that have triggered early exit, and whether (or to what extent) these transformations have led to a de-standardization of the tripartite life course. For an international comparative analysis aiming to explain early retirement patterns, this criterion is of little use, as it is not the existence of a tripartite life course that varies between societies, but rather its ‘sub-structure’, that is the temporal organization of working life (see Mayer 1997: 213). Though Kohli et al. observe cross-national differences in this respect, little is done to explain these differences and to integrate the country-specific results into an overall systematic model that explains why different institutional strategies have been used and how these strategies have affected older workers’ employment.16 To sum up: while the classical life-course approach has been very fruitful in terms of explaining why early retirement trends generally have occurred and why they vary within societies and between individuals with different human capital resources, it has obvious difficulties in explaining

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cross-national differences between societies in a systematic manner. This deficiency not only restricts the approach in terms of policy counseling, but also limits its explanatory power in scientific terms.

2.4

COMPARATIVE LIFE-COURSE RESEARCH

One of the key deficiencies of classical life-course theory has been the failure to integrate its cross-national results into a systematic theoretical framework for international comparison. In the 1990s, a new strand of systematic life-course analysis developed that not only identified differences in life-course regimes across time, but also pointed to significant cross-national differences in life-course patterns that can be traced back systematically to differences in the nation-specific institutions shaping them. Much of this ‘comparative life-course research’ drew on a growing body of research dealing with the cross-national comparison of welfare states and labor markets in modern Western-type societies that provided a ‘typification’ of relevant nation-specific institutional backgrounds shaping life courses and employment trajectories. One of the most influential approaches in this respect has been the tripartite classification of welfare states into three different ‘worlds of welfare capitalism’ by the Danish political scientist Gøsta Esping-Andersen (1990, 1999). Esping-Andersen argues that modern industrial economies can be grouped into three more or less stable country clusters according to the ways in which public policies protect their citizens and regulate national labor markets. From the perspective of the welfare-regime approach, early retirement is understood as a general adaptation problem in the course of structural changes in these economies in the last few decades. However, Esping-Andersen emphasizes that, owing to their institutional legacies, different types of welfare state were affected differently by this trend, resulting in the varying spread of early exit reported in section 2.1. Though Esping-Andersen’s typology covers a broad set of policies, it concentrates on the state–market relationship and largely disregards the role of other labor market actors and their mutual interconnectedness in employment and production systems and systems of industrial relations. This gap has been filled most recently by approaches that have concentrated more on the nation-specific characteristics of firms and their relation to both their employees and the state. This research, often summarized under the term ‘varieties of capitalism’ (Hall and Soskice 2001), provided a thorough description of vocational training systems, industrial relations, corporate governance and inter-firm relationships. It could demonstrate that, on the one hand, these institutions are highly interrelated. On the

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other hand, it showed that, with regard also to employment and production systems, modern industrialized countries cluster in a way much in line with Esping-Andersen’s welfare-regime approach. In recent contributions Ebbinghaus (2001, 2006a) attempted to integrate both strands of research and apply them to the analysis of late careers and early-exit behavior, demonstrating the regime-specific ways in which public and private institutions have influenced the rise and persistence of early retirement. Despite their different analytical foci, both approaches share important commonalities with regard to their methodological status and their general analytical target. First, both ‘welfare regimes’ and ‘varieties of capitalism’ represent a simplification of existing phenomena for the sake of analytical parsimony, that is they are ideal-typical constructions in Max Weber’s sense (Weber 1988, 1972). Hence, they do not necessarily reflect the characteristics of specific real existing welfare states or employment and production systems. However, they can serve as useful heuristic tools for a more parsimonious analysis of contemporary welfare states and for testing specific hypotheses. As a result, they can be employed to arrive at more general conclusions about the emergence and cross-national variation in early retirement that goes beyond a mere description of different nation-specific programs and institutions. Second, both approaches share the assumption that the country clusters they describe are more than a ‘snapshot’ at a specific point in time, but represent more stable and generalizable institutional configurations. This assumption builds on the so-called ‘path-dependency approach’, an idea initially developed in the history of economics and the study of technological development (North 1990) that was soon transferred to the analysis of social and political institutions (Pierson 2000). Path dependency assumes that, in complex social systems, preceding stages in the history of these institutions influence the way in which these institutions develop further. The reason for this adherence to a specific developmental path is the principle of increasing returns (ibid.). It postulates that the costs of switching institutional strategies increase over time as setting up institutions often entails high fixed costs, produces learning effects and generates specific expectations within the population. In addition, institutional arrangements tend to generate ‘specific organizational forms which in turn may generate new complementary institutions’ (Pierson 2000: 255). Institutional development therefore creates ‘institutional complementarities’ (Hall and Soskice 2001) or ‘elective affinities’ (Ebbinghaus 1998; Ebbinghaus and Kittel 2006) between institutions that mutually reinforce their stability. Notably, institutional change is not ruled out categorically, but is understood as ‘bounded change’ within the limits of specific historical legacies (Pierson 2000: 265). Institutional regimes such as the ‘worlds

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of welfare’ or the ‘varieties of capitalism’ are hence characterized by a certain institutional inertia and therefore represent stable arrangements that tend to persist even in times of economic and social change. Modern life-course sociologists have taken over the general findings from comparative institutional research on macro-level configurations and have applied these to the cross-national analysis of micro-level phenomena, that is individual life-course patterns. They assume that the described regime-specific institutional structures have ‘molded’ the ways in which life courses develop in modern societies – among others, in terms of specific patterns of labor market entry and exit. Hence, early retirement trends need to be seen as the outcome of specific institutional packages that jointly shape the entire life course. The following sketch of comparative institutional and life-course research will therefore be structured as follows. I shall start with a concise summary of Esping-Andersen’s tripartite welfare-state classification (2.4.1). I shall then show how this model can be brought together with a more firm-based analysis of different ‘varieties of capitalism’ (2.4.2). Finally, I shall demonstrate how this political research has been taken up by sociologists to develop the idea of differential life-course patterns as well as different patterns of social mobility (2.4.3). For all three subsections, I shall outline the general model of analysis while additionally paying special attention to how these approaches can be, and have been, applied to the analysis of early retirement (2.4.3). 2.4.1

A Starting Point: The Three Worlds of Welfare Capitalism

In recent years, there have been several attempts to systematically classify modern welfare states into different groups (see Schmid, J. 2002). However, hardly any approach has been as successful as Esping-Andersen’s differentiation of the ‘three worlds of welfare’ (Esping-Andersen 1990), which nowadays is used in a multitude of sociological studies and has proven to be ‘a useful tool to conceptualize the general contours of institutional characteristics of various societies in cross-national comparison’ (Blossfeld and Drobnič 2001b: 40). The success of this approach is not least due to the fact that it effectively integrates political as well as economic and social criteria into a comprehensive typology. Esping-Andersen clearly distances himself from previous approaches that have attempted to classify welfare states merely according to welfare-expenditure profiles (e.g. Wilensky 1975), which he regards as ‘epiphenomenal to the theoretical substance of welfare states’ (Esping-Andersen 1990: 19). His analytical focus is more on the general conceptual foundations of social policies, that is its inherent logic of development. Using both qualitative and quantitative

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methods, Esping-Andersen seeks to identify different regimes of welfare regulation and distribution in modern societies, that is ‘typical ways in which welfare production is allocated between state, market and household’ (Esping-Andersen 1999: 73). The patterns in the provision of welfare are themselves assumed to be inherently connected to specific modes of labor market regulation and employment policy. Esping-Andersen claims that, over time, ‘social policies and labor markets have become interwoven and mutually interdependent institutions’ (Esping-Andersen 1990: 149) and that, therefore, specific types of welfare regime are mirrored in corresponding types of labor market regimes. Whereas his analysis is based primarily on data from the 1970s and 1980s, the expectation of institutional inertia due to path dependency (see above) indicates that the general pattern still holds true for describing contemporary welfare states. Though, in recent decades, nation-states have had to adapt to a multitude of social and economic challenges, Esping-Andersen argues that they have done so in a path-dependent, regime-specific way following their inherent institutional logic. In the following, I shall give a broad sketch of the general characteristics of Esping-Andersen’s three welfare-regime types and their development in recent decades – both in general terms and with a specific focus on late careers and (early) retirement. I shall conclude by pointing to the reception and critics of the tripartite welfare-state typology, especially to recent contributions suggesting possible extensions to it. ‘Three worlds of welfare capitalism’ In his construction of a cross-national typology of welfare states, EspingAndersen distinguishes modern societies according to three basic criteria (Esping-Andersen 1990): ●

●

●

The core dimension is the extent of de-commodification, that is the extent to which individuals are able to ‘maintain a livelihood without reliance on the market’ (ibid.: 22). The logic of de-commodification in a specific welfare regime itself is closely related to a specific mode of social stratification. Different institutional configurations in welfare and labor market policies hence result in a specific structure of social inequalities within a given society. Finally, welfare states are characterized by a specific distribution of welfare responsibilities between the market, the state and the family.

Based on these three key dimensions, Esping-Andersen differentiates three different ‘worlds of welfare capitalism’ – the liberal, the conservative

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corporatist and the social democratic welfare regime (Esping-Andersen 1990, 1999). The liberal regime is characterized by a strong reliance on market sovereignty and an only residual role of the state in providing welfare for the individual. The level of social benefits is generally modest, and transfers are to a great extent confined to insure against ‘bad risks’ and provide only for a social minimum. Social assistance is targeted to specific problem groups, but access to benefits often needs to be proven by a means test, entailing that dependence on public benefits is often associated with social stigmatization. The state only marginally intervenes in individuals’ lives but instead fosters self-reliance through tax subsidies for private insurance. One way in which this becomes apparent is in the high importance that private and occupational pension insurance play for security in old age, while public pension benefits account for only a minimum standard. As in social welfare, the state intervenes only marginally in the labor market. Active employment policy plays no significant role, and the state largely confines itself to providing the framework conditions for a functional and flexible labor market that allows individuals to secure their own welfare through paid employment. Though the state provides few direct incentives for labor supply, low wage levels and the only modest level of benefits often require the employment of both spouses to ensure an adequate standard of living. Employment relations are subject to decentralized negotiations and free-market forces, resulting in low levels of employment protection and a high job turnover rate, but at the same time a highly flexible and adaptable labor market. Owing to the strong reliance on market mechanisms, the level of de-commodification in the liberal regime is generally low, and liberal social policies tend to favor a social dualism between those able to provide for themselves through private insurance and those dependent on social benefits. The liberal welfare regime is most typically exemplified by the United States; however, the United Kingdom, Canada, Australia and New Zealand are considered to share similar characteristics. The opposite welfare model is represented by the social democratic welfare-state regime, most typical for Scandinavian countries but sometimes also ascribed to the Netherlands (Blossfeld, Mills and Bernardi 2006; Esping-Andersen 1990: 53; Kurz and Blossfeld 2004). Welfare policy is generally oriented towards the ideals of egalitarianism and universalism, as reflected in the universal design of welfare benefits and a high and comprehensive coverage of risks. Benefits are usually very generous and access is granted based on mere citizenship. At the same time, the highly redistributive design of welfare benefits as well as a high degree of wage compression ensure low rates of poverty and only modest levels of social inequality. In contrast to the liberal welfare regime, the state dominates the welfare

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nexus in social democratic countries. This welfare model appears to be very cost-intensive and is therefore mainly financed through tax revenues based on high and progressive income tax rates. Hence, a necessary precondition for the financeability of this model is a high level of employment in both sexes so that most social democratic welfare states have taken up ‘full employment as a mainstay commitment’ (Esping-Andersen 1999: 80). Active labor market policies foster long and continuous work lives for all citizens and a late age of labor-force withdrawal. Continuity in work life is furthermore supported by re-integrative measures for those who have fallen out of employment. The employment of women is fostered by comprehensive public services for a better reconciliation of family and work life, high income-tax rates that make a second household income indispensable, and a comprehensive supply of jobs in the public sector. Owing to its generosity and universalism, the social democratic model hence appears to be the most de-commodifying and least stratifying arrangement among contemporary welfare states. A third model is represented by most Central and Southern European states. In this so-called conservative corporatist welfare regime, the state also assumes a central role and is expected to largely crowd out the market in welfare provision. This is among other things reflected in comparatively high and generous pension benefits, while the importance of private welfare provision usually remains marginal and has only begun to expand recently (see, for example, the recent rise of the German ‘Riester-Rente’). In contrast to the case in Scandinavian countries, however, welfare benefits are not universal but depend largely on contributions from previous periods of employment. The importance of this contribution-based mechanism is reflected in a compulsory social insurance system financed through employer and employee contributions. Owing to their income orientation, benefit levels are less universal than in Scandinavian countries and often mirror or even exacerbate social class differences. The contribution-based logic of the welfare system assumes long and stable labor market careers with no or only short interruptions. Owing to the large influence of social Catholicism, this picture, however, mostly applies to male workers, while women are assigned the role of caregivers, and their labor-force participation is usually restricted to the role of ‘secondary earners’ in part-time employment. Welfare benefits are often targeted at a male breadwinner responsible for the financial wellbeing of the family and strongly protected through comprehensive labor legislation. While these measures tend to safeguard the employment of mid-career men as employment ‘insiders’, they also create substantial entry barriers for those outside employment, especially women and younger workers, who face a high risk of becoming permanent labor market ‘outsiders’ (Blossfeld et al.

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2007; Esping-Andersen 1996a, 1996b). Owing to its contribution-based logic, the de-commodification effects of the conservative welfare system are rather mediocre, despite the often high generosity of the system for those entitled to benefits. Reconsidering the three worlds: challenges and adaptation paths in a globalizing economy The model of the three worlds of welfare appears to be best suited to describe welfare-state patterns in their ‘golden age’, that is the 1960 and 1970s. However, as already diagnosed by life-course researchers (see section 2.3), Esping-Andersen also sees indications of a fundamental societal change in the last two decades. Modern societies have been undergoing a period of sluggish economic growth, a decline in industrial production and the development of high and persistent unemployment. At the same time, owing to technological innovations and the move towards a more service-oriented economy, the occupational structure of most developed economies has been changing in favor of a growing demand for highly skilled workers and deteriorating life chances for those with rather traditional occupational skills (Esping-Andersen 2002: 22). Finally, global integration of national economies has increased the flexibility demand facing both firms and national economies reflected in the recent growth of atypical and more flexible work forms (Esping-Andersen 1996a: 76). These developments have contributed to a ‘growing disjuncture between existing social protection schemes and evolving needs and risks’ (ibid.: 6). In contrast to the many commentators who have heralded that, under these conditions, welfare states are coming under severe strains that are triggering a cross-national convergence across countries towards a neoliberal model (Rodrik 1997; Steinmo 1994), Esping-Andersen maintains that cross-national differences in the organization of welfare and labor markets have remained significant over time, and that one can observe a ‘frozen welfare state landscape’ (Esping-Andersen 1996a: 24) rather than signs of a radical change. Welfare states show path-dependent reactions and develop regime-specific strategies to the above challenges that result in the persistence or even amplification of welfare-state differences rather than any convergence.17 Table 2.3 summarizes key characteristics of Esping-Andersen’s three types of welfare regime and the differential adaptation paths which the three regimes have undertaken in reaction to the above-mentioned social and economic changes in recent decades. Liberal welfare states have reacted to the new structural challenges by a ‘labor-cheapening’ strategy, entailing a gradual weakening of union power, a flexibilization of labor market relations and a general downgrading of wages for unskilled workers (Esping-Andersen 1996a: 15ff., 1996b:

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Welfare regime characteristics and adaptation strategies in the liberal, social democratic and conservative regimes

Country showcases

Liberal US, UK, Canada, Australia, New Zealand

Social democratic Sweden, Norway, Denmark, Finland, (Netherlands)

Conservative Germany, France, Austria, Belgium, (Netherlands), (Southern Europe)

Welfare policies

Residual role of the state Modest transfer level Strong incentives for private savings and insurance Targeted social assistance

Strong transfer orientation, generous benefits Employment-based welfare, social insurance principle

Labor market policies

Passive labor market policy Little employment protection and regulation, high flexibility Strong work incentives through low wages and modest welfare benefits Central role of the market Low

Central role of the state as main welfare provider High level of benefits Broad array of covered risks Universalism: eligibility through citizenship Full-employment orientation Active labor market policies, reintegrative measures for unemployed Lifelong education and training High wage compression Central role of the state High

State–market nexus Decommodification Stratification

Low, Dualism universalism between welfare dependants and those who can afford private insurance

Modest level of active labor market policy Generous risk insurance (unemployment, invalidity) Strong employment protection Women as secondary earners

Strong role of the state, subsidiarity Medium Status maintenance through social insurance

58

Table 2.3

Older workers in a globalizing world

(continued)

Country showcases

Liberal US, UK, Canada, Australia, New Zealand

Social democratic Sweden, Norway, Denmark, Finland, (Netherlands)

Conservative Germany, France, Austria, Belgium, (Netherlands), (Southern Europe)

Adaptation strategy

Neo-liberal deregulation ‘labor cheapening’ Increased wage flexibility, lowwage strategy for unskilled Increased employment flexibility ‘Welfare to work’

From ‘welfare’ to ‘workfare’ Active employment support, subsidized employment Intensification of lifelong learning Tightening of welfare benefit eligibility

Labor reduction ‘Welfare without work’ Maintenance of high protection and transfers for male ‘insiders’ Discouragement of female employment Shedding of older workers through early retirement

Note: Netherlands and Southern Europe in parentheses as they represent hybrid regime types respectively marginal cases. Source: Own illustration based on Blossfeld et al. 2007, 2008; Esping-Andersen 1990, 1996a, 1996b, 1999.

76f.). This ‘neo-liberal deregulation approach’ has, on the one hand, contributed to the American ‘job miracle’ in the 1980s but has, on the other hand, also fostered the amplification of existing market inequalities. Basic social security has moved towards protection against acute market failures only and has replaced the means-test principle through more employment-based ‘welfare-to-work’ benefits (Esping-Andersen 2002: 15). Indicative of this change have been changes in pension programs towards less state-based funding and a gradual replacement of occupational pensions in which the pension level has been determined (‘defined benefit systems’) by systems in which only the contribution rate is fixed but actual accruals depend on the length of working life and the performance of investments (‘defined contribution systems’; Esping-Andersen 1996a: 16; Golsch, Haardt and Jenkins 2006: 187; Warner and Hofmeister 2006: 143f.).

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Naturally, the deterioration of labor and product markets since the 1970s seriously impacted on the social democratic model. Rising unemployment rates increasingly eroded the tax base of the comprehensive welfare state, while the rising use of welfare-state benefits endangered its long-term financeability. Though these developments triggered some modest trends towards privatization and benefit reductions (Stephens 1996), social democratic countries have largely maintained and even emphasized their general welfare logic so that reforms were oriented more towards ‘rebuilding institutions rather than dismantling the welfare state’ (Esping-Andersen 1996a: 15). Most reforms in Scandinavian countries aimed at a more explicit activation of the work force and its (re-)integration into the labor market. Employment-sustaining policies, including the provision of sheltered subsidized employment, an intensification of incentives for women to enter the labor force and further welfare-state expansion, have been geared to outbalance the loss of jobs generated through structural and economic transformations (ibid.: 10ff.). Adult workers were ‘discovered’ as a key target group of public policy intervention and were increasingly offered comprehensive retraining and lifelong learning schemes in order to improve their ability to adapt to the structural and technological changes on the labor market. At the same time, training requirements were increased for unemployment benefit recipients (ibid.: 14). While the above reforms largely aimed at fostering individual employability, reliance on welfare benefits was restricted by introducing tighter eligibility conditions (Samek Lodovici 2000a: 49f.; Stephens 1996: 48). Hence, the traditional Scandinavian ‘welfare’ principle was maintained under globalization, but was supplemented by a stronger emphasis on employment-stimulating ‘workfare’. In conservative countries, a similar ‘workforce mobilization’ strategy was, however, hindered by both the insider–outsider structure of the labor market and financeability problems due to fewer tax revenues. At the same time, a liberal ‘flexibilization strategy’ would have compromised the ‘secure male breadwinner’, who, by the very design of the conservative welfare state, ‘can ill afford any risk or employment breaks across his active career’ (Esping-Andersen 1996a: 19). As a result, the strategy taken in conservative countries to mediate unemployment and industrial restructuring relied more on continuing to protect the male labor market insiders while discouraging the labor supply of those at the ‘edges’ of the labor market. On the one hand, tax and family policies continued to set negative incentives for female participation in the labor market; on the other hand, the massive introduction of retirement schemes aimed at reducing labor supply among costly and often less-well-trained older workers in declining industries. Both measures were expected to reduce unemployment

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among the younger generation entering the labor market but were only marginally successful in this respect. Modern conservative welfare states are therefore, according to Esping-Andersen, ‘welfare states without work’ (Esping-Andersen 1996b, 2002: 17) in which the differences between the still highly protected male labor market ‘insiders’ and the excluded ‘outsiders’ have remained persistent or have even become amplified (see also Blossfeld et al. 2007, 2008). The consequence of the described ‘laborreduction’ strategy has been a steady rise in financial strains on national social security accounts. The rising imbalance between (employed) social security contributors and (non-employed) welfare recipients has led to a ‘cost explosion in pensions’ and has turned European welfare states into financially overburdened ‘pensioner states’ (Esping-Andersen 1996b: 73f.). According to Esping-Andersen, modern conservative welfare arrangements can hence be regarded as being ‘particularly ill-suited to address pressures for greater labor market flexibility’ and increasingly at odds with the needs of a post-industrial economy (ibid.: 68). Esping-Andersen hence establishes a direct and systematic link between the incidence of early retirement patterns and the nature and overall logic of different welfare regimes (Esping-Andersen 1990: 150ff.). Despite an overall decline in older workers’ labor-force participation across all welfare regimes, he sees early retirement as a mass phenomenon and as being a characteristic of the conservative regime where the demands of a changing economy could not be met by flexibilization measures (as in the liberal regime) or active employment strategies (as in social democratic countries). In the latter two regime types, opposing policy strategies hence mediated the early retirement trend and helped countries to maintain comparatively higher employment levels among their older workforce than in conservative countries. Extensions to the welfare-regime classification Esping-Andersen’s typology of three distinct welfare-state regimes initiated a broad and controversial debate about the adequate analysis and interpretation of welfare-state patterns in modern societies. While some criticized Esping-Andersen’s choice of dimensions as being too strongly built around the topics of social equality and redistribution (e.g. Rieger 1998) or around the male production worker (e.g. Lewis and Ostner 1994), others accused him of not having exercised enough methodological caution and accuracy in the construction and analysis of his key indicators (e.g. Obinger and Wagschal 1998). The most extensive discussion, however, evolved around the question of whether three different regime types are sufficient to describe the complexity of contemporary welfare states or whether additional regime types need to be considered. Arts and

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Gelissen (2002) provide a comprehensive overview of different proposals for extensions that have been put forward in this respect. Owing to the focus of this study on European countries and the US, I shall concentrate in the following on the two additional regime propositions most relevant for this area: the ‘Mediterranean’ and the ‘post-socialist’ regimes. Table 2.4 summarizes key institutional characteristics and adaptation paths for the two additional regime types outlined in more detail below. The idea of a specific Mediterranean regime including the four Southern European countries (Italy, Spain, Portugal and Greece) has been advanced by authors like Leibfried (1992), Lessenich (1994), Bonoli (1997) and Ferrera (1996). Though Esping-Andersen (1999) has largely rejected the idea of Southern European countries as a specific welfare regime, they have established themselves as an independent regime type in comparative research and are treated alike in an increasing number of studies (e.g. Blossfeld and Hofmeister 2006; Blossfeld, Buchholz and Hofäcker 2006; Blossfeld, Mills and Bernardi 2006; Blossfeld et al. 2005). While EspingAndersen includes the Southern European countries in the category of ‘conservative’ welfare states, proponents of a ‘Mediterranean regime’ argue that there are specific characteristics that systematically set them apart from the more developed welfare states of Central Europe. As comparative latecomers in industrial and welfare-state development, Southern European countries display a generally low level of social protection expenditures, which makes them similar to the liberal countries. Owing to the less developed and more fragmentary nature of public welfare, the family plays an even more important role in the provision of labor than in the conservative regime. Even so, the provision of welfare is characterized by several strong dualisms (Ferrera 1996: 19ff.). Some workers – especially those in public service, large companies or white-collar occupations – are ‘hyper-protected’ in so far as they are granted high job security and generous social security benefits. In contrast, a group mostly consisting of workers in smaller firms, the informal economy or traditional services receives only extremely low benefits. At the same time, Southern European welfare systems tend to generate considerable inequalities between generations. While younger workers especially face high employment risks without much protection through the welfare state, older retirees can often enjoy comparatively generous pension payments with income replacement rates that rank among the highest in Europe. However, even here, there are massive differences between those who can draw a full contributory pension and those who receive only the minimum benefit (ibid.: 20; for more recent figures see OECD 2007a: 31ff.). A third important dualism runs across gender lines. Owing to a traditional Catholic family ideology, public policies promote an even more asymmetric role sharing between

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Table 2.4

Welfare-regime characteristics and adaptation strategies in Southern European and post-socialist countries

Country showcases

Southern European Greece, Portugal, Spain, Italy

Post-socialist Hungary, Czech Republic, Estonia, Poland et al.

Welfare policies

Strong transfer orientation Employment-based welfare, social insurance principle Strong dualisms in social protection Intergenerational inequalities in transfers (high pensions) Low level of active labor market policy Very strong employment protection Strong insider–outsider structures Women as homemakers and carers Weak role of the state, family as the main welfare provider Medium–low

Highly dynamic Generally low level of social protection, need to earn additional income

High, amplification of status differences through public welfare Labor reduction Welfare without work Maintenance of high protection for male insiders Discouragement of female employment Shedding of older workers through early retirement schemes

Amplification of inequalities

Labor-market policies

State–market nexus Decommodification Stratification

Adaptation strategy under globalization

Source:

Own illustration.

Highly dynamic Low level of active labor market policy, mostly passive measures (unemployment insurance) Rigid labor markets

Weak role of the state, ‘grey market’ Medium–low

Labor reduction Early retirement as a means to overcome the economic turbulence of the transition from socialism to a market economy

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the sexes: the male breadwinner is strongly protected through an extraordinarily high level of employment protection, while women are largely kept out of the ‘core work force’, as reflected in one of the lowest female employment rates in Europe (Blossfeld and Hofmeister 2006; Hofäcker 2006; Samek Lodovici 2000a). In multiple respects, Southern European states hence tend to further amplify the insider–outsider divides typical for the classical conservative regime. Another group of nations that displays a number of specific features which set it aside from the ‘traditional’ three welfare state types is formed by the ‘post-socialist’ countries of Eastern Europe and the Baltic states. One striking difference is their historical legacy arising from previous decades under a socialist centrally planned economy. Under the socialist regime, social security policies were largely oriented towards the principle of egalitarianism and the equality of conditions. Social benefits were mostly universal and were distributed through a company-based system of services and fringe benefits (Esping-Andersen 1996a; Manning 2004). Official unemployment was low and the large-scale participation of women in employment was fostered (Blossfeld and Hofmeister 2006). Socialist countries hence virtually represented an ‘extreme variant’ of the social democratic regime. After the fall of the Iron Curtain, however, most of these countries underwent an intensive economic and social transformation resulting in the steep rise of both inflation and unemployment. Many governments responded to this massive turnover by a significant extension of unemployment benefits and labor-reduction measures (Deacon 2000; Manning 2004). However, as these measures proved to be extremely costly, more emphasis was put on privatization, liberalization and a gradual reduction of the social safety net accompanied by an increasing shift from universalism to targeted benefits in the following years, despite the fact that in some countries economies were starting to catch up (Esping-Andersen 1996a; Standing 1996). As a consequence, average living standards declined and inequality and poverty increased substantially within Eastern Europe. Given these highly dynamic and multifaceted developments, a vivid debate has evolved among social scientists about how to classify the Eastern European welfare regime type. While some have argued that they are moving towards a liberal (Standing 1996) or conservative type of social policy (Deacon 2000), others have emphasized the Eastern European distinctness of institutions and social developments, claiming that these countries constitute a ‘fourth type’. At the same time, it has been highlighted that there have been marked cross-national differences within the potential ‘Eastern European cluster’ (Aidukaite 2004; Fenger 2007). Given these differential developments and the highly dynamic nature of the transition process,

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it appears to be most reasonable to regard these countries as ‘evolving welfare regimes’, yet with ‘different destinations’ (Mills, Blossfeld and Bernardi 2006: 16). Until now, little research has investigated explicitly how late-career and retirement patterns have evolved under the structural changes of recent decades in the two ‘new’ regime types. What is known points to certain similarities in institutional and labor-force developments to those in the conservative early-exit pathway. In Southern European countries, the labor-force participation of dependent workers outside the agricultural sector is among the lowest in Europe (Ebbinghaus 2005). Evidence for Italy shows that this low employment level can be traced back to the introduction of various passive labor market measures granting generous benefits to redundant workers in declining industries introduced following the recession of the 1980s (Beckstette, Lucchini and Schizzerotto 2006; Samek Lodovici 2000b). Despite recent changes in pension systems, these early retirement opportunities have remained important exit opportunities for older workers until recent years (Mirabile 2004). Trends are even more pronounced for Eastern European countries where various early retirement opportunities were introduced on a large scale to mediate the adverse labor market effects of the system transformation and effectively reduce unemployment (Fortuny, Nesporova and Popova 2003). As a consequence, the employment participation of older men aged 60 to 64 years declined rapidly, in some countries to levels as low as 12 percent (Hungary in 2000; Hofäcker and Pollnerová 2006: 30). In contrast to conservative and Southern European counties, however, where retired workers were usually well compensated through generous early retirement payment, pensioners in post-socialist countries often have been pushed involuntarily into underpaid early retirement and have to supplement the low benefits levels by additional earnings from employment in the ‘grey economy’ (Fortuny, Nesporova and Popova 2003: 36; Täht and Saar 2006). 2.4.2

Incorporating the Firm Perspective: Welfare Regimes and the Varieties of Capitalism

Esping-Andersen’s classification of different welfare regimes provided a fruitful and systematic categorization of countries according to their key institutional welfare characteristics. By elaborating the variable responses of different welfare regimes to processes of structural change and highlighting that the introduction of early retirement incentives represented a strategy most suited to the welfare and labor market design of conservative welfare states, Esping-Andersen’s work significantly contributed to a more fundamental understanding of the cross-national variation in early

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retirement trends. Nonetheless, Esping-Andersen’s work largely remained restricted to an analysis of the state–market nexus while paying little attention to the role of social partners in the negotiation and implementation of exit pathways (Ebbinghaus and Kittel 2006: 225). However, as already pointed out in earlier life-course research, the role of firms and their relationship to both employees and the state is central for an adequate understanding of early retirement processes in modern societies. The international classification of public welfare policies, as proposed by EspingAndersen, therefore needs to be supplemented by a systematic perspective on the firm as a socioeconomic institution that integrates behavioral patterns of both employees and employers and its relation to public early retirement policies (Naschold and de Vroom 1994). Firm characteristics as ‘mediators’ of nation-specific welfare policies On a most basic level, it appears reasonable to assume that the effects of governmental policies may differ for workers employed in different types of firms. In other words, workers in specific types of firm may be more likely to be offered early-exit options and hence more likely to enter into early retirement. This assumption maintains the argument that different types of welfare regime produce different early-exit patterns, but assumes that, within specific regime contexts, these influences are differentially ‘filtered’ or ‘mediated’ through specific firm characteristics. Most frequently, this argument has been brought forward with regard to the economic or industrial sector to which a firm belongs. According to this view, early retirement can be seen as a ‘transitional effect’ (Herbertsson 2001: 35) of industrial restructuring. As modern societies are de-industrializing and moving towards service economies, older traditional sectors such as manufacturing or construction are declining while new sectors in the service sectors expand. As older workers tend to be overrepresented in the older, declining sectors, it is assumed that, especially in these sectors, early retirement practices will be especially widespread in order to facilitate industrial restructuring (Ebbinghaus 2001, 2006a). In a similar fashion, industries that are most exposed to international competition or those that are most strongly affected by economic downturns may show disproportionately higher rates of early retirement (Jacobs, Kohli and Rein 1991b: 68). Empirical evidence seems to confirm this assumption. In fact, it has been mostly the declining industrial sectors in which the early-exit programs of several Continental European countries such as France or Italy were initially targeted (Beckstette, Lucchini and Schizzerotto 2006; Guillemard 1991; Samek Lodovici 2000b: 281). Similarly, a recent OECD study finds that the ratio of retirees compared to all workers is highest in traditional industrial sectors (manufacturing, mining, construction)

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and transport whereas it is lowest in modern, service-oriented branches such as real estate or hotels and restaurants (Blöndal and Scarpetta 1999: 11). Other research, however, cautions against assuming a too one-sided relationship between industrial sector and early exit, suggesting that the troubled industry hypothesis ‘holds to some degree but does not offer a sufficient explanation of the whole process of early exit’ (Jacobs, Kohli and Rein 1991b: 94). Though, in multiple cases, early-exit programs started as a measure to relieve troubled industries, they nowadays have become increasingly widespread and can be found in virtually any sector. Even in the early 1990s, a comparative study by Jacobs and others reported a ‘decrease in the employment shares of older men within all industries’ (ibid.: 93), a diagnosis confirmed repeatedly by later publications (European Commission 2003c; Naschold and de Vroom 1994). Furthermore, mere industry differences do not make up a consistent device for explaining international difference in early exit. While, for example, liberal countries have followed a rapid de-industrialization strategy but reveal modest to high employment rates among older workers, still heavily industrialized countries like those of Central Europe have experienced significantly higher exit rates (Ebbinghaus 2001). Analogously, countries with very similar exit rates such as Germany or the Netherlands are characterized by very different industrial structures (Jacobs, Kohli and Rein 1991b). The differentiation between industries may hence be too broad and conceal significant heterogeneity between firms of the same industry (Naschold and de Vroom 1994). As a result, several researchers have suggested differentiating additionally between firms of a different size, as they may be in a differential position to supplement public early retirement pathways by occupational ‘top-ups’. In fact, Naschold and de Vroom (1994) show that larger firms and firms in the public sector are generally in a better position to offer or negotiate early-exit opportunities for older workers than smaller firms in the private sector. At the same time, employees in larger firms tend to have a higher incidence of collective interest representation through unions or work councils that can, in turn, more easily negotiate early-exit pathways. In contrast, small firms that offer lower pay and lower-skilled jobs and are less affected by collective interest representation may use labor turnover as an equivalent to early-exit practices. Following this line of argument, large firms may therefore amplify public early-exit incentives in welfare contexts that have followed a labor-shedding strategy. On the other hand, in countries that have relied less on public early retirement incentives, large firms may use occupational pensions in their stead when faced with rationalization demands while being unable to directly dismiss older workers.

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Regime-specific personnel strategies: the ‘varieties of capitalism’ approach In addition to the above perspectives that assume largely unidirectional effects of specific firm characteristics within every welfare regime, recent research has suggested that different welfare regimes themselves may differ in terms of the personnel management strategies of firms in general and their early-exit policies in particular. Recent research has hence attempted to integrate the established welfare-regime classification of Esping-Andersen with these similar classification approaches in industrial relations research and the research on social systems of production (e.g. Ebbinghaus and Manow 2001). Results of this research – often summarized under the term of ‘varieties of capitalism’ – point to the existence of notable ‘institutional complementarities’ (Hall and Soskice 2001) or ‘elective affinities’ (Ebbinghaus 1998, 2006a; Ebbinghaus and Kittel 2006; Ebbinghaus and Manow 2001) between the groups of institutions, that is specific types of welfare state seem to go hand in hand with specific types of production regime and employment system. A systematic analysis of welfare-state characteristics and the corresponding ‘varieties of capitalism’ therefore can be expected to broaden our understanding of both crossnational differences in early exit and its remarkable persistence over time. A full description of all aspects of institutional complementarities naturally would go beyond the scope of this work. In the following, I shall therefore concentrate on contributions that have applied this perspective to the comparative analysis of retirement processes, thereby aiming at ‘exploring linkages between welfare regimes . . ., production regimes . . . and industrial relations in shaping early retirement’ (Ebbinghaus 2006a: 76): a cross-national study on the retirement practices of firms conducted by Naschold and de Vroom (1994) and more recent contributions by Ebbinghaus (2001, 2006a) employing a broad macro-sociological perspective on the institutional backgrounds of early retirement behavior, both referring to selected sample cases from Europe, Japan and the United States.18 In line with findings from previous research in economics and lifecourse research, both studies concur that public early retirement incentives, and also the incentives provided through occupational pensions, have ‘pulled’ older workers out of the active labor force through incentives for a financially cushioned employment exit (Ebbinghaus 2001: 79ff., 2006a: 115ff.). They claim, however, that further institutional aspects have contributed to ‘pushing’ older workers out of employment. Five different groups of push factors need to be taken into account: ●

First, one needs to consider the overall production system of a country, that is its general mode of organizing production and work (Ebbinghaus 2001: 88ff., 2006a: 187ff.). Modern societies show

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●

●

●

●

systematic variations with regard to their industrial structure, the type of products being produced and the skill demands needed to organize production in an optimal way. These variations imply a differential use of firms’ human resource management practices which will produce differential pressures on older workers to exit employment. The differential skill demands of modern societies are reflected in different characteristics and designs of national education and training systems (Hall and Soskice 2001; Soskice 1999). These differential types of education and training policy equip workers with the necessary skills. Cross-national differences exist not only with regard to what type of knowledge is being transferred (theoretical versus practical) but also with regard to where education takes place (state-based institutions versus the firm itself) and when workers are being educated (only in younger ages or throughout employment life) (Blossfeld and Stockmann 1999). Depending on how well these different modes of education function in times of recent structural and technological change, (older) workers will run a higher or lower risk of becoming redundant and being shed by their employer. Modes of production usually are linked closely to the dominant system of corporate and financial governance (Ebbinghaus 2001: 91; 2006a: 194ff.). While, in some countries, firms will rely on long-term ‘patient money’ to finance necessary investments, others need to fall back on short-term investments from stock and capital markets. These differences in the mode of financing significantly shape the planning horizon of firms and their need to adapt swiftly to economic changes by staff reductions that may disproportionately affect older workers. The mode of employment regulation as embodied, for example, in characteristics of employment protection legislation or legal seniority rules allows or constrains the opportunities for firms to flexibilize their work force in times of economic pressures (Ebbinghaus 2001: 86f., 2006a: 184ff.). Finally, the negotiation of the above practices is usually embedded within a general system of industrial relations (Ebbinghaus 2001: 91ff., 2006a: 180ff.). Modern societies vary in the extent to which employees’ and employers’ interest are organized collectively and interact with each other. These different modes of organized employee interest can plausibly be assumed to lead to significant differences in negotiating systems of employment protection and specific early retirement pathways.

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With the exception of the case in post-socialist countries, each of the five welfare-regime types discussed in this chapter can, in a stylized fashion, be characterized by a specific combination of the above characteristics. Table 2.5 summarizes these aspects in a systematic fashion. In the following, I shall follow this overview by describing the respective combinations of welfare arrangement as ‘pull factors’ and the corresponding characteristics of the ‘varieties of capitalism’ as ‘push factors’, ordered by regime type. Liberal countries: the dominance of push over pull factors The most contradictory cases in terms of their institutional differences with regard to pull and push factors are the liberal and the conservative regimes. Liberal countries have often been described as uncoordinated market economies (Soskice 1999) representing a unique ‘Anglo-Saxon’ variant of capitalism (Albert 1993). Industrial production in these countries is based on the mass production of standardized goods for a largely ‘anonymous’ market. The dominant Taylorist mode of production requires only a modest skill level, so that qualification demands on the work force are rather low. These demands are reflected in the design of the system of education and training: public education systems are only weakly stratified and concentrate largely on the transmission of general skills (Allmendinger 1989). At the same time, a flexible in-home acquisition of necessary qualifications ‘on the job’ ensures high flexibility of qualifications (Blossfeld and Stockmann 1999; Hall and Soskice 2001: 30). The employment system in liberal countries is characterized by a highly flexible ‘hire-and fire’ labor market in which turnover is high as employers (by maximizing profit) as well as employees (by maximizing their wages) try to maximize their short-term returns. Owing to the generally high exchangeability of workers, employer–employee bonds are weak and employers’ commitment to guaranteeing their employees’ long-term job security is low. At the same time, firms are operating in a highly competitive market where short-term profits are largely determined by the price mechanism, and necessary investments are financed on the basis of short-term capital from financial or stock markets. In order to remain competitive, firms are therefore often urged to reduce costs by flexibly adapting staff size to changing economic demands through downsizing, and this leads to an increased shedding of workers in times of economic hardship (Ebbinghaus 2001: 89; 2006a). On the other hand, new workers can be easily recruited from external labor markets in times of upswings and increasing labor demand. As the state largely abstains from regulating labor relations and unions are of little significance, labor contracts are usually negotiated locally and

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Push

Pull

Table 2.5

Low stratification, low standardization, marginalized vocational training, learning ‘on the job’

Low employment regulation, little employment protection, weak internal labor markets,

Employment system

Voluntary (US)/ negotiated (UK) private pension plans, used as early-exit pathway

Occupational welfare

Education and training

Residual welfare state, increasing privatization, limited pathways

Liberal

Welfare-state regime

Institutional factor

Low stratification, high standardization, unstandardized vocational training, lifelong learning, retraining Employment regulation, lifelong employment, active employment policy, retraining, counseling, Highly regulated labor market, atypical work and informal sector

Negotiated supplementary pension, near universal, weakly used as earlyexit incentive

Universal welfare state, gradual pathways

Social democratic

Stratified schooling, underdeveloped vocational training systems

‘Welfare without work’, fragmented welfare, strong exit incentive through ‘subsystems’ Some negotiated pathways, but generally of low importance

‘Welfare without work’, multiple early-exit pathways

Negotiated (Netherlands) or mandatory collective schemes (France), voluntary ‘top-up’ pensions (Germany) High stratification, high standardization, dual vocational training system (Germany), schoolbased vocational training (France) Highly regulated, oriented toward lifelong employment, strong employment protection, seniority

Southern European

Conservative corporatist

Varieties of capitalism and older workers’ labor-force participation

71

Source:

Note:

Germany, Netherlands, (France)

USA, UK

Medium(–low)

Social partnership, coordinated bargaining, sectoral unions, medium union density High

Fragmented unions, decentralized bargaining

Unorganized, mass production, low skill demands, privateservice-based Uncoordinated, capital-market-based, short-term

principle, strong internal labor markets Organized (France: mixed), quality production, high skill demands Coordinated, longterm patient capital from (multi-)national banks

Italy

Medium–high

Sweden

Medium–low

Coordinated: public investment, long-term ownership, long-term patient capital from banks Coordinated, centralized and workplace bargaining, high union power

Coordinated, nationalized banks

Fragmented labor unions, contentious relations, ad hoc state intervention

Organized, quality production, highskilled demands

safety-at-work measures Nationalized mass production, flexible small firms

Blossfeld and Stockmann 1999; Ebbinghaus 2001, 2006a; Mayer 2005; Naschold and de Vroom 1994.

France in parentheses as it represents a marginal case of the respective regime type.

Early exit Country showcase

Industrial relations

Financial governance

Production system

flexible labor market with high turnover

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differ significantly between employees. Differences are reflected not only in the wage level and duration of the contract but also in the availability of additional fringe benefits. For example, employers in the United States tend to use occupational pension schemes or occupational health insurance as a means to reward their highly qualified ‘core work force’ for their loyalty to the firm, granting them access to generous benefits not offered to low-skilled workers or those in non-continuous or part-time employment.19 For older workers, this institutional arrangement has meant that their labor market situation has been strongly dependent on economic push factors, and their labor-force participation has varied with economic booms and downturns (Ebbinghaus 2006a). In times of economic recessions, downturns in the economic cycle and necessary enterprise downsizing, especially low-qualified older workers were at a particularly high risk of being shed by their employees. The fact that public pension benefits are low and provide virtually no incentive for early retirement entails that the effect of losing one’s job on the further employment trajectory of an older worker depends strongly on his or her financial situation and the access to other sources than public retirement income. Workers in liberal countries who are eligible for both social security and adequate occupational pension payments generally tend be more likely to leave employment if benefits ensure an adequate living standard (Warner and Hofmeister 2006: 166). Taken together, retirement processes in liberal countries hence reveal a dominance of institutional push over pull factors. If anything, pull factors have played a role through the occasional use of occupational pensions as early retirement pathways for workers when firms felt the need for urgent downsizing. Conservative countries: colluding for an early-exit strategy Firms in conservative countries, in contrast, display a higher long-term commitment to long-term tenure and employment continuity. One major reason for this divergent emphasis is that, since the 1970s, these countries have largely followed a strategy of ‘flexible specialization’ (Piore and Sabel 1984) and ‘diversified quality production’ (Streeck 1992, 1997). In contrast to firms with undifferentiated mass production in liberal economies, firms in the ‘coordinated market economies’ (Hall and Soskice 2001; Soskice 1999) of conservative countries tend to produce more individualized quality products for highly differentiated markets. As a result, competition between firms takes place less through the price mechanism than through the quality of produced goods, requiring continuous investment in research and development to achieve constant product innovations. As a consequence, the demand for well-qualified workers is high and is

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accommodated by a highly differentiated and standardized system of education and occupational training (Hall and Soskice 2001: 25f.). Firms therefore have an interest in long-term high-trust relationships with their highly trained core work force and in establishing stable long-term ties. Employment protection for the core work force is high, and job mobility is therefore either low or voluntary (Mayer 2005: 31). This long-term orientation is further amplified by stable ties between banks and companies expressed in long-term credits as ‘patient capital’ (Ebbinghaus 2001a, 2006a; Hall and Soskice 2001: 22) and banks’ long-term monitoring of firms’ performance (Streeck 1997). Despite their only moderate membership numbers and sectoral fragmentation, unions play a central role as social partners and have a significant say in the centralized negotiation of employment conditions as well as wages and fringe-benefit negotiations. Among other things, they have been very successful in negotiating either favorable public pension systems or generous additional company supplements as well as seniority pay regulations for the core work force (Ebbinghaus 2001, 2006a). However, this production system possibly faces difficulties when confronted with the need for restructuring or fundamental changes in labor and product markets. Owing to the central importance and institutionalization of long-term trust between employees and employers, firms cannot adapt by downsizing or weakening the employment protection of their core work force as in liberal countries without endangering the loyalty of their staff. Instead, they will – in the short run – revert to rather marginal adjustments in work such as cutting back on overtime. However, if economic turbulence becomes persistent, other more comprehensive measures need to be taken. The dominant strategy applied in conservative countries has been the previously described opening up of early retirement pathways and other options for financially buffered labor-force exits. As older workers were usually compensated well for their employment withdrawal, these state-sponsored measures allowed firms to adapt to structural change while, at the same time, leaving the trust relations between employers and their core work force intact. Both employers’ associations and employees ‘colluded’ on early retirement measures, as they fulfilled the demands of both parties and left employment security, seniority pay and inter-firm trust relations as the normative foundations of the coordinated market economy in place. The state supported this mutual consensus by offering multiple pathways to retirement. Hence, the Janus face of the conservative production regime is that ‘the more employers have to rely on seniority wages and employment tenure, the more they are interested in shedding older workers when seniority pay, career trajectories and employment protection reach their limits’ (Ebbinghaus 2001: 91).

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Scandinavian countries: colluding for older workers’ continued employment Looking at their institutional design, it initially appears puzzling why social democratic countries have shown clearly lower declines in older workers’ employment, given that they share a number of institutional features with the conservative countries. In fact, Scandinavian countries also rely on a high-quality, high-skill production system supported by long-term credits from large national banks. Furthermore, like conservative countries, most Scandinavian nations are characterized by a well-developed welfare state that provides generous and comprehensive social protection. The main institutional distinction, however, lies in a different system of industrial relations, ‘Nordic corporatism’ (Ebbinghaus 2006a: 71). Scandinavian countries reveal an exceptionally high level of union density and coverage, and, while these levels have declined or stagnated in many European countries since the 1970s, they have been continuously on the rise in Scandinavia (Ebbinghaus and Visser 1999). The labor movement has been well organized and powerful in lobbying for its members’ interests (e.g. high levels of welfare transfers, stable work relationships, additional fringe benefits). Negotiations between labor market actors are highly coordinated at the national level in institutionalized tripartite bargaining between centralized unions, employer organizations and a welfare state that has been for many decades dominated by the influence of social democratic parties. Together, this highly effective corporatist interest mediation has long maintained an anti-cyclical labor market policy that has relied on a broad provision of public services, active employment policies and sheltered employment in the public sector. At the same time, a developed system of continuous training and lifelong education has allowed a constant updating of skills. This differential design of the employment system, triggered by a specific mode of industrial relations, has allowed Scandinavian countries to adapt differently to market changes in the course of globalization and economic restructuring. Social democratic countries have been largely able to maintain their firms’ work forces through active reassignment or employment stabilization policies (such as job rotation, sheltered jobs and subsidized employment), flexible work forms (such as part-time work) and public retraining policies (Ebbinghaus 2001, 2006a; Naschold and de Vroom 1994; Olofsson and Petersson 1994). These policies have protected older workers and enabled them to move flexibly to new jobs. At the same time, partial pensions and gradual retirement programs provide employers with the option of reducing the volume of work as a ‘soft form of personnel reduction’ (Delsen and Reday-Mulvey 1996: 9) without necessarily having to shed older workers in general (Wadensjö 1991, 1996). It was only when the Scandinavian economies started to suffer from rising and persistent unemployment in the 1980s that

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some early retirement options through either specific pension programs (such as the efterløn program in Denmark) or additional welfare pathways (such as disability insurance in Sweden) were implemented to take pressure from the labor market. However, this in no way reflected the comprehensive extent of labor-reduction policies in conservative countries (Hofäcker and Leth-Sørensen 2006; Sjögren Lindquist 2006). Scandinavian firms hence made only moderate use of institutional pull or push incentives but largely followed an ‘internalization strategy’ relying on governmental and firm efforts to re-integrate (older) workers in times of market changes (Naschold and de Vroom 1994). Southern European countries: early exit as a solution in contentious industrial relations Southern European countries represent an exceptional case in terms of their institutional characteristics (Ebbinghaus 2006a). On the one hand, they share a number of similarities with the conservative regime cluster in terms of a highly regulated insider–outsider labor market and a welfare system even more explicitly based on the norm of a secure male breadwinner (Blossfeld 2003; Karamessini 2007). On the other hand, most Southern European countries are characterized by a more traditional production system with a still high level of secondary industries oriented towards the mass production of consumer goods. Education systems hence are often underdeveloped and provide employees only with basic skills. Unlike the system in conservative countries, the production system in Southern Europe hence did not demand a highly skilled ‘core work force’ and therefore did not trigger the establishment of strong trust relationships between employees and employers which became the key incitement for early retirement practices in conservative welfare states. Instead, the observable trend towards early retirement in these countries may be traced back more convincingly to the peculiar structure of industrial relations in Southern Europe, often described as being highly ‘contentious’ (Ebbinghaus 2006a: 17f.) or ‘adversarial’ (Karamessini 2007: 7). Labor relations in these countries usually tend to suffer from a low level of institutionalization of conflict between capital and labor and consequently frequent and decentralized conflicts between both parties (Ebbinghaus and Hassel 2000: 52). In order to represent their interests, unions often use opportunities for non-institutionalized veto power such as mass protests or strikes (ibid.; Ebbinghaus 2006b). In order to ensure peaceful social relations and avoid social conflict, Southern European states – whose direct influence in welfare and labor relations has frequently been described as comparatively weak (Ebbinghaus and Hassel 2000; Ferrera 1996) – often intervened in industrial relations by mediating a compromise based on active state

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involvement. A textbook example of such an intervention has been the introduction of largely publicly based generous early-exit programs in Italy that allowed a lowering of labor market pressure without the risk a mass mobilization of labor against rising unemployment among older workers. These so-called CIG (Cassa Integrazione Guadagni) programs were used extensively by economically pressured firms to send their employees into retirement (Beckstette, Lucchini and Schizzerotto 2006; see also section 5.1). However, the dualist structure of most Southern European countries meant that the above-mentioned welfare benefits were not available to all workers. In these countries, the majority of workers are employed either in large public industrial conglomerates or in one of the many small and medium-sized firms or family businesses. Access to welfare and employment rights differs markedly between these two groups. Workers in large industrial firms or in public sector employment and those with higher occupational skills have the highest likelihood of being unionized, enjoying high levels of employment protection and being covered by collective bargaining agreements (Beckstette, Lucchini and Schizzerotto 2006; Bernardi and Garrido 2006; Ebbinghaus 2006c; Ferrera 1996). Hence, generous public early retirement offers were largely geared towards low-skilled workers in the large industries and public firms, while others remained widely disadvantaged. Therefore, taken together, the Southern European regime reached a similar outcome to that of the conservative regime in terms of aggregate employment exits of older workers. However, in contrast to the case of Continental countries, the driving force was not a tripartite consensus between all labor market parties to maintain the baselines of the current production regime, but rather the interest of a central state in maintaining social peace in a highly contentious system of industrial relations. As a consequence, public pull incentives to retire early have been dominant, while employer pensions have played a comparatively lesser role than in Central Europe. However, the more fragmented structure of industrial relations, the employment system and the welfare system led to more significant social inequalities in the outcome, which may have contributed to a less pronounced fall in employment rates. Combining welfare regimes and varieties of capitalism: towards a comprehensive institutional explanation The varieties of capitalism research hence complements the welfareregime-based explanation of the disproportional occurrence of early retirement in conservative countries by a firm-based one. On the one hand, welfare-regime theory emphasizes the regime-specific adherence to an

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inherent logic of public policy orientation as a key driver in the differential development of early retirement. The varieties of capitalism approach supplements this perspective by showing that the differential logics of state policies are systematically interconnected with corresponding configurations in industrial relations and national production systems: ●

●

●

In conservative countries, the state followed an employment exit strategy in order to maintain the central role of the male mid-career breadwinner in the conservative welfare architecture even in times of rapid economic and structural changes. This strategy was supported jointly by employers and employees, for whom generous early retirement policies provided a means to safeguard a coordinated quality production system based on mutual trust relations between firms and their qualified employees. Together, both institutional approaches hence explain not only why different early retirement systems were introduced, but also why firms have often additionally supplemented these public plans with ‘golden handshakes’ through occupational pensions or lump-sum payments. The inherent logic of both the welfare and the employment system hence triggered a compromise between all labor market actors that led to a distinct strategy of shedding older workers in a socially acceptable way in order to protect the core workforce in internal labor markets. As demonstrated, Southern European countries followed a similar pathway, though here the institutional solution was driven more by public efforts to pacify social relations than by an explicit consensus in tripartite negotiations. At the other extreme, public involvement in liberal countries has remained largely residual and has concentrated on guaranteeing a functioning flexible labor market and some basic security for workers, while largely abstaining from interfering in industrial relations. This public policy largely reflected the interest of firms in a flexibly coordinated, open economy based on Fordist mass production, rather general skills and intensive price competition, where firms have to rely on the numerical flexibility of their staff. As virtually no public incentives for early exit existed, retirement processes in these countries remained largely individualized and vulnerable to changes in the economic cycle. Social democratic countries finally demonstrate that a diversified quality production does not necessarily need to result in mass exit from employment if all social partners jointly support a comprehensive ‘work-society’ approach through active employment and (re-)integration policies (Ebbinghaus 2001: 94). By emphasizing the

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perspective on all the labor market actors involved, both welfareregime research and varieties of capitalism research jointly maintain one of the key strengths of the early life-course approach while, at the same time, overcoming one of its key deficiencies by providing a systematic explanation of cross-national variation. Arguing from both a state- and a firm-based perspective, both theories hence contribute significantly to an improved and systematic understanding of cross-national variations in the prevalence of early retirement. However, in their argumentation, both approaches largely concentrated on the actions and motives of collective actors – the state, employers and unions as representative bodies – and their effects on aggregate labor market structures. They thereby abstracted from the concrete decision situation of the individual that previously had proven to be a helpful analytical tool in earlier approaches. More recent life-course approaches have taken up this explicit micro-perspective and have connected it to the findings from institutional research. I shall now turn to these approaches in the next subsection. 2.4.3

From Institutional Regimes to Life-Course Regimes

In earlier phases of life-course research, sociologists had already pointed to the significant and systematic influence of nation-specific institutions on the structure of individual lives in modern societies and their central role in structuring, regulating and defining the modern life course (Kohli 1985; Mayer and Müller 1989; Mayer and Schöpflin 1989). In more recent years, the significant advances in comparative research on both welfare regimes and the varieties of capitalism outlined in the previous subsection contributed greatly to a systematic and comprehensive distinction of institutional contexts, thereby providing an excellent ‘blueprint’ for the comparative analysis of contemporary welfare states and labor markets. Given these parallel developments, it appeared to be a promising endeavor to ‘fuse’ both strands of research and investigate whether systematic patterns of institutional configurations lead to a systematic shaping of life courses and thereby produce distinct ‘life-course regimes’. Modern life-course approaches, often summarized under the heading of the ‘political economy of life courses’ (Mayer 1997), have increasingly accomplished this task. These approaches build on the theoretical foundations of early life-course theory (see section 2.3), but extend it with at least three key dimensions: 1.

