Part-Time Pensions and Part-Time Work in Sweden

1. Introduction

Sweden had a special partial pension scheme between 1976 and 2001. It was one of three part-time pension schemes in the social security system. The other two were a partial early old-age pension, and a partial disability pension.
The special partial pension scheme became very popular with a high take-up rate and was criticized for being too expensive. As a part of the decision on the old age pension scheme in 1994, the partial pension scheme was made less generous, and the scheme was totally abolished from the year 2001. The other two options for combining work and receiving a pension continue.
In this paper the effect on the total number of hours worked of the subsidized part-time pension system is analysed. The analysis indicates that the effect that people continue to work part-time instead of taking an early exit route is larger than the effect that people who would have continued to work full-time until ordinary retirement age instead work part-time.

2. Part-Time Pensions and Part-Time Work in Sweden

2.1 Why a policy for increasing the labour supply?

The forecasts of the demand for labour in Sweden have varied with the business cycle during most of the post-war period. This can easily be seen by studying the five-year forecasts made by the Ministry of Finance. The analysis and the recommendations vary with the year of publication. In years of prosperity the conclusion has been that the labour supply is too small and that measures have to be taken to increase the supply. In recession years the lack of demand has been in focus and that measures should be implemented to decrease labour supply. Since the of the 1980s, irrespective of the business cycle, worry that the declining share of the population who are of active age2 and the resultant decline in labour supply would lead to problems in financing the welfare state has dominated the debate. Many measures were also implemented in the 1990s in an attempt to increase the labour supply, but in the same decade measures were also introduced which (intentionally or not) contributed to diminishing the labour supply3. Although these measures have not solved the problem, they have served to make it more visible.
The reason for the changed focus of the debate is the increasing awareness that the share of older people in the population is increasing all the time and the increase is not compensated for by the decline of the share being below active age. The share of the population who are of active age is declining. This is not a new phenomenon but people have become more aware of it in recent years, perhaps as a result of that other countries, not least other EU countries, are also experiencing the same development as Sweden and we are influenced by the debate in those countries. See Table 1 for the development in some countries.

I am grateful to Per Gunnar Edebalk, Gabriella Sjögren Lindquist, Ann-Charlotte Ståhlberg for their comments and to Annika Sundén for her comments on an earlier version and also for comments on the ESPE conference in Bergen June 2004 and the conference on Changing Social Policies for Low-Income Families and Less Skilled Workers in the EU and the US at National Poverty Center and European Union Center University of Michigan April 2005.
Eskil Wadensjö: Swedish Institute for Social Research, Stockholm University, SE-106 91 Stockholm, Sweden, and IZA, Bonn., E-mail:
2 The term ‘active age’ is usually defined as the age from completion of the compulsory school to the normal (ordinary) retirement age according to the social security pension system, which is presently from 16 to 65 in Sweden. This means that what we mean by active age may vary over time (by changes in the school system and the pension system) and differs between countries. Many people who are of active age are not employed and there are those who are either below or above active age who are employed.
3 For a survey see Wadensjö & Sjögren (2000).

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