The Labour Market for Older Workers in Sweden: Changes and Prospects
5. Labour Laws, Collective Agreements and the Older Workers
Labour law has only been changed to a minor extent in Sweden since the mid-1970s. Of the minor changes made some are of importance for older workers. Most important is the increase of the upper age covered by LAS — the law on employment security — from 65 to 67 and the ruling out of mandatory retirement up to the age of 67. In that way Sweden now has two pension ages, 65 and 67, or in practice a variable pension age from 61 years of age.
An employee has the right to continue to be employed up to the age of 67. An employer who wants an employee to leave at the age of 67 has to give notice one month in advance. An employee who continues to work after becoming 67 has the right to only one month’s notice. According to LAS the standard employment contract should in most cases be limited to a fixed period, but for those aged 67 such fixed-term contracts are allowed.
The age when an employee is obliged to leave was already increased from 65 to 67 on April 1, 19919. The social partners could however decide on another age by agreement, and did so. The agreed age according to most contracts was 65 years. The law changed from September 1, 2001 forbidding agreements with a lower mandatory retirement age than 67. Agreements in force at that time stating a lower age were valid up to January 1, 2003. In practice it meant that the age for mandatory retirement became 67 from January 1, 2003.
Up to the period of the present government older workers had special strong employment protection according to law. They could count every month as two (up to a certain limit) when calculating seniority. The present government has taken away that qualification thereby weakening the job security of older workers to some extent.
6. Early Exit Roads
Even if more people than previously now remain in the labour market up to and over 65, many leave the labour force before 65 years of age. In 2007 the average age for taking an old age pension was 64.6 years (see Table 4). In the same year the average age for leaving the labour market was 63.1 years. By average age when leaving the labour market we here mean the age at which a person ends contributing to the pension and social security schemes. Other income transfer systems are important in the transition period between work and old age pension. The income transfer systems at unemployment, work injury, disability and sickness in practice have and are still to some extent financing early exit.
Table 4: Average age when starting to take old age pension and average age when leaving the labour force in 2007
Source: Calculations based on HEK (Economic Statistics for the Households), Statistics Sweden.
As mentioned many leave the labour market with a form of income support other than an old age pension. A large part of them do so with a disability pension. Close to one fifth of men and one fourth of women aged 61-64 have a full-time disability pension. To that could be added that 6% of men and 11% of women in the same age group had a part-time disability pension.
Also the unemployment insurance scheme has been used as an early exit route. Almost 10% leave at the age from which unemployment benefits are paid up to the age of 65. This age has increased over time as a result of changes in the rules in the unemployment benefit system. Some people also leave early with an annuity from the work injury insurance. Around 5% of the population has an annuity when reaching the age of 65.
7. Who Continues to Work and what Kinds of Jobs Do They Have?
Labour force participation among men and women aged 20-64 years is 87 and 81%, respectively, which is high in an international perspective, especially for women. Of interest here is labour force participation and employment among people of older active age and above the traditional pension age of 65 years.
Of those aged 55-64 years 75% of men and 70% of women are in the labour force. The labour force participation is considerably lower among those aged 65 or over. Less than 20% of men and 10% of women aged 65-69 are in the labour force. Among those aged 70 to 74 years male labour force participation was c. 10% and that of females c. 3% in 2008. The share in the labour force among those aged 65-74 increased between 2005 and 2008 from 14.6 to 16.6% among men and from 5.9 to 8.3% among women.
In which sectors are the older workers employed? Women aged 65-74 are employed in health care and old age care, personal and cultural services, education and research, and trade and transport. Men in the same age group are mainly in financial services, agriculture and forestry, and trade and transport. Compared to those aged 20-64 both men and women aged 65-74 are most overrepresented in agriculture and forestry, financial services, personal and cultural services, and for women also in trade and transport.
A majority of employed men aged 65 and older are self-employed. Self-employment as a share of all employed is for men aged 20-64 15%, for those aged 55-64 20%. For women the corresponding shares are 5% for those aged 20-64 years, 7% for those aged 55-64 years and c. one third of those 65 years and older.
Women work part-time to a greater extent than men. Of women aged 20-64 35% work part-time compared to 10% of men in the same age group. Among those aged 65 to 69 years most people, both men and women work part-time. A third of men and 45% of women in this age group work less than 20 hours, and a fourth of both men and women work between 20 and 34 hours. Among those aged 70-74 the working week is shorter still.
The average number of weekly working hours by agreement declines with age and for men aged 20-64 it is 40 hours and for women of the same age 35 hours (see Table 5). The working week is slightly lower for those aged 55-64. Men aged 65-69 have a 29 hour working week and women of the same age a 24 hour working week. Among the oldest, 70 to 74 years, the average working week is 25 hours for men and 19 hours for women.
Table 5: Average working hours per week according to agreement for those employed
Source: Statistics Sweden, Labour Force Surveys.