In both theoretical and empirical terms, modern life-course approaches have turned increasingly from a reconstruction of aggregated macro-

State of the art in social science research

2.

3.

79

structures and distributions (‘abstracted structuralism’) to the dynamic analysis of decisions and events at the level of single individuals. This turn made it possible to link societal institutions and configuration systematically to developments in the life courses of individuals (Mayer 2001). Driven by improved data availability and the observation that after the ‘Golden Age of Fordism’ modern industrial societies reacted very differently to the challenges arising from the oil price shock and rising unemployment, sociologists made increasing efforts to incorporate the international dimension into sociological life-course research, and this was reflected in a rapidly growing amount of internationally comparative life-course research (Blossfeld and Huinink 2002; Mayer 2001, 2005). Key methodological advances in the use of longitudinal individuallevel data and adequate advanced methods of data analysis contributed greatly to a more thorough investigation of life-course changes over time, transforming this into a crucial dimension for life-course analysis (Blossfeld and Huinink 2002; Mayer 2000).

Under these three key headings, the following will sketch key theoretical as well as empirical cornerstones of modern life-course theory. I shall start with an overview of how sociologists theoretically conceptualized the relationship between state institutions on the macro-level and lifecourse developments on the level of the individual. In a second step, I shall outline how the increasing availability of longitudinal life-course data and significant innovations in methods of data analysis could be used to empirically test the assumptions arising from this new conceptual framework. In a final step, I shall report results from selected cross-national studies that have aimed to identify specific ‘life-course regimes’ or ‘mobility regimes’ in analogy to institutional regimes. As in previous sections, I shall critically examine how far these recent advances in life-course research have incorporated early retirement trends and what they can contribute to the analysis and explanation of early-exit trends. A new life-course perspective: from aggregate social structure to agency within constraints One of the key achievements of modern life-course theory has been to expand the topical focus of previous life-course research to an explicit micro–macro perspective on life courses in a variable social environment. As pointed out in section 2.3, early approaches in European life-course theory in the 1980s largely had a macro-analytical aim, that is they were intended to explain general societal structures as a consequence of the

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(aggregated) development in the life courses of its members (Blossfeld and Huinink 2002: 5f.). In contrast to this largely macro-based focus, the perspective in modern life-course sociology shifted more to the individual logic of life courses, treating individuals as (rational) actors embedded in a socially determined environment. Against this background, modern life-course sociology aims to map, describe and explain the distribution of individual persons into social positions across the lifetime (Mayer 2005: 20). Blossfeld and Huinink (2002: 6ff.) and Mayer (2004: 166) jointly emphasize three key features of life courses that need to be considered in this respect: ●

●

●

Life courses are to be seen as ‘self-referential processes’. The actions of a person at a specific point in time are dependent on the previous experiences and resources in material, social and cultural terms. Likewise, actions presently taken constrain the opportunities for future action. Individual life courses therefore need to be seen as subject to ‘endogenous causation’ (Mayer 2004) on the individual level. Therefore, life-course sociology must go beyond a static crosssectional perspective on life courses at a specific point in time and must take a long-term longitudinal perspective on individual life courses as a life-long process (Elder, Johnson and Crosnoe 2003: 11). Life courses are multi-dimensional in nature. Individuals simultaneously act in multiple life domains (such as employment, family, education, etc.) which are interdependently connected. Life-course sociology hence has to consider developments in multiple fields and has to consider their (causal) relations to each other. Life courses are embedded into complex social multilevel processes. They are influenced by parallel developments in the life courses of other individuals (‘linked lives’; Elder, Johnson and Crosnoe 2003), social groups and societal institutions and organizations, as well as specific historical contexts. Hence, when explaining life courses, sociology must incorporate several social layers, from micro to macro, and their parallel development over time (‘principle of time and place’; Elder, Johnson and Crosnoe 2003).

Despite their primarily micro-analytical foundation, modern life-course approaches hence do not lose sight of macro-structural phenomena such as state institutions, policies or regional contexts. These factors continue to be understood as influential framework conditions that, on the one hand, determine the decision-making and action opportunities of actors, but, on the other hand, are also shaped by individual-level actions. Individuals

State of the art in social science research Education and training systems

Structuring

Youth

81

Pension systems

Integration

Integration

Mid-career employment

Structuring

Old age

Integration Risk management Labor market policies Source:

Own illustration based on a scheme by Leisering 2003.

Figure 2.3

State policies and the life course – schematic grid

are perceived as exercising agency, but agency ‘within the opportunities and constraints of history and social circumstance’ (Elder, Johnson and Crosnoe: 11). In this sense, life courses represent the unifying ‘bracket’ between different analytical levels (Blossfeld and Huinink 2002: 6), or the ‘interface of institutional control (macro) and individual strategies of action (micro)’ (Leisering 2003: 207). Modern life-course theory hence explicitly assumes a valid and systematic connection between institutional conditions on the national level and specific life-course patterns on the level of the individual (Mayer 1997: 204). Recent empirical work in comparative life-course theory (DiPrete et al. 1997; Leisering 2003; Mayer 2001, 2004, 2005) has developed theoretical approaches on how the overall logic of the relationship between public institutions and the life course may be conceptualized theoretically. Figure 2.3 summarizes the key findings from this work in one ‘conceptual grid’. According to the above-mentioned approaches, three core institutional fields can be differentiated through which the state20 influences the structure and development of individual life courses. First, the educational system provides individuals with the necessary ‘knowledge prerequisites’ for a successful labor market career. It therefore not only structures their early life courses (by defining the status of ‘school children’, ‘students’, etc.; Leisering 2003: 211) but also integrates individual life courses by facilitating the transition between educational systems and the labor market. However, the influence of education goes beyond the early career phase. As social mobility research has shown, educational systems significantly

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predetermine later labor market trajectories (Blossfeld 1985) and thereby serve to enhance future life chances (Leisering 2003: 211). Depending on their degree of standardization, they also define specific pathways and trajectories of individuals throughout their career. By establishing clearly demarcated occupational tracks, for example, educational systems can create substantial ‘labor market boundaries’ that may constrain individual mobility within employment (DiPrete et al. 1997: 323). Conversely, adult education programs that provide training throughout the employment career can contribute to greater labor market flexibility even in late employment life. Second, through a number of labor market institutions, the state regulates the employment lives and trajectories of its citizens. Modes of labor market regulation determine the ways in which employment relations are shaped. Employment protection regulation and dismissal protection, for example, shape the ways in which workers can be shed in times of economic downturns, and therefore generally affect the level of job security in employment life (ibid.: 322). Risk management programs such as social assistance, social insurance or public services can serve to counteract these employment risks by providing individuals with security throughout employment life and filling employment gaps if they occur (Leisering 2003). At the same time, active employment-sustaining labor market policies facilitate a successful re-entry into employment for workers who have lost their jobs (ibid.: 323). Finally, public pension programs define the boundaries of working life and ensure financial wellbeing beyond the work career. Though pension systems are the most notable of these ‘welfare-sustaining exit policies’, results from previous sections have shown that additional welfare programs such as early retirement schemes or welfare-state subsystems may serve to extend these systems to facilitate employment exit for redundant workers (ibid.). The combination of these systems serves as a chronological marker and orientation for individual employment exit transitions. Hence, they not only demarcate the temporal boundaries of retirement but also structure the prior employment lives of individuals through the expectations evoked by their benefit design. Taken together, the three core institutional fields ‘make up the entire life course’ (Leisering 2003: 211). They structure the temporal sequence of the life course by defining the boundaries of the three life phases of childhood/ youth, employment/family and old age along with the transitions between them. Second, they establish connections between the three different stages of life, facilitate transitions between them and thereby contribute to life’s continuity and integration. This emphasis on the ‘diagonal relationships’ (in terms of Figure 2.3) between state institutions and individual life-

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course patterns represents the ‘institutional correlative’ to the longitudinal perspective on life courses as developed in modern life-course research. It points to the ‘endogenous causality mechanism’ by emphasizing that life-course trajectories are not only shaped by institutions that are directly targeting them at a specific point in time, but also influenced by institutions that have equipped these individuals with human capital in earlier stages (education) or that will reward individuals for the design of their current career development (e.g. pension systems). Hence, the focus shifts analytically from a spot analysis of institutions and cross-sectional lifecourse outcomes to a consideration of individual life-course trajectories extending throughout life and consisting of several interdependent life phases and transitions along with the institutions affecting them. This perspective on life courses and institutions represents an important innovation in a field that previously had tended to look only at ‘the isolated impact of single systems of welfare’ (Leisering 2003: 207) while previously assigning little attention to the overarching structure of public institutions as a whole. Leisering hence concludes that ‘the life course as formed by the state – its structure and its vulnerabilities – is only comprehensible if perceived as the outcome of the interaction of all three elements of life course policies’ (ibid.: 213). Longitudinal data analysis as a methodological tool for comparative lifecourse research The theoretical advances in life-course research described above were accompanied by an enhanced availability of longitudinal data as well as major advances in statistical methods to develop and test hypotheses derived from the new theoretical framework (Mayer 1997: 203f.). Taking the theoretical framework of modern life-course theory seriously (i.e. emphasizing the role of developments over time in the explanation of individual life courses and social structures) automatically implies the need for longitudinal information as the data basis for research. In contrast to cross-sectional data, which can assess only the net association between a dependent and an independent variable at a specific given point in time, longitudinal data are not just able to establish an unambiguous causal relationship between two variables by decomposing their temporal order (Blossfeld and Steinhage 1999). They also allow consideration of both the time structure of the dependent process and the time dependency of explanatory variables in life-course analyses. Hence, Wagner and colleagues stress that, in the social and economic sciences, it is nowadays ‘more apparent than ever that longitudinal analysis is crucial, not only to test life course models but also to establish the causes of social phenomena and evaluate public policy programs’ (Wagner, Frick and Schupp 2007: 1).

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Likewise, Blossfeld and Rohwer argue that they are ‘indispensable for the study of processes over the life course (of all types of units) and their relation to historical change’ (Blossfeld and Rohwer 2002: 13), while Mayer regards them as ‘one, if not the most important, data source for social research’ (Mayer 2002: 48, translation and emphasis by author). The last two to three decades have seen the gradual development of a number of publicly available longitudinal studies with a social science focus that have increasingly become the basis for sociological life-course research (ibid.: 41). The most important developments for life-course analysis have been the advances in both frequently repeated long-time panel studies and in retrospective surveys (Blossfeld 2001: 10f.). Since the 1980s, a number of panel studies have evolved that combine a frequent interrogation at evenly spaced time intervals with retrospective histories of selected life events. Pioneering studies originating in the United States in the late 1960s included projects such as the National Longitudinal Surveys (NLS 2005) or the Panel Study of Income Dynamics (PSID; Duncan, Hofferth and Stafford 2004). A decade later, similar panel studies were gradually launched in several European countries, such as the German Socio-economic Panel (GSOEP; Wagner, Frick and Schupp 2007), the Dutch Economic Panel (SEP) in 1984 or the British Household Panel Survey (BHPS) in 1991. In order to compare the data of these studies in a more systematic manner, several attempts were undertaken to harmonize these national surveys and integrate them into joint datasets, such as the Cross National Equivalent File (CNEF; Burkhauser et al. 2001) or the Consortium of Household Panels for European Socio-economic Research dataset (CHER; Birch et al. 2003). In addition, a cross-European panel project, the ‘European Community Household Panel’ (ECHP), was launched in 1994 that used a unified questionnaire from the very beginning and aimed to provide comparable panel data for 15 different EU member states (Peracchi 2002). This panel project ceased in 2001, but was succeeded by another cross-European panel study, the European Survey of Income and Living Conditions (EU-SILC; Ehling and Günther 2003; Eurostat 2005). In addition to these general panel studies with a broad topical focus and based on samples largely representative of the total adult population of a country, further panel studies were set up with a more specific focus on older individuals. Again, the pioneering study originated in the US with the Health and Retirement Study (HRS), which interviewed more than 20 000 Americans aged 50 years and older (National Institute on Aging 2007). A similar British study aiming at the same age group, the English Longitudinal Study of Ageing (ELSA), was launched in the late 1990s (Banks et al. 2006; Marmot et al. 2002). Finally, a most promising recent

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development for the analysis of old age and late employment life has been the implementation of the Survey of Health, Ageing and Retirement in Europe (SHARE) in 2004, a multidisciplinary survey aimed at the analysis of health, socio-economic status and social networks in 11 different EU countries (Börsch-Supan and Jürges 2005). However, though very promising first results are already available (Börsch-Supan et al. 2005) and highly interesting opportunities for analysis can be expected for the future, the fairly short duration of the panel survey does not yet allow differentiated longitudinal analyses. Parallel to the rising availability of longitudinal datasets, there have also been significant advances in the statistical ability to analyze this type of data. On the one hand, advances in computer technology allowed scientists to process ever more complex statistical models. On the other hand, methods of event history were developed as a statistically powerful tool for the analysis of longitudinal data (Blossfeld and Rohwer 2002). Event-history methods make it possible to explain individual transitions between different states (such as transitions between non-married and married, or between employed and retired) with explicit reference to (1) the time duration in the respective state, (2) other durations in the same or other field of activities (such as age or labor-force experience), (3) time-variant individual properties (such as the highest attained level of education), (4) time-invariant individual properties (such as gender or ethnicity), (5) constant or timevariant processes of the ‘social ecology’ (such as characteristics of spouses) and lastly (6) the attributes of the respective historical period (Mayer 1997: 211). Therefore, event-history analysis makes it possible to consider the complex time structure of both the dependent process (individual lifecourse transitions) and several levels of explanatory variables. It represents an ideal tool for adequately considering the principles of self-reference, multi-dimensionality and the multilevel nature of life courses fundamental to the theoretical basis of modern life-course research. In contrast to crosssectional methods that, in the strict sense, allow only an analysis of the distribution of specific states, event-history analysis enables the researcher to look at processes and the mechanism triggering them (Blossfeld and Steinhage 1999). The availability of specific program packages for applying event-history analysis, such as TDA (Rohwer and Pötter 2005), as well as the recent implementation into existing statistical programs such as Stata (Blossfeld, Golsch and Rohwer 2007), has furthermore fostered the spread of event-history analysis in the social sciences. In addition to event-history models, significant improvements were also made in the transfer of traditional methods of regression techniques to longitudinal panel data (Frees 2004) as well as in the development of statistical tools to describe long-term types of transition sequences (MacIndoe and Abbott 2004).

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The state–life-course nexus compared: from welfare regimes to life-course regimes Given the applicability of the above scheme postulating a correspondence between institutional and life-course patterns and combining this with the data and methods available, it seems reasonable to study whether different life-course patterns will emerge under different institutional regimes (Leisering 2003: 205; Mayer 2005: 35). The growing interest in this type of cross-national comparative life-course research was fueled recently by the fact that, under the influence of the two oil crises in the 1970s, political interest shifted from the analysis of the causes of welfare-state expansion to its consequences in an increasingly unstable economy. The proponents of a sociologically based ‘political economy of the life course’ generally claim that there are significant and observable crossnational life-course differences between modern societies that can be traced back causally to different institutional backgrounds of welfare-state and labor market regulation (Mayer 1997: 205). Depending on the institutional regime of a country, life-course patterns display a specific distribution of life phases and transitions across time that reflects a specific societal or state-wide logic (ibid.: 209f.; Leisering 2003: 215). Depending on the specific design of their education and pension systems and the modes of labor market regulation, modern societies differentially shape both the employment entry of young workers and the labor market exit of the older work force. In addition, they also determine the labor market mobility of those in their mid-career, that is their level of job mobility, their risks of becoming unemployed and their chances of being re-employed as well as the incidence and duration of career breaks, for example due to childbearing. ‘Institutional regimes’ hence are paralleled by specific types of ‘life-course regime’ (Leisering 2003; Mayer 1997, 2001, 2004, 2005) and ‘mobility regime’ (Allmendinger and Hinz 1997; DiPrete et al. 1997) respectively. Of course, the idea of a specific coherent ‘life course’ or ‘mobility regime’ represents only an analytical construct or simplification to describe the typical patterns of life courses in a specific national context. On the one hand, institutional regimes themselves are not necessarily uniform and may show some notable cross-national variation in the design of specific labor market and welfare institutions. As it is not the ‘regime as such’ but rather the nation-specific institutional characteristics of a country that shape the life courses of individuals (Blossfeld 2001, 2003), life-course patterns accordingly may vary across countries within a specific regime grouping. In order to achieve an adequate understanding of the direct influence of institutions on individual life courses, studies of welfare and life-course regimes therefore need to be supplemented by country-specific

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case studies (Mayer 2005). Moreover, even within one country context, different actors and pressure groups may influence the institutional patterns of the three different policy fields, so that nation-specific institutional systems will not necessarily follow a unique regime logic. As a matter of fact, different phases of the life course will be affected differently through institutional backgrounds (Leisering 2003; Mayer 1997). Finally, the institutional characteristics themselves may change over time, consequently affecting the life-course patterns produced by them (Mayer 2005). Despite these qualifications, the idea of life-course regimes can be viewed as a promising heuristic tool to elaborate on a more abstract scale the relationships between specific institutional patterns and their life-course consequences, while a more case-oriented analysis of concrete political institutions can be used to establish more direct causal relationships and test concrete hypotheses. Differentiating life-course regimes For the construction of specific life-course regimes, most sociologists used Esping-Andersen’s differentiation of three different ‘worlds of welfare’ (respectively its extensions) as ‘a good starting point for developing explanatory accounts for national variations in life course regimes’ (Mayer 1997: 218). In order to arrive at a possibly broad classification of institutions, they often supplemented the differentiation of welfare-state institutions with a corresponding classification of employment policies and educational systems. For each of these regime types, comparative studies have delineated specific clusters of life-course regimes characterized by similar patterns of education and training, labor-force entry, mid-career progression and labor-force exit (Allmendinger and Hinz 1997; Leisering 2003; Mayer 2001, 2004, 2005) as well as specific types of mobility patterns (DiPrete 2002; DiPrete et al. 1997). Most analyses hence differentiate between a liberal, a social democratic and a conservative life-course regime, while some contributions further differentiate the latter cluster into Central and Southern European countries. In the following, I shall provide a joint overview of the key findings from these and further studies21 by focusing on four different types of society: the liberal, the social democratic, the conservative and the Southern European type.22 Table 2.6 summarizes the key institutional features of the respective institutional regimes known from the earlier sections and the resulting life-course patterns, which will be described in more detail below. In liberal countries, active state policies geared to influence individual life courses are only weakly developed. The main political focus in these countries appears to be on providing equality of opportunity through a universal and comprehensive schooling system and policies that foster the

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Pension system

Early retirement policies

Conservative

Social democratic

Universal low stratification Unstandardized

Welfare and production regime characteristics Highly stratified Low stratification Standardized Standardized High emphasis on adult training Vocational school, On-the-job training Dual system, standardization through unstandardized certificates Low, means-tested, Generous, but Generous short duration contribution-based Undeveloped, activation Largely passive policies Highly developed, through market pressure (unemployment active re-integration, insurance) retraining measures Little incentive through Little public incentive, Various incentives public pensions, limited early retirement through though early retirement early retirement options occupational schemes plans and public welfare (disability) programs Basic income, flat rate, Generous pensions, Flat universal and need for additional earnings-related, supplemental earningsincome sources dominant public pillar related, generous

Liberal

Institutional configurations and life-course regimes

Level of public welfare benefits Labor market policies

Vocational training

Schooling

Table 2.6

Low benefits, segmentation of social transfers Only a few active policies, fragmented unemployment insurance Low formal retirement ages, generous groupspecific early retirement policies Highly generous, dominant public pillar

Mixed system of firm- and school-based training

Stratification

Southern European

89 Moderate

Early

Flat

High

Late, high variance

Late

Low

Flat

Low mobility, high unemployment, risk of long-term unemployment

Moderate mobility, low unemployment risk, high level of employment reintegration High

Early

High

Progressive

Low

Late, risk of marginalization

Early, high level of integration

Own illustration based on Blossfeld et al. 2007; DiPrete et al. 1997; Leisering 2003; Mayer 1997, 2004, 2005.

Progressive

High

Occupational mobility Intra-individual income trajectories Inter-individual ncome inequality Retirement

Source:

Low

High mobility, high unemployment risk

Overall level of job mobility

Life-course patterns Late, high level of integration, little mobility Low mobility, moderate unemployment, but risk of long-term unemployment

Early, high mobility, stop-gap jobs

Labor market entry

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investment in human capital. The liberal life-course regime hence is only loosely structured by national institutions. Universal schooling and the lack of a differentiated formal apprenticeship system result in little stratification in early careers. Labor market entry takes place quickly, but young people are usually confronted with a high number of stop-gap jobs before entering into more secure employment. Tenure with an employer is low and job changes occur frequently. As education and training systems are only weakly standardized, mobility not only takes the form of mere job-tojob changes but also frequently includes mobility between different occupational fields and economic sectors. Low overall job security and high unemployment risks are counterbalanced by high labor market flexibility that allows for a quick re-entry into employment. However, especially in times of structural changes in the economy, job changes and temporary career interruptions are often connected with downward mobility in terms of occupational prestige and earnings. As the free market plays a dominant role, employment prospects are usually determined by the perceived productivity of the individual worker, so that individual resources are of central importance for labor market success. DiPrete and other have therefore described liberal countries as highly ‘individualist mobility regimes’ (DiPrete et al. 1997). Low-educated workers especially run a high risk of becoming permanently marginalized, and inter-individual income inequalities are consequently high. In contrast, intra-individual income trajectories over the life cycle are rather flat and involve little seniority. Owing to the low compensation level of public pensions, exit from employment is equally individualized with a highly variable retirement age. In sum, though public engagement in welfare and labor market policies is low, the reliance on ‘negative life-course policy’, that is a policy that intentionally leaves life-course formation to market forces, has contributed to the formation of a highly flexible and individualized life-course regime in liberal countries. In institutional terms, social democratic countries largely provide the opposite extreme to the liberal pattern. Here, comprehensive welfare policies ‘lastingly affect the whole life course’ (Leisering 2003: 218). As a consequence, life courses in Scandinavian welfare states tend to be characterized by a smooth integration into the labor market and relative continuity throughout work careers. Both sexes are highly integrated into continuous work careers in either full- or close-to-full-time employment. Nonetheless, active adult training programs offered throughout the life course and low labor market boundaries through a flexible occupational system allow for a notable degree of occupational mobility. Owing to redistributive state policies, income inequalities tend to be rather flat, though there are some signs of an occupational segregation between women largely working in

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public sector employment and men with a generally broader employment field. Individual income trajectories are also rather flat, and working lives tend to be long and extend until close to the high retirement ages. Despite large institutional differences between the liberal and the social democratic regime type, there hence appears to be some similarity in lifecourse outcomes in so far as high employment rates and occupational flexibility are concerned. In this respect, it may be argued that Scandinavian welfare policies serve as a ‘functional equivalent’ to the residual and freemarket policies in terms of quantitative life-course outcomes. However, there are, of course, qualitative differences between the two systems in terms of the quality of job moves, economic security and social inequality, with the latter being clearly higher in liberal countries. In conservative countries, the main focus of public policies is on social security and redistribution, while active labor market policies play only a moderate role. Education appears to be highly stratified and standardized through certificates to meet the demands of a highly differentiated occupational structure. Labor market policies are characterized by high levels of employment protection for the (mostly male) core work force. Though unemployment benefits tend to be fairly generous, there is only a modest amount of active employment policies and state-funded retraining to reintegrate unemployed adults into the active work force. Social services that foster the employment of women are largely underdeveloped. As shown by Esping-Andersen, there are a number of policies that facilitate an early withdrawal from the labor market before reaching mandatory retirement ages. Taken together, the different state institutions act to generate a lifecourse regime that appears to be ‘curbed from all sides’ (Leisering 2003: 218): individuals tend to enter the labor market late, but leave it early, so that employment lives in conservative countries are rather short. Owing to dual vocational training systems (in the German-speaking countries) that combine in-firm training with general knowledge acquisition in vocational schools, labor market entry usually runs smoothly. As a result of high levels of employment protection, employment lives for the core work force are largely secure and continuous. Job mobility is rare and, if it occurs, it mostly takes the form of within-firm changes. Both cross-occupational and cross-industrial mobility are restricted through occupational standardization that creates labor market boundaries. Wage inequalities tend to be modest, and individual income trajectories over the life course are characterized by considerable wage gains due to seniority regulations. The continuous and stable employment careers of the core work force stand in contrast to the employment situation of the ‘labor market outsiders’ who have difficulties in entering employment and are often confronted with long-term exclusion from the active labor force. Likewise, women are

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often restricted in their labor-force participation owing to the lack of services that support work–family reconciliation and tax systems that favor a one-and-a-half-earner model. The widespread use of publicly supported early-exit measures has led to early average exit ages from the labor force in international comparison. Southern European countries largely represent the conservative model as regards labor market regulation and the resulting insider–outsider patterns, though they tend to amplify this pattern. Differences mainly arise with regard to the central role of the family as the main welfare provider in these countries. Owing to difficulties in entering the labor market, young individuals usually tend to reside with their kin until they find stable employment. For a long time, women have not been integrated into employment, though their number has risen in recent years owing to their catching up in terms of educational degrees and occupational qualifications. However, as public support services for work–family reconciliation are largely underdeveloped, there appears to be a marked polarization between work- and family-oriented women (Blossfeld and Hofmeister 2006). The fragmentation of welfare and labor market access tends to foster an even stronger emergence of significant inter-individual inequalities than in conservative countries that tend to be cumulative across the life course. Finally, high and generous pension levels, low retirement ages and a number of early retirement opportunities have contributed to what is often an early exit from the labor market. Life-course regimes: older workers and retirement as the ‘blind spot’? Despite being a rather young field of sociological research, there has been a growing interest in comparative life-course analysis in the last decade. A notable number of international empirical studies have contributed considerably to the state of research, especially in the fields of the transition from youth to adulthood and labor market entry (Blossfeld and Shavit 1993; Blossfeld et al. 2005; Bukodi et al. 2006; Hillmert 2001; Müller and Gangl 2003), family formation (Blossfeld and Timm 2003), the labor market careers of men and women (Blossfeld and Drobnič 2001a; Blossfeld and Hakim 1997) and labor market and earnings mobility (Allmendinger and Hinz 1997; DiPrete 2002; DiPrete and McManus 1996; DiPrete et al. 1997). Using the most recent longitudinal data and advanced methods of statistical modeling, these studies have demonstrated impressively how nation-specific institutions differentially affect the early employment lives and mid-careers of men and women. They have provided conclusive evidence for the existence of systematic relationships between institutional regimes and life-course and career patterns in modern societies. At the same time, they have shown that, even within

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countries, there is considerable variation in the life courses and employment careers of men and women with different human capital resources and of different social origin. However, besides recent contributions by Blossfeld, Buchholz and Hofäcker, to which I shall refer in more detail below (Blossfeld, Buchholz and Hofäcker 2006; Hofäcker, Buchholz and Blossfeld 2007; see Chapter 3), few studies have yet approached the international variation of late careers and retirement patterns from a longitudinal life-course perspective. In a recent synoptic work on comparative life-course research, Mayer (2005: 44f.) mainly refers to the work of Ebbinghaus (2002) on ‘exit from labor’ when discussing the late employment lives of older workers. Despite the indisputable value of Ebbinghaus’s work, his study is largely based on aggregated cross-sectional data. As demonstrated in section 2.4.2, Ebbinghaus concentrates on highlighting the relationship between institutional constellations and older workers’ aggregate employment patterns, and less on a decomposition of individual-level retirement decisions. Finally, owing to the restrictions of the data used, Ebbinghaus’s focus lies more on the explanation of older workers’ exit ages than on a more detailed decomposition of their previous career development using longitudinal data. DiPrete and others (1997) in fact used a combination of longitudinal panel data and repeated cross-sectional labor-force surveys when they analyzed patterns of labor market mobility and labor-force exit in four different countries: the US, Sweden, Germany and the Netherlands. They indeed pointed to the importance of labor market and welfare institutions (such as disability schemes in the Netherlands) in shaping differential types of exit mobility and showed how national economies have differentially maintained or shed their workers in times of creeping structural changes. At the same time, they pointed to significant cross-country differences in the incidence and sectoral distribution of between-employer mobility, within-employer mobility and cross-industrial mobility. However, DiPrete and colleagues largely sought to investigate the ‘overall mobility regime’ within a country and did not differentiate their results in terms of specific age groups. The analysis of mobility patterns was not conducted separately for different age groups and even labor-force exit was defined as ‘retirement and other long-terms exits’ (DiPrete et al. 1997: 320) for male workers over a fairly large age span (16 to 64 years). Even though their results are highly convincing and beyond doubt represent a milestone in comparative mobility research, they can be generalized to only a limited extent to the specific group of older workers. Until now, studies applying a longitudinal life-course perspective explicitly to the analysis of older workers’ late careers are still lacking.

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The Potential of the Comparative Life-Course Approach in Explaining Early Exit: A Critical Review

The previous section has shown that comparative life-course research can inform our understanding of the employment life and retirement decisions of older workers in multiple ways. First, it helps to systematize the varying results known from earlier international studies (such as Kohli et al. 1991) into a coherent crossnational framework. Both Esping-Andersen’s regime classification of three different welfare regimes (and the respective extension to five regime clusters as suggested by other researchers) and the varieties of capitalism approach inform us about the significant cross-national variations in how national labor market actors have reacted to the pressures of increasing cross-national competition, de-industrialization and technological and structural changes, and which differential strategies they have developed to adapt their national economies to a changing environment. Both institutional approaches impressively showed – despite the fact that these structural changes have triggered an overall decline in the employment rate of older workers across all countries – that early retirement as a mass phenomenon has been restricted largely to the conservative cluster (i.e. Central and Southern European countries) where governments needed to protect the employment security of male mid-career breadwinners, while firms oriented at quality production were reluctant to jeopardize trust relations with their core work force. At the same time, they showed why these types of measures were not used as extensively in both Scandinavian and Anglo-Saxon countries owing to other labor market structures and actor constellations. Hence, both institutional approaches enable a better understanding of both the possible origins and causes of early retirement and the crossnational differences in early retirement patterns on the nation level. By providing an explanation of nation-level variations in early retirement, they overcome the restrictions of the classical sociological approach of the 1980s that concentrated mostly on describing the nation-specific idiosyncrasies of different early-exit pathways. On the other hand, in explaining early-exit patterns based on a broad set of institutions, they also go beyond the isolated consideration of withdrawal incentives through pension and welfare systems postulated in economic approaches. While the above approaches largely focused on the institutions of the welfare state and labor market and their consequences for the aggregate labor-force patterns of older workers, modern approaches in life-course sociology make it possible to transfer the findings from comparative institutional research to the level of individual life courses. By systematically linking both levels,

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they have shown how nation-specific institutional backgrounds differentially influence the structure in modern societies (‘life-course regimes’). At the same time, they have highlighted that education, labor market and welfare institutions influence not only the general structure of the life course, that is the temporal order of life stages and sequences, but also the extent and type of mobility within specific life phases, for example the extent and quality of job-to-job moves in mid-career, the risk and permanence of unemployment or the occurrence and length of parenting breaks around childbirth (‘mobility regimes’). Finally, detailed comparative analyses of life-course patterns have also revealed that specific institutional configurations on the national level and inequality structures within a society are systematically intertwined for life-course patterning and the type of life-course mobility. They hence not only point to cross-national differences in the modal pattern of life-course structures and mobility for a society as a whole but also highlight the importance of institutional backgrounds in shaping the differences within a specific society and thereby creating and replicating nation-specific patterns of social inequality. In liberal countries, for example, the highly flexible and decentralized system of labor-market coordination and residual welfare policy fosters a high level of labor market mobility both between jobs and across industrial sectors and a strong connection between individual human resources and labor market success. In times of economic, social and technological changes, adaptation may take place through an increase of individual labor market mobility. In conservative countries, in contrast, where labor markets are rigid and a high level of educational standardization and stratification strongly limit individual mobility across occupational and industrial boundaries, adaptation may need to take place through other channels, including transitions out of the active labor force. Given that structural changes affect specific occupational groups or economic sectors more than others, it can be expected that both mobility patterns and the ‘affectedness’ due to a ‘push’ out of employment will be connected far more closely to workplace characteristics than in the liberal model. I shall elaborate the connection between institutions and interindividual differences more systematically in the following chapter, where I present my theoretical model. For the moment, it may suffice to recognize that modern comparative life-course research suggests that the effects of individual-level variables are not uniform in different types of welfare state but vary systematically between institutional regime types. However, the contribution of modern life-course research to the explanation of the early retirement phenomenon goes beyond a mere international differentiation of institutional patterns and life-course outcomes. In contrast to earlier approaches, modern life-course research introduces a

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longitudinal perspective on life courses and emphasizes the role of previous life-course history as a main determinant of present life-course decisions. As a consequence, early retirement decisions cannot be regarded as an isolated process, but need to be connected to earlier developments in older workers’ employment trajectories. On the one hand, analyses of early retirement transitions therefore need to consider central individuallevel aspects such as characteristics of the previous employment history (tenure with the employer, employment continuity in late career, number of unemployment spells, etc.) or previously attained qualifications and their updating through adult education and training as key determinants of the retirement decision. On the other hand, when plotting institutional influences on retirement, it does not suffice to look only at institutions that determine the retirement transition itself (i.e. pension systems and other pre-retirement pathways), as most earlier approaches have done. Instead, the analytical perspective needs to be widened to additionally include institutions determining the progression of employment careers in late midlife such as education and training systems, employment regulation and public employment policies. In that sense, comparative life-course research suggests an enlarged temporal perspective both on the macro-structures that differentially influence early retirement transitions and on developments on the micro-level. To sum up, there has been significant progress in institutional theory with regard to the causal explanation of early retirement processes. At the same time, major advances in the establishment of an internationally comparative life-course sociology have made it possible to integrate findings from institutional theory into the analysis of individual life courses. The rising availability of both (inter)national longitudinal datasets and advanced statistical methods of data analysis have made it increasingly possible to use high-quality micro-data to test theoretical assumptions based on this strand of research. Given these major advances, it remains puzzling why so little sociological research has consistently applied a longitudinal life-course approach to the analysis of late careers and retirement. Most studies in comparative life-course research until now have focused on earlier life-course phases such as employment entry or midcareers, and have assigned little or merely implicit attention to developments in late career. Statements on late-career characteristics in syntheses of individual life-course regimes are still largely based on cross-sectional findings from aggregated labor-force data. Hence, the analytical focus in life-course sociology has remained largely on the retirement process itself, which can be fairly well approximated by a cross-sectional comparison of labor-force participation patterns and exit rates; therefore, mobility patterns in late career that can be considered as crucial pre-conditions for the

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retirement process – but that, in principle, require longitudinal data for a sufficient analysis – remain under-researched in sociology. Until now, the same also could be said for analyses of cross-individual differentiations of late careers and labor-force exit, and especially their cross-national differences. Again, most research refers to cross-sectional labor distributions of, for example, older workers with differential educational attainment, but largely neglects the differential mobility chances or early-exit probabilities of differently educated older workers. A thorough analysis of older workers’ employment and mobility patterns using a differentiated, comprehensive modern life-course approach is hence largely lacking and therefore represents a major challenge for contemporary sociological research.

2.5

SUMMARY: FINDINGS AND OPEN QUESTIONS

In this chapter, I have outlined differential theoretical approaches aiming to explain the current trend towards early retirement. All of these approaches provided a significant contribution in this respect. However, as outlined in the respective ‘critical review’ sections, every approach also had its ‘blind spot’ in theoretical and/or empirical terms. The economic approach impressively demonstrated the significant relationship between retirement incentives using both micro- and macro-data, but neglected the influence of other factors on individual retirement decisions. The early lifecourse approach filled this gap by emphasizing the additional role of firm policies and economic conditions for early retirement. However, it failed to integrate its finding into a systematic, comparative model of differential institutions and their effects on individual retirement. Modern life-course approaches could hark back to findings from institutional theories of welfare states and labor relations to explain current retirement trends. They additionally developed both theoretical and empirical ways of connecting these findings with individual-level life courses. However, until now, they have largely failed to apply this ‘toolkit’ to the analysis of late careers and retirement. In the following, I shall summarize the insights gained through the different theoretical approaches for the analysis of early retirement patterns in modern societies. In doing so, I shall return to the analytical perspective taken as well as the four key contextual questions already outlined in the introductory section (section 2.1): 1.

How do existing approaches conceptualize the work–retirement transition in theoretical terms?

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2. 3. 4.

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How do existing approaches explain the emergence of early retirement and its development over time? How do existing approaches explain the observable cross-national variation of early retirement between different (groups of) countries? Which inter-individual differences are considered by existing approaches? And in how far is their variation related to nationspecific backgrounds?

For each theoretical approach, I shall sketch how previous research has contributed to answering the above questions and thereby provide a combined ‘state-of-the-art report’ on current scientific knowledge. However, I shall simultaneously point to the remaining open research questions that I intend to overcome in the following parts of this work. This overview will provide the ‘blueprint’ based on which I shall develop my own theoretical scheme in Chapter 3 designed to fill some of the gaps left open by previous theoretical approaches. The analytical perspective: retirement as an individual decision under multiple constraints Before turning to the concrete explanation of the genesis and the macroand micro-patterns of early retirement, I shall focus shortly on the general theoretical approach taken in the studies outlined in sections 2.2 to 2.4. Taken together, all approaches discussed earlier have assigned the individual a central role in the explanation of early retirement behavior. The economic approach takes an ‘extreme’ position in this respect by modeling early retirement as a largely ‘free’ decision of the individual worker. Assuming that information about the financial consequences of either continued work or retirement is, in principle, available, it was argued that older workers tend to leave the labor force when the financial incentives to continue working (originating from an increase in later pension payments) are more than counterbalanced through the material gains deriving from an instant employment withdrawal (through direct pension payments and forgoing further contributions to the social insurance system). Pension systems, early retirement opportunities and other publicly provided early-exit opportunities were treated as relevant framework conditions that define the respective income streams and thereby influence the continue-or-exit decision of a utility-maximizing individual actor. Most research in life-course sociology clearly deviated theoretically from the economic approach in the evaluation of the degrees of freedom for individual choice. While economic theory assumed the decision for or against retirement to be a largely free decision under given social security constraints, sociologists emphasized that the decision to retire has often

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been restricted severely by economic pressures, significant restructuring processes in economic and occupational terms and firm policies explicitly aimed at the ‘shedding’ of older workers. Both Esping-Andersen’s welfareregime approach and the research on different ‘varieties of capitalism’ provided a helpful theoretical tool to systematize the additional institutional constraints that influence individual retirement decisions beyond mere exit incentives provided through early retirement programs. However, it may be argued that, while economic theory overemphasized the freedom of the individual actor in making a dedicated decision for or against retirement, the above sociological approaches possibly exaggerated the structural component in explaining individual retirement processes. Most early lifecourse approaches, for example, do not employ any explicit sociological action theory to explain the early retirement trend of older workers but only consider the outcome of individual actions as aggregated ‘life-course patterns’. Individual behavior and action are not reconstructed, but rather regarded as a kind of ‘natural outcome’ arising from specific institutional constellations such as retirement pathways created through public institutions and private enterprises. Though the institutional approaches have been very successful in providing an elaborate picture of these structural constraints, they equally fall short of incorporating the individual worker into their theoretical explanation of early retirement: Esping-Andersen (1990, 1996a, 1996b, 1999) generally considers only the effects of public welfare institutions on aggregate labor market patterns as reflected in older workers’ labor-force participation and inactivity rates. Ebbinghaus (2006a) goes one step further by considering employment relations at an industry or firm level as central determinants in the explanation of early retirement. However, even here, the focus remains on collective actors such as unions, employer associations or workplace representatives, and not on individual action patterns. Hence, while sociological approaches filled out the ‘blind spot’ of economic approaches by avoiding an overly narrow perspective on early retirement and considering a broad array of context conditions, they simultaneously ‘lost sight’ of the individual older employee as a relevant actor and thereby waived one of the key benefits of the economic approach. However, it stands to reason that only a simultaneous consideration of individual choice and relevant context conditions can provide an adequate perspective on early retirement. In principle, the modern life-course approach focusing more explicitly on establishing a micro–macro linkage between individual action and macro-social context provides a promising framework for such an integration. However, no study so far has applied the new life-course perspective to an empirical analysis of late careers and retirement. Therefore, in the following chapter, I shall develop a theoretical rational

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choice model that considers both perspectives. On the one hand, it assigns individual choice a central role in the determination of retirement transitions. However, it will pay tribute to the complexity of the various factors restricting the freedom of individual choice by conceptualizing retirement as a decision under multiple constraints, which I shall systematically elaborate and incorporate into my theoretical model. The causes of early retirement: from multiple dimensions to a unified concept While economic approaches provided little information on the origins of early retirement or its causes, sociological approaches explained it as a possible ‘side-effect’ of the transition from an industrial life-course regime to a post-industrial pattern (Kohli 1985; Mayer 1997, 2004, 2005). Sociological approaches emphasized a multiplicity of possible causes that triggered the transition from one historical life-course regime to another: ●

●

●

Both early life-course sociology and some economists highlighted the importance of the economic downturns that characterized the period after the 1970s following the two oil price shocks. The growing persistence of unemployment increasingly put pressure on national policy makers to take pressure from their labor markets and especially to provide youth with opportunities for labor market entry. The shedding of older workers through socially acceptable early retirement solutions provided a viable strategy to achieve this aim. In addition, it has been argued that the 1970s and 1980s not only brought about a variety of economic changes but were also characterized by a number of significant technological changes and innovations in production technologies. These technological advances and the connected rise in productivity levels did not just lead to a general change in the economic structure of modern societies from industrial to service economies. They also paved the way for manifest changes in occupational structure. Both changes disproportionately affected older workers, as they were usually working in declining economic sectors and were often only equipped with increasingly outdated qualifications. Hence, they were faced with a higher risk of becoming rationalized. Among others, Mayer (2001) additionally pointed to the relevance of economic globalization. As a consequence of the gradual worldwide integration of product and labor markets, modern industrialized societies are increasingly entering into competition with countries with lower social security standards, less developed employment

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rights and lower production costs. As a consequence, modern Western societies are faced with a worsening of their competitive situation, urging them to increasingly implement rationalization and flexibilization measures that may affect the stability of employment lives, thereby also worsening the labor market situation of older workers. Despite the fact that existing approaches have pointed to a large variety of factors relevant for the transition from an industrial to a postindustrial society, reference to the above-mentioned processes has often been made in only abstract terms or based on country-specific case-study evidence. Hardly any study has investigated how the above processes have developed over time and how they have affected the life courses of older workers differentially in different societies. Where empirical comparisons were undertaken, they concentrated largely on single indicators and were often able to establish only comparatively ‘loose’ relationships (see the discussion in section 2.4.2). However, as previously argued, it can be assumed that it is not the influence of a single indicator as such but the combination of different simultaneous developments that may have contributed to the observed changes in older workers’ labor-force participation. In the theoretical concept in Chapter 3, I shall try to overcome this deficit by introducing globalization as a multi-dimensional dynamic phenomenon incorporating the above dimensions into a unified analytical concept that provides a more comprehensive explanation of the ‘drivers’ of early retirement. Cross-national variations in early retirement patterns: towards a typology of institutions affecting older workers’ late-career and retirement decisions The approaches discussed in previous sections have highlighted that the observed cross-national differences in older workers’ employment and retirement patterns are not randomly distributed but are linked systematically to institutional patterns at the national level. The economic approach emphasized the significance of various social security systems that offer older workers cross-nationally varying financial incentives for an early labor-force withdrawal, and therefore ‘pull’ older workers out of the labor force. Their empirical analyses provided a strong argument that older workers’ withdrawal from the labor force is highest where exit incentives are most comprehensive and generous. Findings from comparative welfare-state analysis integrated the different nation-specific social security profiles into a systematic typology of different ‘welfare regimes’. At the same time, the varieties of capitalism approach argued that a mere consideration of these ‘pull factors’ represents an oversimplification of

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actual retirement processes and pointed to the importance of additional factors that ‘push’ older workers out of the labor force by considering both public and firm policies. The longitudinal view on individual lifecourse trajectories and employment careers finally pointed to the theoretical significance not only of institutions that influence the retirement decision of an older worker itself, but also of institutions that structure earlier phases of the employment career. In my conceptual framework in Chapter 3, I shall develop a systematic typology of nation-level institutions that differentially mediate the influences of social and economic changes on the employment situation of older workers and thereby contribute to the emergence of differential late-career and retirement patterns in modern societies. In contrast to institutional approaches, I shall thereby explicitly link the institutional influence to the work and retirement situation and the decisions of older workers, that is I shall introduce them as situational constraints of individual rational action. Informed by previous research, this will differentiate between institutions that provide opportunities for a premature labor market exit and institutions that either foster or constrain a continuation of their employment. In doing so, I intend to capture a broad framework of nation-level conditions, ranging from education policies to retirement systems that influence the working lives of individual employees in varying phases of their life course. Inter-individual variations in early retirement patterns As shown in section 2.1, previous research has pointed to various dimensions on which individual early retirement and late-career patterns differ. There have been, however, different theoretical justifications for the occurrence of these differences. Economic theory has traced back interindividual variations in retirement behavior to varying individual streams of pension and/or social security wealth that set different incentives to withdraw from the labor market for different group of workers. In contrast, sociological approaches have emphasized the fact that specific labor market groups may be more vulnerable to changes in economic and occupational structures and may therefore run a higher risk of becoming redundant and therefore subject to being ‘pushed’ into early exit from the labor market. Taking results from both strands of research together, four different groups of indicators have been emphasized that may influence individual retirement behavior: ●

Economic research especially has pointed to the significance of financial indicators. On the one hand, workers will generally tend to retire when sufficient income from other sources than gainful employment

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is available and allows for a decent standard of living. On the other hand, individuals will compare the potential income streams from continued work to those arising from employment withdrawal and will tend to withdraw if the latter at least evens out the former. The discussion in the previous sections pointed to the empirical complexity of both the financial situation in general and the availability of other income sources. Micro-level explanations of early retirement should therefore, in the ideal case, try to incorporate a variety of variables that reflect the financial situation of the respective worker including employment income, the overall generosity of the national pension scheme, pension eligibility, expected pension streams, access to additional pensions (e.g. private occupational pensions) and variables reflecting individual wealth or income from other sources. Both sociological and economic research emphasized the central role of human capital indicators in structuring individual retirement patterns. Education and occupational skills were introduced as key competencies that allowed older workers to adapt to major technological and economic changes. In contrast, workers with only manual qualifications and/or low or only basic educational levels were diagnosed as facing a high risk of redundancy. The latter especially were often offered financially attractive early retirement opportunities in order to allow firms to adapt their number of employees or the qualification profile of their staff flexibly to changing demands. At the same time, these individuals were most likely to gain from such offers owing to often having lower income and more insecure employment prospects. Analyses of early retirement should hence include indicators that reflect the level of individual human capital adequately. Findings from Naschold and de Vroom (1994) showing that a mere blue-collar versus white-collar distinction proves to be inadequate to adequately capture differences in occupational early-exit patterns reveal the need for differential analyses of individual human capital differentiating between educational grades and occupational attainment on a possibly broad scale. Furthermore, modern life-course research showed that attention should be given not only to educational degrees or qualifications acquired before or in the early phases of a career but also to whether (and, if so, to what extent) these qualifications have been updated by retraining or life-long learning measures. Earlier studies in industrial relations and varieties of capitalism research especially (e.g. Naschold and de Vroom 1994) emphasized not only that retirement patterns may vary between individuals with different human capital and financial resources, but also that the

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type of industry and the specific firm in which a worker is employed can play a role in the pressure imposed on older workers to exit employment as well as the availability of financially attractive early retirement options. Workers in declining industrial sectors (such as the classical heavy industries) may be at a higher risk of becoming redundant than those in modern service branches. At the same time, larger firms with a high degree of organized employee interests will be more likely to offer redundant older workers a financially attractive early retirement option through combined occupational and private benefits than smaller firms. Similarly, public sector employees may be in a better situation to fall back on generous pension-benefit plans than workers in private industries. Differential micro-analyses of early retirement should therefore include detailed information on the firm level that adequately reflects the specific employment context of older workers. Finally, modern comparative life-course research has contributed to micro-analyses of individual retirement patterns in a twofold way. On the one hand, it has pointed to the importance of trends in the previous employment history when explaining the present career development. Hence, in the ideal case, individual-level analyses should consider information on previous employment patterns such as tenure with the employer or continuity in employment lives.

On the other hand, findings from comparative mobility research especially have shown that the effects of the above determinants on individual labor market transitions may not be uniform across countries, but that their influence may vary between different institutional contexts. Analyses of differential micro-patterns in early retirement hence need to not only look at inter-individual differences themselves but put them into a wider institutional perspective by explicitly considering systematic macro–micro interactions. Though some empirical evidence on the importance of the above indicators is available, only a few studies have considered these influences simultaneously and in a systematic fashion. Blossfeld, Buchholz and Hofäcker (2006) have recently provided an impressive array of selected country studies that have considered these influences together. However, the various results have been based on nation-specific longitudinal datasets that display a notable amount of variation in terms of data quality, available indicators and period coverage. Until now, hardly any study has used the pooled cross-national and highly comparable datasets that have become increasingly available in recent years for such an analysis. In Chapter 5, I shall therefore employ the European Community Household Panel (ECHP) as a harmonized international dataset for the micro-analysis

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of early retirement patterns. Informed by the above differentiation of different groups of indicators, I shall integrate a large variety of influencing factors into a comprehensive analysis of cross-national differences in late careers and employment exit.

NOTES 1.

2. 3.

4. 5.

6.

7. 8. 9.

10.

11.

For each country study, Gruber and Wise’s 2004 book provides micro-simulations for (1) the effects of delaying early retirement eligibility for three years, (2) a general system shift towards a legal retirement age of 65 years (and an early retirement option at age 60) and (3) several actuarial adjustments in early retirement benefits. In fact, Blöndal and Scarpetta (1999) fail to find a systematic correlation between mere replacement levels and the early-exit patterns of older workers. Similar results are also reported by Auer and Fortuny (2000). Though it may be argued that the detailed pension regulations are often too complicated for workers to understand in any detail, it is assumed that with regard to general design characteristics ‘workers behave as though they understand these incentives’ (Quadagno and Quinn 1997: 137). Hence, ‘from a worker’s perspective, not retiring early when the financial opportunity costs in form of a loss in pension wealth are high is a rational decision’ (Fischer and Souza-Poza 2006: 14). In the United States, for example, it can be shown that the lifetime value of defined benefit pension streams often peaks at the earliest age of eligibility for early pension receipt, which lies three years before the standard retirement age (Blöndal and Scarpetta 1999: 79; Diamond and Gruber 1999; Quinn and Quadagno 1997: 137). Likewise, a significant number of older German men tend to exit the labor market and claim pensions at age 63 when early retirement incentives become available (Börsch-Supan and Schnabel 1999; Gruber and Wise 1999). Hence, rates reflect the change in pension wealth (measured as a multiple of annual earnings) due to working ten more years for a worker aged 55. For example, given the wealth accrual patterns in 1971, postponing retirement from 55 to 64 in Germany would lead to a decrease of 0.9 times average annual earnings. As annual earnings are normalized at unity and assumed to be constant over the ten-year span, this would imply an average implicit tax rate of 9 percent on earnings from continued employment (Blöndal and Scarpetta 1999: 72; Fenge 2001). Similar conclusions are reached in a recent OECD study that finds ‘clear evidence that old-age pension systems have had a market impact on the retirement behavior, often discouraging LFP among older workers’ (OECD 2002: 191). Recent reports encourage, for example, active labor market policies, an increased emphasis on lifelong learning, or more flexible jobs and wages for older workers (e.g. Casey et al. 2003: 31; OECD 2006). Illustrative examples for these measures are the introduction of the workers’ pension insurance (Arbeiter-Rentenversicherung) in Germany under Chancellor Otto von Bismarck by the year 1889, or the passing of the 1911 National Insurance Act by David Lloyd George (advised by William Henry Beveridge) in the UK. As Kohli (1985: 14) points out, standardized, universal age limits based on chronological age are administratively far more efficient than, for example, the previously dominant functional age criteria that would condition social benefit receipt on the individual assessment of physical capacity. For example, Diewald and Sill (2004) find signs of increasing employment instability since the late 1990s, and Grunow, Kurz and Hillmert (2005) emphasize the relative

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12.

13. 14.

15. 16.

17.

18. 19.

20. 21.

22.

Older workers in a globalizing world stability of both the institutional regulatory framework and the labor market mobility of German men. Blossfeld and Hofmeister (2006) paint a similar picture for women, showing that they have increasingly become integrated into the labor market, but that this increase has been partly jeopardized by their disproportionate allocation to insecure jobs (see for example Hofmeister and Blossfeld 2006: 441). Though most of his analyses refer to German data and retirement transitions, Kohli (2003: 538) emphasizes that the general conclusions may also be extended to other modern industrialized societies such as the United States. This is, among other things, reflected in the fact that legal chronological age markers such as standard and early retirement ages still serve as important ‘benchmarks’ in the future retirement plans of individuals. Even younger cohorts still plan to retire at these ages (Kohli 2000: 19f.). Only in more recent works (Guillemard 2001, 2003b) does Guillemard include employability policies in her analyses, though not in a systematic manner. Anne-Marie Guillemard’s most recent distinction between ‘early-exit cultures’ (Continental Europe), ‘active employment cultures’ (Japan and Scandinavian countries) and ‘reactive policies’ (Anglo-Saxon countries) represents a step towards a more explicit international typology of country-specific strategies (Guillemard 2003b). However, in many respects, it still appears to be used in a rather descriptive manner and not as a systematic differentiation of varying political programs and institutions. Esping-Andersen ascribes this remarkable persistence to the fact that welfare-state constellations often reflect a mutual compromise between different labor market actors – a negotiated institutionalization of different interests that appear to be hard to change even in times of growing external pressures. Owing to the focus on Europe and the US, the following will not report the results for Japan, which represents a specific type of institutional regime. Recent data in fact show that only 50 percent of older US workers are nowadays covered by occupational pension plans and that the highest coverage rates are found among those in unionized firms, public services and higher earnings occupations (Warner and Hofmeister 2006). Leisering focuses on public interventions only, since he regards the state as ‘the only overarching agency that extends to the entire life course’ (Leisering 2003: 210). In addition to the afore-mentioned research, the following description additionally refers back to findings from the ‘Globalife’ project (Blossfeld and Hofmeister 2006; Blossfeld, Buchholz and Hofäcker 2006; Blossfeld, Mills and Bernardi 2006; Blossfeld et al. 2005, 2007). No attempt has been undertaken yet in theoretical or empirical terms to establish a similar ‘life-course regime’ for post-socialist countries.

3.

Globalization, institutional strategies and late careers

3.1

THE THEORETICAL FRAMEWORK: A RATIONAL CHOICE APPROACH

Rational choice theory: basic principles In the following, I shall develop my own theoretical model to explain current early retirement trends that builds on the foundations laid by the theoretical approaches outlined in the preceding section. However, in contrast to the earlier approaches, my argument will be based explicitly on a sociological rational choice perspective. The term ‘rational choice’ comprises a whole ‘family’ of theoretical approaches that progressively have attracted attention in both the social and the political sciences (Diekmann and Voss 2004: 13). In the following, I shall largely refer to the works of James Coleman (2000) and Hartmut Esser (1990, 1999a, 1999b), which are most frequently used in the social sciences. The key aim of their approaches is to provide a theoretically based explanation of collective phenomena occurring on the level of aggregate social systems (Hedström and Swedberg 1996: 129). In doing so, however, rational choice theorists postulate that an explanation ‘based on the internal analysis of system behavior in terms of actions and orientations of lower-level units is likely to be more stable and general than an explanation which remains at the system level’ (Coleman 2000: 3). In other words, the rational choice approach is based on the assumption that, in the social sciences, aggregate phenomena cannot be explained adequately by an isolated reference to other macro-level entities, that is by a mere ‘macro–macro link’. The emergence of Western-type capitalism as described by Max Weber (1991), for example, cannot be explained by reference to the spread of specific religious values in a society (e.g. Protestant ethical values) as such (Coleman 2000: 6f.). Instead, one needs to take into account the mode of individual action that, for example, Protestant ethics induce at the individual level, which in turn aggregates to ‘produce’ a specific macro-level outcome.1 Rational choice theory hence assumes that macro-social phenomena are ‘in principle only explicable in terms of individuals’ actions’ (Hedström and Swedberg 1996: 107

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Protestant religious doctrine

Capitalism

1

3 Values

Source:

2

Economic behavior

Coleman 2000: 8.

