Ageing and Employment Policies: Norway (Ageing and Employment Policies)

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© OECD, 2004. © Software: 1987-1996, Acrobat is a trademark of ADOBE. All rights reserved. OECD grants you the right to use one copy of this Program for your personal use only. Unauthorised reproduction, lending, hiring, transmission or distribution of any data or software is prohibited. You must treat the Program and associated materials and any elements thereof like any other copyrighted material. All requests should be made to: Head of Publications Service, OECD Publications Service, 2, rue André-Pascal, 75775 Paris Cedex 16, France.

Ageing and Employment Policies (Vieillissement et politiques de l’emploi)

Norway

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

Pursuant to Article 1 of the Convention signed in Paris on 14th December 1960, and which came into force on 30th September 1961, the Organisation for Economic Co-operation and Development (OECD) shall promote policies designed: – to achieve the highest sustainable economic growth and employment and a rising standard of living in member countries, while maintaining financial stability, and thus to contribute to the development of the world economy; – to contribute to sound economic expansion in member as well as non-member countries in the process of economic development; and – to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in accordance with international obligations. The original member countries of the OECD are Austria, Belgium, Canada, Denmark, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The following countries became members subsequently through accession at the dates indicated hereafter: Japan (28th April 1964), Finland (28th January 1969), Australia (7th June 1971), New Zealand (29th May 1973), Mexico (18th May 1994), the Czech Republic (21st December 1995), Hungary (7th May 1996), Poland (22nd November 1996), Korea (12th December 1996) and the Slovak Republic (14th December 2000). The Commission of the European Communities takes part in the work of the OECD (Article 13 of the OECD Convention).

© OECD 2004 Permission to reproduce a portion of this work for non-commercial purposes or classroom use should be obtained through the Centre français d’exploitation du droit de copie (CFC), 20, rue des Grands-Augustins, 75006 Paris, France, tel. (33-1) 44 07 47 70, fax (33-1) 46 34 67 19, for every country except the United States. In the United States permission should be obtained through the Copyright Clearance Center, Customer Service, (508)750-8400, 222 Rosewood Drive, Danvers, MA 01923 USA, or CCC Online: www.copyright.com. All other applications for permission to reproduce or translate all or part of this book should be made to OECD Publications, 2, rue André-Pascal, 75775 Paris Cedex 16, France.

FOREWORD

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FOREWORD

Older people offer tremendous potential value to businesses, the economy and society. Unfortunately, they often represent an untapped and discriminatedagainst resource, as many public policy measures and private workplace practices pose serious barriers to work, both paid and unpaid. Many of these policies and practices are relics from a bygone era. There is a need to look beyond traditional stereotypes about ageing in order to benefit from the growing numbers of older citizens, many of whom would, in fact, choose to work for longer given appropriate policies and workplace practices. The OECD has reported extensively on public pension and early retirement systems and the need for reforms of these systems to cope with some of the challenges posed by population ageing. However, these reforms will not be enough to encourage later retirement and to reduce the risk of future labour shortages. Measures are also required to adapt wage-setting practices to greying workforces, to tackle age discrimination and negative attitudes to working at an older age, to improve job skills of older people and their working conditions, and to better “activate” older jobseekers. Relatively little is known about what countries have been, or should be doing, in these areas. Therefore, in spring 2001, the OECD Employment, Labour and Social Affairs Committee decided to carry out a thematic review of policies to improve labour market prospects for older workers covering both supply-side and demand-side aspects. For the purpose of this thematic review, it was decided to define older workers as all workers aged 50 and over. The age of 50 is not meant to be a watershed in and of itself in terms of defining who is old and who is not. Perceptions about being old are inherently subjective and only loosely connected with chronological age. However, in many countries, the age of 50 marks the beginning of a decline in participation rates by age. Moreover, to facilitate international comparisons, it is preferable to refer to the same age group for all countries. Thus, all references to “older workers” in this report should be taken as shorthand for workers aged 50 and over (or in some cases,

AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004

4 – FOREWORD because of data constraints, workers aged 50 to 64), and should not be seen as implying that all workers in this group are “old” per se. This report on Norway is one in a series of around 20 OECD country reports that will be published as part of the older worker thematic review, which has been developed by Raymond Torres. It has been prepared by Patrik Andersson, under the supervision of Mark Keese (team leader), with a contribution from Steven Tobin and the technical and statistical assistance of Clarisse Legendre, Anne-Marie Gray and Alexandra Geroyannis. A draft of the report was discussed at a seminar on “Norwegian Policies to Improve Labour Market Outcomes for Older Workers” in Oslo on 30 October, 2003, which was organised by the Norwegian Ministry of Labour and Government Administration. Discussants at the seminar included representatives of the national authorities, the social partners and non-governmental organisations, as well as academics. The final report, which incorporates the comments received at the seminar, is published in this volume on the responsibility of the Secretary-General of the OECD.

*** This report is based on the proceedings of a seminar and is published in English only. However, a French translation of the Executive Summary and Recommendations has been included in this volume (see p. 21). ***


TABLE OF CONTENTS

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TABLE OF CONTENTS

EXECUTIVE SUMMARY AND RECOMMENDATIONS ..................... 11 The challenges facing Norway ................................................................ 11 Measures for older workers and to address the demographic situation .... 14 Areas where further reform is required ................................................... 17 RÉSUMÉ ET PRINCIPALES RECOMMENDATIONS............................ 21 INTRODUCTION...................................................................................... 33 Chapter 1. THE CHALLENGE AHEAD ................................................... 35 1. 2.

The demographic challenge .......................................................... 35 Potential economic and social impacts.......................................... 38

Chapter 2. THE CURRENT LABOUR MARKET SITUATION OF OLDER WORKERS....................................................... 43 1.

Labour market participation ......................................................... 43 Key issue I: Maintaining high participation rates .................... 43 2. Employment situation................................................................... 46 A. Current job characteristics....................................................... 47 B. Key issue II: Reversing the trend decline in hours worked ...... 48 3. Unemployment amongst older workers in Norway is low............. 52 4. Patterns of inactivity..................................................................... 53 A. Key issue III: Reducing inactivity by strengthening work-incentives....................................................................... 54 A.

