European Employment Observatory. EEO Review: Employment policies to promote active ageing, Sweden. Dominique Anxo CELMS HB.

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1 European Employment Observatory EEO Review: Employment policies to promote active ageing, 2012 Sweden Dominique Anxo CELMS HB February 2012 This article is the sole responsibility of the author(s).

2 1. Introduction Over the last 30 years, Sweden has experienced, like many other industrialised countries, a clear shortening of working life due principally to the conjunction of later entry into the labour market (lengthening of educational period) and earlier exit from the labour market. The employment rate of Swedish males has steadily decreased since the 1970s, and this decrease has been particularly pronounced among older workers (see Figure A1 in the appendix). The continuous decline of employment rates among male older workers came however to a halt in the mid 1990s. The male employment rate of older workers reached 73.2 per cent in 2010, a level similar to the one in The employment rate of older women has on the other hand, increased steadily with a clear tendency to a reduction in the gender gap. By international standard the employment rate among Swedish senior workers (55-64 years old) is high, namely 73.2 % for Swedish men and 66.7 % for Swedish women in 2010 (Eurostat, 2011): this is actually the highest among EU Member States, irrespective of gender 1. The pattern of unemployment among Swedish older workers is similar to what can be found in other Member States. Senior citizens unemployment rate is significantly lower compared to young people (16-24 years old) 2. Regarding the length of time in unemployment, young people are mainly unemployed for short periods of time, while the duration of unemployment for older people is significantly longer. The current global economic crisis does not seem to have led to a decline in senior workers employment rates. Swedish companies seem to have used early retirement to a much less extent than in previous economic downturns. However, during the current crisis, unemployment among male seniors increased more compared to their female counterparts, which is not surprising considering that men are overrepresented in the private sector, in particular, in the export oriented manufacturing industries principally hit by the 2008 global economic crisis. The average exit age from the labour force is also the highest in the EU and there is, since the turn of the century, a clear tendency to postponement of exit from the labour market. The average exit age from the labour force rose by more than two years between 2001 and 2010, from 62.1 to 64.3 years old 3 (Eurostat 2011). This clear trend reversal in the average age of exit might partly be ascribed to various policy reforms implemented at the turn of the century and this will be presented in the next section. 2. Overview of recent reforms relating to pensions and benefits for older workers The robust performance of Sweden regarding the situation of senior workers in the labour market cannot be understood without reference to reforms already initiated at the end of the 1990s. In the mid 1990s a broad political consensus emerged on the necessity to increase their share in the working population in order to guarantee the long-term sustainability of the 1 At the same time the overall employment rates for persons aged years old was 84.4 % (86.9 % for men and 81.9 % for women). It should be also noted that since 2005 the number employed among senior workers 65 years and older has also increased notably (an increase with around 40 %). 2 In 2011 the unemployment rate for male and female seniors (55-64 years old) was respectively 5.2 % and 4.4 %. The corresponding figures for young people (16-24 years old) were for male and female 23.8 % and 22.0 %, respectively. It should be noted that the unemployment rate for senior workers is the same as for workers between years old. In 2001, around half of those seniors who were unemployed were long-term unemployed (more than six months), the corresponding share for young people being 15% years old for men and 64 years old for women in 2009 (Eurostat, 2011). 2

3 Swedish welfare state system in general and the pension system in particular. The old benefitdefined pay as you go pension system introduced in the early 1960s became increasingly underfinanced during the 1980s and it was clear that increasing demographic pressures and an ageing - population 4, would lead to a worsening situation in the future. Against this background, a new pension system was launched in 1998 and fully implemented in At this date, the old benefit-defined system was replaced by a mandatory defined contribution scheme based on contributions from lifetime earnings. The comprehensive Swedish pension reform, by gradually introducing a contribution defined pension system with flexible retirement age, has created strong incentives to postpone the retirement decision. Until 2000, Sweden had a gradual/progressive retirement system allowing an employee to work reduced hours (part-time) and receive partial income compensation from the pension system. In connection with the introduction of the new pension system this progressive retirement scheme was abolished. However, the new pension system still makes it possible to retire gradually since it is possible to claim pension benefits at the age of 61 while still being employed. In addition, the alternative exit routes through unemployment insurance (UI) and disability pensions have been progressively restricted and closed. Until the early 1990s, long-term unemployment and poor prospects of finding a job were sufficient reasons to be granted early retirement. The activation requirements associated with the unemployment insurance, together with restrictions on the duration of benefits and possibilities to re-qualify for a new benefit period, has practically ended the use of unemployment insurance as a means of early retirement. Until 1996, a combination of labour market and medical reasons could result in early retirement for workers aged From 1997 onwards, early retirement can only be awarded for medical reasons. In 2003, early retirement schemes were definitively abolished, and sickness and disability insurances were unified in one single system. Furthermore, disability benefits nowadays are granted only on a temporary basis and the extent of work incapacity is evaluated on a regular basis by the Swedish Social Insurance Agency. A further increase in the labour supply of older people (both through increasing employment rates and an increasing postponement of the decision to retire) through adequate incentive measures remains an important challenge and a priority in the current political agenda, in particular in order to achieve the employment targets announced in the Swedish NRP by the Government 5. To encourage longer labour market participation among senior workers the Government introduced in 2010 a higher in-work tax credit for people who have turned 65. The special employer s contribution on wages and the tax on income from active business activities have also been abolished for people over The proportion of the population aged 65 or over is expected to increase from 17 % today to around 23 % in The proportion of persons aged 80 or more is expected to be more than 7 % at the same date. The share of the working age population (20-64 years) is expected to decrease from today s figure of around 59 % to 54 % in In the Swedish NRP (2011), the Government has announced its intention to increase overall employment to well over 80 % for men and women aged years i.e. more than 5 percentage points above the target of the European 2020 strategy. 3