Figure 3.1

The emergence of capitalism: Coleman’s model of explanation

130). This three-step mode of explanation, depicted in Figure 3.1 and known as the ‘Coleman boat’, more recently has become a standard model in sociological explanations. The key assumption of the model, which sets it aside from other sociological explanations, is that it assumes that individuals will act intentionally (ibid.: 132) and rationally based on the information that they have at their disposal. ‘Rationality’ in this sense means that individuals will choose from an array of possible opportunities for action in such a way that they maximize their expected individual utility, given the means and resources that they have at hand (Esser 1999a). Esser has generalized the case-specific model of Coleman in theoretical terms, thereby distinguishing three different ‘logics’ inherent in the explanation of social phenomena (see Figure 3.2): ●

The logic of the situation (arrow 1 in Figure 3.2) derives from the situational restrictions and opportunities that define the scope of possible individual choices. Examples of these characteristics of the situation are, for example, the concrete means that are available to the individual actor to achieve his or her aims, institutional frameworks such as laws or norms that prescribe or provide incentives for a specific type of behavior, or cultural symbols that provide a general reference framework to which individual action can be compared. In theory, individual actors thereby recognize the entire situational context as the external conditions of their individual choice of action. In everyday life, however, individuals almost always will not be able to access, collect and evaluate all the information necessary to arrive at a complete representation of the situation, as search for information might involve considerable (and in some cases even

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infinite) costs in terms of time and energy. In this situation of externally ‘bounded rationality’, individuals will hence tend to revert to more generalized routines (‘habits’) and relevance structures (‘frames’) in order to orient themselves within their situation and arrive at a situational definition that can form a basis for further action (Esser 1990: 236ff.). The logic of the situation hence provides a link between the situational conditions and the expectations and valuations of actors. Against this background, it is the task of the social scientist to abstract from the concrete case and to construct a typical ‘situational model’ that describes the way in which typical individual actors perceive and adapt to a given situation (Esser 1999b: 56; Hedström and Swedberg 1996: 134). In a second step, the logic of selection (arrow 2) refers to the individual’s actual choice of a specific mode of action or behavior. Esser assumes that, under given situational conditions, individuals will tend to maximize their own ‘subjective expected utility’. On the one hand, based on their preferences, they consider the potential costs and benefits that will arise from a specific mode of action. Costs and benefits may, for example, be determined by the degree to which possible outcomes contribute to the fulfillment of basic individual needs such as social acceptance or physiological wellbeing (Esser 1999b: 92). On the other hand, individuals connect the evaluation of an outcome of action with the expected probability that this outcome will in fact materialize. In the end, individual actors will choose the alternative for which the product of the value of the outcome and the expected probability of its realization reaches its maximum (Esser 1999a: 94ff.). It is important to note that, from a theoretical standpoint, the preferences that individuals have need not necessarily be ‘rational’ in an objective sense. However, given these preferences, it is expected that individuals will act rationally in so far as they choose the alternative that ‘fits best’ to their personal preference structure. Again, the model describes an ideal-typical reaction of a stylized individual. In everyday life, individuals will not always tend to process detailed calculations of costs, benefits and their probabilities explicitly. However, it can be assumed that individual actions will intuitively depend on ratings of actions and their perceived outcomes. In a final step, the logic of aggregation (arrow 3) refers to the transformation of aggregated individual actions into the macrolevel phenomenon that the researcher is interested in (Esser 1999a: 96). This step hence links back individual action to the overall

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Collective explanandum

Social situation 1

3 Actor

Source:

2

Action

Based on Esser 1999a: 98 (author’s translations).

Figure 3.2

Esser’s basic model of sociological explanation

societal level and explains its effects on social structures as such. The aggregation of individual-level action to macro-level phenomena is achieved by specific ‘transformation rules’. In the most simple case, these transformation rules entail only a statistical aggregation of individual-level actions such as rates or arithmetic means (‘mathematical-statistical aggregation’). ‘Institutionally defined aggregation’ links the outcome to specific procedural rules. The distribution of parliamentary seats may, for example, be explained as the outcome of individual voting behavior filtered by the countryspecific logic of an electoral system. ‘Partial definition’ finally refers to a nominal definition of the empirical conditions for the existence of a specific phenomenon (ibid.: 121f.). In the initial example, social scientists may, for example, agree on specific criteria that need to be fulfilled in order to speak of a specific social phenomenon called ‘capitalist behavior’. The rational choice approach hence provides an integrated theory of both the macro- and the micro-level. On the one hand, it stresses that macro-level phenomena cannot be explained without an explicit reference to the life-course actions of individuals. It therefore provides a micro-based explanation of macro-level phenomena. At the same time, however, it also stresses the significance of macro-level constraints and opportunities in determining or restricting the choices available to individual actors. In this sense, it also introduces a macro-level-based explanation of developments at the individual level. Put differently, the rational choice approach goes beyond both an isolated economic or sociological perspective on societal phenomena and individual action (ibid.: 235ff.). First, and in contrast to the largely role- and norm-oriented ‘homo sociologicus’ (Dahrendorf 1958), rational choice theory emphasizes the role of the individual actor in both

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constructing an ‘image’ of the situation he or she is confronted with and actually selecting a specific kind of action. At the same time, it emphasizes the role of situational restrictions on the availability of possible actions to choose from. Second, and unlike the ideal-typical model of the ‘homo oeconomicus’, rational choice theory abandons the idea of complete information and stable expectations, and describes the individual course of actions under the condition of ‘bounded rationality’. The application of a rational choice approach to the analysis of early retirement Following this brief description of the rational choice approach, I shall now turn to the question of how rational choice theory can be used to inform the question underlying this work, that is the understanding of the causes of early retirement and the factors shaping its differential development both between nations and between groups of individuals. In doing so, I draw back to a conceptual scheme developed by HansPeter Blossfeld, Sandra Buchholz and myself (Buchholz, Blossfeld and Hofäcker 2006), but shall reformulate it within an explicit rational choice framework. The key line of the argument is represented in Figure 3.3, which gives a schematic overview of the conceptual scheme to be developed in this section. I shall start by arguing that the recent early retirement trend can be traced back to the multi-dimensional macro-phenomenon of globalization that has increasingly influenced modern industrial societies throughout recent decades (arrow 1). As will be argued, globalization has led to massive structural changes that have triggered a transformation of both the economic and the occupational structure of modern economies. At the same time, it has led to increasing international competition which forces Modal late-career patterns among older workers

Globalization filtered by 1 country-specific institutions

3 Older workers

Source:

2

Labor market behavior (exit vs. employment maintenance)

Own illustration.

Figure 3.3

Schematic representation of a rational choice approach for explaining late-career patterns of older workers

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firms to increasingly rationalize and flexibilize their work force (section 3.2). Second, I shall argue that these changes have disproportionately affected older workers and have led to a serious worsening of their labor market position, resulting in declining labor-force attachment and increasing rates of early labor-force withdrawal. However, despite the fact that I assume a universal ‘labor-shedding’ effect of globalization, I shall argue that the influence of globalization will be mediated by nation-specific institutions (see section 3.3). This argument partly builds on previous findings from comparative institutional research outlined in section 2.4 that has highlighted the differential and path-dependent institutional responses of welfare states and collective labor market actors to structural social and economic changes. However, I shall supplement this institutional argument by explicitly discussing it from an individual-based perspective, treating institutional patterns as nationspecific situational opportunities and constraints for individual labor market decisions. For the discussion of these ‘macro-level filters’, I shall refer to a broad array of institutions ranging from educational systems to modes of labor market regulation and the design of public transfer systems and pension benefits. Depending on their concrete design, these nation-specific institutions can either support older workers to remain in employment (be it through staying in the same job or by moving flexibly within the labor market) or alternatively discourage older workers’ employment by setting significant incentives for a withdrawal from the labor market (e.g. via an exit into early retirement programs). Given these institutional incentives, I assume that older workers will make a rational decision on whether to remain in employment or to exit the labor market (arrow 2). They will compare the expected outcomes of both opportunities and will decide for the more favorable option. In doing so, they will generally tend to maximize their financial outcome, that is choose the alternative which appears to be the one yielding the highest old age income stream. However, I shall additionally assume that, given their limited number of remaining years in active employment, older workers will tend to be risk averse, that is, in the case of two financially comparable alternatives, they will decide for the alternative that yields a higher long-term security. Finally, I shall assume that older workers will not only try to maximize their financial outcome and long-term security, but also tend to display socially expected behavior. They will hence tend to minimize the ‘social cost’ of their decision by choosing a behavioral alternative that comes closest to societal norms and expectations. In a deeply rooted ‘work culture’, for example, older employees will possibly be reluctant to exit the

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labor force early in order to avoid stigmatization, or they will need higher monetary incentives for a premature employment withdrawal. In contrast, in countries with a deeply rooted ‘early exit culture’, aged individuals will be more ready to exit employment if incentives are favorable, especially since a direct comparison with ‘significant others’ (that is, other older workers who have also taken early retirement) will encourage them to do so. Taken together, institutional backgrounds ‘define’ the decision situation of older workers differently, and hence will lead to a differential labor market behavior of older workers across countries with varying institutional backgrounds. In section 3.3, I shall summarize the expected effects of different institutional backgrounds on individual-level responses in a comparative typology of education, labor market and welfare state institutions as well as resulting modal types of older workers’ labor market mobility. However, not only institutional configurations at the macro-level will influence the employment decisions of older workers. Employment versus retirement prospects will also differ significantly for different groups of older workers (see section 3.4). Workers with high human capital resources (e.g. with a high educational level or high occupational status) will tend to anticipate better labor market chances and possibly expect to gain more from further employment, while those with lower human capital will be more inclined to accept early retirement offers. Likewise, individual financial resources and the availability of other income sources than wage income will influence the employment decisions of older workers and their expectations of gains through further employment. Finally, the characteristics of the employment context may play a significant role for older workers’ employment decisions. Workers in declining economic sectors may feel more pressure to exit, or may be more reluctant to remain in the labor market owing to the expectation of unstable and unfavorable employment conditions. I therefore expect not only that exit patterns will vary between countries, but that the above ‘micro-level’ filters also lead to a differential ‘definition’ of the employment situation of older workers and hence lead to differential employment outcomes within one country. Notably, the magnitude of the effect of these micro-characteristics can be expected to differ between countries. For example, in country contexts that foster educational stratification and create rigid occupational labor market boundaries, human capital effects will probably be more virulent than in those countries with more universal education and training systems. Likewise, in countries that emphasize private social insurance, one can expect effects of financial resources to be more pronounced than in countries with universal pension coverage and so forth. I shall discuss both

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the expected micro-effects and the assumed micro–macro interactions in more detail in section 3.4. Individual employment versus retirement decisions of older workers will themselves aggregate into specific modal types of late-career patterns within a given country (arrow 3 in Figure 3.3). These may, for example, be aggregate patterns of labor-force participation among older workers or specific rates of their within-labor market mobility. The theoretical approach suggested here hence explicitly takes an individual-oriented perspective. Focusing on rational employment versus retirement decisions it postulates: (1) that the decline in older workers’ labor-force participation can be traced back to a deterioration of their employment situation under globalization; (2) that cross-national differences in older workers labor-force participation can be traced back to differential ways in which nation-specific institutional packages ‘filter’ the influence of globalization and thereby create different framework conditions, that is different opportunities and constraints, for older workers’ work versus retirement decisions; and (3) that inter-individual differences in late-career patterns can be traced back to the influence of ‘micro-level filters’, that is different individual workplace, financial and human capital conditions that themselves shape the decision situation of older workers. Figure 3.4 finally gives a detailed résumé of the ‘logic’ of my approach in one uniform model that will be explicated in more detail in the following sections. The multi-dimensional approach suggested here enriches research on early retirement with regard to various aspects. First, it provides an explanation of both the origins of early retirement and its cross-national and inter-individual variation within the framework of one unique theoretical model. Second, by explicitly linking the micro- and the macro-level in one unique model, it goes beyond earlier approaches that have often only concentrated on one or the other aforementioned perspectives. It primarily focuses on the situation of individual older workers but considers them as acting in the context of institutional opportunities and restrictions. It can hence provide an explanation of early retirement trends considering all relevant actors. Third, by simultaneously taking into account a broad array of different institutional background factors, the approach avoids a one-sided concentration on one single explanatory factor, as, for example, in the economic approach. It emphasizes the mutual interconnectedness between different institutional settings that jointly influence the labor market decisions of older workers. Finally, the approach allows me to test the model predictions using both macro- and longitudinal micro-level data, as done in Chapters 4 and 5. It hence enables the social scientist to utilize the full analytical and methodological potential of life-course research.

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GLOBALIZATION Internationalization of markets

Intensification of Spread of global networks competition based and knowledge via new on de-regulation, ICTs privatization, liberalization

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

Accelerating market transactions

Rising dependence of local markets on global shocks occurring randomly

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 work force to structural change Pension and welfare systems Promoting/hindering employment exit

Employment relations systems

Occupational systems

Employment-sustaining policies

Promoting/hindering employment continuation

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

Source: 2005).

Buchholz, Hofäcker and Blossfeld 2006: 5 (on the basis of Mills and Blossfeld

Figure 3.4

Globalization, accelerating economic and social change and late-career transitions

In the following sections, I shall outline the single components of my conceptual scheme. In the next section, I start by defining the phenomenon of globalization and elaborating its consequences for the employment situation of older workers.

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3.2

Older workers in a globalizing world

THE DRIVING FORCE: GLOBALIZATION AND ITS EFFECT ON OLDER WORKERS’ LABORFORCE PARTICIPATION

Disentangling the phenomenon of globalization Beyond doubt, globalization has been highly influential for the lives of men and women in modern societies. Observers from different standpoints concur that, in recent decades, globalization has shaped national economies, welfare states and labor markets in an unrivaled manner (Heintz 2006; OECD 2005b; United Nations 2000). As a consequence of globalization, employment flexibility is said to be on the rise (Beck 1999a). European citizens are increasingly aware of globalization, and the majority see it as a potential threat to employment security in their own country (Flash Eurobarometer 2003). Hence, globalization has become a frequent reference point for media, politicians, opinion leaders and the ‘ordinary citizen’. However, in public debates, usage of the term ‘globalization’ is manifold and often vague and non-uniform. As two American economists have put it, ‘everybody seems to be writing about globalization these days, and the word surely means somewhat different things to different people’ (Deardorff and Stern 2000: 3). Similarly, in recent years, there has been a plethora of globalization-related publications in the social sciences.2 Nonetheless, until now, a comprehensive concept sufficiently considering the multi-dimensional nature of globalization can rarely be found, and a clarification of the sociological meaning of the term ‘globalization’ is much needed (Martin, Metzger and Pierre 2006). Following Mills and Blossfeld (2005), I shall understand globalization in the following as a multi-dimensional process characterized by the simultaneous co-existence of four interrelated structural shifts in modern societies that have been constantly on the rise since the 1970s and that have further accelerated since the mid-1980s (see Raab et al. 2008): 1.

Globalization is characterized by the swift internationalization of markets and a decline in the importance of national borders for economic transactions. This process has been fueled particularly by the gradual creation of transnational economic areas among which the European Union and the North American Free Trade Association have been the most successful (Fligstein 2005; Fligstein and Merand 2002).3 Taken together, these organizations have facilitated crossborder transactions in terms of commodities, labor, services and capital. Repercussions of this increasing trade liberalization can, for example, be observed in the intensification of private capital flows that globally have more than tripled since the 1980s, with the developed

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3.

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Western countries taking a leading role (World Bank 2007: 314ff.). Simultaneously, the number of multinational companies operating in more than one country has risen sharply and so has the volume of foreign direct investment (UNCTAD 2002). This growing interconnectedness between countries in the economic sphere has intensified the exchange between actors from countries with different productivity levels as well as social and wage standards, thereby amplifying the competition between welfare states over offering the most favorable business location for national and international enterprises. The fall of the Iron Curtain and the rise of the Asian ‘Tiger States’ have intensified this international competition as previously isolated economies with lower wage levels and social standards enter the arena of global competition. Under these rising pressures for economic attractiveness, national welfare states have often faced increasing pressures to de-regulate and flexibilize their labor markets (OECD 1994; Standing 1997) and reduce their tax load (OECD 1998c; Steinmo1994, 2003; Tanzi 1996). Other measures to remain internationally competitive have included the move towards a stronger reliance on the price mechanism in regulating the economy (liberalization) as well as increasing privatization of previous state enterprises (Mills and Blossfeld 2005). Besides the described economic effects, globalization has brought about an accelerated diffusion of knowledge over long distances through the spread of global information and communication networks. Modern information and communication technologies (ICT) such as microcomputers and the Internet have become commonplace in both the private and the corporate sphere (OECD 2002b, 2007c) and now allow individuals to connect up with places almost anywhere around the globe. Though communication technologies are not entirely new as such, the introduction of new types of ICTs has amplified the scope, intensity and velocity of knowledge transfers (Held et al. 1999). By means of these technologies, physical space becomes more and more irrelevant, and knowledge can ‘travel’ from one place to another, thereby increasingly creating a worldwide standard of comparison. Scientific discoveries and technological advances as well as consumer fashions and product innovations are diffusing much faster (Mills, Blossfeld and Bernardi 2006). For enterprises, this increase in the speed and extent of cross-border communications entails a variety of new challenges for increased flexibility. On the one hand, it accelerates market transactions and technological innovations, thereby requiring companies to react swiftly to market developments around the globe. Owing to changes in production technology or fluctuations on global

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4.

Older workers in a globalizing world

sales markets, competitive companies will need to be able to quickly adjust the size of their staff and the organization of their production. On the other hand, technological changes may trigger a change in the qualification profile of a firm’s employees. The constant need to adapt to new technologies requires individual qualifications to be constantly updated. Furthermore, globalization and the accelerated diffusion of knowledge have generally led to a move from primary and secondary sector employment towards services (Crafts 2000; Delsen and Reday-Mulvey 1996). As innovation-based employment growth can be expected to be higher in industries than in the service sector, more and more workers will compete for tertiary sector jobs with higher skill demands. The changes in the sectoral structure of national economies are hence intrinsically connected with related changes in the occupational structure, shifting the skill demands of firms to the disadvantage of lower-skilled and unskilled workers (Berman, Bound and Machin 1998; Slaughter and Swagel 1997). Taken together, the above processes have triggered a rising importance but at the same time also an increasing volatility of markets in a globalizing economy. As economic transactions are widening and accelerating, labor market actors are confronted with an ever growing number of heterogeneous counterparts, which makes economics transactions less controllable and harder to predict. At the same time, global markets have become increasingly dependent on random external shocks, such as natural disasters, political developments or terrorist attacks that happen somewhere around the globe – as the Southeast Asia crisis in the 1990s (Mills, Blossfeld and Bernardi 2006), the rise in global oil prices following Hurricane Katrina or the economic repercussions of the terror attacks on 11 September 2001 (Brück and Wittström 2004) have shown.

As a consequence of the four simultaneous developments outlined above, market developments have become highly dynamic and less predictable for all types of labor market actors. Especially for enterprises, it has become increasingly difficult to make long-term plans under the conditions of volatility, unpredictability and high market risks. They must be able to respond quickly to constant changes in their economic, social and technological environment and therefore will need to strive for a possible maximum of flexibility with regard to the organization of work and production. This may encompass numerical flexibility (that is a flexible reduction or increase of staff), flexibility in terms of working time and flexibility in the design of the employment relationship (including both contract and wage flexibility). At the same time, a company’s staff needs to

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be able to adapt quickly to technological advances in the workplace and to newly created job positions by updating its vocational, technical and professional skills (skill flexibility). Firms hence increasingly need to invest in a highly qualified work force with up-to-date and transferable qualifications. Education and training, whether through public institutions or through (continuous) training in the workplace, become ever more important for a firm’s market success and its performance on a rapidly changing global market. Globalization and its effects on the labor market position of older workers Recent publications from the Globalife project at Bielefeld and Bamberg University have shown how the above trends have changed the life courses of men and women in modern societies in different ways. They demonstrated that youth and women especially were affected by the increased uncertainty generated through globalization in so far as flexible work forms were largely channeled to them (Blossfeld and Hofmeister 2006; Blossfeld et al. 2005). In contrast, the employment position of mid-career men has remained so far largely unchanged (Blossfeld, Mills and Bernardi 2006). But how has it affected the employment versus labor-force exit decisions of older workers? My main assumption is that, as modern societies are globalizing, older workers are more and more confronted with severe competitive disadvantages on national labor markets. Multiple reasons can be held responsible for this premise (see Blossfeld, Buchholz and Hofäcker 2006): 1.

The overrepresentation of older workers in shrinking economic sectors and traditional occupations. As pointed out, globalization speeds up structural changes in the economic structure of developed nations, implying a gradual shift from industry and agriculture to a more service-oriented economy. Employment shares in older industries (such as manufacturing, heavy industries, extractive industries and so forth) are declining, and some branches are even becoming completely obsolete. At the same time, new types of jobs are being created in both marketed and non-marketed services while the traditional ‘bluecollar’, manual type of jobs widespread among the older industrial work force are often rapidly becoming superfluous (Castells 2000). Senior workers are affected adversely by these changes in both the economic and the occupational structure in a twofold way. On the one hand, older employees tend to be overrepresented in traditional declining industries (Blöndal and Scarpetta 1999) as compared to younger workers, and hence run a higher risk of being affected by downsizing and rationalization measures in these parts of the economy. On the

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other hand, the new job opportunities that open up in the growing service sector are often not compatible with the rather manual skill profiles of the majority of the older work force. In the competition for new job opportunities in the expanding parts of national economies, older workers are hence structurally disadvantaged compared to younger competitors who often possess more recent educational qualifications and a more suitable qualification profile. Hence, older workers can be expected to experience both a higher risk of losing their job in the course of structural economic changes and more difficulties in finding a new job owing to qualification mismatches. For them, re-entries often will only be possible where skill demands and wages are lower. In other words, under globalization, older workers will run a high risk of becoming and remaining redundant. High employment protection and seniority wages. Second, even for those older employees not working in the most turbulent and declining economic sectors, globalization often entails a worsening of their employment situation. In many countries, older workers’ labor contracts are protected through high levels of employment protection. In Sweden, for example, older workers are protected through the ‘first in, last out’ (or ‘last hired, first fired’) principle that channels necessary dismissals to those with the shortest period of service and therefore generally discriminates in favor of employees with long firm tenure (GAO 2003: 43; OECD 2003c: 10; Sjögren Lindquist 2006: 217). Even though seniority protection is not always enforceable through legal claims, it is often used practically as a human resource strategy to provide company loyalty incentives for employees on internal, core labor markets. For similar reasons, older workers are frequently paid higher ‘seniority wages’ than young labor market entrants in many countries (OECD 2006: 64ff.), despite the fact that these wage differences do not necessarily reflect higher productivity or longer work hours. Therefore, from the perspective of employers, older workers will often be perceived as an inflexible and costly burden when swift adaptability is required on global labor markets. In terms of both employment protection and wage level, younger workers will be seen as more attractive employees, since they usually earn less and their working contracts can be adjusted more easily to a firm’s demands (Blossfeld et al. 2005). However, owing to dismissal protection, employers often cannot straightforwardly replace their older work force by younger competitors. Likewise, older workers’ privileges in terms of pay and employment security can hardly be alleviated by firms without endangering the work motivation and loyalty of its core qualified work force (Blossfeld, Mills and Bernardi 2006). Firms can

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4.

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hence not simply impose their increased flexibility demands under globalization at the expense of their older employees. Older workers themselves will be reluctant to change jobs between firms, as it will be hard for them to find a firm that replaces their wages and fringe benefits acquired in their ‘origin firm’ after years of service. Under these conditions, firms will hence either look for measures to optimize the assignment of their older workforce, for example through relocating or retraining them, or, alternatively, look for opportunities to cancel their work contracts in a socially acceptable way, for example through public early retirement programs. Obsolete skills and low returns of retraining. However, the optimal use of older employees is often hampered by their outdated qualification profiles. The new ‘knowledge economy’ places emphasis on constant innovations in production technology, implying increased pressures for firms to constantly update the skills of their staff. New types of job tasks are demanded as work processes become reorganized from a Fordist mass production based on a Taylorist organization of work to more quality-oriented modes of work that depend on autonomous, flexible and theoretically qualified employees who can shift between different work tasks. The traditional occupational profiles of older workers are often at odds with these new skill demands. Their comparative advantage of possessing more and longer work experience than their young competitors is losing significance under globalization, while their skills acquired decades ago are quickly becoming obsolete. In the majority of cases, retraining older workers is not an attractive option for employers, as they often have only a few years of service left, thereby reducing the expected returns of costly training. Especially when new generations of younger workers with more upto-date skills are available at more favorable wage and employment conditions, the opportunity costs of further education and training for the older work force become high. Employers will hence be reluctant to further invest in the human capital resources of older redundant employees but will rather seek ways of shedding them. Availability of possible ‘alternative roles’ in the labor market. From a firm’s perspective, sending older workers into early retirement therefore often seems to represent the only viable strategy to dissolve the looming contradiction between rising flexibility demands on the one hand and the lack of flexibility and comparative costliness of older workers on the other hand. At the same type, early retirement programs may also represent an acceptable strategy for politicians to react to the rising labor market problems of older workers. In contrast to younger workers, whose unemployment would be potentially

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hazardous in political terms and might prospectively deprive the young generation of life and employment chances, older workers have an ‘alternative role’ as pensioners outside the labor market. Their receipt of (early) pensions can be legitimized as a well-earned compensation for a lifelong commitment to work and the contribution to nowadays generous social security systems in times of economic hardship. At the same time, older workers can – and in fact often do – justify their retirement as ‘making way for younger employees’. Under globalization, early retirement plans thus may be used as a measure ensuring social peace by accommodating the demands of local firms while simultaneously avoiding their relocation to foreign countries and providing a solution to the labor market problems of the young generation in a globalized labor market. Taken together, I therefore expect that, as a consequence of globalization, the labor market attachment of older workers should have weakened (see Table 3.1). On the one hand, owing to economic and occupational restructuring, older workers’ employment opportunities should have deteriorated. On the other hand, generous early-exit incentives provided through early retirement programs will have facilitated their employment exit. For multiple reasons, a general individual preference for employment exit over employment continuation can be assumed. First, by exiting into well-compensated early retirement, older workers most of the time gain (or at least do not lose) financial resources. Second, they enter into a secure state of inactivity instead of remaining on an insecure labor market for which they are increasingly ill equipped. Third, they follow a socially acknowledged pattern of labor-force behavior by moving into a positively connoted ‘pensioner state’. Hence, for utility-maximizing older workers, globalization should have triggered an increasing likelihood of exiting employment once sufficient financial benefits become available. It needs to be noted that the multi-dimensional globalization argument presented here goes beyond earlier proposals that have established a largely one-sided connection between the implementation and extension of early retirement programmes and periods of economic crisis and mass unemployment. Though such economic shocks may have played a role for the implementation or expansion of early retirement pathways, I argue that, if not being counteracted through specific political programs (see section 3.3), the impact of globalization on the labor market situation of older workers leads to more radical consequences than just inducing cyclical variations in their labor-force attachment. If globalization as a multi-dimensional phenomenon is assumed to comprise economic and technological changes as well as a rise in the unpredictability and insecurity

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of economic life, it will have more serious and long-term consequences for older workers. As more costly, less flexible and often not adequately trained employees, older workers have become a structurally disadvantaged group on globalized labor markets. It therefore can be expected that, even when national economies (temporarily) recover from mass unemployment, early retirement should not straightforwardly follow the economic cycle in a parallel manner. Instead, the globalization approach assumes that, even under economic recuperation, early-exit rates should remain at high levels owing to the more general and systematic labor market disadvantages of older workers.

3.3

MAINTENANCE VERSUS EARLY EXIT: THE ROLE OF NATION-SPECIFIC INSTITUTIONS

Globalization and the role of institutional filters Some social scientists have argued that, in the long run, globalization will act as a unifying force that will flatten out cross-national differences and lead to cross-national convergence in various policy fields. Under globalization, both labor markets and welfare states will join in a ‘race to the bottom’ towards a neo-liberal ideal of unregulated labor markets and an only residual welfare state (Teeple 1995). A reformulation of DiMaggio and Powell’s (1983) theory of collective rationalities in organizations for nation-states as collective actors suggests three main reasons for such a convergence under globalization (see Mills et al. 2009). First, nation-states will tend to follow a specific policy ideal owing to pressure from specific supranational bodies on which they are dependent. Potential examples of such intended ‘coercive isomorphism’ may be the ‘OECD Jobs Study’ (OECD 1994), which suggested measures of de-regulation and liberalization as a cure for stagnation and labor market rigidities in European OECD member countries. Similar processes were observed in several Latin American countries that were eager to comply with pension privatization suggestions by the World Bank (Kay and Sinha 2007). Second, nation-states will attempt to model themselves on other international ‘showpieces’ that are presented as a great success. Examples of this ‘isomorphic mimetic imitation’ may be the benchmarking of many European states to the example of the US or the newly established Open Method of Coordination in Europe, which intends to institutionalize mutual institutional learning processes in EU countries (Heidenreich and Bischoff 2008). Finally, nations may adhere to a specific policy ideal owing to increasing normative pressures such as the implementation of crossnational standards. Taken together, it is argued that, in the course of this

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gradual move towards isomorphism, national welfare states will increasingly lose their power to regulate national labor markets and provide generous welfare for their citizens (Ohmae 1990). Empirical evidence of such convergence effects of globalization has, however, been rare until now. Recent empirical studies rather point to little cross-national convergence in labor market regulation (McBride and Williams 2001) and social security systems (Kautto and Kvist 2002). Even those who see signs of convergence stress that the trend is often not unique across fields (Daly 1997) or that convergence may not necessarily imply a race to the bottom but rather a ‘convergence towards the mean’ from both sides (Adelantado and Calderon 2006). Hence, it seems that, even given the increasingly powerful effects of globalization, nation-specific institutions have withstood convergence pressures and are still characterized by ‘persistent diversity’ (Kautto and Kvist 2002) or ‘converging divergences’ (Mills et al. 2009). Given that institutional configurations exert a lasting influence on individual careers, it can be assumed that life-course patterns equally continue to differ between countries and that, even under globalization, nation-level policies retain their power to determine the economic condition and employment lives of their citizens. Globalization can therefore be expected to have no identical and homogenizing effect on the employment and retirement patterns of older workers in different modern societies. Instead, it is differentially filtered institutionally by nation-specific welfare and labor market characteristics that determine how the older work force of a country is adjusted to structural changes in the labor market and to what extent older workers will experience pressures to exit the labor force. Though I assume that globalization generally will trigger a weakening in the employment attachment of older workers, I suggest that the extent to which older workers will exit the labor force will vary between different institutional regimes. Employment maintenance and employment exit: ideal-typical strategies for dealing with older workers under globalization Following Buchholz, Hofäcker and Blossfeld (2006), I argue that there are two ideal-typical strategies by which nations can react to the challenges of globalization with regard to the employment situation of older workers (see Figure 3.5). On the one hand, nation-states can decide to offer generous early retirement incentives to older employees with outdated skills and to replace them by younger workers with more up-to-date qualifications. In recent years, this employment exit strategy has been used heavily in Central European countries where large numbers of welleducated young employees were available owing to the baby boom of the post-war period (see Blossfeld et al. 2005). The alternative strategy instead

Globalization, institutional strategies and late careers

Keep the older workforce

<< Basic logic >>

125

Shed the older workforce

Employment maintenance Employment exit Late-career mobility patterns: Early retirement; Late-career job mobility, transitions into welfare-state late-career employment subsystems mobility Source:

Buchholz, Hofäcker and Blossfeld 2006: 8.

Figure 3.5

Ideal-typical strategies to adapt an older workforce to globalization

relies on adapting older workers to the changing demands of workplaces in a globalized economy. This employment maintenance strategy is based on further investments in the skill of older workers and in supporting their mobility between jobs and occupational fields and thereby helping them to continue their labor market careers, even if this means increased employment or labor market mobility. When speaking of ‘employment exit’ and ‘employment maintenance’ strategies, it needs to be noted that both strategies naturally represent ideal-typical extreme points on a strategic continuum. In social reality, complex modern societies will normally not adhere exclusively to just one of the two strategies. In a given country, for example, employment exit strategies may be used only for specific groups of older workers, for example by offering early-exit pathways to workers in declining economic sectors while fostering employment continuity and long work lives in other industries. Hence, practically, both maintenance and exit strategies can co-exist. However, I assume that, in general, modern economies will be closer to either one or the other side of the strategic continuum, that is they will place comparatively more emphasis on either maintaining older employees in employment or sending them into early retirement. The concrete positioning of a specific country on the theoretical continuum between employment maintenance and employment exit will depend crucially on how far historically grown institutional structures within a country favor one over the other strategic alternative, that is whether the

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Education and training systems

Lifelong learning enhances adaptability to new qualification demands

Define occupational pathways and boundaries

Set incentives for early exit

(Late-career) Employment Determine older workers’ competitiveness Employment relations systems Employment protection legislation Seniority regulations Source:

Pension systems

Define formal and early retirement eligibility Retirement

Directly support older workers’ employment Active labor market policies

Own illustration.

Figure 3.6

The effects of institutional filters on older workers’ late-career development

logic of a country’s institutional settings promotes either the maintenance or the employment exit of older workers. Informed by previous findings from institutional as well as (comparative) life-course research that have emphasized the overarching importance of institutions across life phases (see sections 2.2, 2.3 and 2.4), I assume that a number of different institutions need to be considered in this respect (see Figure 3.6). On the one hand, one needs to look at institutions that provide incentives (or disincentives) for an early labor-force withdrawal such as pension systems or other subsidiary welfare-state subsystems. However, in addition to these ‘pull factors’, one simultaneously needs to consider institutions that promote or hinder the continuation of employment of late-career workers. As shown in Figure 3.6, these institutions include (1) education systems, (2) employment relations systems, and (3) employment-sustaining labor market policies. Both institutions fostering early exit as well as those influencing the continuation of employment need to be seen in conjunction with each other, as they often influence each other reciprocally. For example, the lack of institutions that promote the employment continuation of older workers on globalized labor markets has often contributed to the gradual implementation of early exit pathways to ease the employment difficulties of this specific group of workers. In the following, I shall first discuss explicitly the different groups of institutions and their hypothesized effect on older workers’ labor market behavior in theoretical terms. Based on this discussion, I subsequently

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shall develop a theoretically based typology of different institutional contexts that affect older workers’ labor market behavior in different modern societies. For each of the emerging institutional ‘types’, I shall then formulate hypotheses about the resulting consequences for the late-career patterns of older workers, considering both the quantity of older workers’ labor-force participation and the quality of older workers’ employment. Institutional designs not only may, for example, influence the decisions to remain employed or exit employment, but will also have consequences for the degree of turbulence in older workers’ careers (i.e. the number of job shifts), their unemployment risks or their chances of being upwardly or downwardly mobile within the labor market. Both quantitative and qualitative aspects will be integrated into a hypothetical ‘modal mobility pattern’ that can be assumed to be characteristic of a specific institutional regime. This systematic confrontation of institutional backgrounds and hypothesized labor market mobility patterns will then provide the blueprint for the empirical analyses in the subsequent chapters. Pension systems and subsidiary welfare arrangements As demonstrated by the economic approach, pension systems and supplementary welfare-state programs have played an important role in triggering early retirement among older employees (Blöndal and Scarpetta 1999; Gruber and Wise 1998, 1999a, 1999b, 2004). An analysis of the individual choices of older workers between employment and retirement therefore has to pay attention to the characteristics of these systems and the incentives they provide for either continuing or exiting employment. Various aspects need to be considered in this respect: On the one hand, one has to pay attention to the overall generosity of a country’s pensions system. Assuming that older workers will tend to leave employment when income from other transfer payments allows for a decent standard of living, I expect that, in countries where the compensation levels of early retirement benefits are generous, older workers will tend to withdraw from work once these generous benefits become available. In contrast, in less generous pension systems where public pension benefits are low, older workers more often will be faced with the need to remain longer in paid labor or to seek for transfers from other income sources (such as wealth, private savings or additional pension plans) to make ends meet. As many of these additional income sources, such as private pensions or insurance plans, are based on a strict contributionbased mechanism, I expect that older workers in these countries will show a lower likelihood of exiting the labor force early but will remain employed until close to or even beyond formal retirement ages. The financial need for longer work lives may also increase the readiness of older workers to

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accept more low-paid jobs, take employment in atypical work forms (such as part-time or temporary jobs) or move flexibly between jobs, firms and sectors in order to remain employed. One can hence expect that the lower the generosity of a pension system and the higher its degree of privatization, the longer older workers will remain in employment, even at the potential expense of adverse labor market mobility. In addition to the overall generosity of pension systems, economic theory has highlighted the importance of the accrual patterns of pensions. Pension systems that follow an actuarial design (i.e. where pension benefits proportionally reflect previous pension contribution periods and social security contributions) can be expected to provide little incentive for older workers to leave the labor force earlier. Under these systems, I expect older workers to remain in employment until close to formal retirement ages in order to maximize their financial outcome. In contrast, in countries where pension benefits are generous and where pension accrual patterns are not actuarially fair but impose an ‘implicit tax’ on continued employment (Blöndal and Scarpetta 1999; Gruber and Wise 1999b; see section 2.2.), I expect that older workers will display a higher likelihood of exiting the labor force at an earlier stage. Previous research on the different ‘pathways’ to retirement (e.g. Kohli et al. 1991) has shown that, in this respect, the analytical perspective needs to be widened beyond public pension systems. In many countries, additional welfare state programs, such as unemployment or disability insurance, have come to serve as functional equivalents for public pension programs. Hence, a thorough analysis of retirement incentives needs to consider simultaneously the incentive structure of both public pension systems and supplementary ‘pathways’ into early retirement. Education systems, occupational structures and labor market boundaries Economic theory largely restricted itself to analyzing the relationship between retirement incentives and the labor-force behavior of older workers. Later approaches, however, have argued that such a perspective underrates the importance of other significant context factors that influence the employment versus retirement decisions of older workers. Especially if, as has been argued, globalization triggers an increasing obsoleteness of traditional knowledge and occupations so that older workers’ qualifications are increasingly at odds with current job demands, the acquisition of work-specific skills as well as their constant updating across the life course becomes crucial for older workers’ employment chances and their opportunities to remain employed or exit the active labor force. Policies that enhance older workers’ skills or allow them to adjust their qualification profiles to the new demands of a globalized

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service economy will significantly improve their employment prospects and hence make it easier for them to remain in the labor market. I therefore consider education systems and occupational structures as key institutional determinants of older workers’ employment behavior. Two aspects appear to be of significant importance in this respect (see Figure 3.6): the strength of labor market boundaries as well as lifelong learning opportunities. First, educational systems affect the structure of occupational labor markets and thereby determine the strength of labor market boundaries. Two ideal-typical arrangements can be differentiated: ●

●

On the one hand, there are standardized educational systems in which tracking plays an important role and where systems of vocational training are well developed, most typically represented by German-speaking countries. Educational systems, occupational pathways and training procedures are generalized across firms and industries, and the successful completion of training is usually rewarded with a standard certificate that provides the pre-condition for access to specific types of jobs (Allmendinger 1989; Blossfeld and Stockmann 1999; Müller and Shavit 1998). Though these standardized systems have been very efficient in integrating youth into the labor market, they simultaneously create significant boundaries within the labor market by reducing mobility between jobs and occupations. As a consequence of these boundaries, older workers who have lost their jobs owing to structural changes in economic sectors or occupational structures will find it hard or even impossible to adjust their qualifications or move to other jobs owing to the strict definition of occupational boundaries. Highly standardized education systems may hence significantly limit older workers’ chances to adapt to globalization by labor market or occupational mobility, and hence foster their permanent withdrawal once benefits become available. The other ideal type is represented by less standardized occupation and training systems, as can be found in the United States or the United Kingdom, where public educational systems provide only for general knowledge, while work-specific skills and qualifications are acquired via on-the-job training. Workers in these countries can adapt more flexibly to new skill demands by acquiring new skills at the workplace and by moving between occupational fields. Accordingly, one can expect that, in unstandardized education systems, older workers will be more likely to remain in employment than in standardized educational systems.

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In addition to the question of how and where education and skill acquisition are being organized, one needs to take account of when skill acquisition takes place. In a globalizing world where new occupations are replacing older ones and where information and communication technologies allow for a fast diffusion of technological innovations, the swift adaptability of skills to new demands throughout the life course becomes of central importance. Lifelong learning and continuous adult education can hence be expected to improve older workers’ employment chances. In countries where these are widespread, older workers will be in a better position to adapt to technological changes and new skill demands. In contrast, in countries where education and training are constrained to a short time span in the early life course (or early employment life), older workers will face a high risk of becoming redundant and experience severe labor market disadvantages owing to their increasingly outdated qualification profiles. Employment relations systems Another important institutional aspect that will affect the labor market situation of older workers under globalization is the way in which contractual relationships between employers and employees are organized, and how far the regulation of labor markets allows firms to shift their increasing risks on global labor markets to (older) employees (Ebbinghaus 2006a; Soskice 1999). I therefore expect the organization of employment relations systems to play a significant role for older workers’ employment maintenance. Previous research differentiates two ideal-typical models of employment relations. On the one hand, there are ‘open’ employment relationships which tend to dominate in countries of the Anglo-Saxon world such as the United Kingdom or the United States. In these ‘uncoordinated market economies’ (Soskice 1999), unions often play only a marginal role and negotiation for work contracts is largely left to free-market forces. As a result, employment protection and dismissal protection tend to be low. In these labor markets, workers can easily be dismissed in times of economic fluctuations, and it can be expected that these ‘labor-shedding measures’ will disproportionately affect older workers with outdated qualifications. However, the high flexibility of labor markets allows older workers to more easily re-enter the labor market after unemployment or redundancy, as access barriers to new jobs are low. Hence, one can expect that, in uncoordinated market economies with open employment relations, there will be a high mobility among older workers into and out of employment, or directly between jobs. Especially when public welfare benefits are low, one can expect that older workers will show only a low likelihood of exiting the

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labor force early. Instead, they will make use of the highly flexible labor market structures and remain in employment until they have accumulated enough capital resources for a permanent employment withdrawal, even if this maintenance implies moving between rather insecure forms of employment. On the other hand, many Continental and Southern European countries have more ‘coordinated market economies’ (Soskice 1999) where unions are strong and work relationships are determined on a more centralized level. As a consequence, most workers in these countries, especially in Southern Europe, enjoy a higher level of employment security (Mills, Blossfeld and Bernardi 2006; OECD 2004b: 71). For older workers, employment protection is further amplified through seniority regulations that guarantee stricter dismissal conditions and higher wages. However, despite their positive effects on employment stability in general, high levels of employment protection simultaneously create labor market rigidities. While those in secure employment are safely protected, those who have fallen out of employment usually find it very difficult to re-enter, as firms are reluctant to hire new workers with similar employment rights. On the other hand, for older workers in safe employment, it may be exactly this safe ‘anchorage’ in the labor market that triggers the introduction of early retirement incentives as a means to shed a firm’s work force selectively, especially when younger and more flexible workers with fewer employment rights are available. Hence, one can expect that, in coordinated market economies, exit rates of older workers will be high while mobility within the labor market will be low. Employment-sustaining active labor market policies Finally, in addition to modes of labor market regulation, explicit state policies to actively support employment can positively affect the labor market situation of older workers. These employment-sustaining active welfare-state policies encompass a broad array of measures, such as the creation of new state-supported or temporary jobs, but also ‘activation’ measures that aim to retrain and re-integrate (older) employees into the labor market or that restrict the duration of welfare benefit dependence in order to provide incentives for a quick re-entry of non-employed individuals into the labor market (DiPrete et al. 1997). Older workers can benefit from these measures, as they help them to establish or increase their individual ‘employability’. Another important active employment measure that has frequently been used to facilitate older workers’ maintenance within the labor market has been the introduction of gradual retirement or partial pensions. These measures allow older workers to reduce their work-time and receive part of their pensions while still being actively

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employed. Gradual retirement plans entail a number of benefits for both employees and national governments. Firms can achieve more flexibility in their work organization while, at the same time, retaining individuals with valuable skills and firm-specific knowledge. For governments, it provides a viable strategy to meet firms’ demands, avoid unemployment among older workers and reduce (early) pension expenditures. Finally, individual employees can avoid becoming obsolete and earn additional income for their senior years (Delsen and Reday-Mulvey 1996). In countries where these types of active policy measures are widespread and cover large parts of the population, one can expect that they will support the employment attachment of older employees to the labor market and thereby have rather low rates of labor-force withdrawal before retirement age. Owing to active state support for the unemployed, returns from unemployment will be more frequent and mobility between jobs will tend to be high. In contrast, in countries where these measures are less widespread or where older workers are (disproportionately) excluded from participation in active, employment-sustaining programs, one can expect that their labor market situation will be more critical and that they will be more structurally disadvantaged than their younger labor market contenders. Unemployment will be of a more permanent nature and job mobility can be expected to be rather low. Late careers and institutional contexts – a comparative typology In the preceding paragraphs I have described different types of institutional filters that affect the employment situation of older workers on globalized labor markets in various ways. Table 3.1 summarizes the key expectations regarding the late-career mobility consequences of the different types of institutional filters considered in this work. Together, the single institutional components form complex institutional packages that determine whether a country follows either an employment maintenance or an employment exit strategy. Drawing on empirical results from previous institutional research, I shall now go on to describe the nature of these institutional packages in the five regime types introduced earlier in this study: the liberal, the social democratic, the conservative (Esping-Andersen 1999), the Southern European (Ferrera 1996) and the post-socialist (Mills and Blossfeld 2005). From a simultaneous consideration of the different institutional components in these regimes, I shall extrapolate the key institutional strategy used with regard to older workers. Based on this institutional synthesis, I shall finally formulate expectations regarding the employment situation of older workers in the different regime types and their expected regime-specific modal patterns of labor market mobility. Hence, I shall reframe previous findings from

Globalization, institutional strategies and late careers

Table 3.1

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The effects of institutional filters on older workers’ late-career development

Type of institution

Measure

Expected effect on labor-force exit

Expected effect on late-career mobility

Pension systems

Pension system generosity Accrual pattern: implicit tax on continued employment Occupational boundaries through educational standardization Lifelong learning Employment protection and seniority regulations Active labor market measures/part-time work

Negative

Negative

Negative

Negative

Negative

Negative

Positive Negative

Positive Negative

Positive

Positive (especially regarding returns from unemployment)

Education system

Employment relations

Active labor market policies

Source:

Own illustration.

institutional research from an individual-based perspective and develop unique hypotheses about older workers’ typical rational behavior under varying regime-specific opportunities and constraints. Table 3.2 summarizes my expectations regarding regime-specific institutional filters and resulting modal late-career patterns in a systematic way. Conservative and Southern European countries: the dominance of employment exit According to the institutional filters discussed above, conservative and Southern European countries can be classified as typical showcases of employment exit regimes. Both education and labor market institutions provide few opportunities for older workers to effectively adapt to the changing technology and flexibility demands in a globalized economy. Educational systems are highly standardized and thereby can be expected

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Source:

Labor market mobility Returns from unemployment

Own illustration.

Active labor market policies Expected modal late-career pattern

Employment relations

Employment protection and seniority regulations Active labor market measures/part-time work Labor-force exit

Pension system generosity Accrual pattern: implicit tax on continued employment Occupational boundaries through educational standardization Lifelong learning

Pension systems

Education system

Measure

High

Low

High

Low

Low Low

Low

Moderate– low High

Low

Moderate– low High

Very high

High

High

High

Very high

Southern European

High

Conservative

Institutional filters and expected modal late-career patterns

Type of institution

Table 3.2

High

Low

Moderate– low High

High

Moderate

High

Low High (public training institutions) Moderate

Low, but increasing Low, but increasing

High

Low

Moderate

High

High

Moderate–low

Post-socialist

Moderate

Moderate– high Low

Social democratic

Low

High (onthe-job training) Low

Low

Low

Low

Liberal

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to create strong occupational boundaries that hinder older workers trying to adapt to changes in both the economic and the occupational structure by moving to new jobs and occupations (Blossfeld and Stockmann 1999). At the same time, the focus of educational systems on initial education and training can be expected to contribute to a serious deterioration of older workers’ qualifications and skills in a changing technological environment. On the other hand, labor relations, especially those in Southern European countries, are highly regulated through union influence and can therefore be expected to include widespread seniority protection measures for older workers, which hinder a restructuring of staff and a rationalization of work processes by dismissing older workers. At the same time, they create rigid insider–outsider labor markets in which those who have fallen out of employment are faced with strong re-entry barriers and severe labor market problems. In order both to allow firms a necessary restructuring of their workforce and to allow the older unemployed outsiders a solution to their critical labor market situation, pension systems and other welfarestate programs will need to provide generous incentives for a labor force withdrawal of older workers before reaching mandatory retirement ages. Under these institutional conditions, that is high incentives for early retirement and serious competitive labor market disadvantages as compared to young labor market entrants, older workers will find it rational to accept the generous early retirement options offered to them. These benefits will often provide a more than adequate compensation for forgone earnings from continued employment. In addition, they promise security in an increasingly uncertain and unpredictable insider–outsider labor market. And finally, owing to comprehensive state support, these measures provide a legitimate opportunity for labor-force withdrawal after a long working life. For conservative and Southern European regimes, I hence expect high rates of exit from employment into early retirement (or to functionally equivalent welfare programs) and low rates of within-labor market mobility. Owing to the expected effectiveness of early retirement plans, the quantitative significance of old age unemployment will be comparatively low. However, if it occurs, I assume that it will mean a state of more or less permanent labor market exclusion. Liberal and social democratic countries: differentiating types of employment maintenance In contrast to the above, both liberal and social democratic countries can be expected to rely more on re-qualifying and adapting their older work force to globalization-induced challenges. Both regime types hence represent maintenance rather than employment exit regimes. However, the institutional mechanisms driving the maintenance of older workers

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within the labor market differ significantly between the two regime types. I assume accordingly that these institutional differences will be represented in different types of older workers’ late-career mobility. In liberal countries, a flexible, largely unregulated ‘open’ labor market on the one hand increases redundancy risks for older workers. On the other hand, however, it allows them to move flexibly between jobs and to find new employment in the case of dismissal. Similarly, a largely nonstandardized education system and the central importance of skill acquisition on the job creates only weak occupational boundaries and therefore facilitates adaptation to structural changes by moving flexibly between occupations. Both education systems and labor markets hence allow older workers a comparatively swift adaptation to globalized labor markets. At the same time, the only residual design of public welfare in general and pension systems in particular will provide only slight incentives for an early labor-force withdrawal. They will need to be supplemented by additional private forms of old age insurance that foster long work lives through their contribution-based mechanism. For older workers in liberal countries, I therefore assume that the reliance on free-market forces in welfare provision, labor market regulation and the acquisition of work-specific skills will entail a clearly higher level of labor market mobility than in employment exit regimes. Owing to the only residual level of public pension benefits and the need to supplement these by private income sources, exits into early retirement will be significantly less widespread. Instead, older workers will tend to be mobile both between and within firms, occupations and work forms (that is, move into flexible work forms such as temporary or part-time employment). In case of material need, this high level of mobility will even continue beyond retirement age. Owing to the low level of employment protection, unemployment may occur more frequently. However, unemployment among older workers in liberal countries will be of a rather short duration, as flexible labor market structures facilitate successful employment re-entries. Owing to the fact that flexibility is not achieved by active state involvement but by an extensive reliance on the free-market mechanism, I suggest that the liberal institutional approach towards older workers can be characterized as a system of market-induced maintenance. For employers, this market-based system with only a little state regulation is highly attractive, as it allows them to react flexibly to changes in their economic and social environment. For governments, on the other hand, it provides an effective means to keep unemployment low and reduce welfare expenditure. From the individual older worker’s perspective, high labor market mobility in fact represents a rational response to globalization challenges under the specific liberal institutional background. First,

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continuing employment until or even beyond formal retirement age often constitutes the financially most favorable alternative, as (early pension) benefits and other welfare transfers are low and additional income sources often require long contribution periods. Admittedly, from a European perspective, continuing employment may entail considerable employment insecurity for older workers. However, as Blossfeld et al. (2007) have argued, high employment instability has for a long time constituted a key component of liberal labor markets and may hence not necessarily be perceived as a ‘threat’ in these countries.4 Finally, continuing work instead of claiming early retirement benefits may also be more in line with the liberal ‘work ethic’, while early retirement may mean an at least transitional period as a stigmatized ‘welfare dependant’. Although I expect that social democratic countries will also follow an employment maintenance-oriented strategy, the institutional mechanisms that form the basis of this strategy will be different. On the one hand, strong state involvement in maintaining older workers within the labor force through a traditionally higher emphasis on active over passive labor market measures can be expected to have a long tradition as part of the Scandinavian full-employment orientation. Though unemployment benefits are often rather generous, they are bound to certain qualifying conditions such as participation in re-qualification measures or active search for employment, and they therefore support a re-entry into employment (Kvist 2001). At the same time, investment in lifetime education in these countries is high and can be expected to counteract the obsoleteness of older workers’ skills and enhance their potential attractiveness to employers. At the same time, especially in Sweden, partial pension schemes are widespread, which can allow for a possible continuation of work lives (Wadensjö 1996). Though pension systems in the social democratic regime are known to be among the more generous in OECD countries (OECD 2006), they can be expected to include few retirement incentives owing to the Scandinavian full-employment orientation. In social democratic countries, the employability of older workers is hence not guaranteed through free-market forces, but through active state support aimed at improving older workers’ employment chances. One can therefore describe these countries as following a public-based employment maintenance strategy. I assume that, under these institutional conditions, older workers will tend to remain in employment until close to retirement age, that is early exit from the labor market will tend to be low. Owing to active state support for the unemployed, I also expect that unemployment will not be permanent, and that returns to the labor market can be frequently observed. Within the labor market, I expect higher levels of mobility

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both between firms and between occupations. However, as labor market chances are not entirely left to market forces, I expect that open labor market mobility will not be as high as in liberal countries. In terms of open mobility, I expect social democratic countries to occupy an intermediate position between conservative/Southern European exit regimes and the market-based pattern of liberal countries. Again, these late-career mobility patterns are assumed to occur as the result of a rational reaction of individuals to existing institutional patterns. As early-exit incentives through pension systems are low, there is little financial reason for older workers to leave the labor force early. Though continuing employment may be connected with labor market mobility, I expect that, owing to comprehensive state supportive measures, these ‘instabilities’ are not perceived as insecurity but rather as ‘publicly assisted adaptations’ to a changing economic environment. Finally, one can assume that the dominance of ‘the full-employment ideal’ that makes up one of the key normative principles of Scandinavian welfare states will socially penalize an earlier withdrawal from employment and therefore make older workers more reluctant to exit early. Post-socialist countries: choosing between multiple strategies In the regimes outlined above, nation-specific institutions that ‘filter’ globalization usually have had a long-standing history and can be regarded as rather stable configurations. In contrast, most Eastern European countries have undergone massive institutional change since the fall of the Iron Curtain so that institutional configurations are rather young and often unstable. In addition, previous research on institutional configurations and life-course patterns has pointed to significant cross-national differences in institutional design and development, and hence in life-course patterns (Blossfeld et al. 2007). Trends in these countries therefore remain hard to predict, and the assignment of these countries to either one or the other modal strategy is difficult. What is, however, common to most Eastern European countries is that they have been faced with a sharp decline of labor-force demand following the breakdown of communism and that, in the initial post-transition years, they have mostly applied labor-force reduction measures (see the discussion in section 2.4). In the course of these measures, many older workers received comparatively generous offers to retire early. These measures were expected to take pressure from national labor markets and to guarantee a decent income for those who had lost their jobs in the course of restructuring or who were dismissed when firms successfully circumvented technically high levels of employment protection. Though empirical evidence on employment maintenance measures is

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scarce and largely scattered, a study by Fortuny, Nesporova and Popova (2003) suggests that high exit incentives were mostly accompanied by only low levels of support for continuing employment. ‘Activating’ measures such as the tightening of unemployment benefits contributed only weakly to employment re-integration because the number of available jobs was low (ibid.: 39; Täht and Saar 2006). As the transition period entailed massive economic restructuring, moving the previously industrialized countries of Eastern Europe towards Western European service societies, older workers, who were often trained only in classical industrial occupations, can be expected to suffer from considerable qualification deficits with regard to the new job demands. The design of educational systems provided only low opportunities for older workers to adapt to these demands. Education and training in socialist countries were strongly based on vocational tracking, thereby creating significant occupational boundaries that can be expected to impede cross-occupational mobility in the course of the massive economic and occupational restructuring of the early transition period (Bukodi and Róbert 2006a, 2006b; Hamplová and Pollnerová 2006; Täht and Saar 2006). Both the lack of active employment support and the existence of persistent occupational boundaries foster a high risk of redundancy among older workers. Institutional developments during the early transition period, characterized by strong exit incentives and low levels of support for continued employment, thus suggest a categorization of Eastern European countries as ‘employment exit regimes’, implying high rates of exit and only low mobility within the labor market. However, deficits in Eastern European pension funds have in recent years triggered a cutback in pension generosity and early retirement incentives in many post-socialist societies. These cutbacks may act to ‘push’ older workers back into employment. The economic recovery of post-socialist countries since the mid-1990s and the emergence of new jobs may have amplified this trend. Hence, while one can expect a dominance of early-exit tendencies in the 1990s, one may see more recent signs of rising labor-force participation and higher labor market mobility among older workers in post-socialist countries.