Chapter 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES .......................................................... 57 1. 2. A. B. C. D. 3. A.

Welfare schemes – a way out of the labour market? ..................... 57 Old-age pensions .......................................................................... 59 Trends in public expenditures on old-age pensions ................. 59 The current public pension system .......................................... 60 Reforming the public pension system...................................... 64 Developing the occupational pension system further............... 66 Alternative pathways to early retirement ...................................... 67 The contractual early retirement scheme (AFP)....................... 70


6 – TABLE OF CONTENTS B. C. D.

Sickness and disability pensions.............................................. 72 Few older people on unemployment benefits .......................... 77 Combating early retirement in Norway ................................... 78

Chapter 4. ENCOURAGING EMPLOYERS TO RETAIN AND HIRE OLDER PEOPLE........................................................ 83 1. A. B. 2. A. B. 3. A. 4. A. B. 5. A. B. C.

Employment policies and older workers ....................................... 83 Attitudes towards older people ................................................ 83 The presence of age discrimination ......................................... 85 Labour costs ................................................................................. 86 The impact of high relative wages for older workers ............... 86 Social security contributions for older workers ....................... 88 Employment protection — obstacle or security?........................... 89 The role of employment protection legislation ........................ 90 Subsidising labour costs for older workers ................................... 92 Wage subsidies to employers .................................................. 93 Reducing social security contributions .................................... 93 Measures taken by social partners ................................................ 94 Achieving a more inclusive workplace.................................... 94 Encouraging older people to remain in work longer ................ 97 Developments at the individual firm level ............................... 97

Chapter 5. STRENGTHENING EMPLOYABILITY................................. 99 1. A B. 2. A. B. C. D. 3. A. B. 4. A.

Education attainment and labour market status ............................. 99 A key to higher participation rates........................................... 99 New skills – a way to strengthen employability .................... 101 Training of older workers ........................................................... 104 Incidence of training declines with age ................................. 104 The role of collective agreements.......................................... 105 The Norwegian Competence Reform .................................... 106 Effectiveness of training ....................................................... 109 Active labour market programmes and vocational rehabilitation 109 Older people are under-represented....................................... 110 Impact of ALMPs and vocational rehabilitation .................... 112 Work environment and job satisfaction ...................................... 114 Working conditions in Norway are relatively good ............... 115

Chapter 6. MOBILISING LABOUR SUPPLY MORE GENERALLY .... 117 1. 2.

Increasing hours of work ............................................................ 117 Alternative ways to boost labour supply ..................................... 118 AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004

TABLE OF CONTENTS

A. B. 3. 4.

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In the short-term: Increasing immigration ............................. 118 In the long term: Raising fertility rates .................................. 119 Policy coherence ........................................................................ 119 Maintaining the momentum........................................................ 120

BIBLIOGRAPHY .................................................................................... 121 List of Boxes Box 3.1. Box 4.1. Box 4.2. Box 4.3. Box 4.4.

The Swedish flexible old-age pension system ........................ 65 Laying off older workers in Norway: the case of Norsk Hydro ....................................................................... 84 Employment subsidy schemes for older workers in selected OECD countries ........................................................ 92 The tripartite agreement on a more inclusive workplace.......... 95 Good practice at the firm level in Norway: the case of Linjegods............................................................................ 97

List of Figures Figure 1.1. Figure 1.2. Figure 1.3. Figure 1.4. Figure 1.5. Figure 2.1. Figure 2.2. Figure 2.3. Figure 2.4. Figure 2.5. Figure 2.6. Figure 3.1.

Life expectancy at birth and total fertility rates in Norway, 1960-2050......................................................... 35 Demographic dependency ratios, 2000-2050....................... 37 Projected population growth in Norway by age group, 2000-2050..................................................... 38 Labour force growth in Norway, 1950-2050 ....................... 40 Labour force growth in OECD countries, 1950-2050 .......... 41 Participation rates by gender and age in Norway, 1972-2002 ........................................................................... 44 Participation rates by age and gender in OECD countries, 2002 .................................................... 45 Differences in Norwegian employment rates between prime-age and older workers by gender, 1972-2002 ............ 46 Average actual weekly working hours in Norway by gender and age, 1995-2001............................................. 49 Unemployment rates in Norway by age groups, 1987-2002 ........................................................................... 53 Inactivity by single year of age in Norway, 2001................. 54 Retirement rate by age in Norway, 2001 ............................. 58


8 – TABLE OF CONTENTS Figure 3.2. Figure 3.3. Figure 3.4. Figure 3.5. Figure 3.6. Figure 3.7. Figure 3.8. Figure 3.9. Figure 3.10. Figure 3.11. Figure 4.1. Figure 4.2. Figure 5.1. Figure 5.2. Figure 5.3. Figure 5.4. Figure 5.5. Figure 5.6.

Reasons for leaving last job in Norway, 2000...................... 59 Public expenditure on old-age pensions in Norway and other OECD countries, 2000-2050 ...................................... 60 Retirement incentives in Norway and other OECD countries .... 63 Average effective retirement age in Norway, 1960-2002..... 68 Effective and official retirement ages in OECD countries, 1997-2002 ........................................... 69 Recipients under the AFP-scheme in Norway ..................... 71 Long-term sickness in Norway, 1992-2001 ......................... 74 Lost working time in Norway because of sickness, 2002..... 74 Inactivity because of illness or disability in selected OECD countries, 2000....................................... 75 Disability pension claimants in Norway, 2001 .................... 76 Relative wages for older workers and effective retirement age ..................................................................... 87 Age-earnings profiles in selected countries ......................... 88 Participation rates in Norway by age and level of education, 2001 .................................................... 100 Education levels in OECD countries, 2000........................ 102 Projected rise in education levels of older workers, 2000-2025.................................................. 103 Incidence of job-related training for workers by age in selected OECD countries, 1994-98................................ 105 Age profile of participants in ALMPs and the registered unemployed in Norway, first half of 2003 ... 110 Age profile of vocational rehabilitation participants, employees on sick leave and disability benefit inflows, first half of 2003................................................................ 112

List of Tables Table 1.1. Table 2.1. Table 2.2. Table 2.3. Table 2.4.

