The Labour Market for Older Workers in Sweden: Changes and Prospects

1. The Demographic Development

In most developed countries the share of the population of active age is declining. The share above active age is increasing due to low fertility and the fact that people are living longer. The part of a cohort living to the age of 65 increases and those who reach that age live longer beyond that. Statistics Sweden has produced a forecast which indicates that the number of older people for each person of active age will increase from c. 0.3 in 2004 to more than 0.5 in 2030. The number of young people (below active age) per person of active age will remain at the same level, c. 0.5.

An ageing population means increased public sector expenses for health, old age care and pensions. If one does not want to raise the tax rates, lower pensions or lower the quality of health care, old age care or other public sector programs, the total number of hours worked in the economy has to increase. An increased number of hours worked means higher tax revenues at given rates.

The labour supply may increase in several different ways which complement each other. The most important ones are: 1) an increase in the number of hours worked by those who are employed; for example a number of those working part-time might switch to full-time, 2) a more rapid move from school to work; this transition now takes several years for many people, 3) a higher employment rate for groups who presently have low employment rates such as people with disabilities and refugees, 4) increased labour immigration, and 5) a higher retirement age. We will discuss the last of these five options here.

An argument for trying to raise the age for leaving the labour market with a pension is that the number of years with a pension increases if the pension age is not changed. The health of older people has gradually improved, older people more often have higher education and fewer have physically demanding jobs. These factors all argue for continued work to an older age.

One way of illustrating this is to study the remaining life expectancy for those who reach the age of 65. Table 1 shows the development up to 2007 and a forecast for future development. The starting point is the expected remaining life span for those aged 65 in 1971-1980, the decade in which the retirement age was lowered from 67 to 65 in the social security old age pension scheme. We calculate what the pension age would have been if the expected number of years after being pensioned had been the same as in the 1970s when it was 65. The calculation shows that it should have increased by 3-4 years up till now and should increase by one year more by 2020.

Table 1: Expected remaining life expectancy at 65 years of age and pension age if there is the same expected number of years with a pension as in the 1970s
Note: The prediction for 2008-2020 was made by Statistics Sweden before the values for 2007 were known. This explains why the value for 2008 is lower than for 2007. We have set the value for the pension age in the 1970s to 65; the pension age from 1976 on.
Source: Statistics Sweden, Population statistics and own calculations based on that.

2. Labour Force Participation among People of Older Active Age in Sweden

For many years labour force participation and employment declined among older people in Sweden and in other countries. Part of this may be explained by a lowering of the age for a full pension from the social security pension schemes and by higher pensions. But the exit from the labour market also increased in the age groups below the normal pension age — early exit became common. The decline in employment in this age group (older active age) is closely related to the business cycle development and to the possibilities of getting an income transfer before the normal pension age. More people lose their jobs in downturns of the economy and many countries introduced favourable forms of economic support for those who left early.

In Sweden this development was not as pronounced as in many other countries. Sweden belongs to a small group of countries with a relatively high age for exiting the labour market. The development towards a lower real retirement age (and in not a few cases a lower formal retirement age) ended in the mid-1990s in most countries including Sweden, partly as a result of a policy shift. In many countries the lowest possible age for a full or reduced pension was raised, different early exit roads were blocked or made less favourable. The result was also a higher average age when leaving the labour market for retirement. It is important to distinguish between receiving a pension and discontinuing working. In many pension systems (but not in all) it is possible to have an old age pension and continue to work and it is also possible to stop working and wait to take up a pension (and in many cases get an income transfer other than an old age pension). In Sweden the average age when leaving the labour market is at present two years lower than the average age for starting to take up an old age pension, which is close to 65.

Gabriella Sjögren Lindquist: Swedish Institute for Social Research, Stockholm University and REASSESS, NOVA.
Eskil Wadensjö: Swedish Institute for Social Research and SULCIS, both Stockholm University & REASSESS, NOVA.

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