3.4

GLOBALIZATION AND THE INDIVIDUAL OLDER WORKER: THE ROLE OF INDIVIDUAL AND WORKPLACE CHARACTERISTICS

In the preceding section, I have outlined hypotheses with regard to the international variation of older workers’ labor market behavior. I have argued that different institutional backgrounds lead to different

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‘rationalities’ at the level of the individual and therefore result in different modal patterns of labor market mobility. However, it can be expected not only that these ‘rationalities’ vary between countries owing to institutional variations, but that there will also be inter-individual differences in work versus retirement decisions within countries. Drawing on findings from earlier research, I expect that, under globalization, employment chances and retirement incentives will be different for workers in different structural locations (that is workers in different industries and firm types), workers with different human capital resources (that is with different educational levels and occupational qualifications) and workers with different access to financial resources (see also section 2.5). Though I expect that the above effects on older workers’ mobility patterns will, in principle, be present in any type of regime, the intensity of these effects will vary between regimes. Education-based differences will, for example, be more pronounced in institutional settings that create strong differences between institutional tracks than in countries with a more general and less stratifying education system. In the following, I shall develop hypotheses regarding both the anticipated direction of the different micro-effects and their expected variation across institutional regimes. Table 3.3 summarizes them in a concise way. Effects at the workplace level: industry- and firm-level characteristics I have argued that one of the main effects of globalization is that it leads to a transformation of both the economic and the occupational structures of modern societies, a move towards a ‘service society’ and a gradual decline in traditional industries, such as manufacturing or textiles. Despite the fact that other studies have shown that the early retirement trend as such cannot be traced back one-sidedly to these industrial changes, one nonetheless can expect that the industry in which an individual worker is employed will have an effect on the likelihood that he or she will experience specific patterns of labor market mobility. Especially in classical industries, workers will be at a high risk of being affected by restructuring and rationalization measures and will therefore be more likely to experience labor market mobility than employees in growing economic sectors such as public or private services. Depending on whether the nationspecific institutional context is based on either an employment exit or an employment maintenance orientation, older workers in these sectors will experience either higher rates of exit into early retirement (exit regimes) or will show a higher likelihood of being mobile within the labor market (maintenance regimes). Furthermore, I expect that the strength of industrial effects will be strongest in those countries that have experienced the most significant drops in industrial employment, namely Central and

141

Source:

Own illustration.

Financial characteristics

Participation in measures

Lifelong learning

Availability of other than pension income

Non-manual whitecollar occupations

Occupational class

Employment status Higher educational grades

Small/medium-sized firms Self-employment

Firm size

Educational attainment

Large firms

Type of industry

Work conditions

Human capital

Declining sectors

Indicator Higher levels of early exit versus labor-market mobility Higher levels of early labor-force exit Higher levels of labor market mobility Lower levels of laborforce exit Lower levels of early labor-force exit, more stable careers, lower downward mobility Lower levels of early labor-force exit, more stable careers, lower downward mobility Lower levels of early labor-force exit Liberal: higher levels of early labor-force exit Other: lower levels of labor-force exit

Expected effect on late careers

Individual-level effects on older workers’ late-career development

Group of indicators

Table 3.3

Liberal > other

Conservative, Southern European and postsocialist > liberal and social democratic

Eastern and Southern European > other

Eastern and Southern European > other

Strength of effect

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Older workers in a globalizing world

especially Southern European countries (Hofäcker and Pollnerová 2006: 28). In addition, the size of a firm in which a worker is employed can be expected to affect his or her likelihood of experiencing pressures to be mobile within the labor market. As a consequence of the ‘crisis of mass production’ (Piore and Sabel 1984), larger firms especially will have to change their organizational structures, entailing a need for both staff reduction and a relocation of work to outside supplier networks. Owing to their qualification profiles and seniority-related labor costs, older workers will particularly be affected by these changes. At the same time, large firms will usually have better opportunities to ‘cushion’ these necessary staff-reduction measures by combining public pension or other welfare transfers with company pension schemes. In other words, in large firms, I expect that, on the one hand, labor market pressures on older workers will be highest, while, on the other hand, exit incentives will be most widespread. In contrast, older workers in small firms where employment protection through unions and work councils is lower and where less early retirement can be offered will be more likely to experience higher levels of labor market mobility. These inter-firm differences will be most pronounced in countries where there is a strong divide between large industrial conglomerates and a multitude of smaller firms such as in Southern European countries (see section 4.1). In addition to variations within the group of dependent employees as outlined above, I expect that self-employed older workers will make up a unique group with regard to their labor market mobility patterns. In line with previous findings (e.g. Auer and Fortuny 2000; Blöndal and Scarpetta 1999), I expect that the self-employed will tend to work longer for multiple reasons. On the one hand, the nature of their work differs significantly from that of dependent workers in as much as they are running their own business. For them, the idea of an (early) retirement may hence be a less applicable concept. At the same time, the often high personal identification with their own work tasks will provide the self-employed with a positive motivation for continuing work. Finally, in some countries, the self-employed are covered less comprehensively by the public pension system and hence may need to make more private provision out of economic necessity – which will, in turn, require longer work careers and hence will reduce their likelihood of leaving the labor market early. Effects on the individual level: human capital In globalizing labor markets, specific types of jobs, especially those with low skill demands, may vanish entirely, and workers will need to adapt to these changes by adapting to new types of job requirements. New types

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of jobs in the service economy place less emphasis on the fulfillment of specific sequences of operations as in traditional Fordism, but will demand more individuality, responsibility and flexibility. It hence can be expected that, in modern globalized societies, the versatility and transferability of individual education and occupational skills will play a central role for maintenance within the labor market and the employability of workers in new types of jobs (OECD 2006: 117ff.). I therefore expect that especially employees with low qualifications or those doing unskilled or semi-skilled work should be affected most negatively by economic restructuring simply because their types of acquired job skill are no longer highly valued (ibid.: 67). They will find it hard to find new jobs that fit their skill profiles and will therefore disproportionately move into early retirement or be affected by long-term unemployment. If anything, they will be able to move to unstable low-paid jobs with low or no skill demands in cases where low pension benefits do not allow for permanent or early retirement. At the same time, these workers with comparatively lower wages will probably gain most from financially attractive early retirement offers (see the discussion of financial factors below). For less qualified workers, both ‘push’ factors (i.e. unfavorable labor market conditions) and ‘pull’ factors (i.e. generous retirement incentives) hence provide negative incentives for continued employment and thereby promote early withdrawal from the labor force. In contrast, highly skilled employees, that is those with higher secondary or tertiary education and those working in skilled, white-collar jobs, will be better able to adapt to the skill demands of a globalized labor market (Buchholz, Hofäcker and Blossfeld 2006). At the same time, these workers are more likely to gain from further employment, as they will more often be covered by company pension plans and invest in additional private income components. The fact that, even when controlling for income, better-educated older workers tend to remain longer in employment furthermore suggests that, on the one hand, those with higher education may derive more immaterial assets from continued work. On the other hand, it could entail that the higher employment security that better-educated workers enjoy may make continued employment more predictable and hence attractive (Blöndal and Scarpetta 1999: 43). Owing to both ‘push’ and ‘pull’ factors, higher-qualified workers should thus remain longer in more stable employment, have lower rates of early exit and experience less (downward) mobility. With regard to regime-specific differences, I expect that the strength of education and qualification effects will be highest in countries that exhibit high levels of stratification and standardization in education and vocational training, and where educational differences and occupational boundaries are strong (i.e. Central, Eastern and Southern European

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countries). In contrast, one can expect that, in countries which rely more on decentralized education and which invest more in lifelong learning (i.e. liberal and social democratic countries), educational versus occupational effects on individual labor market mobility will be less pronounced. In addition to the level of education or occupational skills attained, I also assume that the updating of work-specific skills through adult learning will have ‘a durable impact on individual employment prospects’ (OECD 2004b: 192) and will improve older workers’ chances of remaining within or re-entering the labor market. I therefore expect that older individuals who frequently participate in adult learning programs will remain longer in employment, will be less likely to exit into early retirement or unemployment and will show a higher likelihood of re-entering the labor market in the case of temporary redundancy. Differences between those with and without training participation will be most pronounced in countries where education and training are less widespread and apply only to a limited number of privileged employees (such as Central, Eastern and Southern European countries). In contrast, in countries with a deeply rooted ‘lifelong learning culture’ where the majority of the population participate in such measures, effects of participation in training measures will be less pronounced and late-career mobility patterns will vary to a lesser degree. Scandinavian and Anglo-Saxon nations come closest to this latter type. Financial characteristics In the previous section on institutional characteristics, I have argued that the decision of individual older workers to either stay in the labor market or exit employment will depend on the extent of financial provision provided through the national pension systems. If pension payments are high enough to allow for a decent standard of material security and the gains from drawing (early) pensions outweigh those of continuing employment, I expected that older workers will tend to exit the active labor force. In order to explain cross-national differences between countries, I hence postulated general hypotheses at the nation-state level about how pension systems, their overall wage replacement rates and the resulting pension accrual patterns influence the retirement decisions of ‘typical’ individuals. However, as Blöndal and Scarpetta (1999: 16) point out, ‘there is no such thing as a single pension replacement rate in any national retirement scheme’. In other words, there is substantial variation in the material situation of individuals within any given country, and hence the corresponding gains from claiming (early) pensions can also be expected to vary considerably between individuals. Blöndal and Scarpetta argue that early retirement incentives will be

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highest for low-income groups owing to redistributive elements in contemporary pension schemes and ceilings for both minimum and maximum pensions (ibid.: 18, 83). For low-income workers, replacement rates in terms of previously earned wages will be comparatively high, entailing positive incentives for labor-force withdrawal. However, recent findings for the United States by Warner and Hofmeister (2006) suggest that this negative income effect on the likelihood of retiring may be restricted to European welfare states where generous (early) retirement payments guarantee high replacement levels and a considerable living standard in old age. In contrast, in countries like the US where public pension payments are less generous and allow only for a minimum standard of living, those with lower incomes may not receive enough compensatory payment to withdraw permanently from employment. Instead, as Warner and Hofmeister show, they will have to remain in the labor market to make ends meet, and, even after retirement, they are at a high risk of having to re-enter employment for financial reasons.

NOTES 1. Hence, in the above-cited example of the emergence of Western-type capitalism, reference needs to be made to the values and behavior of individual actors that derive from a dominant Protestant ideology and that aggregate into a behavioral pattern that fosters the emergence of capitalism. Through socialization, individuals acquire specific religious values such as strong self-reliance, ambitiousness and the quest for financial success as secular signs of divine predetermination (arrow 1 in Figure 3.1). Owing to these values, individuals will tend to operate economically and maximize their possible monetary outcomes (arrow 2). This rational economic behavior and its practice by a large number of individuals then trigger the emergence of a capitalist economic order (arrow 3). 2. See for example Munck (2002) for an omnibus review of recent publications. 3. Other associations that have been founded to act for trade liberalization include the Association of Southeast Asian Nations (ASEAN), Asia-Pacific Economic Cooperation (APEC), the South American Mercado Común del Sur (Mercosur), the General Agreement on Tariffs and Trade (GATT) and – as the umbrella organization – the World Trade Organization (WTO) (Fligstein 2005; Mills and Blossfeld 2003). 4. Blossfeld et al. (2007: 675) argue that, when judging their own labor market situation, individual workers will compare themselves with ‘relevant others’, that is friends, work colleagues and so forth. As high levels of labor market mobility are frequent in liberal countries, the subjective evaluation of an ‘unstable’ late career may not be as critical as in Central European countries, where stable standard employment careers still constitute the norm for mid-career men and where a destabilization in late career would entail a significant rise in employment insecurity.

4.

The macro-perspective: late careers and retirement in international comparison

In the previous chapter, I developed theoretically based hypotheses to explain the origins, the cross-national variation and the observable interindividual differences in the trend toward early retirement: 1.

2.

3.

I argued that globalization should have weakened older workers’ labor-force attachment, as it leads to massive restructuring processes in both the economic and the occupational structures of modern societies, thereby triggering a rising discrepancy between older workers’ high wage levels and levels of employment protection, on the one hand, and their increasingly outdated qualification and skills, on the other (section 3.2). However, based on a thorough examination of institutional filters at the nation-state level, I expected that the extent of the decline in older workers’ employment due to globalization should show significant variations across countries. I argued that pension systems, systems of education and vocational training, modes of labor market regulation and the interplay of active and passive employment policies ‘filter’ the labor-shedding influence of globalization on older workers and lead to different levels of older workers’ employment participation and labor market mobility in different types of institutional regimes (section 3.3). Finally, I argued that, even within countries, distinct groups of older workers will be differentially affected by globalization effects and hence will experience varying levels of exit and labor market mobility. Section 3.4 explicitly discussed the role of these micro-level filters with regard to workplace characteristics, human capital resources and individual financial capacities, and developed hypotheses addressing both their general effects on older workers’ employment and the expected variation of these effects across institutional regimes.

In Chapters 4 and 5, I turn to an empirical test of the previously developed hypotheses using institutional macro-data, aggregated labor-force 146

The macro-perspective

147

statistics and individual micro-level data. Chapter 4 starts with a comparative international analysis of older workers’ employment patterns at the nation-state level. Using cross-sectional aggregate data for 14 selected OECD countries across a time span of three decades, this chapter will descriptively elaborate cross-national differences in older workers’ laborforce participation and their relation to the hypothesized nation-level institutional filters. On a macro-analytical level, I shall examine whether and how far globalization has in fact triggered a decline in the labor-force participation of older workers and whether cross-national differences in older workers’ late-career patterns follow the hypothesized regime patterns. In order to test this link, I shall not only describe the employment patterns of older workers in the 14 selected countries, but also link them explicitly to the design of nation-specific institutions and their development over time. Though this analysis can shed some light on the general employment trajectories of older workers in modern societies, it remains inherently restricted in so far as it relies on aggregate nation-level data and therefore allows a focus on differences only at this level while largely neglecting differences within societies. At the same time, cross-sectional data at the nation-state level allow a look only at the distribution of social entities (here: older workers) across specific states at one given point in time. Changes over time can be reconstructed only at this aggregate level, but cannot be traced back to state changes in individuals. Key concepts of my theoretical approach, such as the mobility patterns of older workers before exiting employment, cannot be adequately validated using this type of data. Chapter 5 therefore shifts the attention to an in-depth analysis of individual late-career and retirement patterns in older male workers using longitudinal data from the European Community Household Panel (ECHP) for four selected countries, each representing a specific institutional regime type. This chapter aims to reconstruct, on the one hand, the employment mobility patterns of older workers in different national contexts and, on the other hand, the variation of career trajectories and exit patterns between individuals. Hence, it makes it possible to test explicitly the micro-level hypotheses and to relate these systematically to the different nation-specific institutional backgrounds. Together, both chapters provide an opportunity to test the theoretical model on all analytical levels and to reconstruct the interrelations between them. For the cross-sectional analysis of nation-level patterns in this chapter, I shall proceed as follows. First, section 4.1 starts with a discussion of cross-national differences in social structural background patterns that make up the situational context for the interpretation of the subsequent international comparisons. This section will introduce key characteristics

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of both national labor markets and the more general economic environment, which, taken together, can be expected to make up the nationspecific context in which both individual careers and political institutions exist and develop. I shall then turn explicitly to an analysis of aggregate labor-force patterns of older men and women and their institutional backgrounds. In doing so, I first refer back to aggregated cross-sectional labor-force statistics provided by the OECD and other large multinational statistical associations – such as the ILO or the European Statistical Office (Eurostat) – in order to reconstruct the development of older workers’ labor-force participation over time. These data allow an examination of whether older workers’ labor-force participation has indeed declined under globalization, and whether the extent and quality of their maintenance within the labor market corresponds to my regimespecific expectations. I shall focus on both aspects of labor-force attachment, such as labor-force participation and employment ratios (section 4.2), as well as characteristics of older workers’ unemployment (section 4.3), which together provide information about the extent to which older workers actively participate in the labor force. However, on the other hand, I shall also analyze qualitative employment aspects, that is the type of jobs in which older workers are employed, thereby specifically considering atypical work forms (such as part-time work, temporary contracts and self-employment) which can be considered to offer new flexible employment opportunities for older workers on a globalized labor market (section 4.4). In a third step, I shall directly approach the relationship between older workers’ labor-force patterns and their institutional determinants by confronting labor-force data with stylized indicators from large-scale statistical institutions such as the OECD or Eurostat reflecting the main institutional ‘filters’ discussed in the previous section (section 4.5). As it has been assumed that it is the regime-specific interplay of different institutional settings that determines the employment and mobility outcomes for older workers, and the main focus of this chapter is to reconstruct these interrelations, I shall largely use descriptive methods (such as cross-tabulations and two-dimensional associations) instead of implementing more complex statistical models (e.g. longitudinal timeseries analysis) that would assume unidirectional associations between variables across countries. In order to arrive at a balanced picture for a large variety of countries in all the types of institutional regimes considered, I shall select up to three sample countries per hypothesized regime cluster: ●

Liberal countries are represented by the United Kingdom, the United States and Canada.

The macro-perspective ● ● ● ●

149

Social democratic countries are represented by Denmark, Norway and Sweden. Conservative countries are represented by Germany, France and the Netherlands. Southern European countries are represented by Italy and Spain.1 Post-communist countries are represented by the Czech Republic, Hungary and Estonia.

This broad choice of countries will provide both a comprehensive overview of different national contexts and a chance to identify possible regime-specific outliers.

4.1

LABOR MARKET AND SOCIAL STRUCTURE OF THE COUNTRIES UNDER STUDY

Before turning to a detailed examination of older workers’ employment characteristics in the 14 countries under study, I shall give a short overview of some selected structural characteristics of these countries that can be seen as contextual background for the following analyses. In the preceding theoretical chapter, I argued that specific individual employment characteristics such as employment status, as well as the economic sector and the type of firm in which an individual is employed, will affect late-career development and retirement behavior. Early retirement trends were expected to be most pronounced in declining industrial sectors where the majority of older workers are employed. In contrast, they were assumed to be less widespread among employees in small firms (where early retirement plans cannot be offered easily by firms) and among the self-employed (for whom early retirement may be a less applicable concept). Those characteristics were introduced to provide an explanation for potential inter-individual differences in the employment and retirement behavior of older workers within one country. However, it likewise can be assumed that the distribution and size of the above groups may vary between countries and thereby induce cross-national differences on the aggregate national level. Countries which have experienced industrial restructuring on a larger scale than others will most likely show higher early retirement rates. Similarly, the employment participation of older workers in countries with a higher incidence of self-employment or a higher level of employment in small-sized firms and family enterprises may well be higher on the aggregate level unless specific plans provide retirement opportunities for these groups of workers. An empirical examination of older workers’ employment patterns in multiple countries, as

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given in this chapter, therefore needs to consider their aggregate social structural background characteristics in order to perform a valid analysis of cross-national differences. On the other hand, I have argued in the previous chapter that the impact of globalization on the labor market situation of older workers may vary with the degree of economic pressures, but should go beyond inducing cyclical variations in older workers’ labor-force attachment with unemployment. Instead, it should lead to a more general and long-term discrimination against older workers on globalized labor markets. To provide the basis for a systematic analysis of the relationship between older workers’ exit and the incidence of unemployment shocks, I shall, in the following, give a short overview of cyclical booms and downturns in the 14 countries under study. These cyclical variations will later be compared systematically to older workers’ early exit rates. Employment across economic sectors and the process of economic restructuring I shall start the overview of relevant national context characteristics with a description of the sectoral structure and the extent of economic restructuring processes in recent decades. For this purpose, Table 4.1 presents data for all 14 countries under study on the distribution of sectoral employment, ordered by institutional regimes. The data in Table 4.1 show that, across the observed time span, all 14 countries experienced the expected development towards a service-based economy, though on nation- or rather regime-specific ‘tracks’. Trends appear to be developed furthest in both liberal and social democratic countries where about two-thirds of all employees were already working in the service sector in the early 1980s. In subsequent decades, this development continued, accompanied by moderate declines in agricultural and industrial employment, so that by 2000 three-quarters of the working population were employed in the tertiary sector. Similar developments could be observed in the Netherlands, while both France and especially Germany still displayed a more industrialized economic structure in the early 1980s. In the latter two countries, notable de-industrialization in the following decades and declines in agricultural employment moved the economic structure closer to the Scandinavian patterns, though service sector employment constantly remained below their level. More pronounced restructuring processes could be observed in both Southern European and post-socialist countries. Up until the 1990s, agricultural employment made up a considerable share of employment in Italy and especially in Spain, still accounting for around one-tenth of overall employment. Substantial declines in agricultural employment and

The macro-perspective

Table 4.1

151

Employment by industrial sector, 1983–2005 Employment in agriculture as % of total employment

United Kingdom United States Canada Liberal Denmark Norway Sweden Social democratic Germany Netherlands France Conservative Italy Spain Southern Europe Hungary Czech Republic Estonia Post-socialist

Employment in industry as % of total employment

Employment in services as % of total employment

1983

1990

2000

1983

1990

2000

1983

1990

2000

2.5

2.2

1.5

35.9

32.3

25.3

61.5

65.5

72.3

3.5 5.5 3.8 7.4 7.7 5.4 6.8

2.9 4.1 3.1 5.6 6.5 3.4 5.2

2.6 3.3 2.5 3.6 4.3 2.4 3.4

28.0 25.5 29.8 27.8 27.4 29.9 28.4

26.2 24.0 27.5 27.4 24.8 29.2 27.1

23.0 22.6 23.6 25.3 22.5 24.5 24.1

68.5 68.9 66.3 64.8 64.9 64.7 64.8

70.9 71.9 69.4 67.0 68.3 67.2 67.5

74.4 74.1 73.6 70.8 73.2 73.0 72.3

5.7 5.0 8.4 6.4 12 18.7 15.4 – 12.1 – (12.1)

3.7 4.8 6.4 5.0 9.0 11.8 10.4 11.4 12.3 19.9 14.5

2.6 3.1 4.1 3.3 5.2 6.6 5.9 5.2 6.2 6.9 6.1

41.2 29.0 33.3 34.5 36.0 33.4 34.7 – 48.2 – (48.2)

40.1 26.4 30.4 32.3 32.4 33.4 32.9 35.6 46.5 37.6 39.9

34.3 53.1 20.2 65.5 26.3 58.3 26.9 59.0 31.8 52.0 31.0 47.7 31.4 49.9 34.2 – 40.0 39.7 34.5 – 36.2 (39.7)

56.2 68.9 63.2 62.8 58.6 54.8 56.7 53.0 42.2 42.5 45.9

63.1 70.4 69.6 67.7 63.0 62.3 62.7 58.3 54.9 58.6 57.3

Note: Data for Hungary: 1992 instead of 1990. Mean values in parentheses as they are based only on one country case, and thus are not directly comparable to means at other time points. Source:

EUSI 2008; ILO 2007.

more modest de-industrialization developments contributed to a rapid rise in service sector employment from around one-half to two-thirds of total employment. In post-socialist countries, service sector employment was even less developed in the 1980s and 1990s, while, until the system change, those countries revealed signs of an ‘over-industrialization’ (Hamplová and Pollnerová 2006: 238; Täht and Saar 2006: 303). The fact that tertiary sector employment grew throughout the transition period, reflected in rapidly rising employment shares, often mirrored less an increasing demand for services but more a manifest decline in both

152

Older workers in a globalizing world

inefficient industrial and public sector employment (Bukodi and Róbert 2006a). Hence, with regard to structural economic changes, one can expect the strongest ‘push’ effects on the older workforce in post-socialist regimes, where a rapid transition from an industry-based to a service economy profoundly transformed the job structure. In Southern European countries, transformation effects may also be significant, but less pronounced than in Eastern Europe owing to the more gradual nature of transition. In Scandinavian and Anglo-Saxon countries, economic restructuring in the last two decades was less intense, and restructuring demands on older workers may therefore have been more modest. Conservative countries take an intermediate position between the two extreme poles, with the Netherlands being closer to the Scandinavian and Germany more similar to the Southern European pattern. Self-employment and employment in small enterprises Table 4.2 supplements the sectoral distribution with an overview of selfemployment and employment by establishment size in the 14 countries under study. The most striking distinction that emerges in Table 4.2 is the comparatively high number of self-employed in Southern European countries where they make up close to one-quarter of all employed persons, reflecting a high proportion of both agricultural and urban self-employment. At the same time, a large number of employees in both Italy and Spain work in small enterprises with fewer than ten employees – an indication of the still often family-centered character of Southern European economies in which family businesses and enterprises built on direct personal relations still play a significant role (Bernardi 2006; Bernardi and Garrido 2006). A gradual move from large-scale industrial firms to small-sized micro-enterprises can also be observed in post-socialist countries where self-employment and the establishment of small-scale own businesses – which were largely negligible under socialism (Nesporova 1999) – have risen sharply since the early 1990s. For older as well as younger workers, these micro-enterprises often provided a means to raise family income or represent an ‘escape route’ (Bukodi and Róbert 2006b: 347) from large-scale downsizing in large- and medium-sized enterprises in the early transition years. In the more recent past, however, this trend has halted or even reversed, as many self-employed found it difficult to establish themselves permanently on the labor market and were partly ‘pushed out’ or outsourced by large, multinational firms (Cazes and Nesporova 2004; Nesporova 1999, 2002). For the other countries under study, self-employment figures remain lower, with values around one-tenth of total employment and signs of

The macro-perspective

Table 4.2

153

Self-employment (1983–2005) and employment by establishment sizes (late 1990s)

United Kingdom United States Canada Liberal Denmark Norway Sweden Social democratic Germany Netherlands France Conservative Italy Spain Southern Europe Hungary Czech Republic Estonia Post-socialist

Self-employment as % of total employment

Employees in non-agricultural enterprises (no. of employees) (1996)1

1980

1990

2000

0–9

8.1 3.6 5.4 5.7 – 10.0 7.4 (8.7) – 12.2 16.3 (14.3) 23.3 21.6 22.5 – – – –

13.3 2.9 4.1 6.8 9.6 9.2 8.8 9.2 – 9.6 13.2 (11.4) 24.5 20.6 22.6 – – – –

11.3 2.6 3.3 5.8 7.7 7.0 10.0 8.2 10 10.8 9.2 10.0 24.1 18.0 21.1 14.2 15.5 8.3 12.7

10–49

50–249

>250

28.3 14.6 16.0 27.4a 21.9b 11.0c 25.4 17.7 27.9 22.9 – – 26.7 18.5 27.3 20.7 28.4 20.2 24.3 17.0 34.0 18.9 28.9 18.7 48.5 20.6 47.0 19.9 47.8 20.3 10.1 24.0 34.9 26.8f 38.4g (18.5) (31.2)

12.2 15.8 19.2d 15.7 18.0 – 16.2 17.1 11.1 19.4 14.4 15.0 10.9 12.8 11.9 23.8 25.0 21.5h 23.4

44.9 40.7 47.9e 44.5 31.2 – 38.6 34.9 40.3 39.2 32.7 37.4 19.9 20.2 20.1 42.1 40.1 10.9i 31.0

Notes: 1 = Estonia, Hungary: data for 2003, Canada: data for 2002, USA: data for 1997, a = 10–100 employees, b = 0–19 employees, c = 20–49 employees, d = 50–299 employees, e = 300 and more employees, f = 0–10 employees, g = 11–49 employees, h = 50–199 employees, i = 200 employees and more. Mean values in parentheses as they are based only on a limited number of cases, and thus are not directly comparable to means at other time points. Source: EUSI 2008; Hungarian Statistical Office 2008; Statistics Canada 2008; Statistics Estonia 2008; US Census Bureau 2008.

a decline in most countries. Clear differences compared to Southern and Eastern European countries can also be observed in the workplace situation. Most employment in conservative, liberal and social democratic countries is concentrated in large or medium-sized enterprises with more than 50 employees, while only about one-fifth of all employees work in small enterprises. Taken together, it can be expected that, for both the self-employed

154

Older workers in a globalizing world

and employees in small enterprises or family businesses, early retirement programs will play a less important role. The peculiar composition of the labor-force in Southern European countries hence may trigger higher employment rates of older workers on the aggregate national level, though exit trends in large-scale industrial employment may be comparable to, for example, those of firms in conservative countries. These compositional effects will to some extent counteract the ‘transformation effect’ derived from the discussion of Table 4.1. While, however, Southern European figures represent a largely established socio-economic pattern, Eastern European countries have attained rather similar levels as the result of a rapid transformation process. In these countries, self-employment and high levels of employment in small enterprises represent unstable ‘shock reactions’ to a fragile economy rather than stable businesses. As Cazes and Nesporova (2004) point out, employment in these forms is highly fragile and unstable, so that older workers in these areas especially may be more prepared to leave the labor-force once decent benefits become available that allow for stable material security. For post-socialist countries, unlike Southern European countries, I hence expect that high levels of selfemployment and micro-businesses will not automatically translate into lower rates of (early) retirement. Unemployment and economic cycles For a final consideration of the overall economic development in the countries under study, Figure 4.1 gives an overview of the development of the overall unemployment rate among the working-age population (15 to 64 years) for the time period from the 1970s until the present day, again ordered by regime types. It may serve as a general proxy for changes in the overall economic situation and short-term variations in the business cycle. As the figure shows, all countries under study have undergone economic turbulence since the early 1970s. However, the extent and timing of this turbulence as well as its development in more recent years varies considerably between countries. In both Sweden and Norway, unemployment was virtually non-existent until the late 1980s, with unemployment rates not exceeding the 4 percent level. However, as a result of global economic downturns, drastic falls in oil prices and the increasing liberalization of capital markets, both countries experienced a recession in the early 1990s, with unemployment rates in Sweden rising to values as high as 10 percent (Halvorsen 2002; Kvist 2001). Only in more recent years have both Scandinavian countries recovered from this economic crisis. Denmark significantly departs from this Scandinavian pattern in so far as it had already experienced high

The macro-perspective 25

25 CAN US UK

20

10

10

5

5

0

0

19 7 19 0 73 19 7 19 6 79 19 8 19 2 8 19 5 88 19 9 19 1 9 19 4 9 20 7 00 20 0 20 3 06

19

7 19 0 7 19 3 7 19 6 7 19 9 8 19 2 8 19 5 8 19 8 9 19 1 9 19 4 9 20 7 0 20 0 0 20 3 06

15

25

25

15

GER NL SPA F ITA

20

HUN CZE EST

15

5

5

0

0 19

7 19 0 7 19 3 7 19 6 7 19 9 8 19 2 8 19 5 8 19 8 9 19 1 9 19 4 9 20 7 0 20 0 0 20 3 06

10

19 7 19 0 7 19 3 7 19 6 79 19 8 19 2 8 19 5 8 19 8 9 19 1 9 19 4 97 20 0 20 0 0 20 3 06

10

Source:

DK NOR SWE

20

15

20

155

Statistics Denmark 2008; Hungarian Statistical Office 2008; OECD 2008.

Figure 4.1

The development of unemployment rates in selected OECD countries, 1970–2006

unemployment in the 1970s following the two oil price shocks (Hofäcker and Leth-Sørensen 2006). More recent activation policies in the mid 1990s have helped to lower the unemployment rates in recent years, so that unemployment in all three social democratic countries under study nowadays lies at around 5 percent. Unemployment rates in Anglo-Saxon countries show more cyclical ups and downs throughout the observation period with maxima in the early 1980s and early 1990s. In the US, they generally tend to be up to 5 percent lower than in both of the other liberal countries, though in recent years signs of a convergence towards lower levels can be observed. Overall unemployment in Continental and Southern European countries tends to outnumber that in Anglo-Saxon countries in terms of both extent and persistence. Unemployment rates in conservative and Southern European countries have been almost constantly on the rise since the two oil crises and have – despite some cyclical fluctuations – in many countries

156

Older workers in a globalizing world

stabilized at values around 10 percent in subsequent decades. The two most notable exceptions to this pattern are Spain and the Netherlands. While, in the former case, unemployment rates skyrocketed in the 1980s and 1990s, resulting in almost every fourth Spaniard being unemployed, Dutch unemployment rates significantly declined after a peak in the early 1980s and have now approached social democratic and liberal values. Since the late 1990s, however, most Central and Southern European countries have experienced economic boom periods reflected in declining unemployment, although values tend to remain above those of AngloSaxon and Scandinavian countries. Unemployment trends in post-socialist countries reval a very specific pattern. While unemployment had been virtually non-existent under socialism, economic shocks resulting from the opening to a global market after the fall of the Iron Curtain and the transition from a planned to a market economy contributed to a rapid rise in unemployment in the early 1990s (Hungary, Estonia) or the late 1990s (the Czech Republic) (Nesporova 2002). In recent years, economic recovery has contributed significantly to a gradual decline in unemployment rates below the 10 percent level. The comparison of unemployment rates across the countries under study hence reveals both a significant variation between institutional regimes and some variations within them. I shall explicitly return to these differences when discussing cross-national differences in older workers’ employment patterns in the following section.

4.2

TRENDS IN OLDER WORKERS’ EMPLOYMENT PARTICIPATION

Trends in the employment attachment of older men Following the detailed description of structural context conditions, I shall now turn to an explicit analysis of the employment patterns of older workers in the countries under study. To begin with, Table 4.3 summarizes the development of both employment rates and labor-force participation quotas in older men2 based on combined OECD and ILO data for the time span from 1950 to 2005. I focus on two age groups, 55 to 59 years and 60 to 64 years, as these have been identified in earlier work as the key ‘age window’ in which withdrawals from the active labor-force take place (see Ebbinghaus 2006a; Hofäcker and Pollnerová 2006; Kohli et al. 1991). Before age 55, the labor-force participation of men proves to be largely stable over time, while after age 65 only a negligibly small minority of men continue to stay in paid work. Employment rates are defined as the ratio of actively employed individuals to the civic population for the respective

157

(93.7) 89.5 (84.9) 89.4 (92.3) (91.5) 90.8 91.5

88.5 (84.7) 84.6 85.9 (81.4) (87.2) 83.6

(85.2) (85.9) (84.5) 85.2

(90.4) (93.9) 82.0* 88.8 (89.7) (94.5) (88.2)

(86.6) (87.2) (92.5) 88.8

1970

(97.4) (91.5) (89.6) 92.8 (95.5) (95.8) (93.3) 94.9

1950

(72.2) 72.2

84.9 81.2

82.3 74.8 82.3 79.8

(91.5) 81.7 82.9 85.4 (87.8) 85.0 87.7 86.8

1980

(80.9) 84.1 (60.5) 75.2

75.8 66.3 68.1 70.1 68.7 76.7 75.2

81.4 79.9 76.1 79.1 86.3 81.2 87.4 85.0

1990

75.8 76.0 51.7 67.8

76.1 70.5 65.8 70.8 53.9 75.7 73.2

74.8 77.0 72.5 74.8 82.9 84.8 84.6 84.1

2000

82.8 73.1 59.6 71.8

82.2 77.8 66.1 75.4 57.4 75.4 73.1

77.8 77.6 76.2 77.2 87.7 82.9 85.9 83.8

2005

Participation rates

−1.4 −1.3 −8.0 −3.6

−1.9 −9.2 +2.6 −2.9 −8.3 −7.3 −4.6 −9.4 −9.9 −32.8 −17.4

−12.4 −14.2 −18.8 −15.1 −27.5 −11.5 −10.4

Age group 55–59 −3.7 −18.9 −2.0 −12.5 −4.7 −12.4 −3.4 −14.6 −3.2 −9.4 −4.3 −6.7 −2.5 −6.2 −3.4 −7.4 78.3 72.8 77.4 76.2 – 79.4 80.7

84.7 79.1 79.6 81.1 – 85.0 86.8 85.9

1980

(85.2) (84.4) (85.9) (82.1) (84.5) (71.7) 85.2 79.4

87.5 85.5 81.5 84.8 – 88.8 88.8

89.7 86.9 – 88.3 – 87.0 89.7 88.4

1950–70 1970–2000 1970

Participation and employment rates of older workers, men: 1950–2005

United Kingdom United States Canada Liberal* Denmark Norway Sweden Social democratic* Germany Netherlands France Conservative* Italy Spain Southern European * Czech Republic Estonia Hungary Post-socialist *

Table 4.3

69.8 71.8 48.7 63.4

69.9 63.5 63.0 65.5 67.0 69.8 73.1

74.9 76.8 71.4 74.4 81.6 79.8 86.3 83.1

1990

71.8 66.3 49.6 62.6

66.3 68.7 60.5 65.2 51.5 68.8 70.1

70.8 75.3 68.6 71.6 79.7 83.2 79.7 81.5

2000

78.5 67.7 56.6 –

71.6 74.2 61.1 69.0 55.5 71.3 66.9

75.1 75.0 72.3 74.1 82.7 81.3 82.0 82.0

2005

Employment rates

−13.4 −19.6 −34.9 −22.6

−21.2 −16.8 −21.0 −19.6 – −20.0 −18.7

−18.9 −11.6 – −16.7 – −3.8 −10.0 −6.9

1970–2000

158

(81.2) 75.0 (74.1) 76.8 (83.3) (91.5) 79.5 84.8 71.9 (66.9) 69.6 69.5 48.2 (75.2) 84.3 (46.3) (59.9) (75.0) 60.4

1970

(13.3)

(74.5) 60.8 63.9 66.4 (60.0) 73.4 69.2 67.5 42.6 48.8 45.3 46.7 39.6 63.9 84.9

1980 54.4 55.5 50.9 53.6 (51.2) 62.2 63.3 58.9 33.6 22.7 24.2 26.8 36.0 46.9 72.7 (31.5) 65.0 (3.6) 33.4

1990 50.3 55.0 45.8 50.4 39.3 60.6 56.8 52.2 30.2 27.9 15.5 24.5 31.4 43.3 64.8 24.5 48.7 11.9 28.4

2000 55.4 58.0 53.9 55.8 48.7 64.1 65.5 59.4 40.7 30.7 18.5 30.0 28.9 48.8 66.4 34.4 51.1 20.9 35.5

2005

Participation rates

60.6 58.7 60.5 59.9 – 73.4 67.4 70.4 41.4 46.3 45.0 44.2 39.0 60.5 79.4 (45.8) (56.4) (12.5) 38.2

Age group 60–64 −12.4 −30.9 −6.6 −20.0 −7.3 −28.3 −8.7 −26.4 −4.1 −44.0 −4.3 −30.9 −3.2 −22.7 −3.9 −32.5 −4.8 −41.7 −16.1 −39.0 +/−0.0 −54.1 −6.9 −45.0 −25.2 −16.8 −13.5 −31.9 −7.8 −19.5 −8.4 −21.8 −8.1 −11.2 −8.2 −63.1 −8.2 −32.0 75.6 73.1 – 74.4 – 78.4 78.0 78.2 70.1 72.3 66.6 69.7 47.8 76.4 88.8 (46.3) (59.9) (75.0) 60.4

1980

1950–1970 1970–2000 1970 49.4 53.6 47.6 50.2 48.8 62.1 62.4 62.3 31.9 22.7 22.1 25.6 35.4 43.6 69.8 24.8 64.8 17.1 35.6

1990 47.3 53.5 43.3 48.0 37.8 59.6 51.8 55.7 27.7 27.1 14.7 23.2 30.0 40.0 66.2 23.5 43.4 11.6 26.2

2000 53.7 56.2 50.8 53.6 47.3 62.6 61.0 57.0 35.9 29.0 17.5 27.5 27.6 46.1 63.4 33.8 49.3 20.9 34.7

−28.3 −19.6 – −26.4 – −18.8 −26.2 −22.5 −42.4 −45.2 −51.9 −46.5 −17.8 −36.4 −28.6 −22.8 −16.5 −63.4 −34.2

2005 1970–2000

Employment rates

Source:

Hofäcker and Pollnerová 2006; OECD 2008; Statistical Office of Estonia 2008.

Note: Employment rates for 1970; United Kingdom 1971, Norway 1972, Netherlands 1971, Spain 1972. Employment rates for 1990; Hungary 1992, Czech Republic 1993. Data in brackets = ILO estimates, data are not strictly comparable with other series. *Averages for countries where data are available for all years; social democratic: Denmark excluded (employment rates), Southern European: Italy excluded (55–59, employment rates).

(93.6) (81.6) (81.4) 85.5 (87.4) (95.8) (82.7) 88.6 (76.7) (83.0) 69.6* 76.4 (73.4) (88.7) 92.1 (54.7) (68.0) (83.2) 68.6

1950

(continued)

United Kingdom United States Canada Liberal* Denmark Norway Sweden Social democratic* Germany Netherlands France Conservative* Italy Spain Southern European * Czech Republic Estonia Hungary Post-socialist *

Table 4.3

The macro-perspective

159

age groups. A decline in employment rates hence can be attributed to both exits into unemployment and inactivity. In contrast, labor-force participation rates comprise both the employed and the unemployed, divided by the number of people in the same age group. In contrast to employment rates, labor-force participation quotas hence have the advantage of not just focusing on those currently in employment, but instead contrasting the actively employed and those actively seeking work (i.e. those available for a job) versus those in permanent inactivity. They hence give a more comprehensive picture of active labor-market involvement. However, in countries where unemployment insurance has turned into an institutionalized pathway into retirement (Kohli et al. 1991), they tend to overestimate the number of those who are in fact ‘ready to work’. In order to arrive at a possibly broad picture of labor-market developments among older workers, I shall use both measures simultaneously as indicators of their labor-force attachment. In addition, I shall give a thorough overview of the development and characteristics of unemployment among older workers in order to provide more in-depth insight into the country-specific meaning of this specific labor-force status. In line with my theoretical expectations, the development of laborforce participation and employment rates shows that all 14 countries experienced a marked decrease in the labor-force attachment of older male workers in recent decades. A differentiated analysis of time trends in labor-force participation rates between the 1950s and 1970s, on the one hand, and between 1970 and 2000, on the other hand (see Table 4.3), indicates that, in some countries, this early-exit trend had already started in the 1950s. However, in the majority of cases, it has intensified considerably since the 1970s, that is in a time period increasingly marked by globalization. All in all, the decline appears to be most pronounced for workers in the immediate pre-retirement ages (i.e. aged 60 to 64 years), for whom the employment share in some countries has more than halved since the 1970s. However, especially in Italy and Hungary, there have also been some marked additional declines in both the employment and labor-force participation rates of those in their late 50s. Despite the universality of the above trends, results nonetheless point to significant cross-national differences in the extent and timing of the decline in older workers’ labor-force attachment that fit well into my previously developed differentiation of employment exit versus maintenance regimes. As predicted by this theoretical categorization, the most distinctive decline can be observed among conservative countries. In France, the Netherlands and Germany, the employment rate of workers in the pre-retirement age (i.e. aged 60 to 64 years) fell from around two-thirds in the 1970s to less than one-third at the turn of the century, entailing an average drop of more

160

Older workers in a globalizing world

than 40 percent of employment. In Southern European countries, which were also classified as employment exit regimes, older workers’ employment and labor-force participation rates have remained around five to ten percentage points higher. Part of this slightly ‘better’ performance may be attributable to the previously discussed higher importance of agricultural employment, self-employment and family businesses (see Tables 4.1 and 4.2).3 Nonetheless, noticeable declines in older workers’ employment have also occurred in those countries. In Spain, the employment participation of workers aged 60 to 64 years fell by about one-third to values around 40 percent. The somewhat less pronounced fall in the employment rates of Italian males of the same age group can largely be ascribed to the fact that, by the early 1970s, the employment rates of these workers were already fairly low. In the following decades, these rates continued to decline, while the early-exit trend further expanded to the younger age group of Italian workers in their late 50s (55 to 59 years), in whom similar declines could be observed. In contrast, older workers’ employment rates have remained comparatively high in both liberal and social democratic countries, which we considered to represent two alternative variants of an employment maintenance strategy. In both regime types, the decline in labor-force participation has been less steep than in employment exit countries, so that by the turn of the century around one-half of all male workers aged 60 to 64 years were still in paid employment. In both Sweden and Norway, participation rates of older workers remained high until the 1980s and 1990s (with around a 60 percent employment rate). Participation rates fell only when both countries introduced limited opportunities for early retirement after increasingly experiencing recessions and economic downturns (Aakvik, Dahl and Vaage 2006; Sjögren Lindquist 2006; see section 4.1). Notably, Denmark deviates from this overall maintenance pattern with steeper falls in both employment and labor-force participation rates in the 1980s and 1990s down to a level of around 40 percent in 2000. Case-study evidence suggests that this intermediate position of Denmark between employment exit and maintenance patterns reflects the introduction of generous early retirement opportunities after the oil price shock of the 1970s that led to some significant declines in labor-force attachment for older workers. In more recent years, however, this strategy was reversed, resulting in manifest increases in employment among older Danish workers (see Hofäcker and Leth-Sørensen 2006). Although decreases in older workers’ employment attachment, especially among those in their early 60s, can also be observed in Eastern European countries, they reveal fairly diverse patterns which makes it difficult to describe them as one unique ‘post-socialist’ regime type. The

The macro-perspective

161

extreme values are marked by Estonia and Hungary. Employment rates of older Estonian workers in their early 60s dropped by about 20 percent in the 1990s, but fell no lower than 40 percent. In recent years, employment in the pre-retirement age recovered to levels around one-half of the population, thereby approximating figures for maintenance regimes. Täht and Saar (2006) ascribe this development to the implementation of liberalstyle labor market policies and low public compensation levels of both unemployment and (early) pensions that hindered older workers from permanently withdrawing from the labor market before reaching mandatory retirement ages. In Hungary, both labor-force participation and employment rates point to a significant decline of older workers’ laborforce attachment in the 1980s, reflected in an employment rate of less than 20 percent for men aged 60 to 64 years, and around 50 percent for men in their late 50s, respectively. However, findings from Szalai (1991) warn that these extremely low figures need to be treated with methodological caution as they partly reflect escapes into ‘second economy’ jobs. While older Hungarian workers increasingly withdrew from the official labor market, a significant number continued to engage in more autonomous illicit labor in, for example, agriculture and construction – a phenomenon not adequately reflected in official labor-force data. Nonetheless, official employment rates continued to fall throughout the early transition period as a result of newly introduced public early retirement and disability pension plans (Bukodi and Róbert 2006b). In a similar fashion, generous and highly redistributive early retirement systems in the Czech Republic pulled older workers out of active employment so that, by 2000, only around a quarter of men in their early 60s were still actively participating in the labor force (Hamplová and Pollnerová 2006). While Estonia’s liberally oriented institutional strategy hence has moved the country’s labor-force profile close to the employment maintenance cluster, both the Czech Republic and Hungary have largely followed an employment exit strategy as in conservative countries and consequently experienced a similar (Czech Republic) or even more pronounced (Hungary) decline in older workers’ employment. The established description of post-socialist countries as ‘evolving welfare regimes’, yet with ‘different destinations’ (Mills, Blossfeld and Bernardi 2006: 16), hence appears to prove true for late careers and retirement as well. Older male workers under globalization: differentiating regime types Figure 4.2 graphically summarizes the results of the previous comparisons of older male workers’ employment participation by contrasting the employment rate of males aged 60 to 64 years in the mid-1990s with the relative decrease of employment for the same age group since 1970.

162

Older workers in a globalizing world

Employment rates, men, 60–64 years, 1995

65 NOR 55

SWE DK

US

UK

45

CAN EST

35

SPA GER

ITA

25

CZE NL

HUN FRA

15

5 25

35

45

55

65

75

85

Relative decrease in employment rates 1970–1995 (in %) Source:

OECD 2008; Statistical Office of Estonia 2008.

Figure 4.2

Employment rates and relative employment declines for older men aged 60–64 years, 1970–1995

All in all, Figure 4.2 impressively confirms the proposed differentiation of employment exit versus employment maintenance regimes. Both social democratic and liberal countries are characterized by rather modest declines in old-age employment and therefore still exhibit considerably high employment shares among older individuals. This trend is slightly more pronounced for the United States, Sweden and Norway, which have been spared from mass unemployment for most of the last three decades (see section 4.1). However, even in the United Kingdom, Denmark and Canada, where unemployment has been more prevalent, employment rates of seniors have remained high and well above the level of most European countries. Estonia, which also followed a more liberal institutional approach, has recently joined this group of countries. In contrast, conservative countries as well as Hungary are found in the bottom right corner of Figure 4.2, that is they have experienced pronounced declines in older workers’ employment which led to extremely low employment rates in the 1990s. The intermediate position of Spain, Italy and the Czech Republic can largely be explained by the structural conditions of national economies (Spain, Italy; see section 4.1) and the fact that employment levels were already fairly low in the 1970s (Italy, Czech Republic), so that

The macro-perspective

163

declines in Figure 4.2 appear to be less pronounced. As the forthcoming analyses will show, these three countries can, in substance, be subsumed under the employment exit cluster based on their labor market and institutional characteristics. Towards a reversal of early exit? Notably, most recent data for the last decade point to a stabilization and even a partial reversal of the early retirement trends of the 1970s and 1980s. This development started earliest in the Netherlands, where signs of a trend reversal had already become visible in the early 1990s. In most other countries, early retirement has started to reverse only around the turn of the century. The extent of this turnaround is most pronounced for workers in their early 60s and appears to be strongest in countries where employment rates had previously been low. Only in Italy have employment rates of men in their early 60s continued to fall. Causally, several explanations have been offered for this recent reversal, referring to both push and pull factors. While some have argued that political initiatives to raise formal retirement ages, cutbacks in the generosity of pensions and the availability of early retirement pathways due to looming problems in pension financing (OECD 2006; Whiteford 2006) have played an important role, others have pointed to the importance of a more general economic recovery since the mid-1990s that alleviated labor market pressures and created new job opportunities for older workers (Kraatz, Rhein and Sproß 2006). Taylor points to an increasing spread of ‘good practice’ towards older workers in the European Union member countries (Taylor 2006). A recent study by Eurostat additionally points to the influence of demographic changes (Eurostat 2005; Kraatz, Rhein and Sproß 2006). At the present date, it remains hard to determine the current and future effects of the above factors. Many current pension and social security reforms are still in their infancy and will show their full effects only in decades to come. Age-friendly firm policies may be on the rise, but still are often counteracted by the widespread persistence of stereotypes against older workers (Schröder, Hofäcker and Muller-Camen 2009). Finally, given the short observation period, it still remains difficult to establish whether current trends in older workers’ employment participation are due to favorable economic cycle conditions or represent a more general trend reversal. Hence, the development of older workers’ employment and labor-force participation rates calls for further scientific attention in future years. Comparing employment attachment by gender: cohort-specific exit rates The previous descriptions have focused solely on the labor market situation of men, relying on both employment and labor-force participation

164

Older workers in a globalizing world

rates. These measures appear to be less well suited for analyzing older women’s labor market participation, as two oppositional effects are counteracting each other. On the one hand, women in younger cohorts increasingly have entered the labor market in recent decades, thereby increasing their overall labor-force participation rates across cohorts (Hofäcker 2006). On the other hand, it seems reasonable to assume that early retirement trends will probably have affected women as well, which would be reflected in a simultaneous decline of labor-force participation rates. Plain cross-sectional measures such as labor-force participation or employment rates that just provide the ‘average’ of both counteracting trends and do not incorporate a cohort-specific perspective are not able to disentangle these two opposing processes. In order to control for the cohort effect, I use ‘cohort-adjusted relative exit rates’ for the age group 60 to 64 (Ebbinghaus 2006a), which instead compare the employment rate of individuals aged 55 to 59 years at a given point in time to the employment rate of those aged 60 to 64 five years later.4 Standardizing the resulting differences by the employment rate for the 55- to 59-year-olds furthermore allows us to consider these changes as relative exit rates and therefore to relate declines in labor-force participation relative to the number of individuals previously employed. Though this measure is somewhat artificial,5 it nonetheless provides a helpful crosssectional proxy measure for the ‘probability of withdrawal from the labor market’ between both age groups (Scherer 2002). Table 4.4 reports the relative exit rates for both men and women for all countries under study, considering exits throughout the last three decades by five-year intervals (1970–2005). According to Table 4.4, exit rates for women largely reflect the picture for men, with women showing somewhat higher exit rates. This higher likelihood that women will exit employment earlier on the one hand reflects the fact that, in some countries, women have slightly lower official retirement ages than men (see also Table 4.9). On the other hand, women in two-earner couples often tend to retire together with their often slightly older husbands (Drobnič 2002), resulting in slightly lower average retirement ages. As for men, exit rates among women are highest in the conservative countries as well as in Italy, the Czech Republic and Hungary. Lower exit rates are observed in social democratic and liberal countries, though exit trends tend to be somewhat more pronounced in countries which experienced higher unemployment in the 1980s and 1990s (the United Kingdom, Canada and Denmark). After a short-term peak directly after the breakdown of communism, exit rates in Estonia have declined considerably for both men and women, making exit tendencies more like those of maintenance regimes. Spain again takes an intermediate position, when considering both men’s and women’s exit

165

20.6 28.0 – – 11.6 19.4 36.9 28.8 32.3 – 23.9 – – –

1970–75 32.4 27.4 25.6 – 14.4 24.2 49.9 39.7 41.6 – 28.3 – – –

1975–80 41.2 32.7 36.6 – 17.2 28.8 59.5 63.3 62.1 – 39.3 – – –

1980–85

1990–95 39.8 33.2 44.1 41.8 24.4 40.9 62.4 67.7 73.8 54.8 47.4 – 57.4 –

1985–90 Men 34.0 29.6 35.4 37.2 29.5 27.1 54.9 62.4 64.6 48.3 36.5 – – –

28.5 28.3 34.1 51.0 24.5 32.0 56.7 54.3 75.7 48.2 34.6 68.5 39.6 72.6

1995–2000

Relative cohort change in employment rates between age groups 55–59 and 60–64, 1970–2003

United Kingdom United States Canada Denmark Norway Sweden Germany Netherlands France Italy Spain Czech Republic Estonia Hungary

Table 4.4

24.1 25.3 25.9 40.6 24.8 23.4 45.8 57.8 71.0 46.4 32.9 53.0 25.6 57.9

2000–05

166

(continued)

Source:

Note:

46.5 33.8 – – 5.0 28.0 57.9 40.6 35.0 – 17.8 – – –

1970–75 56.6 29.2 34.3 – 19.0 33.2 68.3 57.9 39.3 – 34.2 – – –

1975–80 Women 66.1 31.2 38.9 – 21.5 36.7 73.9 72.7 60.8 – 34.6 – – –

1980–85 55.1 27.8 40.9 50.6 24.9 28.5 70.9 53.3 58.9 49.2 30.7 – – –

1985–90 52.6 31.8 48.7 65.3 23.0 42.8 72.4 62.1 66.3 62.4 32.2 – 60.2 –

1990–95

Hofäcker and Pollnerová 2006; OECD 2008; Statistical Office of Estonia 2008 (own calculations).

52.2 31.7 42.0 54.6 25.2 38.4 68.7 57.6 71.4 59.4 29.1 60.8 41.1 63.8

1995–2000

Exit rates: the Netherlands and United Kingdom 1971–76 and Norway and Spain 1972–77 instead of 1970–75.