Projected growth in the Norwegian labour force under different scenarios ..................................................... 40 Norwegian older workers by selected job characteristics, 2001 ...................................................... 48 Employment-population rates for persons aged 50-64 before and after adjustment for hours worked, 2000............ 50 Part-time work by age and gender, 2002 ............................. 51 Employees absent from work by reason in selected OECD countries, 2002 ........................................................ 52 AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004

TABLE OF CONTENTS

Table 2.5. Table 4.1. Table 4.2. Table 4.3. Table 4.4. Table 5.1. Table 5.2. Table 5.3. Table 6.1.

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Inactivity status in Norway and on average in OECD countries, 2001 .................................................... 55 Satisfaction with timing of early retirement in Norway, 2001.................................................................. 85 Employers’ social security contribution rate in OECD countries, 2001 .................................................... 89 Strictness of employment protection for regular employment in OECD countries in late 1990s ......................................... 91 Wage subsidies for hiring the unemployed in Norway, 1998 .................................................................................... 93 Participation in ALMPs by age and type of programme in Norway, 2001................................................................ 111 Incidence of selected working conditions in Norway and the EU ........................................................................ 115 Wish to switch job by reason in Norway, 2001 ................. 116 Wish to increase hours of work by present hours of work in Norway, 2001................................................................ 118


EXECUTIVE SUMMARY AND RECOMMENDATIONS

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The challenges facing Norway Like most other OECD countries, Norway is facing a range of socio-economic challenges arising from rapid population ageing. By 2050, almost one-quarter of its population is projected to be aged 65 and over compared with around one in seven in 2000. As a result of a long-term decline in fertility rates, Norway’s labour force is likely to grow much more slowly than in the past. Lower fertility rates combined with rising life expectancies will also mean that growing expenditures on pensions will have to be financed by taxes on a smaller number of workers relative to the number of pensioners. On the basis of current rates of labour force participation, the ratio of workers to “retirees” (i.e. all persons aged 50 and over who are not in the labour force) is projected to decline from almost 3 to 1 in 2000 to just over 1.7 to 1 in 2050. Consequently, over the next few decades, Norway faces a risk of slower economic growth, serious labour shortages and rising tax rates. Nevertheless, in some respects Norway is better placed than many other OECD countries to cope with population ageing. First, its population is projected to age less rapidly over the next half century than on average among OECD countries. Thus, while demographic dependency ratios in Norway are relatively high currently, they are projected to converge to the OECD average by 2050 and to levels well below the average for the European Union. Second, labour market outcomes for older people in Norway are generally better than in many other OECD countries. Norway has the second highest employmentpopulation ratio for persons aged 50-64 in the OECD (74.1%), and about one third of people aged 64-74 are still in employment. The overall unemployment rate in Norway in 2002 was 3.9% and for older workers it was even lower at around 1.4%. And, last but not least, Norway has substantial petroleum revenues and possesses extensive financial assets, mostly accumulated in the Government Petroleum Fund.


12 – EXECUTIVE SUMMARY AND RECOMMENDATIONS A growing need for labour However, Norway cannot rest on its laurels. Since labour force participation in Norway is high overall, present and future labour shortages cannot be easily compensated by an increase in female participation rates or through older workers staying longer in work. Thus, the risk of bottlenecks occurring in the economy is greater than in most other OECD countries. Low annual working time and high sickness absence depress effective labour supply One potential area where effective labour supply could be boosted is the average working time of Norwegians. Average annual hours worked per person in employment are substantially lower in Norway than in most other OECD countries and the trend continues to be negative. Thus, an increase in annual average hours worked could ease the pressure from population ageing in the future decades, but also help to ease labour shortages, especially in the health sector where many part-time jobs are found. One factor behind low hours of work is the high rate of sickness absence, especially for older workers. Like in Sweden, sickness absence has exploded in recent years. On average in 2002, each worker took 25 days off work because of sickness. The sickness benefit scheme is very generous and reimburses 100% of the salary without any waiting period. Employers pay benefits for the first 16 calendar days of a sickness spell while the National Insurance Scheme pays beyond that up to one year. Generous and easily accessible disability and early retirement schemes In principle, old-age pensions are obtained at the age of 67, but there are ways to stop working beforehand. The majority of those exiting the labour market before the official retirement age do so via either the disability pension scheme or the early retirement pension (AFP). Both benefits count when assessing pension years and pension points as if retiring at 67. Therefore, an individual on a full disability pension or AFP will get the same pension as a person retiring at 67. Moreover, all pensioners face a reduced tax rate since they only pay part of the social security contribution. Thus, incentives are weak to continue working once eligible for the AFP or after obtaining a disability pension.



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The proportion of the Norwegian population receiving disability benefits is also very high compared with most other OECD countries. About 10% of the working-age population is registered as disabled. Furthermore, about one-quarter of those aged 55-59 and about one-third of those aged 60-66 are recipients of disability benefits. These relatively high rates can be explained by, at least in part, factors such as lax medical criteria and the lack of alternative pathways out of the labour market. The alternative to disability pension is the AFP-scheme. The scheme is based on agreements between the social partners covering around 60% of all employees. When this scheme was introduced in January 1989, the minimum age of eligibility for an AFP pension was set at 66. During the 1990s, the minimum age was gradually reduced to reach 62 in 1998. The employee can decide whether he/she wants to use this option or not. Thus, in practice, the AFP-scheme can be seen as an extension of the standard old-age pension system to those aged 62 to 66 and about 20% of this age group is currently retired early under this scheme. In the private sector, employers pay for the benefits in full between the age of 62-64 – while the state pays for 40% of the benefit thereafter until the age of 67. For state and municipal employers, the costs are fully integrated in their respective budgets. The old-age pension system lacks flexibility The Norwegian public pension system is a defined benefit scheme and fully integrated in the state budget. Because of demographic changes and maturity of the system, expenditures are projected to increase from 7% to 18% of GDP by 2050 (including disability pensions). The system is rather inflexible and provides no possibilities for a smooth transition from work to retirement or, more generally, to withdraw earlier than the age of 67, except for some specific occupations or through the two schemes mentioned above. Moreover, while all state and municipal employees are covered by an occupational pension scheme, only 30% of the employees in the private sector are covered by such a scheme. Since entitlements are portable only within the public and the private sectors but not across them, mobility between the private and public sectors is very low.