8. A Policy for a Prolonged Working Life
In this article we have dealt with different aspects of the labour market of older people. There is in Sweden and in other countries a tendency toward rising labour force participation among older people in the labour market. This development raises a number of questions. The first question is whether institutional changes have contributed to this development. The second question is if there are tendencies on the demand and supply sides of the labour market leading to higher employment among older workers in the years to come. The third question is whether there are means that can contribute to higher labour force participation among older workers. In this concluding section we will try to answer these three questions in that order.
Health, education and the design of the income transfer systems are examples of factors that according to research explain large parts of the variation in exit age between individuals, over time in a country and between countries. Some of these factors cannot influence in the short run. One example is education. Changes in youth education only influence the education among older workers with a time lag of several decades. Health among those of older active age is an important factor in their decision to stay or leave the labour market. Health related policy programs may influence the health status of the population including those of older active age, but the effects are probably not seen in the first few years following implementation of a program.
Of great importance for the exit age from the labour market are the rules of the social and occupational insurance schemes, especially the pension schemes. The most important change in this policy area in Sweden in recent years is the introduction of the new old age pension system. Parliament took decisions on the principles of that system in 1994 and on the details in 1998. The change of pension system meant increased incentives to work more years. The system is gradually implemented. Those who were born in 1944 who will become 65 years of age in 2009 get half their pension according to the new system and half according to the old system. Those who were born in 1954 or later (55 years in 2009) get their entire pension according to the new system. The new system may contribute to explaining the increase in labour force participation among older workers in Sweden since the mid-1990s. A contributing factor may also be the information on the pension size for some different pension ages sent out yearly in orange envelopes to everyone. The information shows how much the pension increases by delaying the take up.
Increase in the age for those covered by the law on job security (LAS) from 65 to 67 in 1991 and the stop on agreements on mandatory retirement below the age of 67, valid from 2003, contribute to the increase in retirement age. In some sectors and occupations there has in practice been a change of the retirement age from 65 to 67.
Changes have also been made to reduce early exit through the sickness benefit and disability pension schemes. For older workers the possibilities of being disability pensioned due to labour market reasons or combined labour market and medical reasons were abolished in 1991 and 1997, respectively. Other steps have later been taken to reduce the outflow from the labour market through those systems. The priority has been to reduce the number on long-term sickness leave. The number in this system has also been significantly reduced in the last few years even if it is still high.
One factor behind variations in the exit rate is the health of individuals. The health situation of older workers has gradually improved and may continue to do so. One option is to improve the work environment and thereby reduce the number of work injuries. A means for such a development is a better design of work related injury insurance creating more incentives to safer work places and a more active inspection of the work places10.
An individual characteristic which is important according to different studies is the educational level of the individual — the higher the education the later the exit. Gradually a higher education cohort average leads to a gradually higher pension age.
It is difficult to assess the importance of the development of other variables which may influence the age of retirement. Gradually increased capital income and private pensions may lower the age of retirement. In the short run the present crisis may however lead to a later exit as the households’ wealth and the value of private pensions have decreased considerably. This may lead to older workers trying to remain in the labour market.
Changes in the industry composition (more people working in the service sector) may gradually postpone the exit from the labour market. The same could be said for the development towards increased self-employment. Self-employed people leave the labour market later than employees.
The demand for older workers could be changed by subsidies but also by changes in work organisation. Another possibility is to encourage gradual retirement through different forms of (subsidized) part-time pension schemes. There is however a problem with such a system. It may lead both to an increased employment rate among older workers but also to part-time work for some who would have continued to work full-time if they had not been offered a subsidized part-time pension.
Institutional changes are close to practical political policy making. Based on our analysis we list below some policy changes which may lead to higher labour force participation among older workers in Sweden. Most of them are options for the political authorities; others are options for the social partners.
• Increase the minimum age for mandatory retirement from 67 to 70 as in for example Iceland and France (from January 1, 2009) or forbid mandatory retirement as in the US.
• Make 67 years, and not 65 as now, the normal retirement age in the different income transfer systems. The present design of the sickness and unemployment benefit system forces those aged between 65 and 67 to become unemployed or long-term sick and to leave the labour market and take a pension.
• Increase the lowest age for taking an old age pension from 61 to 62 (as in for example the US).
• In economic crises such as the present one avoid introducing special programs for early exit with an income transfer.
• Many studies show that the self-employed work to a higher age than employees. Support for the self-employed and especially the older self-employed may contribute to higher employment among older people.
• Diminish the incentives to leave early in the various income transfer systems.
• Increase the ceiling in the old age pension system. This will eliminate a part of the effects of the DB part in the supplementary pension schemes. An alternative is to make the supplementary pension schemes DC plans and make the transition period from DB to DC short.
• When restructuring the public sector avoid offering pensions up to retirement for older employees.
• Abolish the rules existing in some supplementary pension schemes which forbid those who have received a pension to take a new job.
9 When LAS (the law on job security) was introduced in 1974, an employee had to leave his employment at the age of 67. This age limit was lowered to 65 from March 1, 1982.
10 See Sjögren Lindquist and Wadensjö (2008) for detailed policy proposals.
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Tags: Collective agreements, Decisions leaving labor, Labor laws, Prolonging working life, Sweden labor elderly