Part-Time Pensions and Part-Time Work in Sweden

3. Policies aimed at increasing the number of working hours in the economy
When the old age share of the population increases and the number of hours worked declines, the most obvious measures are those that counteract the decline in employment among older workers. It is not evident, however, that this is the most efficient method of increasing the number of hours worked. And even if it is, it is not the only possible way to go for increasing the number of hours worked. Following are some different methods for increasing labour supply and employment, including measures that are focused on increasing labour supply among older workers.
• On average, entry into the labour market occurs later now than some decades ago. This is partly due to the fact that the period in school has been lengthened. The nine-year period in the compulsory primary school has been prolonged by three years in secondary school for almost everyone. A gradually increasing share of the cohort also continues on to higher education. But this is only part of the explanation. Entry into the labour market is delayed by more years on average than the lengthening of the period in education. It takes a longer time to go from completed secondary school or university to employment. And many people wait a few years after secondary school before continuing on to higher education. Measures that make it easier for young people to find work after education, and easier access to university education for those who have completed secondary school may be of value.
• Labour force participation is considerably lower among some groups of active age than among other groups. Recently arrived refugees especially, have very low labour force participation and a high unemployment rate. A better policy for integrating immigrants in the labour market and society in general may be a way to increase employment. One measure that has been proposed is to encourage labour force immigration. Labour migrants are young and have a high employment rate — they are actively recruited to jobs in most cases.
• The number of hours worked is not only influenced by the labour force participation rate and the employment rate but also by to what extent people who are employed are actually working. The most common reason for absence from the work place is illness4. Measures to decrease sickness absence would, if they are efficient, be a way of counteracting the decline in the number of hours worked due to increase in the old age share of the population.
Most of the proposals, however, are focused on increasing labour supply and the number of hours worked among people of older active age (55-64) or above active age (65+). The goals regarding labour force participation among older people may be divided in three sub-goals.
• To decrease early exit from the labour force and in that way increase the number of hours worked in the economy. Early exit has tended to increase during the last decades in Sweden and even more so in many other countries. The exit follows many routes, in Sweden for example through disability pensioning5 and by pensions paid by the employer, but there are many other routes out of the labour market.
• To increase the formal retirement age. Such a change may relate either to the normal retirement age and/or to the minimum age for getting an early old age pension6. During the last two decades many countries have raised the retirement age in at least one of these two respects. In several countries the previous lower retirement age for women has been raised to the same age as for men. Some countries with a retirement age lower than 65 have raised it to 65. In the U.S. a decision was made to raise the retirement age gradually from 65 to 67. This was decided already in 1983 and the first enhancement to 65 years took place in 2002 for those born in 1937. The first cohort who will retire at age 67 will be those who were born in 1955 for which the ‘normal’ retirement year will be 2022.
• To facilitate work after the formal retirement age. In some countries many people continue to work after retirement age. In the U.S., mandatory retirement for those up 70 years of age was prohibited in 1978. In 1987 mandatory retirement was prohibited also for those 70 years and older with only a few exceptions. Income testing for those who are 65 years and older was discontinued from the year 2000. Income testing remains for those whose age ranges from 62 to 65. In Sweden the law on employment security has been changed to hinder the earlier common mandatory retirement at age 65. The new age limit has been set to 67 years. However, it will not be possible to get unemployment benefits after the age of 65 and sickness benefits only to a limited extent after the age of 657.
How does a part-time pension system fit into that system of reforms? In a formal sense a part-time pension means that instead of continuing full-time work, a person changes to part-time work some years before full-time retirement, i.e. a reduction in the number of hours worked. Might such a working-time reduction lead to that more hours are worked in the economy in practice? We will now proceed to this question.

4 See the different papers in Swedenborg (2003).
5 The disability pension system and also the names of the different forms of disability pensions were changed from January 2003.
6 See Turner (2003) for a survey of recent increases of the lowest possible age for an old age pension which have been made in various countries.
7 For those who have reached the age of 65 but not yet 70 and who have received sickness benefits for 180 days, the insurance society may decide that they should no longer be eligible for sickness benefits. Those who are 70 years and older and still work may only get sickness benefits for 180 days.

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