14 – EXECUTIVE SUMMARY AND RECOMMENDATIONS Measures to improve employment prospects for older workers and to address the demographic situation Although labour market prospects for older workers in Norway seem less problematic than in most other OECD countries, the government and the social partners have introduced, or plan to introduce, a number of measures to improve these prospects further. Reforming the old-age pension system The Norwegian government decided, in March 2001, to appoint a pension commission to decide on the major objectives and principles for a new pension system to cope with the challenges of population ageing. The commission consisted of representatives from the political parties in the parliament, independent experts and a council consisting of the main social partners. In the final report presented on 13 January 2004, the commission recommended modernising the pension scheme to strengthen the link between earned income and entitlements. It also suggested introducing flexible retirement age from 62 and onwards with no restriction for combining work and pension income, an adjustment of pension entitlements to the remaining life expectancy at the age of 67 and linking outgoing pensions to the mean of wage and price changes. Moreover, the commission recommended that the new pension system should affect fully persons born in 1965 or after. Those born between 1951 and 1964 should be covered partially by the new and the old system, while those born before 1951 would not be affected by the reform. The proposals of the pension commission will be circulated for public consultation and the government, in turn, will submit a report to the Parliament. The Parliament will subsequently determine the main principles for the reform. Whatever reforms are decided upon, these will not enter into force until 2010 due to the need for passing new legislation as well as the need for adapting new administrative structures and systems. Reforming the disability pension system Many people currently on long-term sickness will transfer into the disability pension system. Thus, as a result of the sharp increase in long-term sickness, the already large share of disability pensioners is likely to rise substantially in the near future. Another problem associated with the present disability pension scheme is the negligible outflow to employment. To reduce the inflows to permanent disability benefits a system of temporary disability AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004


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benefits will be introduced as from 1 January 2004. This benefit will be granted for a period of one to four years and can be extended once thereafter. Moreover, a permanent disability pension will only be granted to individuals evaluated as having no potential work capacity. Achieving a more inclusive workplace The government and the social partners have been putting much effort into encouraging people on different non-employment measures such as disability, AFP and sickness benefits to return to work or at least to supply some work. As a result, in October 2001, the government and the social partners reached an agreement to achieve a more inclusive workplace to the benefit of individuals, employers and society. The agreement ends on 31 December 2005 and sets three objectives: •

A reduction in sickness absence by at least 20% by 2005;

•

An increase in labour market participation among the disabled; and

•

An increase in labour market participation among older people (i.e. an increase in the effective retirement age).

The aim is to achieve these objectives via voluntary company-level agreements between employers and the National Insurance Authority. The measures that will be used to achieve these objectives include: greater possibilities to purchase health care services and rehabilitation; reducing employers’ social security contributions for workers aged 62 years or older by 4 percentage points; increasing wage subsidies for enterprises that employ disabled persons; and special subsidies for adapting the workplace to disabled people’s needs. The outcome of the agreement which was evaluated in mid-2003 indicates that there has been a slowdown in sickness absence for firms subject to the agreement. A final evaluation will also follow at the end of the agreement. Since only the first objective of the agreement has a quantitative target, the government is currently trying to develop similar targets for the other two objectives as well. At this stage, around 85% of the central unions and employer organisations have signed the agreement. On a company level the coverage has increased from 25% of all employees in late 2002 to around 48% in November 2003 and the parties involved believe that this number will increase further.


16 – EXECUTIVE SUMMARY AND RECOMMENDATIONS As the agreement is intended to promote better use of older people’s resources and competencies in the workplace, the government introduced the National Initiative for Senior Workers and assigned the responsibility for coordinating it to an NGO, the Centre for Senior Policy. The Centre has worked out a national plan in co-operation with the social partners to make individuals, companies and politicians aware of the advantages of hiring and retaining workers over the age of 45. Moreover, the Centre is also arranging conferences for different levels of management staff, union representatives and senior workers. It also runs information campaigns, creating networks of human resource managers, producing handbooks and other material on how to develop a seniors’ policy in a company. The government will provide annual financial support to this national plan for the years 2001-2005. Reforming the education and training systems In order to better handle labour shortages and to cope with increasing skill demands by employers, Norway has also reformed its education and training systems with the goal to increase overall competence levels. Some measures that have been taken already are: i) a legal right for adults to enter higher education on the basis of non-formal competencies; ii) a legal right for employees to have three years study leave; and iii) funding of joint projects between enterprises and providers of education in order to plan systematic competence building. Strengthening job-search efficiency and removing barriers to hiring older people To reduce the actual number of long-term unemployed or to avoid the risk of becoming long-term unemployed, the public employment service provides wage subsidies to groups such as immigrants, persons over 60 years, the disabled and youths. The purpose of the measure is to motivate employers to hire these persons for ordinary jobs with normal pay and working conditions. The subsidy amounts to 50% of the salary for a maximum period of 18 months. There is no rigorous evaluation of the labour market outcomes of these subsidies but a survey of participants revealed that 40% of the people in the group 60 years and older believed that the subsidy was of great importance for obtaining their present job. At this stage, Norway has no legislation that outlaws age discrimination. However, the government has decided to adopt the necessary provisions of the