United Kingdom United States Canada Denmark Norway Sweden Germany Netherlands France Italy Spain Czech Republic Estonia Hungary

Table 4.4

45.8 26.0 34.2 59.2 27.4 27.6 56.0 54.4 66.8 60.5 22.9 60.4 20.7 52.0

2000–05

The macro-perspective

167

patterns. For most countries, trends over time indicate an intensification of early retirement trends especially in the 1980s and early 1990s. More recent data point to the same trend reversal that was already recognizable from mere labour force participation respectively employment rates, though trends across countries are not as unique and seem to have halted more recently in some countries (e.g. Norway, the Netherlands or Italy). Early retirement: a cure to cyclical downturns or a permanent phenomenon? The previous analyses of cohort-specific exit rates of older men and women have provided further evidence for the globalization hypothesis put forward in Chapter 3 by showing that the employment attachment of both older male and older female workers declined in virtually all countries under study in the 1980s and 1990s when globalization rose sharply in modern OECD-type societies. However, the preceding description of exit rates has not yet been able to show whether the decline in older workers’ employment levels was mainly due to economic downturns and recessions or whether globalization has contributed to a more fundamental deterioration in the labor market situation of older employees, as hypothesized in the theoretical discussion in Chapter 3. In order to systematically test the relationship between early retirement trends and cyclical developments in national economies, Figure 4.3 contrasts cohort adjusted exit rates of older workers for five-year time spans (see Table 4.4 and footnote 4 for details) with the respective average changes in national standardized unemployment rates for the identical time span.6 As my previous descriptive analyses of the development of age-specific employment rates (Table 4.4) suggested that exit trends need not be restricted to immediate pre-retirement but may also be spreading into younger age groups, I use both exit rates between age groups 55–59 and 60–64 and exit rates between age groups 50–54 and 55–59 as indicators of employment withdrawal. Furthermore, since analyses from Table 4.4 suggest that older women’s exit behavior has largely paralleled that of older men, I confine my analysis to a comparison of cyclical developments and men’s exit. In order to assess whether the relationship between exit rates and changes in national unemployment rates varies between different institutional regimes, Figure 4.3 differentiates countries hypothesized to follow an employment exit (top of the diagram) from those assumed to pursue an employment maintenance (bottom of the diagram) strategy. Though data provided by the OECD allow only for an empirical analysis of developments since the 1970s, results for conservative countries – especially for France and the Netherlands – indicate that high and rising unemployment rates have played a considerable role in establishing early retirement, as reflected in constantly rising exit rates in the 1970s and 1980s

80 70 60 50 40 30 20 10 0

60 50 40 30 20 10 0

Hungary

Spain

1971–1976 1973–1978 1975–1980 1977–1982 1979–1984 1981–1986 1983–1988 1985–1990 1987–1992 1989–1994 1991–1996 1993–1998 1995–2000 1997–2002 1999–2004

France

1971–1976 1973–1978 1975–1980 1977–1982 1979–1984 1981–1986 1983–1988 1985–1990 1987–1992 1989–1994 1991–1996 1993–1998 1995–2000 1997–2002 1999–2004

80 70 60 50 40 30 20 10 0

1971–1976 1973–1978 1975–1980 1977–1982 1979–1984 1981–1986 1983–1988 1985–1990 1987–1992 1989–1994 1991–1996 1993–1998 1995–2000 1997–2002 1999–2004

168 2.5 2 1.5 1 0.5 0 –0.5 –1 –1.5 –2 2.5 2 1.5 1 0.5 0 –0.5 –1 –1.5 –2

2.5 2 1.5 1 0.5 0 –0.5 –1 –1.5 –2

80 70 60 50 40 30 20 10 0

60 50 40 30 20 10 0

80 70 60 50 40 30 20 10 0

Czech Republic

Italy

1971–1976 1973–1978 1975–1980 1977–1982 1979–1984 1981–1986 1983–1988 1985–1990 1987–1992 1989–1994 1991–1996 1993–1998 1995–2000 1997–2002 1999–2004

1971–1976 1973–1978 1975–1980 1977–1982 1979–1984 1981–1986 1983–1988 1985–1990 1987–1992 1989–1994 1991–1996 1993–1998 1995–2000 1997–2002 1999–2004

Netherlands

1971–1976 1973–1978 1975–1980 1977–1982 1979–1984 1981–1986 1983–1988 1985–1990 1987–1992 1989–1994 1991–1996 1993–1998 1995–2000 1997–2002 1999–2004

2.5 2 1.5 1 0.5 0 –0.5 –1 –1.5 –2 2.5 2 1.5 1 0.5 0 –0.5 –1 –1.5 –2

2.5 2 1.5 1 0.5 0 –0.5 –1 –1.5 –2

80 70 60 50 40 30 20 10 0

80 70 60 50 40 30 20 10 0

Estonia

Germany

1971–1976 1973–1978 1975–1980 1977–1982 1979–1984 1981–1986 1983–1988 1985–1990 1987–1992 1989–1994 1991–1996 1993–1998 1995–2000 1997–2002 1999–2004

1971–1976 1973–1978 1975–1980 1977–1982 1979–1984 1981–1986 1983–1988 1985–1990 1987–1992 1989–1994 1991–1996 1993–1998 1995–2000 1997–2002 1999–2004

2.5 2 1.5 1 0.5 0 –0.5 –1 –1.5 –2

2.5 2 1.5 1 0.5 0 –0.5 –1 –1.5 –2

169 2.5 2 1.5 1 0.5 0 –0.5 –1 –1.5 –2

2.5 2 1.5 1 0.5 0 –0.5 –1 –1.5 –2

45 40 35 30 25 20 15 10 5 0

50 45 40 35 30 25 20 15 10 5 0

2.5 2 1.5 1 0.5 0 –0.5 –1 –1.5 –2

2.5 2 1.5 1 0.5 0 –0.5 –1 –1.5 –2

Exit rate men, 55–59 – 60–64 years (left axis) Exit rate men, 50–54 – 55–59 years (left axis) Average unemployment rate change (right axis)

Sweden

1971–1976 1973–1978 1975–1980 1977–1982 1979–1984 1981–1986 1983–1988 1985–1990 1987–1992 1989–1994 1991–1996 1993–1998 1995–2000 1997–2002 1999–2004

United Kingdom

0

10

20

30

40

50

50 45 40 35 30 25 20 15 10 5 0

Denmark

1971–1976 1973–1978 1975–1980 1977–1982 1979–1984 1981–1986 1983–1988 1985–1990 1987–1992 1989–1994 1991–1996 1993–1998 1995–2000 1997–2002 1999–2004

United States

Relative exit rates of older male workers and unemployment change in 14 countries: 1970–2006 – employment exit regimes

Norway

1971–1976 1973–1978 1975–1980 1977–1982 1979–1984 1981–1986 1983–1988 1985–1990 1987–1992 1989–1994 1991–1996 1993–1998 1995–2000 1997–2002 1999–2004

Canada

OECD 2008.

Figure 4.3

Source:

40 35 30 25 20 15 10 5 0

45 40 35 30 25 20 15 10 5 0

1971–1976 1973–1978 1975–1980 1977–1982 1979–1984 1981–1986 1983–1988 1985–1990 1987–1992 1989–1994 1991–1996 1993–1998 1995–2000 1997–2002 1999–2004

1971–1976 1973–1978 1975–1980 1977–1982 1979–1984 1981–1986 1983–1988 1985–1990 1987–1992 1989–1994 1991–1996 1993–1998 1995–2000 1997–2002 1999–2004

1971–1976 1973–1978 1975–1980 1977–1982 1979–1984 1981–1986 1983–1988 1985–1990 1987–1992 1989–1994 1991–1996 1993–1998 1995–2000 1997–2002 1999–2004

2.5 2 1.5 1 0.5 0 –0.5 –1 –1.5 –2

2.5 2 1.5 1 0.5 0 –0.5 –1 –1.5 –2

170

Older workers in a globalizing world

accompanied by moderately rising unemployment rates. In Germany, early retirement trends had already set in beforehand as targeted programs for specific labor market problem groups, but were extended in later years as unemployment shocks repeatedly hit the economy (Jacobs, Kohli and Rein 1991a, 1991c). What is remarkable, however, is that, after this period of establishing early retirement, exit trends among older workers in conservative countries largely ‘decoupled’ from economic cycles and remained high even when unemployment decreased in subsequent years. This effect turns out to be strongest in the Netherlands, where exit rates of older men in their early 60s remained high and largely stable even when unemployment decreased sharply in the early 1980s. Only exit rates for the ‘younger old’ (aged 55 to 59 years) showed some more explicit cyclical variation. This ‘diffusion’ (Ebbinghaus 2006a: 105) or ‘reinforcement’ of early retirement practices beyond economic cycles appears to be well in line with the globalization argument proposed in Chapter 3. Especially in conservative countries that do little to adapt older workers to new technology and flexibility demands, globalization hence not only induced severe labor market crises reflected in high unemployment rates but also structurally disadvantaged older workers. Even under more favorable cyclical conditions, firms continued to employ or hire younger rather than older workers owing to their better qualifications and higher flexibility potential. For older workers who do not exhibit these features, they continued to either use or supplement public early-exit pathways as a means to restructure their work force and enhance their future flexibility. Under these conditions, exit incentives for older workers remained high, resulting in the observed persistently high and stable exit rates of the older work force. Results for Southern European countries appear to be similar, though on a somewhat different exit level. Especially in Spain, marked variations in unemployment have led to only modest effects as regards exit rates. Data for the late 1990s, however, indicate that the economic upswing in Southern European countries and the connected decrease in unemployment levels below 10 percent (see Figure 4.1) led to some declines in exit rates of older workers in their late 50s and early 60s. In contrast to the above cases, patterns in liberal and social democratic countries, which were hypothesized to follow an employment maintenance strategy, exhibit a more cyclical reaction of employment exit rates to changes in economic conditions. This pattern is plainest for Sweden, where the exit rates of workers in their early 60s and late 50s rose significantly throughout the recession of the early 1990s but quickly declined after the economy recovered in the late 1990s. Similar, though somewhat less pronounced, pro-cyclical variations of exit rates can be observed in Canada, the United Kingdom and Norway. In the United States, where exit rates

The macro-perspective

171

are generally very modest, variations also appear to follow economic cycles but are of a smaller amplitude. The cyclical, and hence less institutionalized, nature of early retirement in both types of maintenance regime again fits my theoretical expectations well. Even though, in these regimes, globalization has also led to a deterioration in older workers’ laborforce attachment, liberal and social democratic countries invest more in the employability of their older work force, be it through flexible labor market and training structures (liberal countries) or through active public policies (social democratic countries). These measures serve to reduce the relative labor market disadvantages of older workers and to increase their adaptability to technological and economic changes through either job or occupational mobility. The result is that, while even in these countries older workers often are among the first to be pushed out of employment in times of economic crisis, they tend to have a better chance to remain in or re-enter employment once the economic situation improves. The only notable exception to this pattern is Denmark, where employment exit rates of workers in their late 50s and early 60s rose jointly with unemployment rates in the recession of the late 1970s, but remained high when the economy recovered in the mid-1990s. Only in the late 1990s did exit rates in both age groups start to decline. These findings reconfirm the previous classification of Denmark as an ‘intermediate case’ that in recent decades combined both Scandinavian-type active employment policies with conservative-type early-exit policies and only recently shifted towards a more unique employment maintenance strategy. For post-socialist countries, only limited data are available since the early 1990s. However, these point to a more or less unique pattern across countries. During the early years of the transition when unemployment in all three countries was high owing to the immediate exposure to a global labor market, the privatization of previous state enterprises and the downsizing of many large-scale industrial firms, these countries followed a strong state-fostered early retirement approach, reflected in high exit rates among workers in their early 60s and sometimes even late 50s (Hungary). However, as unemployment fell in the late 1990s, exit rates paralleled this decline, a trend that appears to be most visible for Estonia, where they more then halved, while declines were more modest in Hungary and the Czech Republic. However, it is only for the liberal pathway of Estonia that this decline can be assumed to be connected with a higher adaptability of older workers. Using longitudinal data, Täht and Saar (2006: 312f.) show that job mobility of late-career men in fact increased throughout the transition period. In the two other countries, declining exit rates rather reflect changes to national pension systems that reduced individual compensation through (early) retirement benefits, increased standard retirement

172

Older workers in a globalizing world

ages and fostered a partial privatization of pension schemes (Bukodi and Róbert 2006a; Hamplová and Pollnerová 2006). On the one hand, these changes were often necessary measures to ensure the long-term sustainability of the national pension system. On the other hand, they were also easier to implement, as early retirement did not yet represent an established, diffused pattern building on an implicit consensus between all labor market parties as in conservative countries. Irrespective of the concrete backgrounds of pension system reforms, for many older workers these changes implied that they had to continue working in order to ensure a decent oldage income or to accumulate additional private funds. At the same time, overall job creation rates in new private companies tended to stabilize or increase in the late 1990s, thereby providing improved work continuation or re-entry opportunities for older workers in post-socialist countries (Commander and Kollo 2004; Hamplová and Pollnerová 2006).

4.3

INCIDENCE AND DURATION OF OLD-AGE UNEMPLOYMENT

The preceding analyses have mainly looked at the development of older workers’ employment, that is their active participation in paid work. For a comprehensive picture of the labor market situation of older individuals under globalization, this perspective needs to be supplemented by an examination of the extent and the characteristics of older workers’ unemployment. For a first illustration, Table 4.5 gives an overview of the development of age-specific unemployment rates for male and female workers during the last two decades, distinguishing between old-age (defined as unemployment of those aged 55 to 64 years), mid-career (25 to 54 years) and youth unemployment (15 to 24 years). In order to illustrate the development of age-specific unemployment patterns over time, Figure 4.4 supplements Table 4.5 with a graphical illustration of the relative importance of both youth and old-age unemployment (as compared to overall unemployment rates) for both sexes in the same time period. Table 4.5 reveals a considerable degree of cross-national variation in old-age unemployment rates for the chosen sample of countries, reflecting cross-national differences in overall unemployment rates. Across countries and historical time, unemployment among older workers ranges from values around 1 percent (for both sexes in Norway in the 1980s) to values around 15 percent (Dutch male workers in the 1980s). Though the timing differs across countries owing to the particularities of nation-specific economic cycles, the general trend has been towards a decrease in old-age unemployment. The only notable exceptions are Germany and France,

173

10.6* 6.1 8.6 6.1 1.1 4.0 9.0 14.9 6.0 1.8 8.6 – – –

1983 13.0 5.2 10.2 8.1 3.1 6.9 9.8 2.4 7.4 2.7 12.3 7.9 3.2 4.2a

1993

Men

2.7 2.5 5.5 4.2 0.7 5.4 13.6 1.5 8.3 4.7 11.3 1.6 5.5 8.8a

Old-age unemployment rate (55–64 years) 5.5 3.3 7.3* 5.3 2.4 3.3 5.0 4.0 5.5 5.4 8.2 9.6 3.9 4.8 6.3 9.8 1.8 2.1 1.7 2.0 6.8 5.4 3.9 4.4 11.5 12.6 8.6 12.7 2.5 4.8 8.2 4.1 7.6 7.1 6.9 8.1 4.4 3.6 3.7 2.8 8.7 5.4 2.9 8.8 3.7 4.3 – 9.5 5.0 4.5 – 5.5 10.6a 5.9a – 3.8a

1983

2000

2005

Women 1993

2000

Youth, mid-career and old-age unemployment rates: 1983–2005

United Kingdom United States Canada Denmark Norway Sweden Germany Netherlands France Italy Spain Hungary Czech Republic Estonia

Table 4.5

1.7 3.4 5.4 5.1 1.3 3.4 13.0 4.0 6.4 3.2 7.5 3.5 6.3 4.9a

2005

174

(continued)

United Kingdom United States Canada Denmark Norway Sweden Germany Netherlands France Italy Spain Hungary Czech Republic Estonia

Table 4.5

9.4* 8.2 9.9 7.6 2.3 2.5 6.3 11.6 4.4 2.8 11.6 – – –

1983 10.4 6.0 10.5 10.1 5.7 9.3 6.0 4.4 8.2 5.0 15.5 11.6 2.5 6.4a

1993

Men

4.0 3.3 5.8 4.7 2.3 4.5 7.5 3.3 11.1 12.1 18.9 5.0 9.9 12.3a

Mid-career unemployment rate (25–54 years) 4.8 3.6 9.7* 6.6 2.9 3.9 7.7 5.7 6.6 5.8 10.0 9.9 3.5 3.7 8.6 10.5 2.9 4.2 2.7 4.1 5.3 6.2 2.6 6.3 6.6 10.6 8.0 9.7 1.9 4.0 8.2 7.2 7.5 7.7 7.7 12.0 6.3 5.1 8.7 10.7 8.0 5.9 11.9 26.5 6.2 6.1 – 8.9 6.0 5.3 – 4.5 13.4a 7.9a – 6.5a

1983

2000

2005

1993

2000

Women

3.3 4.4 5.7 4.9 3.8 6.3 10.2 4.8 9.9 9.0 10.9 6.9 9.3 7.1a

2005

175

20.9* 18.4 21.8 18.1 8.3 9.6 10.5 26.6 15.0 25.5 33.8 – – –

20.9 14.3 19.7 14.4 14.6 26.1 7.4 9.7 21.4 24.1 36.3 26.8 7.0 9.8

Youth unemployment rate (15–24 years) 13.2 13.7 18.2* 13.2 9.7 12.4 15.8 12.3 13.8 14.2 16.4 14.4 6.5 6.2 19.7 14.7 9.5 12.5 9.6 13.2 12.4 23.0 10.6 19.3 9.2 16.1 11.7 7.8 5.3 9.5 23.1 9.7 18.4 21.4 25.5 28.4 25.4 21.5 36.5 35.3 19.4 16.7 43.3 47.3 13.8 19.7 – 18.2 16.7 19.4 – 10.6 23.9 16.6 – 13.1 10.1 8.9 11.4 7.0 10.9 11.3 7.5 7.0 23.8 35.4 32.9 11.2 17.4 23.7

10.6 10.1 10.6 9.8 11.5 21.6 14.1 9.7 24.6 27.4 23.5 19.1 19.1 14.9

Source:

OECD 2008; Statistics Estonia 2008.

Note: * Data from 1984; a=age groups for Estonia are: 15–24 years (youth unemployment), 25–49 years (mid-career unemployment), 50–69 years (old-age unemployment).

United Kingdom United States Canada Denmark Norway Sweden Germany Netherlands France Italy Spain Hungary Czech Republic Estonia

176

6 5 4 3 2 1 0

6 5 4 3 2 1 0

6 5 4 3 2 1 0

83 85 87 89 91 93 95 97 99 01 03 05 19 19 19 19 19 19 19 19 19 20 20 20

Czech Republic

83 85 87 89 91 93 95 97 99 01 03 05 19 19 19 19 19 19 19 19 19 20 20 20

Spain

83 85 87 89 91 93 95 97 99 01 03 05 19 19 19 19 19 19 19 19 19 20 20 20

Germany

6 5 4 3 2 1 0

0

1

2

3

4

5

6

6 5 4 3 2 1 0

83 85 87 89 91 93 95 97 99 01 03 05 19 19 19 19 19 19 19 19 19 20 20 20

Hungary

83 85 87 89 91 93 95 97 99 01 03 05 19 19 19 19 19 19 19 19 19 20 20 20

Italy

83 85 87 89 91 93 95 97 99 01 03 05 19 19 19 19 19 19 19 19 19 20 20 20

Netherlands

6 5 4 3 2 1 0

6 5 4 3 2 1 0

83 85 87 89 91 93 95 97 99 01 03 05 19 19 19 19 19 19 19 19 19 20 20 20

Estonia

Relative old-age unemployment Relative youth unemployment

83 85 87 89 91 93 95 97 99 01 03 05 19 19 19 19 19 19 19 19 19 20 20 20

France

177

4 3 2 1 0

4

3

2

1

0

1

0

0

Denmark

Development of old-age and youth unemployment relative to total average unemployment in both sexes: 1983–2006

OECD 2008; Statistics Estonia 2008.

Figure 4.4

Source:

Note: Relative youth unemployment = unemployment (15–24 years) / total unemployment; relative old-age unemployment = unemployment (55–64 years) / total unemployment.

83 85 87 89 91 93 95 97 99 01 03 05 19 19 19 19 19 19 19 19 19 20 20 20

0

2

1

1

83 85 87 89 91 93 95 97 99 01 03 05 19 19 19 19 19 19 19 19 19 20 20 20

3

2

2

83 85 87 89 91 93 95 97 99 01 03 05 19 19 19 19 19 19 19 19 19 20 20 20

4

3

3

5

4

5

5

4

6

6

Norway

United States

83 85 87 89 91 93 95 97 99 01 03 05 19 19 19 19 19 19 19 19 19 20 20 20

0

1

2

3

4

5

6

6

Sweden

United Kingdom

83 85 87 89 91 93 95 97 99 01 03 05 19 19 19 19 19 19 19 19 19 20 20 20

5

5

83 85 87 89 91 93 95 97 99 01 03 05 19 19 19 19 19 19 19 19 19 20 20 20

6

Canada

6

178

Older workers in a globalizing world

in which the unemployment rates of both men and women have largely remained stable or even increased throughout the last two decades. However, despite the considerable cross-national variations in old-age unemployment rates, a comparison of age-specific unemployment as given in Table 4.5 and Figure 4.4 reveals that older workers have not been affected disproportionately by unemployment risks through globalization as compared to younger and mid-career workers. As Figure 4.4 shows, it has mainly been younger workers and potential labor market entrants who were faced with disproportionately high risks of unemployment, a finding that strikingly reaffirms previous analyses by Blossfeld and others that have described youth as the ‘losers of globalization’ (Mills, Blossfeld and Klijzing 2005). In contrast, older workers’ unemployment rates have either paralleled average unemployment rates or remained well below them. Differences between youth and old-age unemployment rates have been most pronounced in Southern European countries such as Italy, where old-age unemployment has risen to values representing only onehalf of total unemployment rates, while youth unemployment has been almost three times as high. In contrast, especially in liberal countries, which provide high job flexibility chances for workers of all ages, both youth and old-age unemployment rates have remained closer to average unemployment. Germany constitutes the only notable exception to the above pattern, as here old-age unemployment figures outnumber youth unemployment. Two reasons may be held responsible for this nationspecific peculiarity. On the one hand, in Germany, the dual system of vocational training has helped younger workers to find a smooth entry into employment and therefore has kept youth unemployment rates low (Blossfeld and Stockmann 1999). On the other hand, unemployment insurance has been used extensively as a bridge into (early) retirement, which has artificially boosted older workers’ unemployment rates (Arnds and Bonin 2003; Buchholz 2008). The comparatively positive performance of older workers as displayed in open unemployment rates should, however, not hide the fact that older workers still may be faced frequently with severe disadvantages in globalized labor markets. Though lower unemployment rates among older workers may, in principle, indeed indicate that they are faced with fewer labor market difficulties than younger or mid-career workers, they may equally reflect high rates of early retirement that effectively reduce unemployment incidence. A direct comparison of unemployment rates by age groups may hence tend to underestimate the labor market problems of older workers, as they have an ‘inactivity option’ at their disposal that is not equally available to younger or mid-career workers. Analyses of older workers’ unemployment therefore need to look not only at the mere

The macro-perspective

179

incidence of unemployment but also at its qualitative features in more detail. Old-age unemployment: temporary joblessness or pathway into retirement? In this respect, it is of specific importance to analyze the nature of unemployment as a state at the boundary between employment and economic inactivity. The problem with mere old-age unemployment rates is that they represent an imprecise measure of the actual labor market situation of older workers, as the status of ‘unemployment’ may have a very different meaning for them. Following the widespread ILO definition, the ‘unemployed’ refer to a group of individuals who are ‘without work’, ‘still available for work’ and ‘actively seeking work’, with the latter being indicated by actions such as applying to potential employers, placing job advertisements or simply registering at a local employment exchange (ILO 1982). Following this definition, the unemployed would make up a group of individuals without a job, but with a high motivation for reentry and hence a high level of active labor-force attachment. However, earlier studies of older workers’ employment and unemployment patterns haven shown that – despite formally adhering to the above definition (e.g. through a permanent registration at local labor offices) – unemployment among older workers effectively may be used as an institutionalized ‘pathway into retirement’ (Kohli et al. 1991). Hence, following this perspective, unemployment may equally describe a group of individuals who are still administratively counted as part of the active labor-force but have de facto entered a state of economic inactivity. In order to account for this qualitative difference, analyses of old-age unemployment have to go beyond a mere reconstruction of its quantitative development and take a more detailed look at its temporal structure, that is the question of whether it represents a state of short-term joblessness or one of long-term economic inactivity. To allow for such a distinction, Figure 4.5 splits total unemployment into different durations by reporting the cross-sectional percentage share of those who are short-term unemployed (defined as unemployed for less than one month) and long-term unemployed (defined as being unemployed for 12 months or more).7 In order to relate the unemployment characteristics of older workers to those in their mid-career, Figure 4.5 compares shares of long-term and short-term unemployed for individuals aged 25 to 54 years and those aged 55 years and over. As unemployment characteristics are assumed to be determined by general economic factors (such as economic cycles) and institutional factors (such as modes of labor market regulation) rather than by gender differences, Figure 4.5 presents data cumulated for both sexes.

180

(a)

80 70 60 50 40 30 20 10 0

80 70 60 50 40 30 20 10 0

80 70 60 50 40 30 20 10 0

83 85 87 89 91 93 95 97 99 01 03 05 19 19 19 19 19 19 19 19 19 20 20 20

Czech Republic

83 85 87 89 91 93 95 97 99 01 03 05 19 19 19 19 19 19 19 19 19 20 20 20

Italy

83 85 87 89 91 93 95 97 99 01 03 05 19 19 19 19 19 19 19 19 19 20 20 20

Germany

80 70 60 50 40 30 20 10 0

80 70 60 50 40 30 20 10 0

80 70 60 50 40 30 20 10 0

83 85 87 89 91 93 95 97 99 01 03 05 19 19 19 19 19 19 19 19 19 20 20 20

Hungary

83 85 87 89 91 93 95 97 99 01 03 05 19 19 19 19 19 19 19 19 19 20 20 20

Spain

83 85 87 89 91 93 95 97 99 01 03 05 19 19 19 19 19 19 19 19 19 20 20 20

France

80 70 60 50 40 30 20 10 0

80 70 60 50 40 30 20 10 0

83 85 87 89 91 93 95 97 99 01 03 05 19 19 19 19 19 19 19 19 19 20 20 20

Estonia

83 85 87 89 91 93 95 97 99 01 03 05 19 19 19 19 19 19 19 19 19 20 20 20

Netherlands

181

United States

Denmark

Canada

Sweden 80 70 60 50 40 30 20 10 0

80 70 60 50 40 30 20 10 0

83 85 87 89 91 93 95 97 99 01 03 05 19 19 19 19 19 19 19 19 19 20 20 20

Norway

83 85 87 89 91 93 95 97 99 01 03 05 19 19 19 19 19 19 19 19 19 20 20 20

United Kingdom

Short-term unemployment, 25–54 years Short-term unemployment, 55+ years

83 85 87 89 91 93 95 97 99 01 03 05 19 19 19 19 19 19 19 19 19 20 20 20

80 70 60 50 40 30 20 10 0

83 85 87 89 91 93 95 97 99 01 03 05 19 19 19 19 19 19 19 19 19 20 20 20

80 70 60 50 40 30 20 10 0

Long-term unemployment, 25–54 years Long-term unemployment, 55+ years

83 85 87 89 91 93 95 97 99 01 03 05 19 19 19 19 19 19 19 19 19 20 20 20

80 70 60 50 40 30 20 10 0

83 85 87 89 91 93 95 97 99 01 03 05 19 19 19 19 19 19 19 19 19 20 20 20

80 70 60 50 40 30 20 10 0

Long- and short-term unemployment of mid-career and older workers for both sexes, percentage shares: 1983–2006, (a) employment exit regimes and (b) employment maintenance regimes

OECD 2008; Statistics Estonia 2008.

Figure 4.5

Source:

Note: Percentage shares, short-term unemployment = less than one month, long-term unemployment = more than one year; Estonia: older workers = 50–74 years, mid-career workers = 25–49 years; short-term unemployment = less than six months, long-term unemployment = more than one year.

(b)

182

Older workers in a globalizing world

Finally, since I assume unemployment duration to vary with institutional employment regimes, Figure 4.5 differentiates systematically between countries following an employment exit strategy (Figure 4.5a) and employment maintenance strategy (Figure 4.5b). Countries classified as employment exit regimes show a very distinct pattern as regards the duration of unemployment for mid-career and older workers. For both age groups, short-term unemployment of less than one month is at extremely low levels, accounting for only around one-tenth of total unemployment. In contrast, long-term unemployment of more than one year is comparatively widespread and usually applies to at least half of total unemployment in the employment exit regimes under study. In conservative countries, there is additionally a considerable age-specific difference in the incidence of long-term unemployment. While it makes up 40 to 50 percent of the total unemployment in younger workers, its share is about 20 percentage points higher for workers aged 55 years and over. This finding appears to be consistent with the expected effects of globalization in institutional regimes characterized by a high rigidity of labor markets, comparatively generous unemployment benefits and only modest active employment policies. In these contexts, returns into employment are often difficult and often involve longer search processes among jobseekers (Gangl 2002). For older workers whose qualifications and skills have been devalued under globalization and whose employment would additionally entail higher age-specific seniority wage levels and a considerable degree of job protection, returns to employment are even more difficult, reflected in correspondingly higher rates of long-term unemployment. In Southern European countries, where I expected labor market rigidities to be even more pronounced, long-term unemployment rates are extraordinarily high for both mid-career and older workers, ranging at values between 60 and 70 percent. In addition, the gap between the two age groups is significantly lower. In these highly rigid ‘insider–outsider labor markets’, both younger and older workers find it difficult to leave unemployment; the ‘outsider’ status hence generally entails manifest labor market problems largely irrespective of the age of the individual worker. Only recently has the labor market situation of younger Spanish workers improved, reflecting the economic boom of the late 1990s. Notably, however, the situation of unemployed late-career workers has remained critical. The post-socialist countries of Eastern Europe have largely followed the Southern European pattern after unemployment rose rapidly during the course of system transformation. In countries hypothesized to follow an employment maintenance pathway, unemployment patterns appear to be more diverse. In both liberal North American countries (the United States and Canada), long-

The macro-perspective

183

term unemployment is of clearly lower importance than in Continental European countries, making up only 20 to 30 percent of total unemployment. In the United States, long-term unemployment rates even constantly remain below the share of short-term unemployment, as for about onethird of unemployed individuals. At the same time, there are only modest differences in unemployment shares between the two age groups. Again, these results appear to be well in line with the theoretical concept, arguing that, in liberal countries, flexible labor markets and on-the-job training systems will generally foster the mobility of older workers and allow them to adapt more easily to a changing economic and technological environment. At the same time, the only limited duration of public welfare benefits sets high pressures for a quick employment re-entry, so that individuals often cannot afford to remain unemployed for longer periods, irrespective of their age. The United Kingdom makes a notable exception to this pattern by initially displaying a rather conservative pattern with comparatively high shares of long-term unemployment, especially among older workers, reflecting the extended use of unemployment benefits as a transit into early retirement in the economic recession of the 1980s (Laczko and Phillipson 1991). In more recent years, this pattern, however, increasingly converged to match North American patterns as a consequence of the introduction of active welfare-to-work incentives by the Blair government in the late 1990s (Golsch, Haardt and Jenkins 2006). In the 1980s, the active employment approach of the social democratic countries Sweden and Norway appeared to be similarly effective in reintegrating the (older) unemployed into employment, as indicated by modest shares of both long- and short-term unemployment. However, as the economic situation deteriorated in the course of the 1990s recession, these active employment structures obviously lost part of their integrative ability – particularly for older workers. While changes in Norway, which experienced only a slight rise in overall levels, appear to be rather modest, figures for Sweden indicate a significant increase in long-term unemployment for both older and mid-career individuals throughout the early 1990s. However, the repercussions of the recession appear to have been significantly more severe for older workers, whose long-term unemployment shares rose from levels around 20 to 30 percent to more than one-half of total unemployment. Denmark, which experienced an economic crisis about a decade earlier, shows similar old-age unemployment patterns since the late 1980s. For both countries, recent figures indicate a gradual shortening of older workers’ average unemployment duration when overall economic conditions improved in the last century. Taken together, the results from the previous analysis point to considerable differences in the meaning of unemployment for older workers in

184

Older workers in a globalizing world

different institutional contexts. In employment exit countries, unemployment has turned out to be mostly structural and long-term: especially for older workers, returns into the labor market are very difficult, so that old-age unemployment often practically means a state of mere inactivity, that is a permanent exclusion from active employment. Over the last few decades, unemployment insurance systems in employment exit countries have therefore effectively become ‘pathways’ for employment withdrawal until early retirement benefits become available. In contrast, in employment maintenance countries, unemployment does not necessarily provide a ‘dead end’ for older workers but more frequently represents a temporary employment interruption. Especially in liberal countries, institutional settings both enable and demand a quick return of unemployed individuals to employment, reflected in a low incidence of long-term joblessness. Active employment policies in social democratic countries initially appeared to be equally successful in re-integrating the older unemployed into the active labor force. However, results for Denmark and Sweden show that the ‘classical’ social democratic full-employment approach was at least temporarily dropped as unemployment and other welfare-state programs were redefined as pathways into inactivity. In these cases of a ‘softening’ of the employment maintenance approach under rising economic pressures, older workers have often been the first to be affected by an increasing rigidity of unemployment structures.

4.4

THE SPREAD OF FLEXIBLE WORK FORMS AMONG OLDER WORKERS

The preceding sections have analyzed the transformations of older workers’ employment under globalization, concentrating on shifts in older workers’ labor-force status. They have distinguished between ‘employment’, ‘unemployment’ and ‘economic inactivity’ and have reconstructed how globalization has led to changes in the distribution of older workers among these different labor market states. It was expected that, under rising flexibility demands, employers generally would attempt to shed older workers – whom they increasingly perceive as inflexible, costly and inadequately trained employees – and to eventually replace them by younger labor market entrants. These labor-shedding practices were assumed to be fostered through a wide array of both public and private early retirement pathways that help to ‘buy in’ older workers’ consent through generous financial compensation. Increasing flexibility demands were hence assumed to be met by means of numerical flexibility through the dismissal of older workers, thereby leading to shifts in the extent of

The macro-perspective

185

employment, unemployment and inactivity rates. Differential institutional configurations at the nation level were hypothesized to operate as ‘filters’ influencing the degree to which older workers become disadvantaged on globalized labor markets and therefore determining the extent of their employment withdrawal. However, mere numerical changes in staff size do not represent the only way through which enterprises can adapt their work force to new flexibility demands on global labor markets (see section 3.2). Frequently, employers will even be inclined to maintain parts of their staff in order to use their experience, their firm-specific knowledge and their ‘secondary skills’ (such as reliability, loyalty or other work norms; see Schröder, Hofäcker and Muller-Camen 2009). In these cases, the introduction of more flexible work forms such as part-time employment, fixed-term contracts or ‘disguised self-employment’ through outsourcing or subcontracting would allow employers to maintain parts of their work force while at the same time reducing their obligations as employers and increasing their working time, contract or wage flexibility. In the sociological literature, these new flexible work forms have met with varying responses. While some have welcomed them as an effective means of raising employment levels among older workers (OECD 2006) and as potential ‘alternatives to early retirement’ (Bredgaard and Tros 2006), others have criticized them as marshaling a creeping ‘marginalization’ of older workers (Standing 1986). In the following, I shall critically discuss the quantitative and qualitative importance of all three flexible work forms – part-time work, temporary contracts and self-employment – for older workers’ employment participation. The rise in part-time employment As pointed out in previous chapters, part-time employment in late career can provide a beneficial ‘flexibility solution’ for both employers and employees. Employers can selectively retain valuable workers, gain more flexibility in staff use and often simultaneously reduce their payroll costs (Ebbinghaus 2006a: 101). If retirement transitions involve so-called partial pension plans, older workers can use part-time jobs to earn additional income while already drawing part of their pension benefits. Delsen and Reday-Mulvey additionally highlight the fact that such schemes may also correspond to older workers’ desire to opt for a ‘smooth’ gradual withdrawal from work instead of a full and abrupt exit from the labor force (Delsen 1998: 64; Delsen and Reday-Mulvey 1996: 11). Hence, workers who would otherwise be ready to leave employment would be motivated to continue working, thereby increasing employment among older workers in general.

186

Older workers in a globalizing world

Table 4.6 provides an overview of the development of part-time employment among older workers for the last two decades, differentiating between men and women.8 As previous research has pointed to the comparatively low importance of shifts into part-time employment for younger age groups (Eurostat 2007; Zaidi and Fuchs 2006), I concentrate on workers in their late 50s and early 60s, but report part-time rates for mid-career workers as benchmarks for comparison. The age-specific comparison of part-time work in fact reveals that this form of flexible work is to be found disproportionately among older workers, indicated by significantly higher part-time shares among those in their late 50s and early 60s, as compared to those in their mid-careers. This trend appears to be most pronounced among those in initial pre-retirement ages, thereby reinforcing the argument that part-time work is often used to gradually exit from employment. A comparison of part-time shares over time furthermore points to an increase in the incidence of part-time work among older workers, especially for men. While in the 1980s, only a small minority of older men were working part time, figures have risen to values between 5 and 10 percent for male workers in their late 50s and 10 to 15 percent for those in their early 60s. In contrast, part-time employment has remained largely stable or increased only moderately among mid-career men, with values hardly exceeding a 5 percent margin. These trends suggest that, in recent decades, part-time employment has in fact been used as a means of flexibilizing employment among older workers. Nonetheless, results also indicate a considerable degree of cross-national variation in the relative importance of part-time employment for older workers, often reflecting specific welfare and labor market characteristics that have fostered its expansion. The highest part-time rates are found in the Netherlands (where part-time employment has been publicly supported for workers of all ages; see Ministry of Social Affairs and Employment 2004), Germany (where a partial pension scheme was introduced in 1992; see Schmähl, George and Oswald 1996) and the United Kingdom (where part-time employment appears to match older workers’ preferences to exit gradually; see Loretto, Vickerstaff and White 2005). In contrast, the lowest proportions of parttime employment are observed in Southern European and post-socialist countries, where full-time employment is still the dominant norm. Among older women, part-time rates generally tend to be higher, and increases in part-time work more modest and less uniform, both reflecting the already higher incidence of part-time work in earlier stages of their employment life. However, in general, trends among women tend to reflect those of men, revealing a modest increase over time and a higher significance among those in their early 60s. However, despite the described increases in part-time employment,

187

1.2 3.0 3.1 3.6 – – 1.4 4.5 2.8 2.9 – – – –

1983 2.8 3.3 4.7 2.9 3.7 – 1.8 4.6 3.9 4.0 1.4 – 0.8 –

1993 3.7 2.2 4.3 3.7 4.1 4.3 3.4 4.7 4.4 5.1 1.9 1.0 0.7 –

2000

25–54

4.4 2.8 4.8 5.6 5.4 5.3 5.4 4.0 4.1 5.0 3.0 1.1 0.8 –

2005 2.0 2.8 4.7 5.6 – – 1.8 6.3 3.2 5.0 – – – –

1983

2005 9.8 3.9 7.9 5.9 4.8 7.6 5.8 13.0 8.4 7.7 1.7 3.0 1.2 7.1a

2000

Men 6.3 9.5 5.2 3.8 6.6 8.3 4.1 2.9 – – – – 2.2 4.1 12.0 12.4 6.7 9.0 4.2 7.4 1.3 1.1 – – – – 4.5a 8.4a

1993

55–59

4.9 7.3 8.5 8.7 – – 5.9 10.5 8.5 9.3 – – – –

1983 14.5 12.7 13.4 16.1 – – 6.6 28.9 11.9 7.6 2.8 – – –

1993

17.9 10.7 14.8 19.6 – – 12.5 33.4 16.2 9.4 2.5 – – –

2000

60–64

Proportion of part-time employment as of total employment by sex and age groups: 1983–2005

United Kingdom United States Canada Denmark Norway Sweden Germany Netherlands France Italy Spain Hungary Czech Republic Estonia

Table 4.6

19.7 10.3 14.9 11.3 13.2 17.3 15.1 33.2 12.9 11.2 4.0 12.3 8.1 –

2005

188

Source:

Note:

41.1 14.7 23.1 21.0 34.6 – 29.6 55.0 22.6 23.9 1.3 – 4.1 –

1993 38.5 12.4 21.3 16.6 28.6 17.9 35.2 55.9 23.6 24.1 15.3 3.8 3.7 –

2000

25–54

35.9 12.6 20.1 16.7 26.7 14.5 40.6 58.2 22.0 29.2 20.7 4.1 5.8 –

2005 46.3 18.1 28.3 48.9 – – 35.8 59.9 24.3 23.1 – – – –

1983

2005 43.1 13.0 26.8 19.4 35.2 17.9 42.5 66.4 27.9 32.6 22.5 7.5 6.4 14.9a

2000

Women 51.0 47.1 16.7 13.3 32.0 28.3 36.0 24.3 – – – – 38.7 40.7 72.0 65.7 30.0 32.7 22.2 25.9 16.5 17.4 – – – – 10.7a 19.3a

1993

55–59

Hofäcker and Pollnerová 2006; OECD 2008; Statistical Office of Estonia 2008.

a = age group 50–74 years.

45.9 17.5 24.8 37.3 – – 38.4 55.2 20.8 17.7 – – – –

1983

(continued)

United Kingdom United States Canada Denmark Norway Sweden Germany Netherlands France Italy Spain Hungary Czech Republic Estonia

Table 4.6

62.7 25.1 33.7 55.0 – – 39.5 61.3 28.0 26.3 – – – –

1983 65.0 28.3 36.8 47.7 – – 50.1 76.4 27.3 26.0 17.8 – – –

1993

65.3 24.3 34.1 43.9 – – 57.2 80.0 38.3 21.3 18.5 – – –

2000

60–64

61.9 20.1 35.3 32.1 39.4 26.7 55.1 75.3 35.9 32.8 27.8 29.7 31.5 –

2005

The macro-perspective

189

the overall significance of part-time employment still appears to be comparatively low in absolute terms, particularly among older men, where on average only about one out of seven9 workers aged 60 to 64 years works reduced hours. When considering that many countries have introduced specific targeted programs to foster partial retirement (Delsen and RedayMulvey 1996; OECD 2006), increases have been rather modest. Several reasons have been listed for this comparative reservation towards part-time employment (see Casey 1998; OECD 2006). On the one hand, employers can be expected to be reluctant to introduce part-time plans if these are connected with specific fixed costs per employee irrespective of his or her working time. Work schedules are also often more difficult to organize around part-timers, thereby reducing their productivity as compared to full-time workers. On the other hand, older workers may not take up parttime work if they fear that a reduction in working hours would entail downshifts in present salaries, pension contributions and hence future pension benefits. Particularly when public or company pension benefits are final salary-based, that is calculated with reference to the last income earned, shifting to part-time work may entail substantial drops in pension benefits. Given these potential disadvantages, especially workers in conservative regimes, where standard full-time employment relationships are highly protected by employment legislation and often make up the basis for pension calculation, can be assumed to be comparatively reluctant to switch from full- to part-time work. This is reflected in data from recent European Labour Force Surveys which indicate that, especially in conservative and Southern European countries (with the exception of the Netherlands, which explicitly supports part-time employment through favorable social security treatment), around one-quarter of older workers experience part-time jobs as being involuntary owing to the lack of fulltime jobs (see Figure 4.6). Hence, in these countries, part-time jobs do not necessarily represent a voluntarily chosen work-time flexibilization at the end of an individual’s work life. Instead, they appear to be an ‘escape route’ for a disadvantaged group of workers aiming for a full-time job but not being able to find one owing to labor market rigidities. More flexibility through temporary employment? Temporary employment makes up another possible option to flexibilize the employment of older workers. The term ‘temporary workers’ refers to dependent employees in ‘jobs of limited duration’ (OECD 2005a: 34) that ‘do not offer workers prospects of a long lasting employment relationship’ (OECD 2002c: 132). They include, for example, workers holding contracts that last only a limited amount of time, those in seasonal or daily work or those hired for a specific pre-defined task.10 In recent years, these types of

190

Older workers in a globalizing world

40

25 SPA

14.1 4.1 4.1

13.1

19.4

ITA

15.3

16.7

F

9.9

11.7 4.3

10

15.1 18.1

20

23.5 25.3

30.5

30

24.4 26.9

Men, 55–64 Women, 55–64

0 UK

DK NOR SWE

NL GER

CZE

Note: Involuntary part-time workers are part-time workers who declare that they worked part time because they ‘could not find a full-time job’. Source:

Eurostat 2008 (own calculations).

Figure 4.6

Involuntary part-time workers as a percentage of all part-time workers: 2005/06

jobs have become increasingly widespread in modern societies and have turned into ‘a significant feature of the employment landscape in OECD countries’ (ibid.: 166). For employers, fixed-term contracts usually mean a higher degree of flexibility, as they entail an asymmetric commitment to employment with the employer retaining the option not to extend the work relationship. As such, these types of contract can lead to a considerable degree of temporal uncertainty and employment relationship uncertainty on the level of the individual (Mills and Blossfeld 2005: 8). In addition, temporary contracts often involve lower salaries and in some cases also lower fringe benefits than permanent jobs, resulting in lower average levels of job satisfaction (OECD 2002c). Temporary employment, however, will not necessarily be to the detriment of the individual employee. For workers not wishing to work permanently on a full-time basis, temporary contracts can offer a certain degree of flexibility in work arrangements (Klijzing 2005). In addition, they can also provide a ‘stepping stone’ or ‘entry port’ for a successful transition into permanent full-time employment (OECD 2002c). Therefore, despite their atypical nature, temporary jobs can serve to avoid unemployment and to find stable employment.

The macro-perspective

191

Table 4.7 gives an overview of the incidence of temporary employment among workers of different age groups, distinguishing between younger (15 to 24 years), mid-career (25 to 54 years) and older workers (55 to 64 years).11 First of all, results from Table 4.7 indicate that the incidence of temporary employment is clearly highest among young labor market entrants. Especially in the rigid labor markets of conservative and Southern European countries, the incidence of this form of atypical work has risen substantially to values between 40 and 70 percent. Though, in other countries, the incidence of temporary employment is significantly lower, it still applies to between one-tenth and one-third of all young people at this age, thereby clearly outnumbering the spread among those in their mid-careers. These figures strikingly reconfirm earlier findings from comparative life-course research that has argued that the employment relationships of younger workers have become increasingly flexibilized through a massive disproportional shift of insecure, atypical forms of employment to this especially vulnerable group (see Blossfeld et al. 2005). In contrast, temporary employment plays only a marginal role for both older male and older female workers. In most countries, the share of temporary contracts in the total employment of older workers varies between 5 and 10 percent, thereby remaining well below the average for mid-career workers. Furthermore, trends over time show no substantial increase in temporary employment throughout the observation period. The only notable outliers are Spain and the Czech Republic, where temporary jobs make up constantly more than 10 percent of older workers’ overall employment. In both countries, these higher rates reflect policy efforts to promote fixed-term employment as an ‘exit route’ in countries characterized by high unemployment and rigid labor markets (Baranowska and Gebel 2008; OECD 2003d). However, even in these countries, temporary employment appears to be significantly less widespread among older workers than among the overall labor force. Hence, compared to parttime work, temporary employment has played a comparatively smaller role as a means to flexibilize older individuals’ work lives. One major reason for this general picture may be that, while for younger workers temporary jobs can often provide a potential stepping stone into more stable and permanent employment, they will more likely develop into labor market ‘traps’ for older workers. Recent OECD research in fact provides some evidence that the chances of re-entering permanent employment from temporary jobs decline with age. In addition, temporary jobs are often connected with lower salaries and less access to additional fringe benefits such as occupational pensions (OECD 2002c). For older workers, temporary contracts may hence entail a considerable extent of employment uncertainty (as the renewal of the contract is insecure and

192

– – –

16.0 – – 32.6 – – 32.7 19.4 21.3 8.6

1985 9.0 – – 33.0 – – 41.6 29.5 46.9 17.2 78.2 – 18.8 –

1990 13.3 9.0 28.9 32.9 25.3 42.4 55.0 34.6 56.2 24.5 69.0 14.3 24.1 –

2000

15–24 years

11.3 8.5 29.4 32.9 26.0 47.9 60.4 41.3 46.5 34.9 66.3 18.2 17.1 –

2005 2.5 – – 5.1 – – 4.1 3.8 2.1 2.6 – – – –

1983

2000 4.1 – 7.8 4.2 4.7 9.9 7.1 7.0 10.3 7.3 26.2 6.5 4.8 –

1993 Men 4.7 3.9 – 5.8 – – 5.9 4.8 7.9 4.6 28.1 – 3.8 –

25–54 years

3.6 3.5 8.6 4.7 5.5 10.7 8.2 9.1 7.8 8.5 29.0 6.7 5.3 –

2005 4.8 – – 4.0 – – 3.5 1.1 1.0 4.4 – – – –

1983

5.8 3.0 – 4.4 – – 4.8 3.0 3.2 4.1 13.0 – 21.7 –

1993

6.6 – 10.3 3.2 2.0 6.0 4.2 5.3 5.4 6.4 11.7 6.2 10.4 –

2000

55–64 years

Proportion of temporary employment as of total employment by sex and age groups: 1983–2005

United Kingdom United States Canada Denmark Norway Sweden Germany Netherlands France Italy Spain Hungary Czech Republic Estonia

Table 4.7

5.2 3.4 10.5 3.4 2.6 6.8 3.6 4.3 4.4 6.6 12.8 5.2 8.6 –

2005

193

Source:

OECD 2008.

United Kingdom United States Canada Denmark Norway Sweden Germany Netherlands France Italy Spain Hungary Czech Republic Estonia

15.0 – – 34.1 – – 25.1 16.5 16.0 10.7 – – – –

12.6 10.9 – 30.6 – – 36.0 24.8 44.2 18.9 74.1 – 10.8 –

13.1 – 29.3 26.7 32.0 56.9 49.5 36.1 53.5 28.3 68.0 13.4 13.7 –

10.8 7.6 30.3 25.2 29.7 62.5 53.4 41.2 46.4 39.1 63.9 15.9 20.0 –

6.9 – – 7.3 – – 5.3 8.6 2.3 5.8 – – – –

Women 7.7 4.4 – 9.9 – – 7.2 11.3 10.4 7.7 32.0 – 3.8 – 6.6 – 9.8 8.9 9.2 14.0 8.1 12.7 13.2 10.6 29.4 5.3 5.5 –

4.8 3.4 10.1 9.4 10.3 13.9 8.6 11.6 10.6 13.4 33.0 5.8 6.8 –

4.8 – – 4.4 – – 3.5 4.1 1.0 8.7 – – – –

5.8 3.0 – 4.3 – – 4.8 8.9 4.8 4.4 14.8 – 66.3 –

6.6 – 9.3 6.2 4.0 7.0 4.2 8.6 6.0 4.9 15.1 8.9 38.1 –

5.2 3.4 10.4 5.6 3.4 6.2 3.6 7.4 5.4 6.3 16.3 4.3 19.7 –

194

Older workers in a globalizing world

100

95.1 88.3

Men, 55–64 Women, 55–64

32.2

59.6

70.8 73.2

71

22.9

30

37.8

40

47.5

50

45.9

60

60.6 68.9

68.4 68.6

70

75.2 73.3

80

47.4 38.4

90

20 10 0

UK

DK NOR SWE

NL GER

F

ITA SPA

HUN CZE

Note: Involuntary temporary workers are temporary workers who declare that they took on temporary work because they ‘could not find a permanent job’. Source:

Eurostat 2008 (own calculations).

Figure 4.7

Involuntary temporary workers as a percentage of all temporary workers: 2005/06

other work options may be scarce) and economic uncertainty (as revenues from work may deteriorate in the short term through salary cuts and in the long term through pension reductions), making them far less attractive than, for example, part-time employment. Therefore, older workers will be more reluctant to choose this type of work and will tend to accept it only if other types of work are not available. This unfavorable attitude towards temporary employment is reflected in the comparatively high number of involuntary temporary workers (that is, older employees who work in temporary jobs because permanent jobs are not available; Figure 4.7), which clearly exceeds the respective number of involuntary part-time employees (see Figure 4.6). Self-employment Table 4.8 finalizes the overview of flexible employment forms among older workers with an overview of the incidence of self-employment among men and women, differentiating between age groups 55 to 59 years and 60 to 64 years. After continuous declines of self-employment shares in the total labor-force in the 1970s and early 1980s, it has in more recent years

The macro-perspective

Table 4.8

195

Proportion of self-employment as of total employment by sex and age groups: 1983–2005 Total

55–59 years

1989/90

1995

1989/90

United Kingdom United States Canada Denmark Norway Sweden Germany Netherlands France Italy Spain Hungary Czech Republic Estonia

17.8 9.0 – 14.9 12.6 – 11.3 – 17.0 28.3 23.1 – – –

17.7 – 20.2a 11.9 – 16.3 11.9 13.2 15.3 28.9 24.2 – – –

21.5 13.1 – 24.9 18.3 – 16.3 – 33.5 39.5 33.8 – – –

United Kingdom United States Canada Denmark Norway Sweden Germany Netherlands France Italy Spain Hungary Czech Republic Estonia

7.4 5.8 – 3.2 4.8 – 5.4 – 7.2 16.5 16.0 – – –

7.0 – 12.7a 4.0 – 5.9 5.9 8.8 6.9 16.6 17.0 – – –

60–64 years

1995

1989/90

1995

24.5 – 29.2a 20.8 – 19.0 15.6 24.3 26.2 41.5 35.8 – 17.6b –

39.1 18.6 – 31.2 18.6 – 29.4 – 46.1 51.9 42.3 – – –

26.2 – 37.8a 30.6 – 20.4 27.8 53.2 45.3 54.8 44.7 – 23.3b –

Women 6.4 9.1 8.0 – – 19.4a 4.3 7.8 5.4 – – 6.8 7.3 6.8 – 19.4 15.6 12.7 31.5 31.8 30.2 29.6 – – – 11.1b – –

9.7 9.1 – 4.4 4.3 – 16.0 – 30.5 35.6 35.8 – – –

12.1 – 23.6a 5.9 – 9.3 13.0 27.1 26.8 36.9 38.8 – 17.4b –

Men

Note: a = data from 1998, b = data from 2002. Source:

Blöndal and Scarpetta 1999; OECD 1995, 2004c, 2005c.

enjoyed a ‘partial renaissance’ among the total working-age population, with self-employment rates of men and women stabilizing throughout the 1990s (OECD 2000). Much of this recent rise can be traced back to the fact that, while as a consequence of changes in the economic structure

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self-employment continued to decline in the primary sector (Blanchflower 1998), there have been significant increases in its share in non-agricultural employment, especially in the ‘fastest growing sectors of the economy’ such as business and community services (ibid.: 157). Hence, it seems reasonable to assume that older workers may equally benefit from the general spread of this flexible work form. For older workers, self-employment can have various benefits. On the one hand, it may give them more discretion and flexibility over their work pattern and their work-time (Karoly and Zissimopoulos 2004; OECD 1992). As with part-time employment, older workers can use it as a means to gradually exit from the labor market via a stepwise reduction of their working hours (OECD 2005c, 2005d). For others, it can provide a highly welcome alternative to paid dependent employment when they have difficulties finding a job in rigid labor markets where other flexible work forms are not available. As such, self-employment thus could ‘greatly help older workers to stay longer in employment’ (OECD 2004c: 104) and serve as a valuable ‘alternative to carry on working’ (OECD 2005e: 18). On the other hand, self-employment can also entail notable disadvantages for older individuals. This applies most of all to the ‘false self-employed’, that is to workers whose working conditions are similar to those of regular employees, but who formally declare themselves as self-employed to reduce employers’ liabilities with regard to job protection or fringe benefits (OECD 2000b: 156). In these cases, self-employment would – like temporary employment – constitute an asymmetric type of employment relationship to the disadvantage of the individual employee. In addition, the older self-employed sometimes have less access to private or mandatory occupational pension plans or receive lower average wage replacement within them (Blöndal and Scarpetta 1999: 18; OECD 2005f: 59). Available data show that self-employment plays a considerable role in late work lives. Self-employment rates of older men are clearly higher than for those in mid-career and once again increase significantly for those in their early 60s. In this age group, it amounts to around one-half of total employment in conservative and Southern European countries, and between one-fifth and one-third in the other regime types. Figures for older women are somewhat lower, reflecting the generally lower incidence of selfemployment among females. However, in the majority of countries under study, the picture of a significant share of self-employment in total employment, especially among those in their early 60s, also applies to women. Though cross-sectional data point to an increase in self-employment across age groups, it remains an open question whether this increase actually indicates an increased use of self-employment as a means to adapt to an increasingly unpredictable labor market, that is an increased shift

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of older workers into self-employment, or whether the observed rise in self-employment represents just a statistical artifact. Several arguments seem to speak in favor of the latter argument. First, differences in selfemployment rates across age groups may be due to cohort effects, that is the fact that earlier birth cohorts now approaching retirement took up self-employment when it was more common and have continued to practice it (Bregger 1996: 7). Second, higher self-employment rates in the pre-retirement age group (60 to 64 years) may simply be due to the higher likelihood of the self-employed remaining in employment owing to a higher work commitment and a lower coverage in pension schemes. Results from Canada, for example, indicate that, while there has been a considerable increase in the relative shares of the self-employed among older workers, their absolute number has remained rather stable (OECD 2005c: 121). Third, previous ‘secondary employment’ in self-employed activities may turn into the main economic activity of older individuals once they have given up their jobs as dependent employees as they approach early retirement ages (ibid.). Finally, in countries where selfemployment would provide a possible ‘escape route’ from saturated and rigid labor markets, such as those of post-socialist Europe, there are often a number of persistent legal restrictions on establishing self-employment (see for example Fortuny et al. 2003 and OECD 2004c). However, there are also counter-examples. Case-study evidence from liberal countries in fact suggests that self-employment may be taken up as a ‘second career’ in older ages instead of dependent employment (Bregger 1996; Karoly and Zissimopoulos 2004). Furthermore, other countries, such as Spain or Italy, have recently introduced specific social security and labor market arrangements that support the establishment of self-employment.12 Based on cross-sectional OECD data, it remains difficult to pass a definitive verdict on which of the above trends appears to be dominant. Longitudinal data on movements between different labor market statuses are needed to definitively decide whether high self-employment rates in old age are the product of moves into or maintenance within self-employment. I shall return to this issue in my longitudinal analyses in Chapter 5. Summary: the limits of flexibilization among older workers The globalization hypothesis as outlined in Chapter 3 argued that globalization would trigger a rising discrepancy between the rising flexibility demands of enterprises and the competitive flexibility disadvantages of older workers in terms of wages, skills and the legal regulation of their employment relationships. Sections 4.2 and 4.3 scrutinized how far these developments have led to changes in the overall employment attachment of older workers by considering changes in their employment or

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unemployment rates. In this section, I have additionally considered the alternative of a flexibilization of work patterns themselves by reviewing the relative importance of three different forms of a more flexible organization of employment. The results indicate that, while measures triggering the employment exit of older workers have been widely used in all countries under study, there have been only limited signs of a flexibilization of work patterns themselves. More than anything else, flexibilization has taken place with regard to part-time work, whose importance has increased throughout the last few decades. However, despite being promoted politically, in most countries, the quantitative importance of part-time work is still modest, and, especially for men, part-time work applies only to a minority of the older work force. Temporary employment, a work form widely used to flexibilize the employment relationships of younger workers, has remained of little importance among older workers. Finally, though self-employment makes up a significant share of older workers’ employment, it remains ambiguous whether these relative proportions represent an increase in the use of selfemployment as a means to flexibilize work relationships or whether high self-employment shares instead simply reflect the strong labor-force commitment of those who have been self-employed throughout their lives. In sum, while youth have experienced a serious flexibilization of their employment through substantial increases in temporary employment, part-time jobs and precarious self-employment, such developments are only very slight among older workers. The reason behind this substantial intergenerational difference in the use of flexible work forms may lie in the different levels of establishment within the labor market. Young labor market entrants usually cannot draw on important strategic relationships to unions or work councils and hence often have less power when negotiating new work contracts. Hence, the design of their employment relationships can be flexibilized comparatively easily by their employers (Blossfeld et al. 2005). In contrast, older workers usually possess more strategic relationships to labor organizations and can more often fall back on strongly regulated work contracts with high levels of employment security. In most cases, they can therefore avoid being pushed into flexible, atypical forms of employment unless these forms appear to be beneficial to them. Thus, it is not surprising that part-time employment, which has some considerable advantages for older workers by allowing them to exit gradually from employment while maintaining their employment security, has found a much larger spread among older worker than temporary employment, which often entails a largely one-sided employment flexibilization to the advantage of the employer. On the whole, firms therefore have had to rely on achieving increased flexibility not through re-designing

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employment relationships but by offering older workers a financially cushioned employment exit through generous early retirement incentives. Hence, for older workers, increased flexibility demands have translated into increasing flexibility with regard to their employment status itself, but not with regard to the quality of their working contracts. These results highlight the importance of the decision component in the theoretical model developed in Chapter 3. In contrast to the case for youth, flexibilization measures cannot be realized against the will of older workers, but have had to be ‘bought in’ through generous financial offers in which either the employer or the state provided exit incentives large enough for utility-maximizing older workers to accept. In other words, the strong protection of older workers as previous ‘insiders’ of the labor market has protected them from a flexibilization through labor market ‘push factors’ alone (as has been the case for youth), but made it necessary to supplement these by generous ‘pull incentives’ through pensions and other welfare-state transfers. The view of retirement transitions as being ‘forced’ and entailing little free choice, so often posited in classic lifecourse research, needs to be put into perspective against this background. Nonetheless, the extent and concrete design of exit incentives significantly varied between national contexts as a consequence of the specific design of labor market and welfare institutions. In this sense, older workers’ exit transitions can be seen as a decision under the specific ‘constraints’ of an institutional regime. In the next section, I shall elaborate on the relationship between these regime-specific constraints and the resulting patterns in older workers’ labor-force participation in more detail.