4 3. Assessment of active ageing policies 3.1 Lifelong learning Empirical evidence shows that high educational attainment is positively correlated with senior employment rates. Employment rates are significantly higher for Swedish older workers (55-64 years old) with a university degree or similar (81.6 % in 2010, ISCE 6 level 5-6). Senior workers with compulsory schooling or less (ISCE 0-2), exhibit on the other hand, a significantly lower employment rate (60.6 % in 2010). Interestingly, the size of population age with a university degree or similar increased by around 52 % between 1998 and 2010 (Statistics Sweden, 2011), which indicates that a cohort effect probably explains a significant part of the above mentioned later retirement trend in Sweden. Lifelong learning (LLL) is an integrated part of the Swedish educational and employment system. One feature of the Swedish LLL system is the considerable opportunity to complete or enhance educational attainment after leaving initial education, either through adult education or through various training courses within the framework of labour market policy. At the work place level, access to on-the-job training or the opportunity for an employee to further develop their skills also constitutes an important component of the Swedish LLL system. The basic policy orientation regarding public initiatives in terms of adult education is that resources should be directed to those who have the greatest need for education e.g. those who have not had the opportunity of obtaining basic eligibility to higher education or who need education in order to strengthen their position in the labour market. Adult education (AE) takes different educational forms and is organised by different actors, from national and municipal AE, to labour market training for unemployed persons as well as in-service training and skills enhancement at the workplace. Sweden stands out as a country with high participation rates in formal education (i.e. in regular systems of schools, universities and colleges), non-formal education (learning activities that are not part of formal education programmes) and informal learning (selflearning using printed materials, computers and internet, library and education materials, etc.) As shown by Table 1 below, 73 % of the Swedish population aged years in 2006 participated in formal and non-formal adult education under a twelve-month period. As also shown by the table, that although the incidence of formal and informal training declines by age, the participation of older workers (50-64 years old) in training/learning activities remains relatively high. 6 International Standard Classification of Education. 4

5 Table 1 - Participation of adults (25-64 years old) in various form of lifelong learning (%), by age group, Age Formal Learning/training Of which non formal learning/training All Source: Statistics Sweden (2007). In-service training On-the-job training (OJT) at the company level accounts for 50 % of the same underlying population. As also shown by the table, the incidence of OJT also declines with age but is still high among senior workers. There is no obvious explanation why in-service training at workplaces seems to be more prevalent among Swedish older workers than in other EU member states. By international standards, the age-wage profile in Sweden is relatively flat, reflecting a relatively low seniority wage premium. A possible explanation of the high incidence of OJT among senior workers is that employers are more inclined to pay for the training of their employees when the increased productivity of the worker after training does not increase the wage rate proportionally (Acemoglu and Pischke, 1999). There are also strong reasons to believe, that this low seniority premium contributes to sustain a high employment rate of older workers. The high incidence of adult training among senior workers in Sweden is also related to the existence of powerful social partners and a well-developed social dialogue. Regular consultations are held with social partners and they are considered to be a key element in the Government s action on issues relating to education, employment and labour market regulations. Access to on the job training and opportunities for an employee to further develop their skills is also largely a matter of discussion and agreement between social partners. 3.2 Active labour market policy The Swedish labour market policy, i.e. a combination of a fairly generous unemployment insurance system and an overall policy of activation' occupies a central role in Swedish stabilisation policy. During the 2000s, there have not been any active labour market policy (ALMP) measures explicitly targeted to unemployed older workers. There are nevertheless several ALMP programmes that impact on older job seekers indirectly. As shown in Table 2, in 2009 over 20 % of the participants in ALMP programmes were in the age interval Furthermore, a significant share of participants was in the age interval