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EU directive 2000/78/EC on equal treatment in employment and occupation in line with the European Union’s timetable. Enhancing incentives for older people to continue working Another general rule that covers all employees in the labour market from the age of 60 is the right to one additional week of vacation per year. This measure is a way to reduce work stress on older people and, in combination with flexitime or time banks, it gives older workers increased opportunities to recover by having longer vacations or shorter consecutive working periods. One part of the 2002 wage negotiations in the state sector focused on how to retain older workers longer. The outcome was that employees aged 62 years and over can receive one additional day of vacation per month and still retain their full salary or a 10% increase in their gross wages if they agree to retire on a later date. This is in addition to the extra week of vacation all persons above the age of 60 already receive. At this moment, it is too early to evaluate this measure. Areas where further reform is required Norway has taken many important steps to cope with the future situation. Though these achievements and initiatives should be acknowledged, there is still room to improve further employment prospects for older workers. In sum, a comprehensive reform strategy is needed to improve employment prospects of older workers. It should encompass not only measures to enhance the work incentives that are embedded in the welfare system, but also action on the demand-side. Therefore, the following policy recommendations are put forward as possible elements of this strategy: •

Strengthen the link between contributions and pensions entitlements. As part of reforming the public old-age pension system, it would be very desirable to link more closely lifetime earnings and pension entitlements. This could be done by switching to a defined contribution-based system (underpinned by a safety net), which would enhance incentives to remain longer in work. At the same time, public spending would be reduced and greater fairness between individuals achieved.


18 – EXECUTIVE SUMMARY AND RECOMMENDATIONS •

Increase flexibility in the retirement decision. The old-age pension system should be made more flexible. Flexibility could be enhanced by abolishing the statutory retirement age and applying actuarial methods for calculating entitlements. To have a smooth transition from work to retirement would also require that work income and pensions can be combined easily without significant financial loss. This would simplify the abolition of existing early retirement schemes and the strengthening of the eligibility criteria for granting a disability pension.

•

Limit the early retirement scheme. The government should try to abolish the early retirement scheme (AFP). However, this may be problematic since it is based on agreements between the social partners. Nevertheless, the system is subsidised with state funds and these should be eliminated. At the very least, actuarial neutrality in the AFP scheme should be introduced when calculating old-age pension entitlements. Moreover, entitlements and conditions should be the same for private and public sector employees.

•

Reduce rigidity in occupational pensions. In addition to reforming the public pension system, rules for making occupational pensions less rigid and less dependent on the public pension scheme should be considered. Introducing new general rules for occupational pensions, such as defined contributions-based schemes, to make pension rights portable between the public and the private sectors would increase the mobility of workers (including older workers) and increase employability and possibly reduce the outflow from the labour market.

•

Separate disability benefits from old-age pensions. The disability pensions system should be fully separated from the old-age pension scheme and instead be integrated with the sickness insurance. This would make it easier to have a clearer link between medical assessments and disability pensions while at the same time, signalling that disability pensions should not be used as an early retirement scheme.

•

Reduce the number of recipients on long-term sickness benefits. The number of sick days is almost twice as large for older workers compared to prime-age workers. In general, sickness benefits are not only easier to access but are also higher than disability benefits. To reduce the number of recipients, a system of checks and monitoring AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004


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should be introduced and benefits could be made less generous, e.g. by introducing a waiting period and by lowering benefits after, for example, a three or six-month sickness period. •

Review eligibility rules in the state sector for the older unemployed. Employees in the state sector can use a special long-duration unemployment benefit. This benefit is available to persons being laid off because of downsizing and can last from the age of 55 to the official pension age if no other job is available. In practice, this means that state sector workers becoming unemployed at the age of 55 can keep their benefits until retirement, i.e. up to the age of 67. This very generous rule should be re-considered as a matter of urgency and older workers being laid off from the state sector should be subject to the same eligibility conditions as those laid off from the private sector.

•

Renegotiate the agreement on a more inclusive workplace after 2005 and introduce objective goals. Measures like this often take time to implement and positive outcomes could easily be delayed. However, to reverse negative long-term trends (i.e. to influence attitudes, behaviour and overall hiring practices of firms) it is important that these programmes run over a relatively long period. Therefore, the agreement should be prolonged after 2005 but this should be subject to a renegotiation of the agreement to incorporate reforms to the sickness insurance scheme, as suggested above. Moreover, measurable goals that are easy to follow up and evaluate should be introduced as part of any renegotiation.

•

Raise average hours worked. Raising working hours will not prevent economic dependency ratios from rising. However, it would boost output and help to alleviate the effects of labour shortages or general cut backs in welfare systems in the future. A non-negligible number of part-timers want to increase their hours of work. Thus, apart from high absence rates due to sickness, the quite large share of involuntary part-time workers indicates that there is scope to increase the very low hours of work in Norway.

•

Review immigration policies. Present and future labour shortages, for example in teaching and health-care, could be eased by increasing immigration of persons of working age. To this end, it would be desirable to foster debate in Norway over the potential role of immigration in helping alleviate the challenges of population ageing, and what changes might be needed to existing immigration policies.


RÉSUMÉ ET PRINCIPALES RECOMMANDATIONS

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Les défis de la Norvège Comme la plupart des autres pays de l’OCDE, la Norvège doit faire face à une série de défis socio-économiques résultant du vieillissement rapide de sa population. D’ici à 2050, on prévoit que près d’un habitant sur quatre aura plus de 65 ans, contre un sur sept en 2000. Par suite de la baisse tendancielle des taux de fécondité, la population active norvégienne augmentera probablement beaucoup plus lentement que par le passé. La baisse des taux de fécondité jointe à l’allongement de l’espérance de vie signifiera également qu’il faudra financer les dépenses croissantes de pensions par les impôts acquittés par des actifs moins nombreux que les retraités. Sur la base des taux d’activité actuels, le rapport entre actifs et “retraités” (c’est-à-dire toutes les personnes de plus de 50 ans qui ne font pas partie de la population active) devrait baisser, tombant de près de 3 pour 1 en 2000 à un peu plus de 1.7 pour 1 en 2050. Par conséquent, au cours des prochaines décennies, la Norvège risque d’être confrontée à un ralentissement de sa croissance économique, à de graves pénuries de main-d’œuvre et à une hausse de ses taux d’imposition. Néanmoins, à certains égards la Norvège est mieux placée que beaucoup d’autres pays de l’OCDE pour faire face au vieillissement de la population. En premier lieu, son vieillissement démographique au cours des cinquante prochaines années devrait progresser moins rapidement qu’en moyenne pour l’ensemble des pays de l’OCDE. Par conséquent, bien que les ratios de dépendance démographique de la Norvège soient relativement élevés actuellement, on prévoit qu’ils se rapprocheront de la moyenne de l’OCDE d’ici à 2050 et qu’ils tomberont à des niveaux nettement inférieurs à la moyenne de l’UE. En second lieu, la situation des travailleurs âgés sur le marché du travail norvégien est généralement meilleure qu’elle ne l’est dans de nombreux autres pays de l’OCDE. La Norvège se place au deuxième rang