4.5

EMPLOYMENT TRENDS AND INSTITUTIONAL BACKGROUNDS

The previous sections have given a detailed description of changes in the employment patterns of older workers in the last two to three decades marked by increasing globalization. Taken together, the results demonstrated that, in all 14 countries under study, the overall labor-force attachment of older workers weakened and their employment decreased considerably, while signs of a flexibilization of the employment contracts of older workers through the introduction of atypical work forms remained rather modest. These results provide vital support for the hypothesis of a labor-shedding effect of globalization on older workers as outlined in Chapter 3. However, despite the uniqueness of this overall trend, there were also systematic variations in its degree and intensity between different groups of countries:

200 ●

●

●

Older workers in a globalizing world

In both liberal and social democratic countries (with the partial exception of Denmark), the employment rates of older workers have remained comparatively high and exit rates of older workers over time have been rather modest. Early-exit rates appeared to be moderately connected to cyclical economic variations, displaying a high throughout economic boom periods but some notable decreases once the economy recovered. In most of the liberal countries, modest exit rates among older workers were frequently connected with flexible labor market structures which allowed both older and younger workers good opportunities for a quick labor market reentry if they had fallen out of employment. In contrast, exit rates among older workers in both conservative and Southern European countries have been constantly higher throughout the last two to three decades, with indications of a gradual decoupling from variations in the economic cycle. As a consequence, employment rates of older workers in their early 60s (and in Italy even of those in their late 50s) declined substantially in the last three decades. These decreases were often connected with rigid labor markets in which unemployment especially for older workers often meant a state of permanent exclusion from active labor market participation. Under these conditions, most older workers made use of generous welfare-state offers for employment exit, while those who did not want or could not afford to exit employment permanently were often pushed into involuntary atypical work. The post-socialist countries of the former Eastern bloc did not reveal a unique pattern. While after the breakdown of the Iron Curtain the employment of older workers declined significantly in all three post-socialist countries under study, these countries appear to have followed differential strategies of accomplishment in the years thereafter. While both Hungary and the Czech Republic have pursued a strategy of fostering mass early retirement, evidence for Estonia suggests a more liberal-type pathway with few incentives for an early labor-force exit.

Though some countries (Denmark, Estonia and to some extent Spain) proved to be borderline cases in between the country groupings, empirical results largely coincided with the theoretical classification of countries as employment exit (conservative and Southern European), market-induced maintenance (liberal) and public-induced maintenance (social democratic) regimes. Hence, the observed systematic cross-country differences appear to be well in line with the theoretical idea of institutional settings that act

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201

as intermediate filters of globalization and lead to differential outcomes on the nation-state level. So far, however, I have referred only implicitly to the relationship between institutional backgrounds and the aggregate labor-force behavior of older individuals without providing empirical proof. In this chapter, I shall now turn to an explicit empirical investigation of the association between country-specific institutional settings and older workers’ employment patterns. For this purpose, I shall successively contrast employment rates of older workers with institutional indicators representing the key institutional strategies discussed in Chapter 2. I shall first turn to an empirical illustration of institutions that facilitate or hinder an early exit from active employment, namely pension systems and additional welfare pathways into early retirement, and their importance for the employment behavior of older workers. I then shall move to a corresponding analysis of institutions that may serve or hinder older workers’ maintenance within the labor market, and discuss the role of various institutional settings, including modes of labor market regulation, active labor market policies and the role of (continuous) education and training policies. For illustrative reasons, I shall confine myself to using men’s employment rates in the pre-retirement age (aged 60 to 64 years) as a representative indicator of older workers’ employment attachment, relying on my previous analyses proving that these rates provide a precise, adequate and largely unambiguous indicator for cross-national trends in older workers’ labor-force participation. Employment exit strategies: pension systems and retirement incentives Previous research in both economics and sociology has pointed to the central importance of pension systems and their functional welfare-state equivalents in shaping the employment versus retirement decisions of older individuals (see sections 2.2 and 2.3). Through various mechanisms, these programs have facilitated an early labor-force withdrawal for older employees. Three key characteristics have been accentuated as determining their retirement choices. First, formal (early) retirement ages were seen as an individual ‘benchmark’ for retirement planning as well as an important turning point at which pension payments can be drawn under financially favorable conditions. Second, the overall generosity of pension benefits was expected to have a significant influence, with more generous pension systems providing higher levels of post-employment transfers and therefore providing an incentive for exiting employment, even if exiting before formal retirement would entail a partial loss in future pension benefits. Finally, the accrual structure of pension benefits was expected to influence the retirement decision by providing incentives for an early

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Older workers in a globalizing world

Table 4.9

Standard and early retirement ages of men and women: 1969–2003 Men

Women

Standard retirement age

Early retirement age

Standard retirement age

1969 1979 1989 2003 1969 1979 1989 2003 1969 1979 1989 2003 United Kingdom United States Canada Denmark Norway Sweden Germany Netherlands France Italy Spain Hungary Czech Republic Estonia Source:

65 65 66 67 70 67 65 65 65 60 65 – – –

65 65 65 67 67 65 65 65 65 60 65 – – –

65 65 65 67 67 65 65 65 60 60 65 60 – –

65 65 65 65 67 65 65 65 60 65 65 62 61.5 63

65 62 66 67 70 63 65 65 60 55 65 – – –

65 62 65 67 67 60 63 62 60 55 60 – – –

65 62 60 67 67 60 63 60 60 55 60 60 – –

65 62 60 65 67 61 63 60 60 57 60 62 58.5 60

60 65 66 67 70 67 65 65 65 55 55 – – –

60 65 65 67 67 65 65 65 65 55 65 – – –

60 65 65 67 67 65 65 65 60 55 65 55 – –

60 65 65 65 67 65 65 65 60 65 65 62 59.5 58.5

Duval 2003a; US Department of Health and Human Services 2004.

labor-force exit if future pension wealth accruals are negative and therefore impose an implicit tax on continued employment. In the following, I shall discuss the significance of these three pension system characteristics one after another. To begin with, Table 4.9 depicts the standard and early retirement ages for the 14 countries under study in the time period from 1969 to 2003. It shows that, in most countries, the formal retirement age has been at age 65 or higher. In the majority of countries, women’s standard retirement ages are identical to men’s, though in the UK, Italy and the three post-socialist countries specific retirement ages for women have been introduced that lie up to five years below those of men. Notably, formal retirement ages have changed only little in recent decades. While formal retirement ages have been lowered only in France and Denmark, some other countries most recently raised them (Italy, Hungary) or adjusted women’s retirement ages to those of men (Spain, Hungary) to reduce pressure on national pension funds. Ten out of the 14 countries under study have legislated specific early retirement ages at which older individuals can start to claim their pension benefits, which usually lie between age 60 and 63. Only in Italy can early retirement pension be claimed in the mid

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203

50s, a consequence of the already low formal retirement age of 60. Among the countries under study, Canada, Sweden, Germany, the Netherlands and Spain either introduced or extended existing early-exit opportunities throughout the last three decades, while in the United States, France and Italy these schemes already existed. Most recent trends indicate signs of a trend reversal reflected in occasional increases in early retirement age limits. As a first proxy indicator, (early) retirement ages therefore can provide a helpful contextual background for explaining the development and extension of early-exit trends. In some instances, cross-national differences in (early) retirement ages resemble cross-national differences in older workers’ participation patterns. For example, the low participation rates of older men and women in Italy are most likely a consequence of the low formal (age 60) and early (age 55) retirement age. Furthermore, in those countries where early retirement ages were introduced or extended (e.g. France, Germany, Sweden and Spain), these trends appear to parallel the observed decrease in older workers’ employment participation. Finally, the most recent reversal of early retirement trends may be attributable to the most recent hikes in retirement ages or the gradual abolition of (early) retirement opportunities. However, as a sole explanation of the early retirement trend of the last three decades, a consideration of retirement age limits does not suffice. While in some countries (such as France) early retirement opportunities already existed well before the decline of employment rates in the 1970s and 1980s, other countries (e.g. Denmark or the United Kingdom) have experienced declines in older workers’ labor-force participation without any significant changes in formal or early retirement regulations. Even in direct cross-national comparison, countries with similar (early) retirement ages display very different employment rates of old workers. Since the 1980s, for example, both Sweden and Germany have had a formal retirement age of 65 years and an additional age limit for early retirement. However, while the early retirement limit in Sweden (60 years) lies three years below the German age limit, older workers’ employment rates in their mid 60s are almost twice as high in Sweden as in Germany. In order to sufficiently explain early-exit patterns, an examination of pensions systems hence has to go beyond a comparison of retirement age limits. Though age boundaries may provide helpful orientation markers for individual retirement decisions, they need to be connected with specific financial entitlements in order to unfold their full potential. If public pension benefits at formal retirement ages are very generous, it can be assumed that individuals may be more likely to exit employment even before formal retirement ages, even if benefit reductions through actuarial mechanisms may partially reduce the replacement rate. In particular, this

204

Table 4.10

Older workers in a globalizing world

Net replacement rates of public pension systems at standard and early retirement age: 2003 Early retirement

United Kingdom United States Canada Denmark Norway Sweden Germany Netherlands France Italy Spain Czech Republic Estonia Hungary

‘Normal’ retirement

Earliest age of benefit

Average replacement rate in early retirement

Standard retirement age

Average replacement rate at standard retirement age

65 62 55 – 67 61 63 60 60 57 60 – – –

0 41 26 – 0 72 71 83 77 80 80 – – –

65 65 65 (65) 67 65 65 65 60 65 65 (61.5) (63) (62)

40 47 57 (68) 63 82 97 92 77 97 93 (79) (43) (59)

Note: Figures in brackets from national country studies, not strictly comparable with OECD data, from Casey et al. 2003. Source: Casey et al. 2003: 84f.; Hamplová and Pollnerová 2006; Leppik and Kruuda 2003; Natali 2004; OECD 2008; Tomeš, Koldinská and Němec 2003.

will be the case if pension replacement rates are still high at early retirement ages, that is if benefit reductions by claiming early retirement are small. In contrast, older workers in pension systems with low replacement levels from public pensions will probably be more likely to remain in employment, as mere pension income will not allow them to maintain an adequate standard of living. Instead, workers will have to rely on additional old-age income sources such as private pensions, savings and insurance plans which require longer contribution histories, thereby entailing the need for longer work lives. In order to test for these relationships, Table 4.10 presents the percentage net wage replacement rates under public pension systems at both the standard retirement age and the earliest possible age of benefit receipt for the sample year 2003.13 Net replacement rates are defined as ‘the ratio

The macro-perspective

205

of pension or early retirement benefits to earnings just prior to retiring’ already considering the tax treatment of benefits (Casey et al. 2003: 12). The following analyses use replacement rates for an average production worker at 100 percent of standard earnings.14 As Table 4.10 shows, public pension replacement rates are lowest in liberal countries at both formal and – if existent – early retirement ages, making up only around one-half or less of previous earnings. This low public pension level reflects the residual character of public welfare policies and their almost exclusive orientation towards poverty prevention (Schwarze 1998). In liberal countries, pensions guarantee only a minimum standard of living and are expected to be supplemented by private pensions which cover more than one-half of employees and can make up up to onehalf of pensioners’ retirement income.15 In contrast, in both conservative and Southern European countries – where the importance of additional private benefits is comparatively low – public pension benefits grant generous compensation with close to full wage replacement at formal retirement ages. Though replacement rates are somewhat lower at early retirement ages, they still make up between three-quarters and four-fifths of previous earning levels in these countries and hence provide a substantial incentive for early exit. In between the two poles demarcated by the liberal and the conservative/Southern European regime, social democratic countries take an intermediate status. Benefits at formal retirement ages compensate for between 63 and 82 percent of previous income. In addition there are either public or private early retirement options that allow for a premature exit five years prior to formal retirement at a replacement level comparable to those of conservative countries (Aakvik, Dahl and Vaage 2006; Casey et al. 2003). For post-socialist countries, no strictly comparable OECD data are available. However, single-country study evidence suggests a split in pension system generosity much in line with observed differences in older workers’ employment rates. In Estonia, where old-age employment is high (see Table 4.3), public pension replacement rates hover between 40 and 45 percent, that is at replacement levels comparable to those of liberal countries. Early exit is possible, though only at a discount of 0.4 percent for each month of earlier retirement (Leppik and Kruuda 2003: 50f.). Pension replacement rates in both the Czech Republic and Hungary, where older workers’ employment rates are lower, lie at levels around 60 percent at formal retirement age, with some options for early retirement on reduced benefit levels (Bukodi and Róbert 2006b; Gál et al. 2003; Hamplová and Pollnerová 2006; Tomeš, Koldinská and Němec 2003). At first sight, the description of pension replacement rates suggests a systematic negative relationship between the generosity of a pension system

206

Older workers in a globalizing world

and the employment rates of older workers. Figure 4.8 formalizes this relationship by directly contrasting employment rates of men aged 60 to 64 years and pension replacement rates at both formal and early retirement ages. Results from Figure 4.8 support the hypothesized negative relationship between pension system replacement rates and the employment rates of men in their early 60s. In countries with high pension replacement rates, employment rates tend to be systematically lower than those for workers in countries with a lower replacement level. As expected, the R2 ratios of explained variance indicate that the relationship between the two variables is more pronounced for replacement rates at early retirement ages than for those at formal retirement. Though the evidence on pension system generosity from Figure 4.8 appears conclusive, it potentially suffers from a number of shortcomings. Firstly, it considers only public pension benefits and does not take into account the role of other welfare-state subsystems that have proven to be equally important in determining the work versus retirement choices of older workers (see sections 2.2 and 2.3). Secondly, pension replacement quotas given in Table 4.10 refer to various nation-specific (early) retirement ages and therefore do not give a unified measure of potential pension accrual patterns after a specific age that could be compared straightforwardly across countries with respective age-specific employment rates. Finally, replacement rates at both formal and early retirement ages do not consider what happens in between these ages, that is how benefit accruals develop in the meantime. For example, even if pension benefits are fairly generous at early retirement ages, individuals may decide to continue working for further years if they expect net gains from continued employment. In order to overcome these shortcomings, Figure 4.9 contrasts the average implicit tax rate on continued employment between age 55 and age 64 with the employment rates of men in the same age group. As shown in section 2.2, implicit tax rates contrast the receipt of pension payments with the income from a continuation of work by calculating the discounted value of future pension streams, minus pension contributions, as a percentage of gross income (Blöndal and Scarpetta 1999: 7). The higher the value of the implicit tax rate, the stronger the incentive to leave the labor force before reaching age 65. Data for implicit tax rates strikingly confirm the earlier findings. As the exclusively positive values for the implicit tax rate show, none of the pension systems under consideration are actuarially fair in the strict sense. Instead they all include incentives for an earlier withdrawal from employment, though at different levels. In both liberal and social democratic countries, implicit tax rates for a withdrawal from work between age 55 and 64 are low, that is the benefit accrual pattern in

Net replacement at standard retirement age

The macro-perspective 100

ITA GER

NL

207

SPA

SWE

80 FRA CZE

NOR

60 CAN US

UK

40

R2 = 0.3023 20

0 0

10

20 30 40 50 60 Employment rate, men, 60–64 years

70

Net replacement at early retirement age

100 NL 80 FRA

SPA GER

60

ITA

SWE

CZE 40

US

R2 = 0.5215 CAN

20 UK

NOR

0 0

Source:

10

20 30 40 50 60 Employment rate, men, 60–64 years

70

Employment rates: OECD 2008; replacement rates: see Table 4.10.

Figure 4.8

Net replacement rates of public pension systems at standard (top) and early (bottom) retirement age versus employment rates for men aged 60–64 years: 2000

208

Older workers in a globalizing world 75 NOR

Employment rate, Men, 55–64 years, 1995

70 65

USA

SWE

DK

60 UK 55 GER

R2 = 0.6401

50 SPA

ITA

45 NL 40 0

10

20

30

40

50

60

70

80

90

Implicit average tax rate on work 55–64 years, 1995 Note: Implicit average tax rates considers both pension- and unemployment-related benefits. Source:

Hofäcker and Pollnerová 2006.

Figure 4.9

Employment rates versus implicit tax rates on work for ages 55–64 years: 1995

this period is almost actuarially neutral. Together with the low replacement level of public pensions, these virtually neutral accrual patterns foster older workers’ maintenance in employment in order to accumulate more financial resources. In Figure 4.9, they are therefore accompanied by high employment rates for older workers of the same age group. In contrast, conservative and Southern European countries exhibit clearly higher implicit taxes on continued employment, indicating that, after age 55, public pension and welfare benefits are calculated in a way that penalizes continued employment through a less than actuarial accrual of future benefits. These countries combine high benefit levels at both early and formal retirement ages with low incentives for employment continuation after reaching these thresholds. Accordingly, older workers in these countries show a higher likelihood of exiting employment before reaching age 65 than those in liberal and social democratic countries. Though earlier data on implicit tax rates are scarce, calculations by Blöndal and Scarpetta (1999: 88) indicate that implicit tax rates were universally low in the late 1960s, mostly ranging between values of −15 and +15 percent.16 Therefore, the fact that early retirement incentives were gradually introduced throughout the last few decades supports the

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209

theoretical assumption that these programs were used as strategic political tools to tackle the increasing employment problems of older workers under globalization. However, in order to understand and explain the cross-national differences in the effect of globalization on older workers’ employment rates, one has to consider additional institutional patterns that influence the labor market situation of older workers under globalization. In the following, I shall turn to an explicit analysis of institutions that hinder or support the employability of older workers on globalized labor markets. Employment maintenance strategies (I): labor market and wage flexibility One of the key characteristics of national labor markets that can be expected to influence older workers’ employment chances under globalization is the way in which labor markets are regulated. In the theoretical section, I argued that the main dividing line can be expected to run between ‘open’ and ‘closed’ employment relations (see section 3.3). In countries with ‘closed’ employment relationships, I expected that high levels of labor market protection would strongly protect the employment relationships of older ‘labor market insiders’. However, given that older workers’ qualification profiles often become devalued under globalization, these strong protective mechanisms will turn senior employees into an expensive and inflexible work force with high levels of employment security and higher ‘seniority wages’. Under increasing globalization pressures, employers will attempt to shed these older workers by granting them generous pension benefits. In contrast, older workers in ‘open’ employment relationships will enjoy little employment protection. On the one hand, this low job security will make them more vulnerable to short-term market fluctuations. On the other hand, their comparative disadvantage to younger workers with regard to job contracts and wage levels will be lower, while, at the same time, highly fluid labor markets will allow them to adapt swiftly to globalization-induced flexibility demands. The comparative analysis of unemployment duration in the 14 countries under study (see section 4.3) provided some evidence for the empirical applicability of this theoretical differentiation. In this section, I shall turn to an explicit confrontation of nation-specific modes of labor market regulation with older workers’ late-career patterns, considering both the overall level of employment protection and the specific case of seniority regulations and seniority wages. To begin with, I shall look at the development of employment protection using the Employment Protection Legislation (EPL) Index, a summary measure developed by the OECD to evaluate the overall strictness of employment regulations in modern industrialized societies. The

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Older workers in a globalizing world

EPL Index is based on several single indicators that can be summarized under three main sub-dimensions. The first dimension refers to the strictness of employment protection for regular employment and includes measures of the procedural inconveniences for employers when trying to dismiss employees, the respective notice and severance pay provisions, and standards and penalties for unfair dismissal (OECD 1999a: 54ff.). A second sub-dimension covers indicators representing the regulation of temporary employment, consisting of measures of the lawfulness and maximum duration of both fixed-term and temporary agency work. Summary data for both dimensions are available for the late 1980s, the late 1990s and the year 2003 (OECD 2004b). A most recent version of the index also features a dimension describing the procedural steps and legal regulations regarding collective dismissals. Based on the weighted sum of these sub-dimensions, the OECD provides two summary indices, one referring only to the former two dimensions (EPL Index I) and one additionally including the latter dimension of collective dismissals (EPL Index II).17 Index values generally range between a minimum value of 0, indicating very low or no regulations, and a maximum value of 6, indicating an extremely strict level of regulation. Table 4.11 presents both the EPL summary scores (‘overall EPL’) and the separate scores for the three sub-dimensions at all three observation dates. As Table 4.11 shows, there are significant cross-country differences in the degree of employment protection. Employment protection legislation is of very little importance in liberal countries, where only collective dismissal appears to be restricted by law while there is very little regulation for both regular and temporary employment. These results are indicative of a highly flexible labor market with only low entry barriers but, at the same time, a low degree of job security. In contrast, employment protection is most developed in conservative and Southern European countries, which score high values on virtually all three dimensions. On the one hand, this rigid labor market regulation protects those in employment and largely safeguards them from job losses. On the other hand, however, it also erects high entry barriers for those outside employment, thereby creating the insider–outsider labor market structures typical for these countries which themselves make up the contextual background for the high shares of structural long-term (old-age) unemployment to which they are exposed (see Figure 4.5). Social democratic countries fall in between with strong protection against mass dismissal and a modest degree of regulation of both regular and temporary employment. In Eastern European countries, employment protection tended to be extremely high under socialism with job guarantees for almost all workers and the near impossibility of contract termination. In the course of necessary adjustments

211

0.3 0.3 0.3 0.3 1.4 3.1 1.6 2.0 2.3 1.2 3.6 2.4 3.6 3.3 3.5 0.6 0.5 – (0.6)

Late 1990s 0.4 0.3 0.3 0.3 1.4 2.9 1.6 2.0 1.8 1.2 3.6 2.2 2.1 3.5 2.8 1.1 0.5 – (0.8)

2003 2.9 2.9 2.9 2.9 3.9 2.9 4.5 3.8 3.5 3.0 2.1 2.9 4.9 3.1 4.0 2.9 2.1 – (2.5)

Late 1990s 2.9 2.9 2.9 2.9 3.9 2.9 4.5 3.8 3.8 3.0 2.1 3.0 4.9 3.1 4.0 2.9 2.1 – (2.5)

2003 0.6 0.2 0.8 0.5 2.3 2.9 3.5 2.9 3.2 2.7 2.7 2.9 3.6 3.8 3.7 – – – –

Late 1980s 0.6 0.2 0.8 0.5 1.4 2.7 2.2 2.1 2.5 2.1 3.0 2.5 2.7 2.9 2.8 1.3 1.9 – (1.6)

Late 1990s 0.7 0.2 0.8 0.5 1.4 2.6 2.2 2.1 2.2 2.1 3.0 2.4 1.9 3.1 2.8 1.5 1.9 – (1.7)

2003

1.0 0.7 1.1 0.9 1.8 2.7 2.6 2.4 2.6 2.3 2.8 2.6 3.1 3.0 3.1 1.5 1.9 2.1 1.8

Late 1990s

1.1 0.7 1.1 1.0 1.8 2.6 2.6 2.3 2.5 2.3 2.9 2.6 2.4 3.1 2.8 1.7 1.9 – (1.8)

2003

EPL Index II

Cazes and Nesporova 2004: 40 (Estonia); OECD 2004b: 117 (all other countries).

0.3 0.3 0.3 0.3 3.1 3.5 4.1 3.6 3.8 2.4 3.1 3.1 5.4 3.8 4.6 – – – –

Late 1980s

EPL Index I

Source:

1.1 0.2 1.3 0.9 1.5 2.3 2.9 2.2 2.7 3.1 2.5 2.8 1.8 2.6 2.2 1.9 3.3 – (2.6)

2003

Collective Dismissal

Mean values in parentheses as they are based only on a limited number of cases and, thus are not directly to transfer earlier time points.

0.9 0.2 1.3 0.8 1.5 2.3 2.9 2.2 2.7 3.1 2.3 2.7 1.8 2.6 2.2 1.9 3.3 3.4 2.9

Late 1990s

Temporary employment

Overall EPL

Notes:

0.9 0.2 1.3 0.8 1.5 2.3 2.9 2.2 2.6 3.1 2.3 2.7 1.8 3.9 2.9 – – – –

Late 1980s

Regular employment

Sub-dimensions

Summary indicators of the strictness of employment protection legislation: late 1980s until 2003

United Kingdom United States Canada Liberal Denmark Norway Sweden Social democratic Germany Netherlands France Conservative Italy Spain Southern European Hungary Czech Republic Estonia Post-socialist

Table 4.11

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Older workers in a globalizing world

after the fall of the Iron Curtain, however, employment protection was reduced significantly to give firms more flexibility over their staff resources (Cazes and Nesporova 2004: 37f.). As a result, employment protection in post-socialist countries nowadays tends to be around the European average, with modest protection against mass and individual dismissal, but little regulation of temporary employment. Hungary displays the lowest level, followed by the Czech Republic and Estonia. However, Cazes and Nesporova (2004: 39f.) emphasize that EPL indicators give only an estimate of legal regulations and supply very little information about their actual enforcement. For the Estonian case, for example, Täht and Saar highlight that there are huge deficits in the public investigation and penalization of employer violations of legal rules, indicating that employment security is ‘formally protected but is in practice weak’ (Täht and Saar 2006: 304). Trends over time point to a process of convergence in overall employment protection among the countries under study, with those countries with initially high EPL values (that is, Southern European and conservative countries) moving towards more moderate levels of employment protection. However, while numerical values may converge, there has been little change over time with regard to the relative position of countries, with the liberal countries still being the least and the Southern European countries being the most regulated (OECD 2004b: 71). Notably, changes in overall EPL levels have been driven almost entirely by changes in the regulation of temporary employment, which has declined significantly in social democratic, Southern European and conservative countries. As shown earlier, these developments have largely altered the employment situation of young workers who were increasingly pushed into these types of contracts, while the employment relationships of older workers remained virtually unaltered (see Table 4.7). At the same time, the regulation of both standard employment and mass dismissal has remained largely constant over time (ibid. 73). It therefore seems fair to say that, with regard to the labor market position of older workers, little has changed in terms of employment protection. Here the dividing line still runs between the highly regulated insider–outsider labor markets of the ‘closed’ employment relationships in Central and Southern Europe and the ‘open’, flexible labor markets in liberal countries. Figure 4.10 explicitly contrasts the level of employment protection with employment rates of older men in the 14 countries under study for the 1990s.18 It permits a rough distinction between three country clusters. In liberal countries, low levels of employment protection are accompanied by comparatively high levels of older men’s employment. A high degree of labor market flexibility obviously allows workers to better adapt to

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213

OECD EPL Index II, late-1990s

4

ITA

3

SPA

FRA GER 2

NOR

EST

NL CZE

SWE

DK

HUN CAN

1

UK USA

0 10

20

30

40

50

60

70

Employment Rate 60–64 years (Men), 1995

Source:

OECD 2004b, 2008.

Figure 4.10

Employment rates of men aged 60–64 years: 1995 versus EPL Index II: end of the 1990s

increased flexibility demands under globalization. At the same time, it enables older workers who need to continue working because of low public pension benefits to remain in the active labor force even after a possible job loss. In contrast, conservative and Southern European countries combine high levels of employment protection and low employment rates among older men. Though employment regulation tends to protect older workers as labor market insiders, it increases their competitive disadvantage in comparison to younger workers’ for whom legal restrictions for flexible work and temporary employment have been reduced significantly. At the same time, unemployed older workers turn into a problem group on the labor market, as strong employment protection for the ‘insiders’ makes returns for the ‘outsiders’ difficult. This twofold problem of both the older employed and the older unemployed makes up the contextual background for the wide diffusion of generous early retirement opportunities, as previously described. Post-socialist countries appear to follow a similar pattern, though results show a large variation between countries. Social democratic countries, however, indicate that labor market deregulation may not be the only route to fostering older workers’ employment. Here, labor market regulation is moderate, but employment rates of

214

Older workers in a globalizing world 200 180 160 140 120 100 80

DK SWE

UK NOR

< 30 30–39 40–49 50–59 >60 years years years years years

200 180 160 140 120 100 80

GER SPA F

ITA NL

< 30 30–39 40–49 50–59 >60 years years years years years

200 180 160 140 120 100 80

CZE EST HUN

< 30 30–39 40–49 50–59 >60 years years years years years

Source:

Eurostat 2008.

Figure 4.11

Relative wage levels by age groups: 2002

men in their early 60s turn out to be high. Hence, the following analyses will have to look for alternative institutional explanations for the employment success of Scandinavian countries with regard to older workers. So far, I have considered only measures determining the flexibility of older employees’ working relationships, arguing that a too strict relative protection of older workers’ employment may potentially harm their competitive labor market chances. However, in contrast to younger labor market competitors, older workers may exhibit comparative disadvantages not only with regard to their guaranteed job security but also concerning their wage level. Especially if older workers are being paid higher ‘seniority wages’, they can make up a potential ‘cost factor’ for employers, thus triggering their replacement by younger workers. If, in contrast, wage levels were more similar across labor market generations, employers would possibly be more likely to continue employing them. In order to test for this effect, Figure 4.11 presents the relative age–wage profiles of older men for the countries under study, expressed as a multiple of the wage of a young labor market entrant (that is a worker aged less than 30 years). From an economic viewpoint, one should expect that wages initially rise with age, reflecting the productivity increases through the accumulation of on-the-job experience, but flatten out afterwards. Some studies argue that they should again tend to fall for older workers owing to (perceived) productivity decreases in older age.19 Empirical results do, however, point to a significant variation of age–wage profiles across

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215

regimes. Figures for employment exit regimes (top right) indicate that, in these countries, wages indeed rise steeply until age 50 to 59 and only then tend to flatten out or decrease slightly. On average, workers aged 50 years and more tend to earn between 60 and 80 percent more than young labor market entrants. Though this pattern may partly be due to selection effects (that is the fact that, in conservative regimes, workers with lower wages are more likely to exit employment early), it probably equally reflects distinctive seniority regulations that are still very widespread in these countries. In the Netherlands, for example, seniority pay is still covered ‘in most, if not all, collective agreements’ (OECD 2005i: 100), while in Spain it also makes up a ‘major component of agreed wages’, covering 80 percent of all working contracts (OECD 2003d: 83). A similarly high coverage of seniority practices is also reported for other employment exit countries for either the whole economy (France and Italy; see OECD 2004d, 2005e) or the public sector only (Germany; see OECD 2005f). These age–wage profiles turn older employees into costly labor, thereby aggravating their potential comparative labor market disadvantages already reflected in their high employment protection, resulting in lower hiring and retention rates of older workers (OECD 2006: 69). In contrast, age–wage curves for older male employees follow a much less steep pattern in employment maintenance regimes (top left), reflecting the comparatively low importance of seniority mechanisms in these countries. Especially for the social democratic regime, country-specific studies find ‘little evidence for the existence of seniority’ (Denmark; OECD 2005g: 83) or identify it as ‘no widespread practice’ (Sweden; OECD 2003b: 82). In Norway, some seniority regulations do exist, but apply only for the first ten years of a worker’s career (OECD 2004e). These results are indicative for the generally compressed wage structure in Scandinavian countries achieved through a mutual compromise among all labor market actors on a system based on wage moderation, high employment security and generous universal public transfers (‘Nordic corporatism’; see section 2.4.3). This mode of labor regulation has accomplished that older workers have been able to maintain a competitive status in national labor markets despite formally moderate to high levels of employment protection. Liberal countries usually display similar age–wage profiles. The United Kingdom is the only country featured in Figure 4.11 that reveals a profile with moderately steep age-specific wage increases until mid-career, and a substantial decline in wage levels for older workers. Strictly comparable data for both Canada and the United States are not available from Eurostat, but similar OECD evidence suggests fairly similar profiles, though with a less steep decline in old age (OECD 2005c, 2005d, 2006: 66). On the one hand, these patterns may potentially reflect the ‘market price’

216

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for older people’s work, mirroring employers’ perceptions of declining mental and physical abilities in old age (Schröder, Hofäcker and MullerCamen 2009). On the other hand, they may equally stand for the higher readiness of older workers in need of a labor market income to accept even less-qualified jobs or precarious work (Golsch, Haardt and Jenkins 2006: 186; Warner and Hofmeister 2006: 153). Finally, patterns in post-socialist countries appear to be very heterogeneous. While, in Hungary, age–wage profiles tend to follow a conservativelike pattern with sharp wage increases in old age, they are largely flat in the Czech Republic and even falling in Estonia. Especially in the latter, these patterns may reflect a liberal reasoning, that is the readiness of older employees to work even at low wages in order to secure a labor market income in face of low pension payments. Employment maintenance strategies (II): active labor market policies Both employment protection legislation and seniority wages are examples of public strategies to indirectly influence employer–employee negotiations on free labor markets through legislative measures. However, there also are opportunities by which public policies can influence the labor market position of older workers more directly. A key role in this respect has been ascribed to active labor market policies (ALMP). In contrast to passive labor market policies that largely consist of traditional income maintenance measures for the unemployed (such as unemployment benefits or early retirement practices), active labor market policies aim at stimulating employment levels by enhancing the return of the non-employed into the labor market, investing in the development of skills and improving overall labor market functioning (Powell and Barrientos 2004: 88). They include programs such as public employment services and administration, labor market training for both the employed and the unemployed, measures for youth in the transition from school to work, subsidized employment in both the public and the private sector, and rehabilitation measures for the disabled (OECD 1993: 71f.). Under the impact of rising unemployment rates in Western European societies and the resulting increase in benefit expenditures, these measures have become increasingly popular as a means to move people out of long-term welfare benefit recipience. Though these measures usually make up just one element in a comprehensive strategy and need to be supplemented by further measures (such as the steering of labor demand; Martin 1998), they are expected to be able to raise the employment level among the population in general and among older workers in particular (OECD 2003d: 173). In the following, I shall analyze the development of these types of policy measures over time and their relation to older workers’ employment

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217

patterns using the share of public expenditures for active labor market policies in general as a percentage of a country’s Gross Domestic Product (GDP). Some countries, such as the United Kingdom, have additionally enacted ALMP measures to assist older workers as a specific target group (OECD 2005d). There are, however, two reasons not to use these measures as an indicator of a national government’s commitment to supporting the employment of older workers. On the one hand, they are difficult to identify in an internationally comparative manner, as – in contrast to youthoriented measures – they are not systematically ‘flagged’ out as a specific category of expenditure. On the other hand, it remains disputable whether such measures actually benefit older workers, as they simultaneously may evoke loder workers’ stigmatization as a specific ‘problem group’ on the labor market (OECD 2006: 113). It therefore seems more sustainable and beneficial to support older workers through more general ‘age-blind’ measures at earlier stages in their career before they turn into a specific labor market problem group. Hence, many countries have decided to provide open access to general labor market measures for workers of all ages instead of enacting specific programs for the older work force. For this reason, I shall use expenditures for ALMP policies in general as a proxy indicator for public engagement in supporting (older) employees’ employment. Table 4.12 gives an overview of the development of public ALMP expenditures for 1980 to 2004 by five-year intervals. As it shows, expenditure on active labor market policies has grown in most of the countries under study (with the notable exceptions of the United States and the United Kingdom), reflecting the rise in large-scale unemployment after the two oil crises. As in the earlier institutional comparisons, significant crossnational differences become apparent, largely along the lines of the institutional classification of countries used in this work. These cross-country differences even appear to have amplified since the economic crisis period of the 1980s, suggesting path-dependent reactions of institutional regimes to the labor market crisis induced by increased competition in global product and labor markets (see also Powell and Barrientos 2004: 96). Three groups of countries display low public involvement in active employment support, though for very different reasons. In liberal countries, ALMP expenditures make up only around 0.5 percent of GDP or less. Especially in the United States, public investment in active employment policies has been virtually non-existent. This low level of public support for labor market re-integration largely reflects the liberal welfare-state ideology based on restricting the state’s role to providing flexible market structures and interfering only in the case of ‘bad risks’ (see section 2.3.1). Active state support for employment re-integration is not considered as

218

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Table 4.12

Public social expenditure for active labor market policies, as percentage of GDP: 1980–2004

United Kingdom United States Canada Denmark Norway Sweden Germany Netherlands France Italy Spain Hungary Czech Republic Estonia

1980–84

1985–89

1990–94

1995–99

2000–04

0.63 0.13 0.30 0.77 – 1.41

0.77 0.22 0.57 1.05 0.52 1.87 0.99 1.08 0.75 – 0.65 – – –

0.55 0.22 0.59 1.46 1.07 2.52 1.41 1.21 1.06 0.19 0.63 0.62 0.19 –

0.38 0.18 0.49 1.76 1.02 2.00 1.22 1.29 1.33 0.41 0.59 0.41 0.14 0.07*

0.36 0.14 0.22 1.68 0.71 1.38 0.99 1.19 1.01 0.56 0.63 0.20 0.16 –

0.65 – – 0.25 – – –

Note: * data only for 1998. Source:

Cazes and Nesporova 2004; OECD 2004f, 2008.

being necessary because, on the one hand, market incentives are expected to ‘push back’ the unemployed into employment and, on the other hand, flexible labor markets facilitate successful re-entries into employment. Southern European countries display similarly low levels of ALMP expenditures. Notably, however, these low expenditure levels are not the result of flexible labor market structures, but rather mirror both the ‘familialistic’ and the ‘dualistic’ logic of welfare policies in these countries (Ferrera 1996; Saraceno 1994). On the one hand, policies in these countries are often based on the principle of subsidiarity and family solidarity, assuming that the family is the main provider of welfare and the state needs to interfere only when the capacity of the family is exhausted. On the other hand, most labor market policies in Southern Europe appear to be targeted at securing the labor-force status of the employed insiders while providing only a little support for the labor market outsiders, that is the unemployed or those on the periphery of the labor market. However, while expenditure levels in liberal countries have remained constant or even decreased in recent decades, they have been almost constantly on the rise in Southern European countries, reflecting a reorientation of Southern European governments towards somewhat more active labor market policies (OECD 2003d: 100).

The macro-perspective

219

Finally, low levels of public investment in programs aimed at active employment (re-)integration are also prevalent in post-socialist countries. In many of these countries, the political emphasis after the breakdown of the Iron Curtain has been put on passive policies (such as unemployment benefits) that have ‘crowded out’ active policies (Lehmann 1995: 2) and outnumbered them in expenditure by a factor of four to five in both the Czech Republic and Hungary (Cazes and Nesporova 2004: 44). This policy emphasis reflects the expected low success rates of such policies in an economy that has initially been characterized by massive job destruction and weaknesses in labor demand. Low ALMP investment hence mirrors the assumption of highly rigid labor market structures that cannot be easily overcome by state-supported activation measures. Estonia is, once again, an exception, as active and passive employment policies balance each other at a low level of about 0.2 percent (ibid.), a residual pattern much in line with the residual neo-liberal de-regulation strategy undertaken by Estonian policies (Täht and Saar 2006). In contrast, ALMP measures have traditionally been high in social democratic countries, where active policies to foster labor market (re-)integration have traditionally always been a central component of national expenditure, reflecting the full-employment orientation of public policies in these countries. Especially since the economic crisis of the 1980s, expenditure levels in Scandinavian countries have risen, thereby exacerbating the differences to other welfare regimes and enhancing the exceptional position of Scandinavian welfare states in this policy field. By the turn of the century, ALMP expenditure made up between 1 and 2 percent of GDP in these countries. Increases have been more pronounced in Denmark and especially Sweden than in Norway, where overall unemployment remained lower and thus expenditures for employment re-integration measures remained at a more modest level. Finally, with ALMP expenditure from 1 to about 1.5 percent of GDP, conservative countries fall in between the high expenditure levels of Scandinavian countries and the still residual labor market policies of liberal and Southern European nations. To illustrate the relationship between active labor market policies and older workers’ employment, Figure 4.12 contrasts active labor market expenditures with the employment rates of men aged 60 to 64 years for the reference year 1995. Results indicate that social democratic countries combine the highest level of expenditures on active labor market programs with a high employment participation of older workers. In contrast, countries that invest less in active labor market policies, such as those of the conservative, Southern European and post-socialist regimes, perform clearly less successfully in terms of maintaining older workers within the labor market. Despite this general impression of a positive relationship

220

Older workers in a globalizing world

Active labor market policy expenditure, % GDP, 1995

2.5 SWE 2 DK 1.5 GER

FRA

NOR

NL

1

SPA 0.5

CAN UK

HUN

ITA CZE

GRE

0 10

Source:

20

USA

30 40 50 60 Employment Rates, Men, 60–64 years, 1995

70

Cazes and Nesporova 2004; OECD 2004f, 2008.

Figure 4.12

Employment rates of men aged 60–64 years: 1995 versus ALMP expenditure: 1995

between active labor market policy expenditure and employment rates of senior workers, a more detailed look at the results suggests that active labor market policies may not be taken as the sole predictors of a success or failure in maintaining older workers. Results for conservative countries where expenditure is moderate but employment rates are low indicate that investment in active employment (re-)integration policies may not be successful if, as demonstrated earlier, exit benefits are high and labor markets are rigid. On the other hand, the fact that, in liberal countries, low ALMP expenditure rates are accompanied by high levels of older workers’ employment shows that an active provision of employment support measures is also not a necessary condition for maintaining older workers in the labor market. In these countries, flexible labor markets seem to act as ‘functional equivalents’ for active employment support in re-integrating older workers into employment. Here it is not active state involvement that accounts for high employment among older workers but the combination of flexible labor market structures with the indirect ‘activation’ of older workers through only modest welfare-state benefits that necessitate a continuation of careers even at older ages. Hence, both the active Scandinavian ‘enabling approach’ and the activating liberal ‘flexibility’ approach

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221

represent alternative routes towards (re-)integrating older workers into employment. Employment maintenance strategies (III): education and training policies Finally, I shall turn to educational systems as another central institutional factor that influences the employment patterns among older workers. In Chapter 2, I argued that globalization has led to a shift in both the economic and the occupational structure of modern societies. As societies are gradually moving towards modern service economies, traditional manual types of jobs are diminishing while new jobs are being created in the service sector that require new types of skills and qualifications. It was assumed that, under these circumstances, older workers will increasingly bear the risk of becoming redundant as a consequence of the obsolescence of their often traditional qualifications. In order to remain competitive on the labor market, older workers therefore need to be able to update their skills and adapt their skill profiles to the new demands on the globalized labor market. Two institutional characteristics of national educational systems were identified as potentially significant ‘filters’ that structure occupational patterns and the rigidity of mobility structures and thereby allow or hinder older workers in adapting to new globalization-induced skill demands. On the one hand, one needs to consider the degree to which tracking mechanisms in education and vocational training systems allow or hinder mobility between different occupational and qualificational fields and thereby allow older workers to adapt to changing occupational structures. On the other hand, attention needs to be given to systems of continuous adult education and training that allow older workers to update their skill profiles in order to remain on a par with occupational requirements in a rapidly changing technological environment. In the following, I shall discuss both types of institutions. To begin with, Table 4.13 gives an overview of key institutional characteristics of educational systems in modern societies, relying on a relevant study of educational systems by Müller and Shavit (1998). The table incorporates three different standard dimensions of educational systems that can all be assumed to be relevant for structuring mobility on national labor markets. The degree of an educational system’s standardization refers to ‘the degree to which the quality of education meets the same standards nationwide’ (Allmendinger 1989: 46). In standardized education systems, nationwide certificates document the successful completion of a certain educational qualification or a specific type of vocational training. Though these certificates have a high signaling function for potential employers and employees alike and therefore guarantee young workers a smooth entry into employment, they simultaneously

222

Table 4.13

Older workers in a globalizing world

Institutional characteristics of educational systems Stratification of secondary education

National standardization of education

Low

Medium

High

Moderate/ high

Sweden* Norway* Denmark**

France* Italy* Spain* Estonia‘*’

Germany** Netherlands** Czech Republic** Hungary**

Low

Great Britain* United States Canada

Note: ** = strong occupational specificity in secondary education, * = modest occupational specificity in secondary education, no ‘*’ = little occupational specificity in secondary education; countries in italics = classification by the author. Source: Müller and Shavit 1998; own categorization based on Allmendinger 1989, Bukodi and Róbert 2006a, 2006b; Hamplová and Pollnerová 2006; Mills 2005; Simó Noguera, Castro Martin and Soro Bonmatí 2005; Täht and Saar 2006.

create strong occupational boundaries by linking occupations and jobs to specific formal requirements. As a consequence, nations with a high level of educational standardization tend to exhibit low levels of occupational mobility (Allmendinger 1989; Müller and Shavit 1998). Educational stratification refers to the extent of tracking at the secondary school level. Systems that reveal a high degree of educational stratification, that is that separate students early into specific educational tracks, tend to result in little mobility between different educational achievement levels. These systems tend to create strong and persistent differences between unskilled and semi-skilled workers on the one hand, and skilled and vocationally trained on the other. Since it has been argued that globalization leads to a general decline in the demand for unskilled labor, older workers, who have often acquired only basic vocational skills early in their careers, will run a higher risk of becoming redundant in highly stratified systems. Finally, the degree of occupational specificity of secondary education refers to the degree to which secondary school leavers exit education with occupationally specific skills. Countries displaying a high degree of educational specificity usually rely on developed apprenticeship programs with training in detailed occupations. In contrast, in countries with a low degree of educational specificity, training curricula are rather general and occupation- or firm-specific training largely takes place on the job. For

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223

older workers, especially the latter systems allow for a higher degree of occupational flexibility and adaptability in times of rapid technological and occupational changes. Table 4.13 clusters the 14 countries under study on all three analytical dimensions. In particular, liberal countries stand out in so far as they exhibit low levels of both educational stratification and standardization. Education in public-based institutions is largely universal, while occupation-specific skills and qualifications are largely acquired on the job. This decentralized mode of skill transmission creates only weak occupational boundaries and therefore facilitates job changes across both occupations and economic sectors. Under these conditions, it is easier for older workers to flexibly adapt to structural changes by increasing their job mobility beyond classic occupational boundaries. In liberal countries, flexible occupational structures therefore complement the flexible mode of labor market regulation and thereby provide the necessary pre-conditions for a ‘fluid’ and flexible labor market. The other extreme is represented by conservative and Southern European countries. Here, levels of educational stratification and standardization as well as the occupational specificity of secondary education tend to be moderate or high. The attainment of specific job positions is often bound to standardized certificates and education levels, thereby creating strong and relatively rigid occupational boundaries. While in times of economic stability these structures may provide effective orientation markers for professional careers, they can turn into critical structural mobility barriers in times of rapid structural changes. Hence, in these countries, it is often ‘not easy, in fact it is often impossible to shift aged employees . . . to other occupational positions’ (Buchholz, Hofäcker and Blossfeld 2006: 14). Rigid occupational backgrounds supplement rigid labor market structures and thereby provide yet another contextual background for the introduction and extension of generous early retirement incentives as a solution to the virulent labor market problems of older workers. Owing to highly dynamic institutional changes and their differential effects on different labor market cohorts, post-socialist countries are hard to classify unambiguously among the three mentioned dimensions. However, country study evidence suggests that, with regard to occupational attainment, older employees especially have been largely shaped by socialist structures that relied strongly on well-organized systems of educational tracking and standardized vocational training in the early life course to meet the requirements of a centrally planned economy (Hamplová and Pollnerová 2006; Täht and Saar 2006). Under the rapid economic transformations of the 1990s, these traditional qualifications were often devalued at virtually a moment’s notice, leading to a rapid

224

Older workers in a globalizing world

deterioration of the labor market situation of older workers, who were at high risk of redundancy and could often find no other jobs in new occupations. As a consequence, many older workers in these countries have become effectively discouraged from work. In the Czech Republic, for example, around three-quarters of older workers think they are ‘too old for employers’ and see little chance of finding a job in the near future (OECD 2004c: 99). Similarly high rates of discouragement are reported for Estonia (Täht and Saar 2006: 304f.). Finally, social democratic countries fall in between the two extremes. Though for the most part they also employ rather standardized educational systems, education appears to be more universal and less stratifying, reflecting the underlying principle of equality among all citizens. However, the acquisition of skills need not be restricted to initial training in the early life course. Especially when assuming that globalization leads to a constantly increasing rate of technological innovation and progress, older workers will need to update their skills and qualifications frequently in order to preserve their employability and attractiveness for potential employers. (Lifelong) learning options can be expected to play a central role in this respect by providing a means for continuously extending and updating older workers’ skills and knowledge. Figure 4.13 provides a picture for such continued education and training measures by displaying participation rates in career- or job-related training, using data from the European Labour Force Survey,20 and contrasting them with the labor-force participation of older men. Participation rates thereby refer to education and training (excluding secondary education and initial vocational training) received within the four weeks before the interview date by all workers aged 25 to 54 years. In order to assess to what extent older workers actually participate in these types of measures, Table 4.14 supplements these results by providing the ‘age discrimination quota’ for the above training measures, that is the degree to which younger workers are over- or underrepresented in continued education and training measures. As it is calculated by dividing the participation rate among young workers (25 to 29 years) by those of older workers (50 to 54 years), values around 1.0 indicate an equal distribution of training across age groups while values clearly higher than 1.0 indicate an uneven age distribution of training to the disadvantage of older workers. I deliberately look at training rates both in general and among older workers’ as continuous training measures can be expected to have a ‘life cycle effect’. The sooner they start, the better they will give workers the opportunity to adapt to rapidly transforming labor markets and the more efficiently they will be able to reduce redundancies among older workers. In order to assess whether access to training measures also varies

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225

Participation in Continued Education and Training Measures, mid-1990s

20 DK

SWE

15 NL UK NOR 10

EST

5

HUN GER

ITA SPA

FRA 0 10

20

30

40

50

60

70

Employment Rate 60–64 years (Men), 1995 Source:

OECD 1999b, 2008.

Figure 4.13

Employment rates of men aged 60–64 years: 1995 versus participation rates in career- and job-related training: 1990s

with the human capital of (older) workers, the right-hand column in Table 4.14 additionally presents the ‘educational discrimination quota’, that is the ratio of training rates among those with university degrees against those with less than secondary school-leaving qualifications. Results from both Figure 4.13 and Table 4.14 indicate that the availability of education and training measures seems to exacerbate the cross-country differences in older workers’ education and skill level adaptability already induced by initial training systems. Training appears to be least widespread in employment exit regimes (i.e. conservative, Southern European and post-socialist countries), where less than 5 percent of all workers participate in lifelong learning measures. Notably, these countries not only have the lowest participation rates in general, but simultaneously show the most pronounced discrimination in access to training. In most of these countries, older workers appear to participate in lifelong training measures about three to five times less than younger workers, while, simultaneously, training measures are largely concentrated on white-collar workers with higher education. As a consequence, low-skilled workers often face a twofold disadvantage. On the one hand, they often can fall back only on traditional qualifications that have become increasingly outdated under globalization. On

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Older workers in a globalizing world

Table 4.14

Participation in job- and career-related training and age discrimination in job-related training: 1990s

Regime

Country

Conservative

Germany Netherlands France Italy Spain Hungary Estonia Denmark Norway Sweden United Kingdom

Southern European Post-socialist Social democratic

Liberal

Training participation rates

Age discrimination quota

Educational discrimination quota

4.2 14.9 1.9 3.8 3.1 4.2 4.6 18.4 11.7 18.3 14.2

3.32 2.93 5.38 1.14 4.87 3.67 4.30 0.98 0.89 0.88 1.55

5.19 1.93 5.08 8.29 13.80 12.05 – 3.34 3.02 2.11 5.55

Note: Age discrimination quota = Participation rate of younger workers 25–29 or 25–34 years (a) / Participation rate of older workers 50–54 or 45–64 years (a), measurement depending on survey; Educational discrimination quota = Participation rate of workers with a university degree / Participation rate of those with less than secondary school-leaving qualifications. Source:

OECD 1999b, 2008; Statistics Estonia 2008.

the other hand, in contrast to better educated and younger employees, they receive very little further training. For them, the acquisition of skills and qualifications remains restricted to a short period in youth. Country study evidence suggests that this low participation among low-skilled older workers may be due to both employers’ and employees’ reservations. On the one hand, employers see little reason to invest in older workers’ training owing to the low expected returns on investment given the few years these workers will remain in employment. On the other hand, there also appears to be little demand for such training measures among employees themselves, as they possibly perceive themselves as too old or lacking the ability to learn (OECD 2005e: 127). On the other hand, general retraining programs may not be well suited to the demands of the older work force so that returns on training investments remain dubious (OECD 2004d: 110). Irrespective of the reasons for their non-participation, the double disadvantage of outdated qualifications and little representation in retraining measures further diminishes the employment prospects of older workers,

The macro-perspective

227

therefore making them more likely to accept early retirement offers. The Netherlands partly deviates from this overall picture in employment exit regimes in so far as it shows a comparatively high incidence of training and comparatively little stratification among workers with different educational levels. However, even here, older workers are clearly underrepresented in lifelong learning measures by a factor of about three. In contrast, social democratic countries show rather ‘extensive opportunities for adult learning’ (OECD 2005g: 104) with high participation rates of the overall work force in continued education and training measures together with high employment levels among older workers. Age discrimination in participation in these countries is virtually non-existent and even appears to be in favor of workers in their late mid-careers. Though country study evidence suggests that there is a decline in participation in training measures from the late 50s onwards, it falls at a much lower rate than that in other European countries (ibid.: 96; OECD 2003c: 104). Furthermore, in comparative terms, the stratification of training alongside education is comparatively low, so that large groups of the work force can and do make use of these measures. Education and training measures additionally seem to cover a broad array of fields and seem to be supported by all social partners, again reflecting the consensual21 regulation mechanisms typical for ‘Nordic corporatism’. As a result, virtually all types of workers receive well-organized training throughout the life course, largely irrespective of their age or educational background. In contrast to older workers in employment exit regimes, senior employees in social democratic countries are therefore in a better position to adapt to changes in the economic and occupational structure owing to their broader and frequently updated skill profiles. In addition, the broad coverage of training opportunities across age groups guarantees that late-career workers suffer less from comparative qualification disadvantages compared to young labor market competitors and are therefore in a better position to remain within employment. As the only liberal country included in Figure 4.13, the United Kingdom displays a training rate comparable to that of Scandinavian countries. Despite the fact that younger workers are around 50 percent more likely to be taking part in training measures (Table 4.14), the participation rate of older British workers is still among the upper third in Europe (OECD 2006: 75). Though the focus of the survey underlying Figure 4.13 and Table 4.14 does not allow any explicit comparison with North American countries, other survey evidence suggests that, in both the United States and Canada, the training rate among both the population in general and older workers in particular is similarly high.22 Especially in the US, age differences in training participation are virtually non-existent (discrimination quota: 0.96; OECD 1999b: 150), while in Canada the age discrimination

228

Older workers in a globalizing world

quota is close to that of the UK (1.55; ibid.). Figures for the UK point to some concentration of training measures on highly skilled workers, while Canadian (3.28) and US discrimination values (4.19) come somewhat closer to those of Denmark and Norway. All in all, training conditions for older workers therefore appear to be similarly favorable in liberal states to those in social democratic countries. Despite this similarity in outcomes, one can nevertheless expect different reasons behind the observable ‘lifelong learning culture’. While, in Scandinavian countries, the high incidence of adult training is the consequence of high state involvement and mutual agreements between all labor market actors, in liberal countries it rather reflects the specific characteristics of a decentralized and unstandardized system of education and training and a highly flexible labor market. On the one hand, employees in liberal countries frequently experience job mobility owing to only very low levels of employment protection. On the other hand, the very general nature of state-funded education combined with the lack of standardized occupational certificates often requires additional jobspecific training of new workers at the workplace. Hence, in many cases, it is likely that high training rates in liberal countries will mirror this widespread practice of on-the-job training. However, despite this difference in the underlying mechanisms (i.e. state-fostered skill enhancement in social democratic countries versus market-induced on-the-job training in liberal countries), the outcomes for older workers can be expected to be similar in the two regimes. Unlike their counterparts in employment exit countries, older workers in both liberal and social democratic nations will be less likely to become trapped as labor market ‘outsiders’ with outdated skill profiles. Owing to frequent and continuous refreshing of skills and updating of individual competences, older workers in both kinds of maintenance regime will be in a better position to adapt to structural labor market opportunities through job changes or occupational mobility, and will therefore have better chances of continued employment.