6 Table 2 - New participants in an ALMP programme in 2009, share of participants (%) by age groups Programme Employment support Labour market training Total number of participants Less than 45 years years years Work practice or older Job and development guarantee New start jobs Source: Swedish Public Employment Service (Arbetsförmedlingen, 2010). Programmes such as Employment Support, Job and Development Guarantee and New Start Jobs are different forms of job search support and recruitment subsidies targeted at enhancing the employability and labour market prospects in particular for the long-term unemployed. The programme, New Start Job, implies that the employers payroll tax is deducted for a period equal to the time spent in unemployment. Furthermore, job seekers older than 55 have the right to a New Start Job for double the length of time that they have been out of work. In order to limit long-term unemployment among senior workers, the qualifying period for participating in a New Start Job has also been shortened from 12 to 6 months for registered unemployed job seekers older than 55 years old (July 2010). Compared to 2008 and in connection with the economic crisis, almost 26 % of those holding New Start jobs were over the age of 55 in Since the share of long-term unemployed increases with age it is not surprising that a larger proportion of seniors are enrolled in these ALMP programmes. Evaluation studies of Swedish ALMPs conducted in the 1990s indicate rather disappointing results for the participants in terms of subsequent employment outcomes and earnings developments (Calmfors et al., 2001). On the other hand, a number of Swedish evaluation studies (e.g. Forslund et al., 2004) have also suggested that measures close to the regular labour market, i.e. measures that are close to regular jobs, such as recruitment subsidies, are on average more successful than other programmes. There are therefore reasons to believe that wage subsidies targeted to senior workers in long-term unemployment may contribute to reduce early exit from the labour force (Lindqvist, 2007) Promoting healthy working conditions that maintain workers well-being During the last two decades, Sweden has also made efforts to improve working conditions and occupational health to make work sustainable across the life course. Previous empirical 6

7 evidence has shown that good working conditions are a necessary condition for prolonging working life and that employment rates of seniors are highly correlated with some indicators of job quality (working time, participation in training, in-work accident rate for example). According to Gallie (2003) and Courtioux et al. (2004), Sweden exhibited the highest index score in job quality partly explaining the high participation rates of older workers. 3.4 Employment-friendly tax-benefit systems: making work pay for older workers under and above statutory retirement age Regarding employment-friendly tax treatment of elderly workers, after the age of 65 the pay roll tax paid by all employers is reduced due to the fact that contributions to the public disability system have an upper age limit at The reduced social contributions paid by employers implies an indirect wage subsidy targeted to senior workers older than 65. The employer only has to pay % of the wage cost instead of the standard pay roll tax just above 31 %. A similar implicit subsidy also exists for self-employed older workers over 65 who pay only % in pay roll tax instead of almost 30 % (see also the end of Section 2 and Table A1 in the appendix for recent employment-friendly tax benefit systems targeted toward older workers). 3.5 Policies to combat age-discrimination on the labour market. The Swedish Employment Protection Act (EPA 1982), in particular the application of the last-in-first-out principle (LIFO), constitutes de jure a protection for older workers in the case of collective redundancies. Another central aspect of the employment protection of older workers is their right to remain at work up to 67 years old. Originally set at age 65, the age limit was extended to 67 in On the other hand, the current EPA regulation implies that practically all employment protection after 67 vanishes: the employer can terminate the employment contract with one month s notice, without any reason. Furthermore, persons who are 67 years and older can be employed on a fixed term contract ad infinitum without any justification. Previous studies have shown the importance of retirement norms in regards to exit behaviour. The age of 67 has thus become a societal norm when retirement should take place, although 65 years remains the age limit between standard old-age pensions and early pensions in both the mandatory public pension system and the occupational pension schemes. In order to further increase labour supply of senior workers and delay the average year of exit from the labour market the Government has announced that it envisages the possibility of raising the age up to which people have a right to remain in work from 67 to 69 years 8. The Government s initiative in this regard appears therefore to be appropriate for delaying and postponing the decision to retire and increase the employment rate of workers older than 65 years. 7 Contributions to other aspects of the welfare system also vanish at age 65, such as parental-leave insurance and work-injury insurance. It is only contributions to the public pension system that remain. 8 It should be noted that the Swedish pension system does not contain a fixed retirement age, the pension cannot be drawn before the age of 61 and there is no legal right for employees to work after the age of 67. The new pension system also makes it possible and financially advantageous to gradually leave the workforce after the age of 65 and therefore to postpone the retirement decision. 7