22 – RÉSUMÉ ET PRINCIPALES RECOMMANDATIONS

des pays de l’OCDE pour le rapport emploi-population des personnes âgées de 50 à 64 ans (74.1 %) et environ un tiers des personnes âgées de 64 à 74 ans sont toujours pourvues d’un emploi. En 2002, le taux de chômage global en Norvège s’établissait à 3.9 % et pour les travailleurs âgés il était encore plus faible, de l’ordre de 1.4 %. Enfin, et surtout, la Norvège tire des revenus considérables de son pétrole et elle possède d’importants avoirs financiers, accumulés pour l’essentiel dans le Fonds pétrolier du gouvernement. Des besoins croissants en main-d’œuvre Cependant, la Norvège ne peut pas se reposer sur ses lauriers. Son taux global d’activité étant élevé, elle ne peut pas aisément faire face aux pénuries actuelles et futures de main-d’œuvre par un recours accru à l’activité des femmes ou au maintien des travailleurs âgés dans la vie active. Par conséquent, le risque de goulots d’étranglement dans l’économie est plus grand que dans la plupart des autres pays de l’OCDE. La faible durée annuelle du travail et le nombre important d’arrêts de travail pour maladie pèsent sur l’offre effective de travail Un domaine où il serait possible de stimuler l’offre effective de travail est celui de la durée moyenne du travail des travailleurs norvégiens. La durée annuelle effective moyenne du travail par actif occupé de la Norvège est nettement inférieure à celle de la plupart des autres pays de l’OCDE et son évolution continue d’être négative. Par conséquent l’augmentation de la durée moyenne annuelle du travail pourrait permettre de faire face aux difficultés résultant du vieillissement démographique dans les décennies à venir, mais elle contribuerait aussi à atténuer les pénuries de main-d’œuvre, surtout dans le secteur de la santé où il existe de nombreux emplois à temps partiel. Le taux élevé des arrêts de travail pour maladie est l’un des facteurs expliquant la faible durée du travail, en particulier pour les travailleurs âgés. Comme en Suède, ce taux s’est envolé ces dernières années. En moyenne, en 2002 chaque actif a pris 25 jours de congé pour maladie. Le régime d’assurance maladie est très généreux et il rembourse 100 % du salaire sans aucun délai de carence. L’employeur verse des indemnités pour les 16 premiers jours de l’arrêt de travail pour maladie, et le régime national d’assurance prend le relais pour une période d’un an maximum.



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Des régimes d’invalidité et de retraite anticipée généreux et facilement accessibles En principe, les pensions de retraite sont versées à l’âge de 67 ans, mais il existe des moyens de cesser de travailler avant cet âge. La majorité de ceux qui quittent le marché du travail avant l’âge légal de la retraite le font par le biais soit du régime de pensions d’invalidité, soit du système de retraite anticipée (AFP). Dans le calcul des années de service ouvrant droit à pension et des points de retraite, ces deux prestations sont prises en compte comme si l’intéressé prenait sa retraite à 67 ans. Par conséquent, une personne qui touche une pension d’invalidité à taux plein ou une préretraite recevra la même pension qu’une personne qui part en retraite à 67 ans. De plus, tous les titulaires d’une pension bénéficient d’un taux d’imposition réduit, puisqu’ils ne versent qu’une partie de la cotisation de sécurité sociale. Un travailleur admis à bénéficier de la préretraite ou qui a obtenu une pension d’invalidité n’est donc pas très incité à continuer à travailler. La proportion de Norvégiens qui reçoivent des prestations d’invalidité est elle aussi très élevée comparativement à celle de la plupart des autres pays de l’OCDE. Près de 10 % de la population d’âge actif sont atteints d’une invalidité reconnue. En outre, près d’un quart des personnes âgées de 55 à 59 ans et près d’un tiers de celles âgées de 60 à 66 ans bénéficient de prestations d’invalidité. Ces taux relativement élevés peuvent s’expliquer, du moins en partie, par divers facteurs comme des critères médicaux laxistes et l’absence d’autres voies permettant de sortir du marché du travail. L’alternative à la pension d’invalidité est la préretraite (AFP). Ce système repose sur des accords conclus par les partenaires sociaux couvrant environ 60 % de l’ensemble des salariés. Lorsque ce système a été introduit en janvier 1989, l’âge minimum d’accès à la préretraite a été fixé à 66 ans. Pendant les années 1990, l’âge minimum a été progressivement abaissé et depuis 1998 il est de 62 ans. Le salarié décide s’il ou elle souhaite bénéficier de cette option. On peut donc considérer, en pratique, le système de préretraite comme une extension du régime normal de pension de retraite pour les personnes âgées de 62 à 66 ans et actuellement environ 20 % d’entre elles sont en préretraite grâce à ce dispositif. Dans le secteur privé, les employeurs financent l’intégralité des prestations pour les salariés de 62 à 64 ans – tandis que l’État prend en charge ensuite 40 % de la prestation jusqu’à l’âge de 67 ans. En ce qui concerne les employeurs publics et municipaux, les coûts sont pleinement intégrés dans leurs budgets respectifs.