4.6

SUMMARY

This chapter was guided by the aim to deliver a first empirical test of the theoretical approach provided in Chapter 3 using country-level crosssectional data. In order to do so, I have described key developments in the late careers of older workers in 14 selected OECD countries and have related them systematically to the nation-specific institutional backgrounds influencing them. Before I turn to some final comparative micro-

The macro-perspective

229

level analyses in Chapter 5, I shall now give a brief overview of key results from the previous analyses, which are summarized in Table 4.15. I started by giving an overview of the development of older workers’ employment patterns under globalization, looking at both the level of their labor-force participation and the characteristics of the jobs they occupy. Taken together, the results provided broad support for my globalization hypothesis postulating a significant decline in older workers’ labor-force participation in an increasingly global economy owing to rising comparative disadvantages as compared to younger workers with regard to wages, employment security, qualification profiles and employment flexibility. In all countries under study, employment rates of older workers have decreased noticeably since the 1970s, in some countries falling from around 80 percent to values as low as one-third to one-tenth of the population. Noticeably, globalization effects appear to have manifested themselves almost exclusively in a decline in the level of older workers’ employment but not in the characteristics of their jobs. Unlike young labor market entrants, older workers have been confronted with only low levels of flexibilization in the type of jobs they occupy. Trends over time indicate only a certain rise in part-time work, which has been promoted politically to aid a lengthening of careers through a gradual exit from the labor-force. Though quite a number of workers in the countries under study have opted voluntarily for this option, total figures still remain low in absolute terms. In contrast, both temporary employment and precarious self-employment – which played a significant role in destabilizing the employment relationships of young labor market entrants (Blossfeld et al. 2005) – have hardly diffused among older workers, a sign of their safely protected position as labor market insiders who can only be ‘flexibilized’ by offering them generous exits from employment, but not by changing the nature of their working contracts themselves. However, despite the universality of the direction of this trend, results pointed to significant cross-national differences in the magnitude of changes. While, for example, employment rates of older male workers in their early 60s declined only moderately in Scandinavian and Anglo-Saxon countries, there have been sharp declines of older workers’ employment in Southern and Central Europe since the 1970s, and, since the 1990s, in post-socialist countries as well – a picture that largely coincides with the predicted differentiation between employment exit and employment maintenance regimes (see section 3.3). Hence, my analyses also provided ample support for the hypothesized effect of institutional filters mediating the influence of globalization and leading to cross-nationally varying results at the individual level, which I investigated in more detail in the second section of this chapter. Results suggest a differentiation into four country clusters.

230

Institutional backgrounds

Employment patterns

Table 4.15

Employment exit: generosity of pension system Employment exit: early-exit incentives Maintenance (I): employment protection High

Very high

High

High

Very high

High Moderate, but often involuntary Very high

Little dependence

Little dependence

Dependence on cyclical variations Rigidity of unemployment Spread of flexible work forms Moderate, but often involuntary High

Moderate–Low

Low

South European

Employment rates

Conservative

Low

Low

Moderate, but often voluntary Low

Low

Cyclical variations

High

Liberal

Moderate

Low

Moderate, partial pensions Moderate–high

Moderate–low

Cyclical variations

High

Social democratic

Synthesis of results: older workers’ employment patterns and institutional backgrounds

Formally: moderate De facto: low

High

Moderate–low

Low

High

Formally: modest De facto: often high Modest dependence

Post-socialist

231

Source:

Own illustration.

Maintenance (II): seniority regulations Maintenance (III): active labour market policies Maintenance (IV): occupational boundaries Maintenance (V): importance of lifelong learning

High

Low

Strong

Low

High

Moderate

Strong

Low

High (on-thejob training)

Weak

Low

Low

High (publicly supported)

Moderate

High

Low

Low

Strong

Low

Modest, strong variations

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Older workers in a globalizing world

In conservative and Southern European countries, declines in older workers’ employment rates have been most pronounced, as employment rates of older workers in their early 60s have more then halved and fallen to around 30 percent. Most of the decline occurred throughout the economic crisis of the 1970s and early 1980s, but, notably, employment rates remained low even when the economy recovered in the following decade. In line with earlier findings from economic theory, I could demonstrate that the introduction and the persistence of early retirement in conservative and Southern European countries can be traced back to generous pension systems and welfare arrangements that provide numerous incentives for an early withdrawal from the labor force. However, while many economic approaches concluded with this finding and leave the international variation of these incentives unexplained, I additionally elaborated on the critical context conditions that have contributed to the introduction, expansion and later maintenance of these measures. My core argument was that institutional settings that had once created the foundations for continuous and stable occupational careers in times of economic prosperity had become increasingly dysfunctional under globalization with regard to older workers’ employment and have contributed to the emergence of several competitive disadvantages of older employees on globalized labor markets. Owing to highly standardized education and occupational training systems and the only marginal importance of life-long learning, older workers increasingly suffered from qualification deficits in a rapidly changing technological environment. At the same time, high levels of employment protection and the widespread practice of seniority wages turned older workers into a costly and inflexible group of employees. Employers experiencing increasing flexibility pressures as a consequence of globalization hence increasingly aimed to shed these workers and to replace them by better-qualified, less costly and more flexible younger workers. Owing to the fact that strong dismissal protection and seniority regulations did not allow for a straightforward termination of employment contracts, employers used generous welfare-state pathways and firm-specific ‘topups’ (e.g. through occupational pensions) to ‘pull’ older workers out of employment. While these ‘pull measures’ effectively reduced the number of employed older workers, the unemployed elderly were equally faced with severe labor market difficulties, as rigid labor market structures and the competitive disadvantages outlined above hindered a successful reentry into employment, reflected in high proportions of long-term exclusion among the older unemployed. Under these structural conditions, even an increasing emphasis on active labor market measures to re-integrate the unemployed into the labor market in conservative countries could not

The macro-perspective

233

significantly improve the labor market situation of older workers. While labor market data indicate that some of the older unemployed may have used flexible work forms such as fixed-term or part-time contracts to reenter paid employment, the large majority accepted generous early retirement offers or used additional welfare-state pathways to effectively exit the labor-force at earlier ages. Both the institutional structure and employment trends among older workers hence justify the description of Southern European and conservative countries as ‘employment exit regimes’. In terms of both institutional regulation and labor market outcomes, liberal countries in many respects constitute the opposite extreme to countries following an employment exit strategy. Despite equally visible trends towards earlier retirement, exit rates into inactivity are clearly less pronounced, so that workers remain in the labor market for a longer time. Low shares of long-term unemployment as well as a more voluntary adoption of flexible work forms suggest more flexible institutional structures that make it easier for older workers to remain in employment or to quickly re-enter the labor market in cases of temporary unemployment. This comparatively higher flexibility of workers in their later employment careers can be ascribed to flexible, weakly regulated labor markets with only a little employment protection. While these structures on the one hand tend to result in more unstable employment careers and higher risks of job loss, they simultaneously allow workers who have dropped out of employment to quickly re-enter the labor market. Likewise, for those in contracting or diminishing industries, they make it easier to adapt to changing economic structures via job mobility. In addition, both the educational system and the specific mode of labor market regulation ensure that older workers do not suffer from competitive disadvantages as severe as those in employment exit regimes. On the one hand, a de-standardized educational system combined with continuous on-the-job training ensures that older workers maintain and update their job-related qualifications and therefore run a lower risk of becoming redundant owing to outdated qualification profiles. At the same time, the near-complete absence of seniority regulations and a flexible wage structure ensure that older workers are often no more costly as employees than their younger competitors. Taken together, institutional structures in the liberal regime hence provide older workers with better opportunities to remain within the labor market even under the structural changes induced by globalization. At the same time, the design of pension systems and public welfare benefits often generates the necessity for older workers to remain employed until close to retirement age. On average, public pension benefits account for less than one-half of previous income, so that older workers often have to rely on additional private savings for their financial wellbeing in old

234

Older workers in a globalizing world

age, which often require long contribution histories. In addition, regular pension systems provide hardly any incentive for an early labor-force exit through the design of their benefit calculation formulas. While, in conservative countries, structural obstacles for employment continuation accompanied by generous exit incentives turned employment exit into a rational decision for older workers with low employment chances and thereby contributed to their mass withdrawal from the labor market, the opposite appears to be the case in liberal market economies. Here it is the comparatively better employment chances combined with the financial necessity to work that hinders late-career employees in exiting employment early and triggers their long-term maintenance within the labor market. Owing to the heavy reliance on free-market forces (e.g. flexible labor markets, individual wage negotiations and decentralized on-the-job training) to arrive at this outcome, it seems reasonable to use the term ‘market-induced maintenance’ to describe the dominant regulation strategy with regard to older workers in liberal regimes. Though social democratic countries display similarly high levels of employment among older workers, the mechanisms underlying this result are entirely different. Instead of relying on free-market forces, Scandinavian countries draw on active public policies and the involvement of the social partners to maintain high employment levels among the older work force. In comparison to other labor market competitors, older workers in Sweden, Denmark and Norway show only slight competitive labor market disadvantages. Publicly supported training covers the entire working-age population, and the incorporation of a right to training in legal statutes and collective agreements guarantees that older workers’ skills and qualifications keep up with the changing technological demands of global markets. Wage restraint among employees, counterbalanced by considerable levels of guaranteed employment security through employers, makes sure that older workers do not suffer from cost-productivity disadvantages compared to younger competitors. Finally, active labor market policies ensure that those workers who nonetheless drop out of employment are comprehensively supported in finding a new job. In comparison, incentives to leave the labor market before reaching retirement ages are low, not least owing to the fact that the described comprehensive policy approach requires continuous financial inflows from taxes and social contributions to ensure the financial viability of the system. The result of these active employment-sustaining public policies combined with low exit incentives are high rates of employment of older workers and a level of employment mobility (in terms of moves between unemployment and employment) that falls in between those of employment exit and market maintenance regimes. In order to differentiate the Scandinavian

The macro-perspective

235

approach from that of liberal countries, it seems reasonable to describe it as ‘public-induced maintenance’, when considering the central role that state policies play. However, it needs to be kept in mind that the basis of the successful functioning of this approach is the coordinated action of all labor market actors within the lines of a consensual ‘Nordic corporatism’. Results over time show that, in contrast to the market-based strategy of liberal countries, Scandinavian public policies have proved to be more prone to cyclical ups and downs induced by the rising incidence of random economic shocks. Especially throughout the economic crisis of the 1980s, Scandinavian countries readjusted their institutional strategy and included more elements of an employment maintenance strategy such as early pensions or additional pathways into retirement. Previous analyses showed that the labor market outcome of this partial shift in political strategies has been higher exit rates among older workers and a rising rigidity of old-age unemployment. However, unlike in conservative countries, these labor market developments among older workers reversed more quickly as Scandinavian economies recovered in the 1990s. This indicates that the Scandinavian system of institutional regulation is comparatively more effective in avoiding structural and persistent disadvantages of older workers in a global economy. Limitations with regard to data availability and the time period under study make it difficult to pass a final and more than tentative judgment on the labor market trends among older workers and their institutional backgrounds in post-socialist countries. Results suggest ‘a complexity that makes it difficult to speak of “one unique regime type” as concerns late career processes in these countries’ (Hofäcker and Pollnerová 2006: 49). In many post-socialist countries, the labor market situation of older workers appears to be as critical as in the conservative regime. Occupational boundaries largely hinder older workers in adapting to the massive structural changes arising from the transition from a planned to a market economy and the gradual passage from a heavily industrialized and agricultural economic structure to a Western-type service society. Job shortages following massive enterprise downsizing in the 1990s further aggravate the chances for older workers to successfully remain in or return to employment. Empirically, these unfavorable circumstances manifest themselves in low levels of older workers’ labor-force participation and a high and rising rigidity of unemployment for all types of workers after the transition. At the same time, the design of employment legislation (or rather its liberal de facto interpretation in employment relations; see section 4.5) and the at best moderate level of pension benefits suggest an at least partly liberal design of the institutional settings. These tendencies are most advanced in Estonia, which switched to a liberal design of labor

236

Older workers in a globalizing world

market and welfare institutions almost immediately after the transition. Eastern European countries hence appear to combine the negative sides of both employment exit and employment maintenance strategies. On the one hand, they are not yet able to provide sustainable employment opportunities for older workers. On the other hand, compensation payments are not well enough developed to allow for a permanent withdrawal from the labor market with a decent standard of living. From the data presented, three alternative rational responses to these conflicting institutional circumstances can be identified. First, age–wage patterns suggest that especially in Estonia, where public pension payments are lowest, older workers may be ready to remain in employment at any price, thereby lowering their wage expectations and accepting even low-paid jobs in the formal economy. Second, older workers may seek to circumvent the rigidities of formal labor markets by switching to jobs in the informal economy (as in Hungary; see Szalai 1991 and section 4.2) or supplement their pensions by additional (part-time) work as pensioners (as in the Czech Republic; see Hamplová and Pollnerová 2006: 287f. and Table 4.6). Finally, for those to whom none of these options are available, the only remaining alternative will be to rely on the low public pension and welfare benefits and family support to ensure a standard of living above subsistence level, thereby raising poverty levels and amplifying social disparities in these societies both between and within labor market generations (Täht and Saar 2006: 308).

NOTES 1.

2. 3. 4.

5.

In order to use a comparable sample of similar countries in terms of their economic structure and labor market characteristics, I deliberately did not include other Southern European countries such as Portugal and Greece or the islands of Malta and Cyprus. These countries are still characterized by extraordinarily high levels of employment in agriculture, which still makes up almost one-quarter of national employment. For these workers, (early) retirement may not be a meaningful concept. Aggregated laborforce data, such as those reported by the OECD, usually tend to focus on all employed individuals and therefore only inadequately allow for a consideration of the differences between different labor market groups that would be needed in order to adequately assess developments in these countries. I shall turn to an analysis of women’s labor-force participation later in this chapter. A comparison of withdrawal patterns in industrial employment in fact yields employment exit patterns similar to those in conservative countries (see Ebbinghaus 2005 and the analyses in Chapter 5). [ERt−5 (55–59) − ERt (60–64)]*100/ERt−5 (55–59), where ER is the employment rate and t denotes the respective year. As the OECD provides labor-force data only for five-year age groups, we need to refer to the respective age intervals instead of estimating agespecific exit rates. From a longitudinal perspective, it may, for example, be criticized that the measure

The macro-perspective

6.

7.

8. 9. 10. 11. 12.

13.

14.

15.

16.

237

looks just at societal aggregates and not at individual exit processes. Moreover, unlike in survival analysis (Blossfeld and Rohwer 2002), cross-sectional exit rates do not account for mortality, which may bias the resulting estimates of withdrawal rates. [(UEt−UEt+1) + (UEt+1−UEt+2) + (UEt+2−UEt+3) + (UEt+3−UEt+4) + (UEt+4−UEt+5)] / 5, where UE is the nation-specific unemployment rate for the total population of working age (15 to 64 years) and t denotes the respective year. Again, five-year intervals respectively averages were chosen, as the OECD provides labor-force data only for five-year age groups. The description of five-year average changes in unemployment rates was favored over the depiction of averages of total unemployment rates as it can be assumed that it is not the level of unemployment as such – which may differ across countries – but increases (or declines) in unemployment that may have triggered the introduction and extension (or cutback) of early retirement options. OECD data in fact allow a more detailed differentiation of unemployment durations in between the two extremes outlined above (between one and three months, between three and six months, between six months and one year). For illustrative reasons and the sake of more analytical clarity, I concentrate solely on the two extreme categories. In order to ensure cross-national comparability of results‚ I use the common ILO definition of part-time employment as employment of less than 30 hours a week instead of using nation-specific definitions. 14.11 percent; unweighted average calculated from Table 4.6. For a detailed definition of temporary work, see OECD (2002c). As the OECD does not provide more detailed age splits, I have to use this rather broad definition of older workers. In Spain, for example, self-employed workers are exempt from the need to pay social security contributions (OECD 2003d: 59). In Italy, specific forms of flexible employment – the so-called ‘co-co-co’ contracts (collaborazioni coordinate e continuative) – make up a specific work form of employment between the classic boundaries of employment and self-employment when both employees and employers contribute to the public social insurance system, but work relations are clearly less regulated and jobs less protected (OECD 2004d: 101). Naturally, replacement rates of national pension systems are subject to political reform and therefore can be considered as variable over time. However, for the countries under study, little comparable information about the development of replacement rates over time is available. In addition, as pension generosity can be seen as an expression of more general welfare orientations, the relative ranking across countries with regard to replacement rates can be assumed to be largely stable. I therefore use the detailed data provided by Duval (2003a) on generosity at both early and formal retirement ages as a representative proxy for overall pension system generosity throughout the observation period. Alternative specifications of replacement rates frequently provided in the literature are those at 50 per cent of and at respectively 150 per cent of annual earnings. Comparative research shows that, in most countries, replacement rates for workers at one-half of average earnings tend to be higher owing to minimum pension components. For workers at one and a half times average earnings, replacement rates are usually lower, as pension ceilings and the redistributive character of pension systems lead to a less than linear growth of pension benefits with income (Casey et al. 2003). As, however, the relative ranking of pension system generosity remains largely stable irrespective of the wage level considered, I restrict myself to an analysis of replacement levels at average earnings only. United Kingdom: coverage = 76 percent, share in older male retiree’s gross income: 55 percent; United States: coverage = 50 percent, share in older male retiree’s gross income: 41 percent; Canada: coverage = 58 percent, share in older male retiree’s gross income: 44 percent (Casey and Yamada 2002: 17). Among the countries under study here, only Italy already displayed a high implicit tax rate in the late 1960s, reflecting its status as the only country with a formal retirement age below age 65 (Böndal and Scarpetta: 60, 88).

238 17. 18. 19. 20.

21.

22.

Older workers in a globalizing world For further technical details regarding the construction of the index, see OECD (1999a). In order to adequately consider for both regulations standard employment and mass dismissal which are most relevant to older workers, I use the respective variant of the ELP Index (EPL Index II, see above). See OECD (2006) and Auer and Fortuny (2000) for a more detailed discussion. As a matter of fact, data from this survey do not cover non-European countries such as Canada or the United States. However, from the surveys available, the European Labour Force Survey allows the comparison of a maximum number of countries among the 14 under study. In order to allow for an integration of training rates in the ‘missing cases’, I shall additionally refer to country study evidence where appropriate. In Denmark, for example, training measures are offered by both public bodies and selfgoverning organizations. Training measures are intended to provide qualification at both a primary and a secondary education level, but also provide for adult vocational training (OECD 2005g: 95). The guarantee of training measures is often supported both by public authorities and by social partners; in Norway these even make up a vital part of public agreements between labor market parties and are fully paid by employers (OECD 2004f.: 104ff.). Data from the International Adult Literacy Survey show that the United States scores third among 15 OECD countries with regard to training received by older workers (50 to 64 years) within a reference period of 12 months before the interview date, outnumbered only by Denmark and Norway. While around 40 percent of older workers in the US report having received training throughout this period, figures for the UK and Canada are somewhat lower (around 35 percent), placing those countries at ranks five and six (OECD 2005e 130).

5.

The micro-perspective: a fourcountry comparison

In the previous chapter, I have exclusively looked at cross-sectional data on the nation-state level in order to analyze the differential development of early retirement trends in 14 OECD-type countries and their countryspecific institutional determinants. These analyses allowed me to conduct a first test of the theoretical hypotheses developed in Chapter 3. My results showed that, in all countries under study, globalization has in fact triggered an increasing withdrawal of older workers from the active labor force, though with international differences that could be traced back systematically to institutional constellations on the nation-state level. Despite the significance of these findings, my analysis had to remain restricted in analytical terms to the macro-societal level and could at best implicitly address assumptions about labor market processes at the level of individuals. Two central aspects of my theoretical model could therefore not yet be investigated in full. First, the reliance on cross-sectional measures of older workers’ laborforce participation, such as employment or unemployment rates, restricted my analyses to the examination of single labor market states at specific given time points. Though the comparison of such state distributions across time allowed me to draw some implicit conclusions about state changes (e.g. about the extent of older workers’ withdrawal from the active labor force), I could not analyze mobility processes directly on the level of individual older workers such as their moves from employment to unemployment (and vice versa) or job changes within the labor market. For any test of my theoretical model, this is a major shortcoming, given that I ascribed labor market mobility a central role in explaining the cross-national variations in older workers’ retirement patterns. On the one hand, I assumed that in employment exit countries, where rigid labor markets and standardized occupational tracks severely constrain older workers’ labor market mobility, their ability to adapt to structural and technological changes in the course of globalization would be low, resulting in high rates of early exit from the labor force accompanied by low rates of within-labor-market mobility and returns from unemployment. On the other hand, I expected that both public- and market-induced maintenance regimes would trigger 239

240

Older workers in a globalizing world

higher rates of employment among older workers as they provide them with better opportunities to adapt to new labor market demands by being mobile between jobs and occupations, and by improving their chances to return from unemployment. Though some of the previous results, such as the analyses on unemployment duration, provided some first indications of the validity of this hypothesis, a comprehensive test based on a differentiated analysis of movements between various different labor market states could not yet be provided based on cross-sectional data alone. Second, the data used in my previous analyses entailed a necessary restriction to the comparison of nation-level aggregates that average out labor market developments across all older individuals within one country. Though this type of analysis helps when scrutinizing between-country differences, it ignores possible variations within countries and does not allow testing for inter-individual differences in labor-force behavior. Hence, these data do not permit reconstruction of the individual rationalities within a country that make up the basis for the aggregated outcome at the macro-level. However, a comprehensive test of the theoretical model proposed in this work requires an explicit reference to individual action patterns and their variation both within and between countries. In this chapter, I shall therefore turn to a comparative micro-data analysis of older workers’ retirement transitions and labor market mobility to fill in the remaining analytical gaps after the preceding cross-sectional analyses. For this purpose, I shall draw on longitudinal micro-level data from the European Community Household Panel survey, which, in principle, permit an international comparison of labor market patterns and transitions among older workers in 15 European countries. For my analyses, I shall select four countries as exemplary showcases for the institutional strategies outlined in Chapter 3 and corroborated in the preceding chapter. The Netherlands and Italy are chosen as examples of a ‘Continental’ and a ‘Southern European’ variant of an explicit employment exit strategy.1 In contrast, Denmark and the United Kingdom represent the public- and market-induced opportunities of employment maintenance. For all four countries, I shall first provide a detailed descriptive analysis of older workers’ mobility patterns and their variation across countries. In a second step, I shall then turn to a detailed investigation of inter-individual differences in the occurrence of selected labor market transitions, thereby highlighting both the importance of individual-level characteristics for specific types of labor market mobility and variations in their importance across differential institutional regimes. Therefore, I shall proceed in the following way: Before turning to the actual data analysis, section 5.1 gives a short overview of the main nation-level characteristics of the four countries under study that provide the contextual background for the individual behavior

The micro-perspective

241

investigated in the consecutive micro-level analyses. Subsequently, section 5.2 outlines both the ECHP dataset and the measures and methods used in the following analyses. Following this necessary background information, the following empirical sections summarize the results from both the descriptive analysis of labor market transitions (section 5.3) and a multivariate investigation of their inter-individual variation (section 5.4).

5.1

GLOBALIZATION AND THE LABOR MARKET SITUATION OF OLDER WORKERS IN FOUR DEVELOPED ECONOMIES

In the following, I shall start with a short description of the situation of older workers in the four sample countries examined in this section. This will describe both the more general social and economic situation under which transformations of older workers’ employment have taken place and the key features of the four types of nation-specific ‘institutional filters’ identified in Chapters 3 and 4, namely pension systems, education systems, modes of labor market regulation and active labor market policies. According to my theoretical concept developed in Chapter 3, these background patterns can be expected to serve as relevant nation-specific institutional context conditions that define the structural opportunities and constraints that influence older workers’ employment behavior on national labor markets. On the one hand, these institutional packages determine which different mobility options generally are available to older workers and the incentives connected with choosing each of them. They, for example, influence whether older workers generally are able to change jobs even in their late career, or whether their late-career mobility is structurally more restricted through, for example, strong occupational boundaries. On the other hand, they also define the mode of within-country stratification in labor market mobility alongside the specific socio-economic and workplace characteristics outlined in section 3.4. The country-specific design of educational systems, for example, can be expected to influence the degree to which there are differences in labor market mobility between bettereducated and less well-educated workers. In the following, I shall therefore connect the description of the four nation-specific institutional patterns with an outline of their expected effects on dominant late-career individual mobility patterns and their differential distribution within a society. The Netherlands: an exit culture at the verge of reversal In the following analyses, the Netherlands will serve as a model case for the conservative employment exit regimes. Indeed, for most of the 1980s

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and 1990s, Dutch welfare and labor market policies represented an almost ideal ‘textbook example’ for such a labor-shedding strategy. For much of this period, the Netherlands was characterized by an almost continuous decline in older workers’ labor-force participation, resulting in one of the lowest employment levels among European countries (de Vroom 2004: 120). Following Henkens and Kalmijn, this falling economic activity trend among older Dutch individuals can be traced back to an ‘intertwining of demographic and labor market developments’ (Henkens and Kalmijn 2006: 81). On the one hand, increasing exposure of the Dutch economy to global market competition increasingly entailed the need for employment rationalization alongside changes in skill demands – both frequently to the disadvantage of older workers who had difficulties in adapting their traditional skill profiles to the new technologies and job requirements in the growing knowledge-based service sector. On the other hand, at the same time, a large baby boom generation had entered the Dutch labor market in the early 1970s, accompanied by gradually rising labor-force participation levels among Dutch women. Hence, labor supply rose steeply in a period when labor demand was in decline, resulting in sharp increases in unemployment levels throughout most of the 1980s and the early 1990s. Under these conditions, the employment situation of older workers became increasingly critical as their high employment protection and widespread seniority-based salary clashed increasingly with their outdated, standardized occupational skills that had been updated only rarely throughout their careers (ibid.). In order to allow companies to selectively restructure their work forces and provide better labor market entry opportunities for younger workers, a series of different early-exit pathways were introduced to allow older male workers to withdraw from the active labor force before the official retirement age of 65, resulting in a drop of the average retirement age to as low as 58.4 years in the mid-1990s (Blöndal and Scarpetta 1999: 90). Three major early-exit pathways contributed to this decline, two of which were state-based (de Vroom 2004; de Vroom and Blomsma 1991; Henkens and Kalmijn 2006). The most prominent publicly provided early retirement route came through disability pensions. Many businesses used this scheme for other than medical reasons to effectively shed their older workers, often in conjunction with additional financial top-ups of benefits through the firm itself. Though a number of workers also left employment through the institutionalization of unemployment insurance as a pathway into retirement, this exit option never became as popular as the disability scheme – possibly owing to the more negative associations attached to the status of being ‘unemployed’ instead of being ‘unable to work’. Furthermore, the generosity of wage replacement rates through

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unemployment insurance had been declining almost continuously since the 1970s, reducing the attractiveness of the scheme and hence promoting alternative exit pathways (de Vroom 2004: 133; OECD 2005i: 80). The most widespread and most attractive early retirement pathway on the whole, however, was the so-called VUT2 scheme, a voluntary early pension program based on a collective bipartite agreement between trade unions and employers on either a sector or a firm level. Both employees (through a levy on the gross wage bill) and employers contribute to a joint early pension fund that guarantees an income replacement at around 70 to 80 percent of previous earnings, largely independent of previous contributions (OECD 2005i: 64ff.). Together, all three early retirement routes contributed to an extensive decline in employment participation among men aged 60 to 64 years to values as low as around 20 percent by the early 1990s. With regard to older workers’ employment, social scientists hence often speak of the Netherlands as ‘an extreme case’ (de Vroom and Blomsma 1991) with a ‘developed’ (de Vroom 2004: 133) or a ‘dominant early exit’ culture (Henkens and Kalmijn 2006: 81). Recent developments, however, suggest a gradual trend reversal in the Netherlands, as employment rates among older workers have risen again since the Dutch economy recovered in the second half of the 1990s. Policy reforms suggest that this rise in employment reflects more than just a cyclical boom effect but a more general ‘paradigm shift’ in public policy strategies towards older workers (de Vroom 2004: 147). Eligibility conditions for public disability benefits have been tightened, thereby excluding labor market problems as a condition for eligibility (ibid.: 139). In 1997, the social partners agreed to phase out VUT schemes and replace them with more actuarially neutral ‘pre-pension schemes’. Furthermore, a flexible retirement scheme has been introduced to allow older workers to combine the receipt of early retirement benefits with part-time work. The complexity of many different pathways and the status of the VUT pension as a privately negotiated scheme without any direct possibility of state regulation has, however, often impaired policy attempts to increase older workers’ employment levels, as employees have often tended to turn to alternative pathways when a specific one was closed or made less attractive (Henkens and Kalmijn 2006: 82). In addition, despite institutional reforms, employers’ perceptions are still largely shaped by the institutional heritage of the previous early-exit culture. Attitudinal data from recent employer surveys show that employers still ‘do not consider older workers much of an asset’ (van Dalen et al. 2006: 41), and commonly do not regard them as ‘a force to be reckoned with’ (Remery et al. 2003: 37) owing to still high seniority wage levels and qualification deficits. For the following

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analyses, it therefore seems plausible to still regard the Netherlands as an ‘employment exit’ country, though at the verge of a trend reversal. Italy: stratified exit in a Southern European welfare state In the following analyses, Italy will typify the Southern European welfare regime. Like many other European nations, Italy suffered from heavy economic downturns after the two oil crises that initiated one of the most severe episodes of economic turbulence in the Italian economy after World War II, reflected in rising unemployment and inflation (Beckstette, Lucchini and Schizzerotto 2006: 102). Older workers were especially affected by this crisis. On the one hand, with one of the lowest average educational attainment levels in OECD countries, older workers displayed severe labor market disadvantages as compared to younger workers, who could draw on up to four more years of schooling and a comparatively higher degree of secondary and tertiary education (OECD 2004d: 106f.). At the same time, regulations for dismissal protection that had been strengthened significantly throughout the 1960s and 1970s now created a highly rigid labor market that protected the aged while often keeping younger workers from employment (Beckstette, Lucchini and Schizzerotto 2006: 102; OECD 1999a). Attempts to flexibilize employment protection were frequently confronted with the opposition of powerful unions and often affected only younger workers (Bernardi and Nazio 2005; Mirabile 2004; OECD 2004b). Hence, as a solution to the looming but yet unsolved labor market crisis of older workers, the Italian government gave them access to the so-called Cassa Integrazione Guadagni (CIG) and Cassa Integrazione Guadagni Straordinaria (CIGS) schemes in the 1980s and 1990s, two passive social protection measures initially introduced to financially ‘bridge’ temporary unemployment periods after a job loss by wage replacement benefits. However, for older employees, these schemes, which provided a replacement of around four-fifths of previous income, quickly turned into financially attractive ‘bridges into retirement’, initially for workers in industry and construction (in the 1980s) and then for those in private services (in the 1990s), before switching to official (early) pensions (Ebbinghaus 2006a: 134). In addition to these welfare-state subsystems, so-called seniority pensions provided an opportunity for early exit at age 55 under the formal pension scheme with similarly high replacement levels (OECD 2004d). A typical feature of the Italian case is the varying modalities of access to (early) retirement sources, a consequence of the dualism in welfare policies typical for Southern European countries. For example, CIG and CIGS schemes had no universal character, but were targeted measures for large and medium-sized enterprises where rationalization pressures were largest

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(Beckstette, Lucchini and Schizzerotto 2006). Other studies point to similar cleavages in access to retirement benefits with regard to region (northern versus southern Italy; ibid.), labor market status (hyper-protected insiders in public sector employment versus marginalized outsiders in informal employment; Ferrera 1996) and educational level. As a result of the strong early retirement incentives provided through the above programs, older workers’ employment in Italy fell significantly among workers in both their early 60s and their late 50s, resulting in one of the lowest employment rates among European countries for workers in these age groups. Unlike in the Netherlands, however, there seem to be few signs of a trend reversal in recent years. Aggregate labor-force data point to a continuation of the recent decline (see Table 4.3), and there is continued political use of ‘early retirement as a social support mechanism’ (Mirabile 2004: 250). At present, there are few active labor market policies to help older workers remain employed or re-enter the labor market (ibid.: 257), while continuous training schemes are still underdeveloped (OECD 2004d). In many instances, older workers are still faced with significant (re-)employment difficulties in a rigid insider–outsider labor market, in which seniority pay schemes are still vitally important (Paulli and Tagliabue 2002) and employment protection for older workers has remained largely stable (OECD 2004b). Pension systems still encourage early withdrawal, though a pension reform aiming to lift retirement ages and reduce public pension liabilities is currently underway. However, the full effects of this reform are expected only in future decades. Therefore, at present, Italy can be regarded as an ‘employment exit’ country. However, as recent studies confirm (Beckstette, Lucchini and Schizzerotto 2006), retirement patterns are less uniform among the population than in conservative countries, mostly owing to the inbuilt dualism of the Italian welfare system creating cleavages between employees in different segments of the labor market. Denmark: back to the (social democratic) roots? For the following analyses, Denmark will represent the Scandinavian ‘public maintenance’ regime type. As pointed out in Chapter 4, Denmark does not provide a ‘pure’ representation of the social democratic regime approach. Some have even described it as an institutional ‘hybrid’ combining features of various different welfare regime types (Hofäcker and LethSørensen 2006). However, within the ECHP, Denmark represents the only Scandinavian country for which data are available for all panel waves.3 Denmark began to depart from a classical Scandinavian-type model when the Danish economy suffered high rates of unemployment following the two oil crises. As a consequence, unemployment rose from near zero

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to around 10 percent in the early 1980s for both sexes (Hofäcker and LethSørensen 2006: 258). The dominant strategy applied to counteract this economic crisis was largely passive measures such as a generous system of unemployment compensation, a number of temporary leave schemes and the so-called efterløn, a post-employment wage program that provided older workers who were contributors to the national unemployment insurance program with the opportunity to leave the labor market up to seven years prior to the high official retirement age of 67 years at wage levels equivalent to 82 to 100 percent of regular unemployment benefits. Introduced in 1979, this effective early retirement scheme spread quickly, gradually turning into a near universal ‘welfare good’ (WestergaardNielsen 2001: 7). In addition, older workers already had the opportunity to claim prolonged unemployment benefits in their early 50s, effectively using them as ‘bridge’ payments before entering the efterløn. When unemployment rates rose further throughout the early 1990s, these options were supplemented by an additional ‘transitional allowance’ (overgangsydelse) allowing exit at as early as 50 years. Owing to the high popularity of these early-exit opportunities, older workers’ employment rates fell steeply, so that by 1999 more than 50 percent of former employees were already retired at age 62, that is five years before formal retirement age (ibid.). However, as passive policies proved to be no permanent cure to the continued labor market crisis, Denmark undertook a ‘policy switch’ in 1994 to a more active policy aimed explicitly at re-integrating the unemployed and inactive back into employment. This policy reversal included cutbacks in unemployment benefit generosity and a tightening of eligibility, but at the same time a stronger emphasis on public training and re-qualification measures to re-integrate the unemployed into the labor market. Together, these reforms created a system frequently described as the ‘golden triangle of flexicurity’ (Madsen 2002). It consists of three basic political cornerstones: first, an almost liberal labor market with only weak state regulation, entailing low levels of job security but, at the same time, fostering high levels of labor market mobility; second, a generous and solidarity-based welfare state to counteract the insecurity produced by such a system through generous transfers guaranteeing a decent standard of living; third, and in order to avoid long-term welfare benefit dependence, state policies aimed at re-integrating those outside the labor market into employment. Though there remains an open debate about the actual efficiency of this institutional hybrid type, combining elements of both liberal and social democratic policies (see Hofäcker and Leth-Sørensen 2006: footnote 1), unemployment rates among the Danish population have fallen steeply since the mid-1990s. However, it remains debatable to what extent older workers have benefited from this policy reversal, as many activation policies have

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practically excluded them. Despite recent parametric reforms, the efterløn system is still in place, and older workers can still remain unemployed for up to nine years before entering the scheme, until recently without binding re-qualification requirements. In addition, further pathways such as disability have long remained attractive alternative pathways to early exit. Although recent data point to a significant increase in the employment of older Danish workers, and more recent reforms aim to close early retirement pathways (Kraatz, Rhein and Sproß 2006), Denmark continues to be an intermediate case with elements of both employment maintenance and employment exit strategies (Hofäcker and Leth-Sørensen 2006). United Kingdom: retirement in a flexible economy For the following analyses, the United Kingdom will represent the liberal ‘market maintenance’ type. Especially since the Thatcher era, Britain may be adequately described as such a regime. Like the three other countries under study, the British economy underwent a decline in manufacturing and a gradual move towards services in recent decades. As a consequence of the incremental globalization of markets, British enterprises came under increasing competition both with each other and with overseas competitors. Taken together, both processes resulted in the need for rationalization measures (such as downsizing or outsourcing) as well as a shift in qualification demand towards new skills and different forms of work organization that disproportionately disadvantaged older workers and decreased their employment rate (Taylor 2004). However, unlike the other country examples described here, the UK did not react to these challenges primarily with passive labor-shedding measures but trusted in a strategy of further de-regulation of employment relationships, an increased reliance on flexible market structures, and a tightening of public expenditures (Golsch, Haardt and Jenkins 2006). As shown in section 4.5, the United Kingdom is characterized by comparatively weak occupational boundaries and a largely unstandardized education and training system, relying strongly on decentralized on-thejob training. Employment protection is among the lowest in Europe, entailing that jobs are unstable and employees frequently experience job and employment mobility. At the same time, flat-rate pensions from the public pension system are low, and guarantee only a basic income often needing to be supplemented by additional income from, for example, occupational pension schemes. Over time, the generosity of the former benefits has effectively decreased even further. A notable feature of the British pension system is its ‘choice-based structure’ that allows older workers to ‘contract out’ of national insurance funds and ‘contract in’ to approved private sources of income (ibid.: 186).

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Notably, unlike Denmark, Italy and the Netherlands, there is no public early retirement route. Instead individuals have to coordinate their withdrawal based on their own financial resources. It is only occupational pensions that have frequently provided an opportunity for early labor-force withdrawal. Consequently, some earlier studies have highlighted that maintenance of older workers within the labor market is strongly dependent on income and financial resources that determine the affordability of a labor market exit (Jackson and Taylor 1994; Taylor 2004). There are some more recent policy developments that may indicate a turn towards more active policies through re-employment and reeducation programs such as the ‘New Deal 50 plus’, which provides incentives for older workers to return to work. However, the workincentive-based approach of this program remains in line with the liberal welfare-state approach and resembles path dependency rather than path breaking (Frerichs and Taylor 2005). The United Kingdom therefore still represents an almost ideal example of a liberal ‘market-based employment maintenance’ strategy. Hypotheses: late-career mobility and social stratification in four modern societies Based on the above overview of the economic developments and institutional characteristics of the four countries under study, I shall now formulate hypotheses for older workers’ late-career mobility in these different country contexts, which I shall test in the following longitudinal analyses. Table 5.1 summarizes these hypotheses and the underlying institutional backgrounds in a schematic way. First, I expect significant cross-national differences in the dominant mode(s) of labor market mobility in the four countries under study. In both employment exit regimes (i.e. the Netherlands and Italy), I expect exit mobility at early ages to dominate late careers. Owing to the high rigidity of labor market and occupational boundaries, both direct job mobility and returns from unemployment will be rare. In contrast, in the UK, the highly flexible design of labor markets and low levels of occupational standardization suggest high levels of mobility: owing to only residual public policies, older workers will have to remain longer in the labor market until financial resources suffice. Denmark is expected to fall between these regime types. Owing to the mobility-enhancing character of the ‘flexicurity’ system, mobility among those of working age may be generally higher than in employment exit regimes. However, the partial exclusion of older workers from these measures will keep their mobility level below that of the UK. Nonetheless, owing to high retirement ages

The micro-perspective

Table 5.1

Hypotheses: institutional characteristics, modal late-career mobility patterns and effects of individual-level factors

Institutional characteristics Exit incentives through pension systems and welfare-state subsystems Dismissal protection and seniority rules Active labor market policies

Educational system/systems of vocational training

Modes of labor market mobility Employment exit Labor market mobility Returns from unemployment Effects of individual-level factors Human capital Workplace characteristics Financial characteristics

Source:

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The Netherlands

Italy

Denmark

United Kingdom

High, various pathways into early retirement

Moderately high, closure of some pathways in mid-1990s Modest–low

Low, low public replacement

High

High, but exit incentives targeted at specific groups Very high

Low

Low

Standardized, strong occupational boundaries

Standardized, strong occupational boundaries

High, but lower for older workers Standardized, but higher incidence of lifelong learning

High

High

Low

Low

Low

De- centralized, on-the-job training

Low

Moderate– low Moderate

High

Low

Low

Moderate

High

Strong Moderate

Strong Strong

Weak Moderate

Weak Moderate

Moderate (negative effect on exit)

Moderate (negative effect on exit)

Moderate (negative effect on exit)

Strong (positive effect on exit)

Own illustration.

Moderate–low

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and partial institutional support for older workers’ employability, I expect retirement patterns to be similar to those in the UK. Furthermore, in line with the theoretical predictions in section 3.4, I expect that, on the one hand, inter-individual differences in human capital, workplace and financial characteristics will influence older workers’ latecareer pathways. However, at the same time, the strength of these effects may differ cross-nationally. Generally, I expect human capital resources (such as educational attainment or occupational skills) to have a stabilizing effect on older workers’ late careers, that is they will most likely foster long maintenance within the labor market and restrict adverse mobility transitions. These effects will be especially pronounced in institutional contexts that create and extend qualification and skill differences through standardized and stratified systems of education. As a result, educational and occupational effects are expected to be most developed in employment exit regimes, but weaker in the less standardized lifelong learning cultures of the UK and Denmark. Second, I expect workplace characteristics to play a central role in the determination of late careers. On the one hand, older workers in the often declining secondary industrial sector are assumed to show the highest rates of mobility into either inactivity or new jobs. In addition, for workers in large firms where the demand for rationalization is highest and occupational pensions are most widespread, I expect generally higher early-exit rates than in small enterprises. These effects will be most pronounced in countries where industrial restructuring has been strongest or where government measures have been targeted at specific groups in the work force. In Italy, where early exit has been a measure targeted mainly at industrial employees in larger firms, inter-individual differences between workers with different workplace characteristics will be most pronounced. Finally, financial characteristics can be expected to influence individual late careers, though in cross-nationally different ways. In systems with well-developed and generous early retirement systems, I expect that especially those with lower earnings (and often insecure careers) will be most likely to accept generous early retirement offers while those with more financial resources will tend to continue working (often in more stable jobs) to accumulate further income. In contrast, in liberal countries, where the responsibility for financial security in old age often lies with the individual, I expect that those with low financial resources will show a higher likelihood of remaining employed, as they often cannot rely on low welfare-state benefits but will have to earn further income in order to ensure their financial wellbeing in old age. Owing to the residual importance of public welfare and the consequent transfer of retirement responsibility to the individual, I expect effects of financial characteristics to be most developed in these countries.

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5.2 DATA AND METHODS The European Community Household Panel The dataset that I shall use for my analyses in this chapter is the European Community Household Panel (ECHP). This is a longitudinal panel initiated and coordinated by the European Statistical Office (Eurostat) based on yearly interviews in 15 European countries.4 The idea for a common panel project in European countries was launched in 1992 to meet the increasing demand ‘for comparable information across the Member States on income, work and employment, poverty and social exclusion, housing, health and many other diverse social indicators’ (Eurostat 1996). Practically, the ECHP started in 1994 and went through eight consecutive waves in yearly intervals until 2001. In 2003, the ECHP was replaced by the European Survey of Income and Living Conditions (EU-SILC), a survey with a similar content-related target but a different methodological design (for details see Museux 2005). For the analyses to be undertaken here, the ECHP offers a number of substantial advantages. One of the key benefits lies in the broad thematic coverage of the survey. For example, it simultaneously collects information on labor market attachment and on socio-demographic characteristics, human capital endowments and financial resources. In comparison to, for example, register data, it also contains a number of ‘soft’ indicators such as individual opinions and attitudes that can be connected to the socio-economic development of individuals (Rasmussen 2005). Second, the ECHP has been designed to provide strictly cross-nationally comparable data across Europe. This is, on the one hand, due to the use of one common blueprint questionnaire for all national surveys. Coordinated by Eurostat, national data collection units are responsible for conducting fieldwork, including sample selection and interviewing respondent households, as well as carrying out basic steps of data processing (Peracchi 2002). While most of the countries have set up separate surveys for the ECHP project, some countries (Germany, Luxembourg and the UK) decided after three waves to merge the questionnaire into already existing panels (GSOEP, BHPS, PSELL). These common technical procedures allow comparability not only of the content of the survey but also of its implementation. In contrast, national longitudinal surveys often collect socio-demographic data on individuals based on nation-specific conventions and statistical traditions that cannot be compared directly across countries. A third major advantage for my analysis is the longitudinal nature of the survey that makes it possible to follow up individuals over time across equally spaced yearly intervals. Therefore, taken together, the ECHP makes it possible to reconstruct the late careers of older workers

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from a longitudinal perspective on the basis of a broad set of crossnationally comparative indicators. At the same time, it is, however, important to bear in mind the potential restrictions of the survey. On the one hand, in comparison to nation-specific studies such as, for example, the German Socio-economic Panel (GSOEP), which has been running for more than two decades now, the ECHP is a comparatively ‘short’ panel with only seven waves. Retrospective data that could partly make up for the shortness of the panel data are unfortunately rare in the ECHP and of only limited use, as, for example, no detailed characteristics of the previous job are available for job spells prior to the interview.5 Individuals can hence be followed up adequately only for a comparatively short time span of eight years. At the same time, it needs to be noted that the available time span from 1994 to 2001 is a very specific period in terms of my theoretical question, namely the reconstruction of late careers under globalization. As the survey starts only in 1994, it does not allow a reconstruction of the entire development of late careers under globalization. Instead, it enables the researcher to focus on differential patterns of late careers in four already globalized economies based on the most recent data. Measures and methods In the following, I shall use yearly data from the ECHP to reconstruct both exit processes and labor market mobility in the four countries under study.6 In order to cover a possibly broad age range at which late-career transitions can take place, I shall consider individuals aged 50 to 65 years at the time of the survey. For both the UK and Italy, for example, it is known that processes of labor market withdrawal occasionally start at this early age (Beckstette, Lucchini and Schizzerotto 2006; Golsch, Haardt and Jenkins 2006). As the four countries are at very different developmental stages in terms of labor-force participation for women of these ages, I shall restrict my sample to an analysis of male late-career patterns. An additional analysis of women would, on the one hand, potentially create sample-size problems in both conservative and Southern European countries, where very few older women work. On the other hand, these women would resemble a very selective group of women, which would not necessarily allow a generalization of results to future labor market generations. Given this age window and target group, I shall pool all eight yearly waves of the ECHP from the time period 1994 to 2001, resulting in an unbalanced panel structure with nation-specific sub-samples of 3514 (Denmark), 6463 (Netherlands), 9352 (Italy) and 5616 (United Kingdom) observations.

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When looking at labor market mobility, I base my analyses on the ILO labor-force status that differentiates between employment, unemployment and inactivity.7 Unlike other analyses (e.g. Albuquerque et al. 2006), I deliberately do not use the subjective self-perceived labor-force status of individuals as the baseline for my mobility and retirement analyses because individual definitions of ‘retirement’ may differ both between and within countries. In some countries, older discouraged workers could, for example, define themselves as ‘unemployed’ (as this is their objective labor-force status) while, in other countries, they would more likely consider themselves to be already ‘retired’ (if unemployment carries the connotation of a pathway into early retirement), although in statistical terms they effectively share the same labor-force state. The ILO definition, which makes it possible to disentangle the labor-force status of ‘unemployment’ from inactivity on the basis of individuals’ actual job search activity, therefore allows a separation between the unemployed (who are still looking for a job) and the discouraged (who have given up the job search) and provides a more objective and less ambiguous definition of effective labor-force withdrawal both within and across countries. In the following, I shall look at both frequency distributions of individuals within these states and transitions between them based on yearly information. More specifically, I shall look at transitions into inactivity, transitions between different types of jobs, and mobility between the states of employment and unemployment. Transitions into inactivity are any transitions from a status within the labor force (employed, self-employed or unemployed) to a status of either discouragement (unemployed, but not searching for a job) or inactivity between time points t and t+1. Unlike looking at transitions from employment to non-employment, this type of analysis allows me to investigate when individuals withdraw effectively from the labor force instead of looking at potentially temporary job losses. Job mobility relates to any reported job change in the time period between t and t+1, established through a specific retrospective question in the ECHP. By combining this question with additional information on working hours and labor-force status, I can identify changes in work-time as well as transitions between employment and self-employment. In the following I shall, on the one hand, provide a comparative descriptive overview of the frequency of the above transitions. On the other hand, I shall use them as dependent variables in two multivariate panel regression models in order to explain how these transitions vary between different groups of individuals. As explanatory variables for these regressions I shall use a number of indicators representing the key influential factors at the micro-level identified in Chapter 3. As control variables I include dummy variables for both

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age and subjective health status, based on the subjective perception of respondents on a five-point scale ranging from ‘very good’ (5) to ‘very bad’ (1).8 Both variables can be considered to represent key factors that generally influence the likelihood of remaining employed or exiting the labor market beyond the hypothesized influence of human capital, workplace and financial factors and that should therefore be included in the model. Furthermore, in order to take economic cycle influence and other timedependent contextual factors into account, I control for the respective wave in which the interview was taken. Several indicators provided in the ECHP can serve as proxy variables for human capital characteristics. First, the ECHP contains a very broad education measure indicating the highest level of general or higher education completed, which allows the distinction between third-level education (ISCED codes 5 to 7), secondary-level education (ISCED 3) and less than secondarylevel education (ISCED codes 0 to 2). In order to additionally take into account the influence of lifelong learning and the updating of skills, I use information on whether the respondent has been in education or training throughout the last year (dummy variable). I supplement these educational measures with a more detailed classification of occupational class based on Eriksson and Goldthorpe (1992) that uses dummy coding to distinguish between high versus low service-class workers, routine clerical and sales workers, skilled manual workers, unskilled workers and farm workers. In models dealing with job mobility, I additionally include tenure in the current job (approximated by three dummy categories differentiating between job tenures of less than 6 years, 6 to 14 years and 14 years and more). Detailed information is given in the ECHP about the job in which a worker is currently employed, which allows a comprehensive representation of workplace and job characteristics. With regard to the firm in which an older employee is employed, the ECHP allows differentiation according to whether the sector of activity lies in industry, agriculture or services. Additional information is provided on the size of the establishment in which the older worker is employed. As it suffices for my purpose and avoids potential cell-size problems, I merge the detailed six-group differentiation provided in the ECHP into a classification of large (more than 500 employees), medium-sized (50–499 employees) and small firms (fewer than 50 employees). However, in most of the countries, information on firm size had been collected initially only for private sector employees and, since then, has rarely been updated for those working in the public sector. To account for this, I additionally introduce a dummy variable differentiating between public and private sector employment. Finally, I use information on working time to differentiate between full- and part-time employees, based on individual self-assessment by the respondent.

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Finally, financial characteristics are represented by the respondent’s evaluation of whether the household has difficulties in making ends meet on the available monthly income of all household members, measured on a six-point scale ranging from ‘very easily’ (1) to ‘with great difficulty’ (6).9 Though the ECHP provides extensive information on the direct income of both individuals and households, the subjective assessment appears to be a more appropriate proxy variable as it considers potentially different individual preferences and demands with regard to household income that can be regarded as determinants of employment versus retirement choices rather than the household income itself. For my multivariate analyses of exit into inactivity and job mobility, I calculate logistic regression models for transitions between times t and t+1, conditioning on the above independent variable measured at time t. I use longitudinal weights based on the cross-sectional weight available in the ECHP and the survival probability between two waves in order to account for selective sample dropout. For the transition into inactivity, I estimate a binomial model of exit from ‘labor-force participation’ to ‘out of the labor force’. For exits into unemployment, I estimate multinomial models from the origin state of being employed with alternative destination states ‘unemployment’, ‘inactivity’ and ‘remaining employed’ (reference category). Job mobility is analyzed by multinomial regression models for the transition from working in a specific type of job to moving to another job with alternative states of ‘employment exit’ into either unemployment or inactivity and ‘remaining within the same job’ (reference category). In order to account for the pooling of transitions over time and the clustering of individuals, I use robust estimation of model parameters and their standard errors (Huber 1967; White 1980).

5.3

PATTERNS OF LABOR MARKET PARTICIPATION AND MOBILITY

Figure 5.1 starts the overview of empirical results with a comparison of the labor-force participation profiles – i.e. employment and unemployment – of older men aged 50 to 65 years for the four countries under study based on a pooled cross-section of all eight ECHP waves. The results largely correspond with the differentiation of employment versus maintenance regimes as well as with the description of institutional characteristics in section 5.1. Denmark shows the highest participation of older workers among all four countries with almost stable participation rates for Danish men in their 50s. Only in the late 50s and especially at age 60 do labor-force

256

100 90 80 70 60 50 40 30 20 10 0

Older workers in a globalizing world

DK NL ITA UK

50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Source: Pooled data, European Community Household Panel, waves 1–8 (1994–2001).

Figure 5.1 Labor-force participation of men by age in Denmark, Italy, the Netherlands and the UK participation quotas point to a significant decline, reflecting the still widespread practice of early retirement through the public efterløn scheme to which older workers become eligible at age 60. Declines in earlier ages may be repercussions of the extension of these schemes through the additional transitional allowance that was in practice until the mid to late 1990s. Results for the United Kingdom indicate a modest but more steady decline of labor-force participation with age. This pattern appears to be in line with previous research (Golsch, Haardt and Jenkins 2006) and mirrors the lack of specific early retirement incentives and the only modest importance of the weakly compensating public pension system, which turns early retirement into a decision of the individual based on his or her financial situation without significant age limits. Older workers in the Netherlands follow the British pattern until the mid 50s but then exhibit a steep decline in labor-force participation quotas to values as low as 10 percent at age 62. This steep and continuous decline can be seen as the consequence of the combination of the various public and privately negotiated early retirement opportunities described in section 5.1 that have developed over the last few decades and are obviously still of significant importance. Finally, Italy shows the lowest participation levels among workers in their early and mid 50s, most likely a consequence of the fact that Italy exhibits the lowest formal (60) and early (55) retirement ages among the four countries under study, and additionally has introduced a number of supplementary exit schemes to foster labor-force withdrawal at earlier ages. Notably, however, the pattern flattens out in the 60s and remains only slightly below

The micro-perspective 100 90 80 70 60 50 40 30 20 10 0

100 90 80 70 60 50 40 30 20 10 0

employed self-employed unemployed

50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65

Netherlands

Source:

United Kingdom 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65

50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65

Denmark

100 90 80 70 60 50 40 30 20 10 0

Italy 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65

100 90 80 70 60 50 40 30 20 10 0

257

Pooled data, European Community Household Panel, waves 1–8 (1994–2001).

Figure 5.2

Labor-force status of older men by age in Denmark, Italy, the Netherlands and the UK

the British curve. As indicated earlier (see section 4.1), this comparatively high labor market maintenance in later life may be an outcome of comparatively higher self-employment rates in Southern European countries, partly in agriculture, which boost overall labor-force participation rates at close-to-retirement ages. In order to test for this assumption, Figure 5.2 provides a more detailed split of country-specific labor-force participation rates into the states of employment, self-employment and unemployment. Figure 5.2 indeed suggests that much of the high labor-force participation rate in Italian men in their early 60s may be due to the virtually constant proportion of the self-employed who make up between 20 and 25 percent of all respondents among all age groups. A comparison considering participation rates of only the employed suggests a labor-force pattern for Italy that is much more like that of the Netherlands and significantly below those of both Denmark and the United Kingdom. Figure 5.3 further analyzes employment among older men into full-time and part-time employment. Though results are based on the subjective evaluation of individuals and may therefore differ from the part-time rates based on a common 30-hour cut-off line as proposed by the ILO, results provide some further evidence for the still only modest importance of this type of work among older workers. Especially in the two employment

Older workers in a globalizing world

100 90 80 70 60 50 40 30 20 10 0

100 90 80 70 60 50 40 30 20 10 0

50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65

Netherlands

Source:

United Kingdom

50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65

50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65

Denmark

100 90 80 70 60 50 40 30 20 10 0

100 90 80 70 60 50 40 30 20 10 0

full-time employed part-time employed

Italy 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65

258

Pooled data, European Community Household Panel, waves 1–8 (1994–2001).