8 The new Anti-discrimination Act enacted in 2009 protects the equal rights and treatment with respect to age, gender, sexual orientation, ethnicity, religion/belief, and physical disability. However, there are exceptions for age. To illustrate: the Employment Protection Act sets an age limit of 67 for the right to remain in employment. The Anti-discrimination Commission motivated the 67-age limit by writing: it is reasonable that parties can predict when an employment relationship will come to an end. Removing the specific 67-age limit could lead to an undignified way (ovärdigt sätt) of terminating an employment relationship and cause conflicts between the employee and the employer (Authors translation) (SOU 2006:22, p. 443). 4. Conclusions By international standards, employment rates among elderly Swedish workers are high with a low gender gap. Both the design of the Swedish social protection system and the institutional reforms initiated during the last two decades aimed at strengthening work incentives contribute to explain the permanence of high activity rates of senior workers in Sweden and the more recent tendency of postponing exit from the labour force. Obviously, several other factors might explain the relatively good performance of Sweden in this regard. The dualbreadwinner model has been actively supported by relatively early policy measures. One may regard the relatively high employment rates of senior workers as a payoff and outcome of the strong labour market attachment for Swedish women during family formation 20 to 30 years earlier. Stronger economic growth since the mid 1990s, good working conditions, high and increasing skill levels and educational attainment (in particular the higher share of welleducated older workers) as well as the sectoral distribution of employment (in particular the growing importance of the service economy) and less age-discrimination management practices are also strong candidates for explaining the robust Swedish record for elderly workers. Participation in training activities also seems by international standards, to be relatively high for older workers in Sweden which may contribute to preserve their employability. 5. Bibliography Acemoglu, D. and J-S. Pischke, The Structure of Wages and Investment in General Training, Journal of Political Economy, 107, 1999, pp Arbetsförmedlingen, Data on labour market participants, Swedish Public Employment Service, Internet: Calmfors, L., A. Forslund and M. Hemström, Does active labour market policy work? Lessons from the Swedish experiences, Swedish Economic Policy Review 8, 2001, pp Courtioux, P., L. Davoine and C. Erhel, Pensions reforms and the labour market: an impossible mission? TLM.NET Working Paper, No ). SISWO/ Social Policy Research, Amsterdam. Internet: Employment Protection Act (EPA), SFS, 1982:80, Internet: 8

9 Eurostat (2011), Labour force Surveys, various years, Internet: a/database Forslund, A., P. Johansson and L. Lindqvist, Employment subsidies A fast lane from unemployment to work? IFAU Working Paper, 2004:18. Gallie, D. 'The Quality of Working Life: Is Scandinavia Different? European Sociological Review, 19(1), 2003, pp Lindqvist, L., Uppföljning av plusjobb (Evaluation of Job Plus), IFAU Report 2007:14, Stockholm. SOU (2006), En sammanhållen diskrimineringslagstiftning (A coherent legislation on discrimination), Slutbetänkande av Diskrimineringskommittén (Final report from the Committee on Discrimination), SOU 2006:22, Stockholm. Statistics Sweden (2007), Tema utbildning (Educational issues), Population and Welfare nr 2, SCB, 2007, Stockholm. Statistics Sweden (2012), Labour force surveys, various years, 2012, Stockholm. 9

10 Appendix Figure A1 Source: SCB (2012) 10

11 Table A1. Major reforms targeted towards older workers aiming at increasing older workers employment rates. Policy Reforms Date Content Objectives Early retirement /Disability pension Pension system 1998, fully implemented in 2003 Unemployment Insurance system Employment Act Protection Tax reform, Social contribution 1997 onwards Early retirement can only be awarded for medical reasons. Disability benefits are nowadays granted only on a temporary basis and the extent of work incapacity is evaluated on a regular basis. The old pay as you go benefit-defined system was replaced by a defined contribution system onwards Activation requirements, together with restricted duration of benefits and requalification of a new benefit period onwards Employees have the right to continue working when they reach 65 years old up to 67 years old 2010 onwards Higher in-work tax credit for people who have turned 65 Lower pay roll tax for 65 years and older Reduce early retirement to labour market reasons. Increase labour supply of older workers. Rehabilitation policy Insure the long-term sustainability of the pension system. Increase labour supply of older workers Strong incentives to postpone the decision to exit from the labour force. Prevent from using the unemployment insurance as a means of early retirement. Activation of older workers Increase labour supply of workers after 65 years old Increase labour supply of workers after 65 years old 11