Le régime de pension de retraite manque de souplesse Le système norvégien de retraite publique est un régime à prestations définies et il est entièrement intégré dans le budget de l’État. En raison des changements démographiques et du fait que le système arrive à maturité, les dépenses devraient augmenter, passant de 7 % à 18 % du PIB d’ici à 2050 (pensions d’invalidité incluses). Ce système est assez rigide et il n’offre aucune possibilité de passer souplement du travail à la retraite ou, plus généralement, de cesser de travailler avant l’âge de 67 ans, sauf pour certaines professions spécifiques ou par le biais des deux systèmes évoqués plus haut. En outre, alors que tous les salariés de l’État et des municipalités sont couverts par un régime de pension professionnel, seulement 30 % des salariés du secteur privé sont couverts par un tel régime. Étant donné que les droits à pension ne peuvent être transférés qu’à l’intérieur du secteur public et du secteur privé, mais pas de l’un à l’autre, la mobilité entre secteur privé et secteur public est très faible. Mesures visant à améliorer les perspectives d’emploi des travailleurs âgés et à faire face à la situation démographique Bien que les perspectives des travailleurs âgés sur le marché du travail norvégien semblent moins défavorables que dans la plupart des autres pays de l’OCDE, le gouvernement et les partenaires sociaux ont introduit, ou se proposent d’introduire, un certain nombre de mesures visant à améliorer leurs perspectives. Réformer le système de pension de retraite Le gouvernement norvégien a décidé, en mars 2001, de créer une commission des pensions ayant pour mission d’arrêter les principaux objectifs et principes régissant un nouveau système de pension qui soit en mesure de relever les défis du vieillissement de la population. Cette commission se composait de représentants des partis politiques au parlement, d’experts indépendants et d’un conseil regroupant les principaux partenaires sociaux. Dans le rapport final présenté le 13 janvier 2004, la commission a recommandé de moderniser le régime de pensions afin de mieux affirmer le lien entre les revenus du travail et les droits à pension. Elle a également suggéré d’introduire un dispositif de retraite flexible à partir de 62 ans n’imposant aucune restriction au cumul des



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revenus du travail et des prestations de pension, un ajustement des droits à pension en fonction de l’espérance de vie à 67 ans et l’ajustement des pensions aux salaires moyens et aux variations des prix. De plus, la commission a recommandé que le nouveau système de pension s’applique pleinement aux personnes nées en 1965 ou après cette date. Celles nées entre 1951 et 1964 devraient être couvertes en partie par le nouveau système et par l’ancien système, tandis que celles nées avant 1951 ne seront pas touchées par la réforme. Les propositions de la commission des pensions feront l’objet d’une consultation publique après leur diffusion et le gouvernement soumettra alors un rapport au parlement. Le parlement déterminera ensuite les principaux principes de la réforme. Quelles que soient les réformes qui seront arrêtées, celles-ci n’entreront pas en vigueur avant 2010 car il sera nécessaire de promulguer une nouvelle législation ainsi que de mettre en place des structures et systèmes administratifs nouveaux. Réformer le système des pensions d’invalidité De nombreuses personnes actuellement en arrêt de travail pour longue maladie seront basculées sur le système des pensions d’invalidité. Par conséquent, en raison de la forte augmentation du nombre de personnes en congé de longue maladie, il faut s’attendre à ce que la proportion déjà importante de titulaires de pensions d’invalidité augmente fortement dans un proche avenir. Un autre problème corrélé au système actuel de pensions d’invalidité est que le nombre de titulaires d’une pension qui reprennent un emploi est négligeable. Afin de réduire l’accès aux prestations d’invalidité permanentes, un système de prestations d’invalidité temporaires sera introduit à compter du 1er janvier 2004. Cette prestation sera accordée pour une période de un à quatre ans, qui pourra être prolongée une fois par la suite. De plus, la pension d’invalidité permanente ne sera accordée qu’aux personnes qui après évaluation ont été jugées comme présentant une incapacité totale au travail. Introduire plus d’inclusion au lieu de travail Le gouvernement et les partenaires sociaux ont déployé des efforts considérables pour encourager les personnes bénéficiant des différentes mesures dans des situations de non-emploi, comme les pensions d’invalidité, la préretraite (AFP) et les indemnités maladie, à reprendre un travail ou, au moins, à effectuer certains travaux. Au terme de ce processus, le gouvernement et les partenaires sociaux ont conclu, en octobre 2001, un AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004


accord en vue de parvenir à une meilleure inclusion au lieu de travail, dans l’intérêt des individus, des employeurs et de la société. Cet accord expirera le 31 décembre 2005 et fixe trois objectifs : • • •

une réduction du nombre d’arrêts de travail pour maladie d’au moins 20 % d’ici à 2005 ; une augmentation de la participation au marché du travail des personnes handicapées ; et une augmentation des taux d’activité des personnes âgées (autrement dit, un relèvement de l’âge effectif de départ à la retraite).

Il s’agit d’atteindre ces objectifs par le biais d’accords volontaires conclus à l’échelon des entreprises entre les employeurs et le régime national d’assurance. Les mesures qui seront mises en œuvre à cette fin sont entre autres : l’élargissement des possibilités d’accès aux services de soins de santé et à la rééducation ; la réduction de 4 points de pourcentage des cotisations de sécurité sociale des employeurs pour les travailleurs âgés de 62 ans ou plus; l’augmentation des subventions salariales accordées aux entreprises qui emploient des personnes handicapées; et l’octroi d’aides spéciales pour adapter le lieu de travail aux besoins des personnes handicapées. L’évaluation des résultats obtenus grâce à l’accord, qui a été faite au milieu de 2003, indique que le nombre d’arrêts de travail pour maladie a diminué dans les entreprises qui y ont adhéré. L’accord fera également l’objet d’une évaluation finale fin 2005. Étant donné que le premier objectif de l’accord est le seul qui soit exprimé en termes quantitatifs, le gouvernement s’efforce actuellement de formuler les deux autres objectifs en termes similaires. A ce jour, environ 85 % des syndicats et des organisations d’employeurs ont signé l’accord. Au niveau des entreprises, sa couverture est passée de 25 % de l’ensemble des salariés fin 2002 à environ 48 % en novembre 2003 et les parties concernées estiment qu’elle va encore augmenter. La finalité de l’accord étant de promouvoir une meilleure utilisation sur le lieu de travail des ressources et des compétences que possèdent les travailleurs âgés, le gouvernement a lancé une Initiative nationale en faveur des travailleurs seniors et il a confié la responsabilité de sa coordination à une ONG, le Centre pour les politiques en faveur des seniors. Le Centre a mis au point un plan national en coopération avec les partenaires sociaux afin de sensibiliser les individus, les entreprises et les hommes politiques aux avantages du recrutement et du maintien dans l’emploi des travailleurs de plus de 45 ans. En outre, le Centre organise aussi des conférences pour des cadres, AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004