Figure 5.3

Full-time and part-time employment of older men by age in Denmark, Italy, the Netherlands and the UK

exit regimes, the number of workers who declare they are working part time is rather low, reinforcing my earlier finding that greater flexibility for employers is achieved less through the use of more flexible work forms and more through supporting the full-employment exit of senior employees. For Denmark, however, results appear to indicate that, especially in the pre-retirement ages (i.e. the early 60s), the significance of part-time employment rises. Here, part-time work seems to be used as a means to continue working while undertaking a gradual entry into retirement via work-hour reductions. While, so far, results have allowed only for a cross-country comparison of cross-sectional distributions across specific states, Figure 5.4 introduces a more longitudinal perspective on movements within the labor market. It displays the percentage share of different types of mobility within the labor market: direct job-to-job mobility refers to those who report having taken up a job between interview date t and t+1. In addition, Figure 5.4 also considers changes between self-employment and dependent employment as another form of flexibility within the labor market. Third, it also includes changes in the work-time of employees. In order to account for possible age-specific differences in labor market mobility among older workers, Figure 5.4 provides mobility figures split by five-year age groups.

The micro-perspective 25 20

25 Denmark

20

15

15

10

10

5

5 50–54

55–59

50–54

60–64

direct job mobility labor force status mobility

20

United Kingdom

0

0

25

259

25 The Netherlands

60–64

Italy

20

15

15

10

10

5

5 0

0 50–54

Source:

55–59

job and labor force status mobility (employment/self-employment) work-time mobility (full-time/part-time)

55–59

60–64

50–54

55–59

60–64

Pooled data, European Community Household Panel, waves 1–8 (1994–2001).

Figure 5.4

Labor market mobility of older men by age group in Denmark, Italy, the Netherlands and the UK

All mobility transitions are expressed as a percentage share of all transitions within active employment. As predicted by my theoretical concept, the liberal showcase of the United Kingdom displays by far the highest rates of labor market mobility. Direct mobility between jobs especially looms large, accounting for almost 15 percent of labor market transitions, though some mobility between employment and self-employment and notable shifts in work-time can also be observed. Notably, these mobility shares remain high until close to retirement, reflecting the lack of earlyexit opportunities as well as the low generosity of the British pension system that forces older workers to remain employed and gather more financial resources even at the expense of frequent labor market mobility. Denmark follows at a considerable distance with direct job mobility rates of about 5 percent among workers in their early 50s that, however, decrease significantly with age. Though the – in comparison to conservative countries – higher mobility rates of older men in Denmark may partly reflect the higher flexibility of the Danish labor market since the introduction of the ‘flexicurity principle’, Figure 5.4 indicates that these activation measures may have not yet had an effect on the older work force. Figures for work-time mobility among older Danish men in their early 60s confirm

260

Older workers in a globalizing world

50 DK NL ITA UK

40 30 20 10 0 50–54 Source:

55–59

60–64

Pooled data, European Community Household Panel, waves 1–8 (1994–2001).

Figure 5.5

Returns from unemployment to employment of men by age group in Denmark, Italy, the Netherlands and the UK

the earlier observation of work-time flexibility before retirement through a gradual exit from the labor force. In both the Netherlands and Italy, there are generally few signs of direct job mobility. At best, it plays a role for those in their early 50s but virtually disappears thereafter. Especially in the rigid labor market of Italy, direct job-to-job mobility plays hardly any role. However, there is some indication of other forms of mobility. In the Netherlands, there appears to be some work-time mobility among those in their early 60s. However, the quantitative importance of this trend needs to be treated with caution since, at this age, very few Dutch men are still employed. At the same time, mobility between employment and self-employment seems to be of some importance in Italy across all three age groups. Potentially, moving into specific types of subcontracted or outsourced jobs or establishing a business or service on one’s own account appears to be one of the few possibilities of labor market maintenance for older workers in a highly rigid labor market. However, despite these occasional observations, the general picture for Italy, the Netherlands and, to a lesser degree, Denmark appears to be one of relative stability in late careers for those who remain employed. Figure 5.5 presents empirical evidence for the returns from unemployment to employment, measured as a percentage of all transitions from

The micro-perspective

261

unemployment. As expected, Denmark stands out with the highest rate of re-integration into employment, especially among those in their early 50s, with almost one-half of all those who reported having been unemployed at time t re-entering employment one year later. Though this rate declines for successive age groups, it remains clearly higher than that of both employment exit countries. While, in Italy, re-entry into employment remains constant at a low 10 to 20 percent across age groups, it significantly declines for the Netherlands. Especially in the early 60s, when early pensions through either the VUT scheme or other early-exit programs become available, virtually no reentries into employment can be observed. Re-entry rates for the United Kingdom appear to be surprisingly low, with values ranging between 20 and 25 percent. One possible explanation may be that, in the highly flexible labor markets of the United Kingdom, unemployment may be more rare and of shorter duration. Those who appear as unemployed at the date of the survey interview may consist disproportionately of those with severe labor market problems, reflected in lower re-entry rates. A notable feature of British re-entry rates, however, is that they remain largely constant for those between their late 50s and early 60s, while, in all other countries, a decline can be observed. This persistent rate of re-entry from unemployment into employment may reflect the continued need to find gainful employment in the residual welfare context of liberal countries, while in all three other countries the older unemployed can draw on often generous pathways into retirement.

5.4

INDIVIDUAL-LEVEL DIFFERENCES IN EARLY RETIREMENT AND LATE-CAREER MOBILITY

Following the detailed description of late-career mobility transitions in the preceding section, I shall now turn to a more extensive comparative analysis of the variation between individuals. To this end, Table 5.2 presents results from a logistic regression analysis of men’s transition into inactivity. As my descriptive analyses have shown that most employment exits take place well before formal retirement ages, I restrict my following examination to men between the ages of 50 and 62. First of all, control variables largely show the expected effects. In all countries under study, the likelihood of exiting the active labor force predictably increases with age, although the gradient of this decline differs somewhat between countries: while in both the United Kingdom and Italy employment rates decrease at more or less steady rates, declines over age group appear to be more steep in the Netherlands and Denmark where

262

Table 5.2

Older workers in a globalizing world

Transitions into inactivity, binary logistic regression with robust standard errors DK

Constant Age

Labor-force status

Health Education

Training Occupation

Sector

Work-time Firm size

Time controls

UK

ITA

NL

−3.401**

1.362**

−1.378**

−2.449**

0.805 1.642**

0.446+ 0.683** 1.490**

0.702** 1.000** 1.523**

0.953** 1.826** 3.511**

Unemployed Self-employed Subjective health 3rd level 2nd level 1st level (ref.) Received training last year High service class Low service class Routine worker Skilled worker Farm worker Unskilled worker (ref.) Primary Secondary (ref.) Tertiary Public Private (ref.) Part-time Full-time (ref.) < 50 employees (ref.) 50–500 employees > 500 employees

2.269** 0.100 −0.377* −0.287 0.322

2.465** −0.212 −0.585** 0.155 0.295

0.593** −0.798** −0.124* −0.491* −0.058

2.601** −0.122 −0.283* −0.717** −0.170

−0.282 0.491

Household has financial problems Wave 1 (ref.) Wave 2 Wave 3 Wave 4 Wave 5

50–52 years (ref.) 53–55 years 56–58 years 59–61 years Employed (ref.)

−0.113

0.284

−0.434+ −1-132*

−1.103+ 0.160 −0.011 0.094 −0.139

−0.340 −0.001 0.021 −0.887* 0.877

−0.976** −0.472* −0.524** −0.416** −0.395

0.110 0.018 0.237 −0.073 0.129

−0.626

−0.792

−0.255

−0.894

0.033 0.346

0.155 0.321

−0.311* 0.011

−0.520 0.206

0.965

0.950**

1.922**

1.582*

−0.367 0.602*

0.127 0.601*

0.247 0.423+

−0.078

−0.209**

−0.075+

−0.021

0.0-23 0.296 0.035 −0.254

−0.070 0.136 −0.034 0.052

−0.301* −0.132 −0.051 −0.100

−0.398 −0.747** −0.270 −0.550*

The micro-perspective

Table 5.2

(continued)

Wave 6 Wave 7 R squared Number of observations

263

DK

UK

ITA

NL

−0.122 −0.281 0.2832

−0.062 −0.062 0.165

−0.615** −0.334** 0.109

−0.850** −0.897** 0.243

2153

3371

6438

3508

Note: Controlled for missing values, ** = significant at a ≤ 0.01, * = significant at a ≤ 0.05, + = significant at a ≤ 0.10. Source:

Pooled data, European Community Household Panel, waves 1–8 (1994–2001).

exit appears to be connected more closely to early retirement options for workers in their mid and late 50s. In addition, a critical health status appears to encourage labor-force withdrawals in all four countries, with the strongest effect emerging in the United Kingdom. This result is not surprising, as the UK constitutes the country in which retirement transitions were expected to be most individualized, suggesting that employment exit processes would depend more on functional criteria such as the individual ability to work rather than on chronological age limits set through (early) retirement regulations. Finally, results for employment status indicate that the older unemployed show a markedly higher likelihood of exiting into inactivity, indicating that a drop out of paid employment in the majority of cases translates into a higher readiness to accept early retirement offers. Effects for the self-employed category are generally modest. Although, with the exception of Denmark, the effects show the expected negative signs, they reach statistical significance levels only in Italy, where the descriptive analysis already pointed to a high incidence of self-employed individuals and a clear deviation of their labor market behavior from that of the dependently employed. Turning to human capital characteristics, Table 5.2 shows that, in fact, these factors tend to be most pronounced in employment exit regimes. While there are no significant effects of educational level on exit probabilities in Denmark and the United Kingdom, results for both Italy and the Netherlands show that those with tertiary-level attainment appear to be least likely to exit the labor force in their 50s and early 60s. These results confirm that, especially in countries where education is largely restricted to the early life course, more transferable tertiary-level qualifications are a key pre-condition for adaptability to new technological demands and hence maintenance within the labor force.

264

Older workers in a globalizing world

This interpretation is corroborated by the additional finding that, in both the Netherlands and Italy, those who have received education and training throughout the life course have a lower likelihood of exiting even when controlling for initial educational levels. Hence, in standardized education systems, further investments in the human capital of older workers seem to be successful in equipping them with the qualifications required for adaptation to a changing labor market. In contrast, in countries where education systems are less restricted to an early stage of individual work lives but where individual knowledge is frequently updated through either firm-based on-the-job training or publicly fostered lifelong learning, differences between educational levels play a markedly lesser role. Whether they are entirely insignificant, as coefficients from Table 5.2 suggest, may be a debatable question. Caution is required, as the tripartite education classification provided by the ECHP allows only for the consideration of very broad educational differences. However, even results from other national surveys with a more detailed education measurement appear to indicate that the role of education in determining exit is modest (Golsch, Haardt and Jenkins 2006 for the UK) or that its importance has decreased over time (Hofäcker and Leth-Sørensen 2006 for Denmark). The role of occupational status as an additional predictor of employment exit again looms large in Italy, where especially those in higher service-class occupations are unlikely to exit employment. However, even those in lower service-class occupations or those working as skilled or routine workers are significantly less likely to exit than those with few or no skills, reflecting the targeted nature of early retirement programs in Italy that allowed industrial enterprises to shed especially their least qualified workers (see section 5.1). In contrast, in countries where early retirement offers were negotiated on a national economy level and had been more universal, such as the Netherlands and the UK, little variation can be observed between workers with different occupational status. These results suggesting an even spread of an early retirement culture across specific occupational strata confirm earlier findings based on national data sources that detect similarly modest effects of occupational class (Henkens and Kalmijn 2006: 91). Workplace characteristics also prove to exert some important influence on early retirement among older workers. Those working in part-time jobs are most likely to exit early in all countries under study, reflecting the use of these schemes as ‘stepping stones’ out of the active labor force. Moreover, especially in Italy, early-exit transitions seem to have accumulated especially among those working in large industrial firms, while those in the rising tertiary sector show signs of a significantly longer maintenance within employment. Again, these results reflect the specific nature

The micro-perspective

265

of the CIG and CIGS schemes in Italy, which were largely targeted at large industrial establishments. Similarly strong effects of firm size on early exit are observed for the United Kingdom, where it is also those working in large firms who are most likely to move into inactivity. However, owing to the different welfare architecture in liberal countries, this effect will more likely be due to the greater availability of occupational pension schemes as promoters of early retirement in large firms. In both Denmark and the Netherlands, retirement patterns again appear to be more homogeneous, not only with regard to individual human capital characteristics, but also with regard to industrial branch and establishment size. Finally, there are notable cross-country differences in the effects of financial resources on early-exit probabilities. While in both Denmark and the Netherlands they do not seem to play a role, their effects looms large in the United Kingdom, indicating that those living in households with the least financial resources are more likely to remain in employment. This finding corroborates my expectation that individual financial circumstances are a key determinant of individual retirement transitions in the weakly compensating pension system of the UK, whereas in the generously compensating employment exit countries they play virtually no role. Weak effects of financial resources are also found in Italy, providing some further support indicating that financial compensation through early-exit schemes is less universal and may force specific groups of disadvantaged older workers to remain employed. Table 5.3 supplements the findings on early exit with multinomial logistic regression models for labor market mobility (with alternative destination states ‘continuously employed’ and ‘employment exit’). In order to arrive at a complete picture of mobility processes, mobility refers to both the change of jobs and movements between employment and self-employment. Nevertheless, for the countries under study, there are only limited opportunities for the analysis of mobility processes owing either to the generally low incidence of mobility transitions in late career (Denmark, Italy, the Netherlands) or to problems with the dataset that allow me to consider only the first three ECHP waves for mobility analyses (the UK).10 As a consequence, only the influence of single independent variables can be tested. The results are, however, conclusive. Generally, as could be expected, labor market mobility decreases with previous job tenure. While, in most countries under study, there are few differences in mobility experience with regard to further individual characteristics, Italy stands out as a highly stratified case. Here, mobility transitions appear to concentrate on a specific group of disadvantaged workers outside the service sector with low financial resources and a low and secondary educational level or

266

Occupation

Education

6–14 years 15 years and more 3rd level 2nd level 1st level High white-collar Low white-collar High blue-collar Low blue-collar

>6 years

50–52 years 53–55 years 56–58 years 59–61 years > 62 years Self-employed

−2.131** −2.556**

(ref.)

−1.970** (ref.) −0.181 0.218 0.227 −1.245

−2.110** −2.537**

(ref.)

−1.867** (ref.) −0.005 0.249 0.295 −1.107 −0.423+

−2.051** −2.438** −1.019+ −0.213 (ref.)

(ref.)

−1.987** (ref.) −0.013 0.214 0.171 −1.293+

ITA

−2.070** −2.478**

(ref.)

−2.243** (ref.) −0.027 0.220 0.233 −1.255+

−2.052** −2.452**

(ref.)

−1.799** (ref.) 0.003 0.261 0.216 −1.217

−1.326** −1.642**

(ref.)

−1.946** (ref.) −0.155 −0.836* −0.399 −0.385

DK

−1.295** −2.677**

(ref.)

−3.322** 0.791+ 0.443 0.542 (ref)

NL

Likelihood of job mobility, multinomial logistic regression with robust standard errors

Employment status Previous tenure in the same job

Constant Age

Table 5.3

−0.900** −2.404**

(ref.)

−1.495** (ref.) −0.007 −0.253 −0.261 0.350

−0.971* −0.751+ −0.368 (ref.)

−0.932** −2.455**

(ref.)

−1.032** (ref.) 0.048 −0.223 −0.323 0.234

UK

267

Primary Secondary Tertiary Household has financial problems Wave 1 Wave 2 Wave 3 Wave 4 Wave 5 Wave 6 Wave 7 (ref.) 0.120 0.792* 0.090 −0.481 −0.296 −0.182 0.095 6080

(ref.) 0.128 0.803* 0.099 −0.482 −0.304 −0.198 0.105 6080

(ref.) 0.144 0.813* 0.121 −0.448 −0.281 −0.143 0.104 6080

(ref.) 0.167* 0.853* 0.165 −0.441 −0.289 −0.115 0.097 6080

0.675** (ref.) 0.152 0.842** 0.139 −0.422 −0.212 −0.106 0.115 6080

0.086 (ref.) −0.639*

(ref.) 0.030 0.250 0.177 −0.676 0.394 −0.120 0.128 2133

(ref.) −0.164 0.681 0.634 1.409** 0.656 1.220** 0.168 3281

(ref.) 0.309 −0.111 − − − − 0.071 1219

(ref.) 0.326 −0.103 − − − − 0.081 1219

Source:

Pooled data, European Community Household Panel, waves 1–8 (1994–2001).

Note: Alternative destination states: Job continuation (reference), employment exit. Controlled for missing values, only models with significant covariates shown, models for the UK only calculated for waves 1–3 owing to a change in the recording of job changes among self-employed. ** = significant at a ≤ 0.01, * = significant at a ≤ 0.05, + = significant at a ≤ 0.10.

R squared Number of observations

Financial situation Time controls

Sector

268

Older workers in a globalizing world

less. These results correspond well to the above findings on employment exit, suggesting that, in the more fragmented welfare systems of Southern European countries, there is a group of workers who do not enjoy the protection of safe labor market insiders and generous early retirement options. These workers obviously have to remain in employment even at the cost of higher and possibly downward mobility. Taken together, results from mobility analyses hence provide further vital support for my theoretical model developed in Chapter 3. On the one hand, there are clear cross-national differences in mobility patterns that can be seen as correlates of early-exit tendencies in the countries under study. In both employment exit regimes, labor market mobility appears to be seriously restricted, thereby reducing older workers’ adaptability to labor market changes and promoting their early exit into well-paid early retirement. In contrast, the liberal showcase of the UK seems to suggest that better opportunities for individual labor market mobility make it easier for older workers to adapt to changing labor markets and, in combination with only weakly compensating pension systems, promote their longer labor market maintenance. Finally, in Denmark, open labor market mobility appears to be significantly lower. However, high numbers of returns from unemployment appear to suggest that active policy measures support older workers’ return to the active labor force. The successive analyses of micro-level differences highlighted that these different approaches trigger variations not only in the incidence of mobility transitions but also in their spread across specific labor market groups. Results point to different, institutionally based logics in the selectivity of labor market transitions. Liberal countries stand out as those where late careers appear to be strongly determined by individual financial resources. In contrast, both conservative countries, but especially Italy, have rather promoted a stratification between workers with different human capital characteristics. Finally, Denmark as the social democratic showcase shows the lowest levels of stratification in late careers and a largely homogeneous pattern of late-career progression across society. Most likely, this result can be seen as indicative of the general orientation of social democratic countries towards the ideals of both universalism and social equality.

NOTES 1. 2. 3.

Unfortunately the lack of Eastern European countries in the ECHP does not allow for a consideration of countries from the post-socialist regime cluster. Abbreviation for the Dutch term ‘Vervroedgde Uitredding’, which translates literally into ‘voluntary early retirement’. For Sweden, only cross-sectional data have been supplied, which hinders my mobility

The micro-perspective

4. 5. 6. 7.

8. 9. 10.

269

analyses. For Finland, there are only data for six out of eight possible panel waves. Norway was not included in the survey. The countries featured in the ECHP are Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden and the United Kingdom. For analyses including retrospective data, this would technically restrict the choice of explanatory variables used in multivariate analyses to a minimum. The research was (co-)funded by the European Commission under the Sixth Framework Programme’s Research Infrastructures Action (Trans-national Access contract RITA 026040) hosted by IRISS-C/I at CEPS/INSTEAD, Differdange, Luxembourg. As the British file did not include a differentiation between unemployment and inactivity status in the respective ILO labor-force status variable, I reconstructed it from other variables describing job search activities based on a routine provided by Torben Dahl Schmitt at http://epunet.essex.ac.uk/services.derived.php (retrieved 6 August 2006). For a more intuitive interpretation of results, these values were recoded from the initial coding of 1 = very good to 5 = very bad. Again, these values were recoded from the initial coding of 1 = ‘with great difficulty’ to 6= ‘very easily’ for a more straightforward interpretation of financial problems as a determinant of late-career decisions. After wave three, only very selective information is available about any job changes among the self-employed, which hinders a comprehensive analysis of mobility patterns.

6.

Conclusions

Population aging is an issue that virtually any Western industrial society nowadays is faced with. While initially the public and scientific discourse largely focused on changes in the demographic structure of modern societies and their consequences for the affordability of established pension systems, attention recently has shifted to labor market aspects and the need to integrate older workers into employment. Politicians and experts from OECD countries agreed at the High-Level Forum on Ageing and Employment Policies in 2005 that, ‘faced with population ageing, longer work lives must be encouraged’ (see OECD 2005h). Indeed, reversing the early retirement trend that had been dominant for the last few decades ranks high on the current political agenda and is supported by both national and supranational policy makers and pressure groups alike (European Commission 2004a; Taylor 2006; OECD 2006). However, successful political intervention requires a thorough knowledge both of the development and of the causes of the currently still dominant early retirement trend in modern societies. Against this background, the aim of this work was to contribute to the state of research by providing a comprehensive explanation of the emergence of early retirement, its differential development across countries and its unequal spread among different groups of older workers. I started by giving a comprehensive overview of existing theories that had previously investigated the trend towards early retirement. I then developed a theoretical framework for the analysis and explanation of early retirement that, on the one hand, embedded the retirement transitions of older employees in the broader life-course context of their late careers and, on the other hand, conceptualized them as rational individual decisions for or against employment continuation (as against employment withdrawal) under multiple situational and institutional constraints. I subsequently tested my theoretical framework based on an international comparison of latecareer patterns and their institutional backgrounds using cross-sectional data from 14 OECD-type countries. This large-scale overview was supplemented by a more in-depth reconstruction of late-career processes on the individual level in four selected countries using up-to-date longitudinal micro-data from the European Community Household Panel. My core argument built on the assumption that declines in the labor270

Conclusions

271

force participation of older workers since the early 1970s can be traced back to the multi-dimensional phenomenon of globalization that increasingly and systematically worsened the labor market chances of older workers in multiple respects. On the one hand, economic shocks as a consequence of the two oil crises led to a general deterioration in economic conditions, reflected in rising unemployment rates in all the countries under study. However, the effects of globalization on older workers went beyond these cyclical disruptions and disadvantaged them in more fundamental terms. Changes in the economic structure of developed nations speeded up by globalization triggered a decline in traditional industrial sectors and occupations in which older workers were overrepresented, thereby increasing their risk of being affected by rationalization measures and becoming redundant. Faced with new job profiles for which they were often only inadequately trained, it became difficult for them to successfully return into employment. However, even those in employment experienced rising labor market difficulties as their acquired seniority rights and wages as well as their traditional qualification profiles increasingly came to be at odds with the demands of a global labor market in which cost-efficiency, flexibility, adaptability and transferable skills were required. As more and more younger workers were available at lower wage costs and in more flexible employment relationships, older workers came to exhibit severe competitive disadvantages on globalized labor markets. In my analyses I could show that these structural pressures on older workers translated into a manifest decline of their employment attachment through labor-force exits before reaching mandatory retirement ages, often ‘helped along’ by generous early retirement payments from public, and sometimes additional occupational, early retirement plans. The fact that these early-exit arrangements often remained in place and were widely used even when national economies recovered from initial economic crises strikingly demonstrates the far-reaching effects that globalization had on the labor market situation of older workers, turning them into a structurally disadvantaged group on globalized labor markets. A globalizationbased explanation of early retirement referring to the multiple dimensions of older workers’ disadvantages on globalized labor markets hence not only helps in understanding why early retirement emerged as a mass phenomenon in the 1970s, it also gives a reasonable explanation of its surprising persistence and resistance to policy attempts to reverse it, which had remained a puzzle to many earlier explanations. Despite the multiple labor market disadvantages that older employees have been faced with under globalization, it would be premature to classify them as ‘losers of globalization’ as has been reasonably done for younger workers (Blossfeld et al. 2005). My analyses show that, unlike

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young labor market entrants, older workers have largely been spared from a flexibilization of their employment relationships through atypical and precarious work forms. Instead, their high levels of employment protection, their connections to collective organizations such as unions and the fact that a deterioration in their employment conditions would probably have affected the trust relationships for the remaining work force ensured that older employees often had to be ‘pulled’ out of employment through financially generous early retirement offers. Though the labor-force participation of older workers decreased in all countries under consideration, my analyses showed that there were substantial differences in the degree of this decline. A systematic comparison of older workers’ employment patterns and their institutional backgrounds allowed me to trace back these cross-national differences to combinations of nation-specific institutional settings that provide specific opportunity structures for the continuation of work or respectively the exit from employment. As done earlier by economic approaches, my analyses highlighted the cross-nationally varying significance of pension systems and other welfare-state programs in triggering the employment exit of older workers by providing financial incentives for early labor-force withdrawal. However, my work additionally showed that these crossnational differences in ‘pull factors’ systematically coincide with variations in the design of institutions that would allow older workers a continuation of their employment careers. In this respect, I highlighted the additional importance of national systems of education and vocational training, the role of labor relations and employment protection, and the importance of active labor market policies. Based on a systematic comparison of older workers’ employment patterns and their nation-specific institutional backgrounds, I differentiated three ideal-typical ways in which countries have responded to the challenges of globalization with regard to older workers. In countries following an employment exit strategy, best represented by conservative and Southern European states but also found among the post-socialist countries of Eastern Europe, institutional constellations provide little support for older workers to remain in employment. Rigid occupational boundaries created through standardized education and training systems, which largely focus on the transfer of skills in the early life course and put little emphasis on lifelong learning, are accompanied by strong insider– outsider markets, while investment in active support measures for labor market integration of older employees is often only moderate. These conditions provide only limited opportunities for older workers to adapt to the demands of a globalized labor market and thereby implicitly support their increasing redundancy. Empirical findings based on cross-sectional

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as well as longitudinal data indeed confirmed this prediction of a highly inflexible labor market with high rates of early exit, structural long-term unemployment and only low levels of within-labor market mobility. Under these conditions, early retirement programs that had gradually but continuously expanded in these countries since the early 1970s provided virtually the only solution to the problematic labor market situation of older workers. In contrast to this exit-oriented strategy, my analyses revealed two alternative approaches that focus more on the maintenance of older workers within employment. In liberal countries, maintenance of older workers within the labor market is achieved through relying on a flexible, decentralized organization of education and training combined with highly flexible labor markets with few seniority regulations. Together, they allow older workers to better adapt to new globalization-induced skill and job demands by higher levels of within-labor market mobility and a constant updating of skills on the job. At the same time, only residual welfare systems with few incentives for an early labor-force exit often necessitate employment continuation for financial reasons. My cross-sectional and longitudinal analyses provided vital support for this pattern of ‘marketinduced maintenance’, reflected in comparatively late employment exit, constantly high levels of labor market mobility in late career and a tendency to remain employed among those who are financially most in need. In contrast to this market-based pattern, Scandinavian countries were shown to follow a publicly-induced maintenance strategy based on the achievement of similarly high employment levels among older workers through active state involvement in promoting the employability of senior employees. A constant updating of skills through life-long learning programs for workers of all ages interacts with active employment policies to ensure the employability of older individuals. At the same time, wage restraint and the abandonment of strong seniority regulations enhances the competitiveness of older workers with regard to their wage profiles. As a consequence of these comparatively favorable labor market conditions for older workers, incentives for an early labor-force withdrawal could remain modest. Empirical results pointed to the success of this institutional pattern in maintaining high employment rates among older workers and helping the unemployed to re-enter the labor market while allowing for only a moderate level of labor market mobility. Comparisons over time, however, pointed to the vulnerability of this model in times of economic downturns when labor market rigidity increased and employment exit strategies were partly adopted. In a final step, I analytically examined inter-individual differences in early retirement behavior based on a micro-data comparison of late-career

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transitions in four selected countries representing the above regime types: the Netherlands, Italy, the United Kingdom and Denmark. My results provided further support for a globalization-based explanation of early retirement trends by showing that the individual likelihood of exiting employment appears to be affected by both workplace characteristics (with strongest exit tendencies in large-scale industrial firms) and human capital (with lower early retirement propensities among those older workers with higher education and non-manual skills). At the same time, my micro-analyses showed that institutional configurations at the nationstate level not only influence the modal patterns of late-career mobility within a given country but also affect the way in which specific types of late-career mobility are channeled to specific subgroups. In other words, national institutions bring about cross-nationally varying patterns of social inequality in late-career mobility patterns. My analyses showed that in employment exit countries, but especially in the Southern European showcase of Italy, individual human capital resources and characteristics of the firm in which an older employee works are central determinants of older workers’ maintenance within the labor force. Especially those with lower human capital are at a high risk of becoming redundant. If these older workers are not adequately compensated through public transfer payment – as for example in the dualist welfare regime of Italy – they may quickly turn into a problem group of the labor market caught between low labor market chances and the financial need to remain employed. The social democratic showcase of Denmark displayed a rather homogeneous structure in mobility patterns with little inter-individual variation, much in line with the egalitarian and universal character of social and labor market policies in these countries. In liberal countries, however, there were clear indications that the main dividing line among older workers runs alongside the dimension of financial resources. Unlike in employment exit regimes, where individual human capital and workplace characteristics determine the chances of maintenance within employment, the question in liberal countries rather appears to be one of the affordability of retirement, indicated by the fact that those with fewest financial resources have to stay in employment longest in order to ensure themselves a sustainable living standard in old age. This work thus goes beyond many earlier studies that have focused on the patterns of work and retirement in modern societies. A number of these works have focused on either the individual or the institutional conditions that influence older workers’ withdrawal from the labor market, but there have been only a few attempts to integrate these complementary viewpoints into a comprehensive conceptual framework that links both the macroand the micro-level from an internationally comparative perspective.

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Economic approaches, for example, largely focused on (early) retirement as an individual decision of older workers, but took a very narrow view on its external determinants when they allowed only pension systems to affect this choice. Gruber and Wise (1999b, 2004, 2007), for example, had reconstructed the early retirement incentives built into national pension and social insurance systems and their effects on older workers’ labor-force participation in considerable detail for a total of 12 countries. They indeed succeeded in demonstrating a clear relationship, implying that high early-exit incentives lead to low employment levels among older workers. However, their studies solely concentrated on the role of pension system incentives in explaining the trend towards early retirement. Other institutions affecting the employment of older workers such as labor market policies, education and training systems or labor market regulation remained unconsidered. Furthermore, despite the considerable scope of case studies considered, Gruber and Wise’s work largely concentrated on core OECD countries, but neglected Eastern European countries, which experienced extremely high levels of early retirement after the fall of the Iron Curtain. In contrast, comparative research on welfare state policies and the varieties of capitalism (Ebbinghaus 2006a) has provided an impressive overview of various institutional backgrounds that influence the employment situation of older workers. Esping-Andersen (1990, 1996a, 1999) focused on the relationship between national welfare-state policies and labor market outcomes and thereby identified different country clusters – so called welfare-state regimes as against labor market regimes – in which early retirement has developed differently. However, his data often originated only from administrative data up to the mid-1990s. Based on an analysis of early retirement trends in a total of eight European countries, the US and Japan, Ebbinghaus emphasizes that, in addition to welfare systems, a comprehensive explanation of early retirement additionally needs to look at the different ‘varieties of capitalism’ characterizing employer–employee relationships as well as different modes of interest mediation in labor relations. Though the focus taken in the Ebbinghaus study is more comprehensive and comes closer to the complexity of individual early retirement decisions, it empirically remains restricted to analyses of aggregate labor market data and institutional characteristics. It thus falls short of providing an explicit test of its theoretical schema by reconstructing retirement decisions at the individual level. Most earlier approaches furthermore largely focused on the retirement transition itself without relating it to the previous employment lives of older individuals and the institutions affecting these ‘pre-retirement’ stages. I argued that recent advances in modern life-course theory in

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principle allow these deficits in earlier approaches to be overcome, but that these opportunities have not yet been used to their full potential. The most recent attempt within this research strand to capture and reconstruct late-career patterns at both macro- and micro-level has been provided by Hans-Peter Blossfeld, Sandra Buchholz and the author (2006). It indeed provided a differentiated model of late-career development on globalized labour markets and tested it with 11 different country studies relying on nation-specific panel data. However, as the data underlying the nationspecific studies data in this book differ in terms of design, methodology and time frame considered, direct comparability of results between countries remains difficult. My work builds on the afore-mentioned works in both theoretical and empirical terms and extends them in various respects: ●

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Unlike any previous work, it gives a comprehensive synthetic summary of theories aiming to describe and explain the trend towards early retirement. It thoroughly describes and illustrates previous approaches and critically discusses their comparative advantages and shortcomings. Based on this comprehensive theoretical account, it develops a conceptual scheme and tests it using the most recent empirical data. In explaining early retirement, it considers a broad array of nationspecific institutions that influence the employment versus retirement decisions of older workers, including pension systems, education and occupational training systems, lifelong learning institutions, active labor market policies for older workers, and specific modes of labor market regulation. The simultaneous focus on various institutional ‘filters of globalization’ makes it possible to go one step beyond economic research on early retirement. While the former had largely concentrated on analyzing the effects of retirement incentives that were treated as given, my analyses furthermore allowed me to reconstruct why these incentives exist and why they have developed so differently across countries. At the same time, they strongly suggest that the mutual interdependencies between nation-specific institutions need to be taken into account when trying to reverse early retirement trends. It considers a larger array of countries and thus is able to reconstruct the development of early retirement under various different political/institutional framework conditions. In particular, it provides a detailed analysis of trends in Eastern European countries, which have undergone massive industrial restructuring since the fall of the Iron Curtain in the early 1990s and consequently have especially

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been affected by early retirement trends. These countries have been neglected almost entirely in many earlier studies. By combining cross-sectional administrative data with individuallevel panel data, my work is able to simultaneously consider macro-level developments and their repercussions at the level of the individual worker. It thus overcomes the restrictions of previous studies that have focused on developments on the political or macro-level without explicitly considering and reconstructing individual labor-force transitions at the micro-level. By using data from the European Community Household Panel, the analyses thereby reflect a high degree of cross-national comparability.

Taken together, what can be learned from the results of the preceding analysis? In my view, there are significant implications both for further research on older workers’ employment and retirement patterns and for future political action aimed at reversing the early retirement trend. On a theoretical level, my analyses speak in favor of a broad analytical perspective on older workers’ employment and retirement patterns. In previous research, retirement transitions of older workers either have been discussed as reflecting a free decision of the individual under given social security constraints or were assumed to be the often involuntary outcome of external determination through institutional patterns, as asserted, for example, by early life-course approaches. The previous discussion suggests that either of the two perspectives may be potentially misleading. On the one hand, I could show that individual decisions for or against retirement are not entirely ‘free’ but are often constrained by older workers’ employment chances on a globalized labor market. On the other hand, my approach highlighted the individual component of retirement decisions by demonstrating that older workers were not simply at the mercy of external determination through institutional frameworks. My results showed that, for example, flexibilization of older employees’ work relationships could not be implemented without the consent of older workers themselves, and that older workers obviously refused to take up work forms that were associated with significant losses in their previous employment rights and job security. These findings highlight the bargaining power of older workers and the dimension of ‘choice’ between different labor market alternatives in their late careers. An adequate sociological explanation of early exit thus has to take an intermediate position between the two aforementioned approaches and has to understand older workers’ retirement transitions as decisions of individuals, but as decisions under multiple constraints and opportunities. As demonstrated in this work, a broad array of nation-specific institutions that provide either incentives for an early

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employment exit or incentives for a continuation of employment have to be considered as such institutional constraints. Comprehensive explanations of early retirement therefore have to go beyond an isolated focus on the retirement transition itself. Instead, they have to take an explicit life-course perspective and embed the decision between work and retirement in the wider context of older workers’ late-career development and the institutions influencing this final stage of individual employment lives. Finally, the approach taken here also has significant implications at the practical political level. At the moment many politicians are eager to reverse the early retirement trend and to increase employment among older workers. My results indicate that, in order to reach this ambitious aim, a differentiated approach will be needed. On the one hand, they show that it will not suffice to rely on economic upswings alone to improve the labor market situation of older workers. Though these upswings would, in principle, be beneficial to older workers’ employment chances and therefore should possibly be aspired to, my results have shown that a mere improvement in economic framework conditions has not yet been sufficient to foster a long-term reversal of early retirement trends owing to the more structural disadvantages of older workers on globalized labor markets. Even in times of job growth, it was often younger workers who were offered new jobs, while older workers continued to exit the labor force at an early age. Likewise, it can be assumed that a mere concentration on reducing the material incentives for early retirement will not lead to a substantial and long-term recovery of older workers’ employment rates. Undoubtedly, these measures are needed to influence the rational decision-making process of individual utility-maximizing actors when deciding between the financial consequences of leaving employment or remaining within the active labor force. However, focusing entirely on these measures would ignore the fact that older workers’ decisions to exit employment are not free decisions of the individual, influenced only by externally provided financial exit incentives, but are equally determined by their restricted employment opportunities on globalizing labor markets. A mere reduction in pension incentives, as often advocated in public discussions, thus would only reduce the attractiveness of early-exit programs without improving the detrimental employment conditions of older workers that in fact often have been the causal background for the implementation of these early-exit schemes. National policy actions thus would need to connect reductions in early-exit benefits with actions aimed at improving the employability of older workers and thereby moving them out of their structurally disadvantaged labor market position. The comparison of institutional strategies towards older workers provided in this work

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recommends a simultaneous combination of various strategies to achieve this aim: ●

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Especially in countries that have most intensively followed a laborshedding approach, governments will need to increase their investment in older workers’ human capital and skill adaptability in order to improve their employment chances. These measures will need to go beyond mere targeted training programs for those currently approaching their senior years in the labor market. Instead, following a longitudinal life-course perspective, these measures will need to be institutionalized well throughout the entire employment career to avoid skill depreciation of workers already in their late mid-career in a rapidly changing technological environment. In addition, my results suggest that the standardized organization of education and training still largely dominant in a number of employment exit countries will require a thorough reconsideration. Beyond doubt, these systems have been highly successful in integrating younger workers into the labor market, as reflected in lower youth unemployment rates in countries that have implemented these types of systems. However, my results show that, for older workers, the exclusive and almost lifelong definition of educational and occupational pathways early in the career has severely impaired their mobility chances in later life. Political reform thus should aim at maintaining these educational systems for younger workers, but supplement them with more flexibility options in later phases of employment lives, for example through providing the opportunity for an acquisition of complementary skills in mid- or late career. While investments in education and training programs would generally increase the employability of older workers on global labor markets, senior employees will in many instances still suffer from higher wages and less contractual flexibility. The general principle of seniority hence also needs reconsideration. At the moment, the high significance of seniority payment and strong dismissal protection for older workers often makes up the background for their lower competitiveness as compared to younger employees. However, in many instances it will be neither possible nor recommendable to straightforwardly abolish these seniority regulations. Previous research on welfare regimes and the varieties of capitalism has shown that it is often exactly these seniority principles that lie at the ideological heart of both conservative welfare states and systems of quality production – two principles that definitely cannot simply be dismissed in the short term. At the same time, results for liberal

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countries indicate the potential social disadvantages of an all too flexible design of employment relations when older workers’ wages decline substantially in their late careers and a selected group of financially disadvantaged workers is forced to remain employed for material reasons. For political reform, the Danish flexicurity model described in Chapter 5 hence may make up a more desirable and realistic model for countries currently experiencing persistently high rates of early retirement. It combines an increase in labor market flexibility and a lower level of employment protection and seniority with strong welfare-state guarantees, and thereby represents a mix of flexibility and security that may appear acceptable to older workers in conservative regimes. Politicians should also seek a gradual turn from passive to active labor market policies for older workers. Evidence from previous developments indicates that the hitherto often dominant strategy of using passive policy measures (such as income maintenance programs) to tackle the employment problems of older workers has often provided effective bridges into early retirement. However, a mere reduction of these pathways will not be sufficient. Even when cuts in early retirement opportunities are introduced, there would be the possible risk of ‘pathway substitution’, that is the shifting of older workers to alternative exit opportunities when specific exit programs are being closed. Hence, higher emphasis will need to be given to active labor market policies that explicitly help to re-integrate those negatively affected by labor market turbulence and structural economic changes into paid employment. As in Scandinavian countries, active labor market programs should be designed in an age-neutral way and be offered equally to younger and older employees to avoid age-specific stigmatization. In addition to the general strategies described above, reforms will need to consider nation-specific peculiarities for a successful and sustainable trend reversal. My micro-analyses have shown that institutional configurations have often contributed to the emergence of specific problem groups in different types of welfare regimes, such as the low-qualified in employment exit regimes or those with few financial resources in liberal countries. Reform attempts will have to pay specific attention to these particularly vulnerable groups of employees. In addition to the more general policy reforms described above, specific policies will need to be targeted at these groups of older workers to avoid their marginalization on globalized labor markets. Finally, successful policy reforms will need to raise the consent of all relevant labor market actors. Firms will need to be convinced

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of the advantages of better-trained older workers who increasingly combine updated skills and more modest wage profiles with long work experience and secondary skills such as loyalty or reliability, acquired throughout a long labor market career. Political measures intended to enhance the employability of older workers thus need to be complemented by awareness programs aimed at combating age stereotypes towards older workers that have developed throughout recent decades and have established an employment exit culture both employers and employees have oriented themselves to. At the same time, however, new employment opportunities will have to take into account the preferences and expectations of older workers themselves. The opportunities will need to be designed in such a way that they fit these preferences, for example through the attractive design of potential workplaces, the ascription of tasks that fit older workers’ strengths or the implementation of flexibility options, for example in terms of working time. A broad policy approach is thus needed to enhance employment among older workers on globalized labor markets and to reverse the still dominant early retirement trend in the long run. Only by implementing such a broad approach will it be possible to prepare modern societies for the challenge of population aging they inevitably will be faced with in the decades to come.

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Index activation 59, 88, 131, 155, 219–20, 246, 259 adult education see continuous education and training (CET) age-dependency ratio 4, 7 age limit chronological 34, 37, 39–40, 44, 263 functional 35, 44, 263 age–wage profile 214–16, 236 Barcelona Target 7 Beck, U. 42–43 Blöndal, S. 18–19, 23–4, 26–8, 144, 208 Blossfeld, H.-P. 45, 80–81, 84–5, 89, 93, 104, 111, 116–18, 124–5, 137, 178, 276 Buchholz, S. 45, 93, 104, 111, 124–5, 276 Coleman, D. 107–8 continuous education and training (CET) 74, 119, 130, 201, 221, 224, 245 convergence 56, 123–4 de-industrialization 38, 65–6, 94, 150–51 de-institutionalization 38 Denmark 149, 154, 160, 162, 171, 183–4, 200, 202–3, 219, 228, 234, 240, 245–50, 255, 257–61, 263–66, 268, 274 de-standardization 39, 41, 43–6, 49 DiPrete, T. 90, 93 disability insurance 22–3, 25, 27, 44, 75, 88, 93, 128, 161, 242–3, 247 diversified quality production 71–2, 77, 94, 279

early exit pathways see pathways to retirement Eastern Europe 63–4, 138–9, 141, 143–4, 152–4, 160, 182, 210, 236, 272, 275–6 see also welfare regime, post-socialist Ebbinghaus, B. 17, 51, 67–77, 93, 99, 275 economic crisis 122, 154, 171, 183, 217, 219, 232, 235, 246 economic cycle 72, 77, 123, 154, 163, 170–72, 179, 200 economic sector 65–6, 90, 95, 100, 113, 118–20, 125, 129, 140, 149–52, 223, 254, 262 economic theory (of retirement) 8, 10, 13, 15–16, 18–32, 40, 45, 48–9, 67, 94, 97–103, 114, 127–8, 232, 272, 275–6 education 16, 36, 45, 68, 80–81, 83, 87, 91, 113, 119, 133, 139, 141, 143–4, 221–8, 250, 254, 263–4, 279 level of attainment 6, 43, 48, 85, 92, 97, 103, 113, 140–41, 143, 222–3, 225, 227, 244–5, 250, 254, 262–6, 274 lifelong see lifelong learning policy see education system standardization of see standardization of education and training systems system 11, 16, 36–7, 39, 68–70, 73, 75, 81–2, 86–7, 90, 95–6, 102, 112–13, 126, 128–30, 133–7, 140–41, 143–4, 146, 201, 221–8, 233, 241, 247–50, 264, 272–3, 275–6, 279 employment exit regime see employment exit strategy

317

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employment exit strategy 77, 115, 124–6, 132–6, 139–40, 159–63, 167, 182, 184, 200–209, 215, 225, 227–30, 233–4, 236, 239–41, 244–5, 247–50, 255, 261, 263–5, 268, 272–4, 279–81 employment maintenance regime see employment maintenance strategy employment maintenance strategy 111, 115, 124–6, 132, 135–8, 140, 159–62, 164, 167, 170–71, 182, 184, 209–31, 235–6, 247, 255 market-based/market-induced 136, 200, 234, 239, 247–8, 273 public-based/public-induced 137, 200, 235, 239, 245, 273 employment protection 39–40, 54, 57, 62–3, 68, 70, 73, 76, 82, 91, 120, 126, 130–31, 133–4, 136, 138, 142, 146, 209–13, 215–16, 228, 230, 232–3, 242, 244–5, 247, 272, 280 employment protection legislation (EPL) Index 210–3 employment rate 5–8, 25, 38, 66, 76, 94, 154, 156–65, 167, 200–201, 203, 205–9, 212–13, 219–20, 225, 229–30, 232, 243, 245–7, 261, 273, 278 Esping-Andersen, G. 16–17, 50–60, 64–5, 67, 87, 91, 94, 99, 275 Esser, H. 107–10 European Community Household Panel (ECHP) 11, 84, 104, 147, 240, 251–2, 256–60, 263, 267, 270, 277 exit rates 66, 96, 131, 150, 163–71, 200 financial resources 141, 144, 249, 267 firm size 141, 262 Globalife project 119 globalization 8, 11, 38, 42–3, 59, 62, 74, 100–101, 111–12, 114–25, 128–30, 135, 138–40, 146–8, 150, 159, 161, 167, 170–72, 178, 182, 184, 197, 199, 209, 213, 221–2, 224–5, 229, 232–3, 239, 241, 247, 252, 271–4, 276 Gruber, Jonathan 19, 26, 28, 31, 275 Guillemard, A.-M. 34, 43–9

Hall, P.A. 17, 67–9, 72–3 health 14–15, 254, 262–3 Hofäcker, D. 45, 93, 104, 124 human capital 31, 43, 45, 48–9, 83, 90, 93, 103, 113–14, 121, 140–42, 146, 225, 249–51, 254, 263–5, 268, 274, 279 see also occupational qualification; educational attainment level implicit tax (on employment) 22, 28, 128, 133–4, 202, 206–8 individualization 42–5 industrialization 16, 35 industrial sector 65–6, 95, 104, 149–51, 271 insecure employment 42, 103, 137, 191, 250 insecurity 8, 39, 42–3, 122, 137–8, 246 institutional backgrounds see institutional filters institutional configurations see institutional filters institutional filters 10–11, 29, 33, 49–53, 67, 70, 72, 76–9, 81–3, 86–8, 92–5, 111–15, 123–7, 132–40, 146–50, 182, 184–5, 199–201, 209, 217, 228–30, 232–3, 240–41, 248–50, 272–7, 280 International Labor Organization (ILO) 12, 29, 148, 156, 179, 253 Italy 61–2, 64–5, 76, 149–53, 159, 162, 163–7, 178–97, 200, 202–23, 244–5, 249–50, 252, 256–65, 268, 274 job mobility 73, 86, 89, 91, 125, 132, 171, 223, 228, 233, 248, 253–55, 258–60, 265–68 Kohli, M. 16, 34–45, 48–9 labor cheapening strategy 56–8 labor force participation rate 14, 25–6, 148, 156–161, 163–4, 167, 256–7 labor market mobility 17, 49, 86, 93, 95, 113–14, 125, 127–8, 132, 134–6, 138–42, 144, 146, 239–41, 246, 248–9, 252–3, 258–9, 265–8, 273

Index labor market policies 74, 81–2, 88, 275, 280 active (ALMP) 32, 49, 55, 57, 62, 82, 88, 91, 126, 131–4, 201, 216–21, 234, 241, 245, 249, 272, 274, 276, 280 passive (PLMP) 32, 57, 62, 88 labor market regimes 8, 53, 275 Leisering, L. 42, 81–3, 90–91 life course Fordist/industrial 37, 39, 42, 48, 100 institutionalized 33–4, 36–7 post-industrial 32, 37–41, 45 regimes 78–9, 86–90, 92, 95 sociology/sociological theory of 9–10, 16–17, 32–50, 78–100, 103, 114, 126, 191, 275, 277–9 standard/standardized 34, 42, 44 tripartite 16, 34–7, 42–3 life expectancy 1–2, 35 lifelong learning 49, 57–9, 70, 74, 96, 103, 126, 129–30, 133–4, 137, 141, 144, 224–5, 227–8, 231–2, 250, 254, 264, 272–3, 276, 279 see also continuous education and training (CET) Lisbon Strategy 7 mass production 69–72, 75, 77, 121, 142 Mayer, K. U. 32–35, 78–87, 93, 100 mobility see job mobility; labor market mobility mobility regime 17, 79, 86, 90, 93, 95 The Netherlands 6, 25, 54, 57–8, 66, 70–71, 93, 149–52, 156–9, 163–8, 170, 172–6, 180, 186–9, 192–3, 195, 202–4, 211, 215, 218, 222, 226–7, 240–45, 248–9, 256–61, 263–6, 274 Nordic corporatism 74, 215, 227, 235 Occupation Occupational boundaries 95, 113, 126, 128–9, 133–6, 139, 143, 222–3, 231, 235, 241, 247–9, 272 occupational class 45, 141, 254, 264 occupational mobility/flexibility 90–91, 129, 139, 171, 222–3, 228

319

occupational pensions see pensions, occupational occupational prestige 90, 113 occupational qualification skills 48, 56, 76, 92, 103, 121, 140, 143–4, 222, 242, 250 occupational standardization see standardization of education and training systems occupational structure 14–15, 31, 56, 91, 100, 102, 111, 118–9, 128–30, 135, 140, 146, 221, 223, 227, 264 occupational pathways / tracks 82, 129, 239, 279 see also occupational boundaries OECD (Organisation for Economic Cooperation and development) 1, 15, 18, 20, 28, 32, 65, 123, 148, 156, 167, 191, 197, 209–11, 215 oil crisis 9, 38 on-the-job training 69–70, 88, 129, 136, 163, 222, 228, 233–4, 249, 264, 273 part-time work 55, 72, 74, 128, 133–4, 136, 148, 185–90, 194, 196, 198, 229, 233, 236, 243, 254, 257–9, 262, 264 path dependency 51, 53, 56, 112, 217, 248 pathways to retirement 10, 16, 28, 32, 40–41, 45, 46, 49, 66, 68, 70, 72–3, 75, 94, 96, 99, 122, 125, 128–9, 163, 170, 184, 201, 232–3, 235, 242–3, 247, 249–50, 261, 280 pensions defined benefit (DB) 27, 58 defined contribution (DC) 27, 58 occupational 25, 27, 40, 54, 58, 66–7, 72, 77, 88, 103–4, 191, 196, 232, 247–8, 250, 265, 271 partial 41, 74, 131, 137, 185–6, 189, 230 private 30, 70, 104, 127, 204–5 public 22, 27, 37, 54, 72–3, 82, 88, 90, 127–8, 136, 142, 145, 203–8, 213, 233, 236, 245, 247, 256 replacement rates 20, 22, 61, 144–5, 196, 203–8, 242–4, 249

320

Older workers in a globalizing world

pension wealth 19, 21–4, 27, 202 population aging 5, 270, 281 public sector 55, 66, 74, 76, 91, 104, 152, 215, 245, 254 ‘race to the bottom’ 123–4 rational choice 107–15 retirement age 10, 27, 39, 41, 90–92, 132, 136–7, 202–3, 233–4, 245, 248, 257 average 7–8, 25, 44, 164, 242 early 41, 46, 197, 201–7, 256 formal 4–5, 12, 22, 25, 28, 37, 40, 88, 127–8, 137, 163–4, 202–8, 242, 246, 256, 261 legal see formal retirement age mandatory 6, 15–16, 22, 24, 91, 135, 161, 271 standard 22, 202 Scarpetta, S. 18–19, 23–4, 26–8, 144, 208 self-employment 6, 10, 27, 141–2, 148–9, 152–4, 185, 194–8, 229, 253, 257–60, 262–3, 265–7 seniority 40, 68, 70, 90–91, 126, 131, 133–4, 142, 209, 215, 231–3, 249, 271, 273, 279–80 pay 73, 120, 131, 182, 209, 214–16, 232, 242–3, 245, 279 protection 120, 131, 135 wage see seniority pay service sector 6, 65, 118, 120, 150–51, 221, 242, 265 social security wealth 24–6, 29, 102 Soskice, D. 17, 50–51, 67–9, 72–3, 130–31 standardization of education and training systems 36, 73, 81–2, 88, 90–91, 95, 129, 133–6, 143, 221–4, 228, 232–3, 239, 242, 247, 249–50, 264, 272, 279 Stockholm target 7–8 stratification of education systems 69–70, 88, 90–91, 95, 113, 143, 222–3, 227, 250 social 16, 43, 53, 57, 62, 241, 244, 248, 265, 268

temporary employment 38, 128, 131, 136, 148, 185, 189–94, 196, 198, 210–13, 229, 233 uncertainty 115, 119, 190–91, 194 unemployment 9, 12–3, 16, 30, 32, 36, 37–39, 49, 56, 59, 63–4, 74, 76, 79, 89–90, 95–6, 100, 121–3, 127, 130, 132–7, 144, 148, 150, 154–6, 159, 161–2, 164, 170–72, 178–9, 182–4, 190–91, 200, 209, 217, 219, 230, 233–4, 239, 240, 242, 244–6, 248–9, 253, 255, 257, 260–61, 268 benefits see unemployment insurance insurance 16, 22–5, 27, 40–41, 44, 57, 59, 62–3, 88, 91, 128, 137, 139, 159, 178, 183, 208, 216, 219, 242–3, 246 long-term 48, 89, 143, 181–3, 233, 273 old-age 172–3, 176–9, 183–4, 210, 235 rate 40, 59, 154–6, 167, 169–75, 178–9, 184, 198, 216, 239, 245–6, 271 short-term 181–3 youth 172, 175–8, 279 United Kingdom 3–5, 23–4, 26, 54, 57–8, 70–71, 129–30, 148, 151, 153, 155, 157–8, 162, 164–66, 169, 170, 173–5, 177, 181, 183, 186–8, 190, 192–4, 195, 202–4, 207–8, 211, 213–15, 217–18, 220, 222, 226–8, 240, 247–52, 256–68, 274 varieties of capitalism 17, 50–52, 67–78, 94, 99, 101, 103, 275, 279 Weber, M. 51, 107 Welfare program 16, 20, 22–5, 27, 41, 82, 88 Welfare regime 8, 16–17, 50–56, 60–65, 67, 69–70, 76–8, 86–8, 94, 99, 101, 161, 219, 244–5, 275, 279–80 conservative corporatist 17, 53, 55– 61, 63–4, 69–70, 72–7, 87–8, 91–2, 94–5, 132–5, 138, 141, 149, 151–55, 157–9, 161–2, 164, 167, 170 –72, 182–3, 189, 191, 196, 200, 205, 208, 210–13, 215–16, 219–20, 223, 225–6, 230, 223–5, 241, 252, 259, 268, 272, 279–80

Index liberal 16, 53–4, 56–61, 63, 66, 69–70, 72–3, 77, 87–88, 90, 95, 132, 134–8, 141, 144, 148, 150–51, 153–8, 160–62, 164, 170–71, 178, 182–4, 197, 200, 205–6, 208, 210–12, 215–20, 223, 226–8, 230, 233–5, 246–8, 250, 259, 261, 265, 268, 273–4, 279–80 post-socialist 1, 61–4, 69, 132, 134, 138–9, 150–54, 156–8, 160–61, 171–2, 182, 186, 197, 200, 202, 205, 211–13, 216, 219, 223, 225–6, 229–30, 235, 272 social democratic 17, 54–5, 57–60, 63, 70, 74, 77, 87–8, 90–91, 132, 134–5, 137–8, 141, 144, 149–50,

321

153, 155–6, 158, 160, 162, 164, 170–71, 183–4, 200, 205–206, 208, 210–13, 215, 219, 224, 226–8, 230, 234, 245–6, 268, 274 Southern European 6, 17, 25, 55, 57–8, 61–4, 70, 75–7, 87–8, 92, 94, 131–5, 138, 141–4, 149–56, 158, 160, 170, 178, 182, 186, 189, 191, 196, 200, 205, 208, 210–13, 218–19, 223, 225–6, 232–3, 236, 240, 244, 252, 257, 268, 272, 274 welfare state subsystem 40, 44, 70, 82, 125–6, 206, 244, 249 welfare to work strategy 58, 183 welfare without work strategy 58 Wise, D. 19, 26, 28, 31, 275