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des représentants des syndicats et des travailleurs âgés à différents niveaux hiérarchiques. Il mène également des campagnes d’information, créant des réseaux de gestion des ressources humaines, produisant des manuels et d’autres documents traitant de la mise en place d’une politique en faveur des seniors dans l’entreprise. Le gouvernement fournira un soutien financier annuel à ce plan national pour la période 2001-2005. Réformer les systèmes d’éducation et de formation Pour mieux faire face aux pénuries de main-d’œuvre et répondre à la demande croissante de qualifications des employeurs, la Norvège a aussi réformé ses systèmes d’éducation et de formation dans le but de relever les niveaux de compétences en général. Quelques-unes des mesures qui ont déjà été prises sont les suivantes : i) la reconnaissance légale du droit d’accès des adultes à l’enseignement supérieur sur la base de qualifications obtenues en dehors du système formel ; ii) la reconnaissance légale du droit des salariés de prendre un congé d’étude de trois ans ; et iii) le financement de projets communs entre les entreprises et les prestataires de services éducatifs afin de planifier de façon systématique l’acquisition des compétences. Rendre la recherche d’un emploi plus efficace et supprimer les barrières au recrutement de travailleurs âgés Afin de réduire le nombre de chômeurs de longue durée ou d’éviter aux chômeurs actuels le risque de tomber dans le chômage longue durée, le service public de l’emploi accorde des subventions salariales à certains groupes, par exemple les immigrants, les personnes de plus de 60 ans, les personnes handicapées et les jeunes. Le but de cette mesure est d’inciter les employeurs à recruter ces personnes pour occuper des emplois ordinaires avec une rémunération et dans des conditions de travail normales. Cette subvention représente 50 % du salaire pour une période maximum de 18 mois. Aucune évaluation rigoureuse n’a été faite pour déterminer l’efficacité de ces subventions sur le marché du travail, mais une enquête auprès des participants a révélé que 40 % dans le groupe des personnes âgées de 60 ans et plus estimaient que c’était en grande partie grâce à la subvention qu’ils avaient obtenu leur emploi du moment. Pour l’instant, la Norvège n’a pas adopté de loi interdisant la discrimination par l’âge. Le gouvernement a cependant décidé d’adopter les



dispositions correspondantes de la Directive 2000/78/CE de l’UE sur l’égalité de traitement dans l’emploi et les professions, conformément au calendrier de l’Union européenne. Améliorer les incitations à continuer à exercer une activité pour les travailleurs âgés Il existe une autre mesure générale qui intéresse l’ensemble des salariés sur le marché du travail à partir de l’âge de 60 ans, à savoir le droit à une semaine de vacances supplémentaire par an. Cette mesure est un moyen de réduire le stress lié à la vie professionnelle pour les personnes âgées et, associée aux horaires flexibles ou au crédit-temps, elle offre aux travailleurs âgés plus de possibilités de récupérer en prenant des vacances plus longues ou en travaillant ensuite pendant des périodes plus courtes. Les négociations salariales de 2002 dans le secteur public ont porté en partie sur les moyens permettant de retenir les travailleurs âgés plus longtemps dans la vie active. Le résultat concret a été l’octroi aux salariés âgés de 62 ans et plus d’une journée de congé supplémentaire par mois avec un salaire inchangé ou une augmentation de 10 % de leur salaire brut s’ils acceptent de différer leur départ en retraite. Cet avantage s’ajoute à la semaine supplémentaire de congé à laquelle toutes les personnes de plus de 60 ans ont déjà droit. Il est trop tôt, pour le moment, pour évaluer l’efficacité de cette mesure. Domaines où une réforme plus poussée est nécessaire La Norvège a adopté un grand nombre de mesures importantes pour faire face à l’évolution future de la situation. Ces efforts et ces initiatives doivent certes être reconnus, mais il reste une certaine marge d’action pour améliorer encore les perspectives d’emploi des travailleurs âgés. En bref, il est nécessaire de mettre en oeuvre une stratégie de réforme globale pour améliorer les perspectives d’emploi des travailleurs âgés. Celle-ci devrait englober non seulement les mesures destinées à renforcer les incitations au travail faisant déjà partie intégrante du système de protection sociale, mais aussi des mesures visant à agir sur la demande. Les recommandations d’action ci-après pourraient donc constituer les éléments de cette stratégie :



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•

Renforcer le lien entre les cotisations et les droits à pension. Dans le cadre de la réforme du régime public des pensions de retraite, il serait très souhaitable de corréler plus étroitement les revenus avec les droits à pension. Il serait possible de le faire en remplaçant l’ancien système par un système basé sur des cotisations fixes (complété par un filet de sécurité), qui inciterait davantage à rester plus longtemps dans la vie active. Parallèlement, les dépenses publiques seraient réduites et l’on instaurerait une plus grande équité entre les individus.

•

Introduire plus de flexibilité dans la décision de partir à la retraite. Il conviendrait de rendre plus flexible le système de pensions de retraite. Pour augmenter la flexibilité, on pourrait abolir l’âge officiel de départ à la retraite et appliquer des méthodes actuarielles pour calculer les droits à pension. Pour que le passage de l’emploi à la retraite se fasse souplement, il faudrait aussi que les revenus du travail et les pensions puissent être cumulés aisément sans que l’intéressé subisse de pertes financières importantes. Il serait plus simple ainsi de supprimer les dispositifs de préretraite existants et de durcir les critères d’admissibilité à une pension d’invalidité.

•

Limiter le dispositif de préretraite. Le gouvernement devrait s’efforcer de supprimer le dispositif de préretraite (AFP). Une telle solution risque cependant d’être difficile à appliquer, car le système repose sur des accords conclus par les partenaires sociaux. Il est néanmoins financé à l’aide de fonds publics et ce financement devrait être éliminé. La moindre des choses à faire serait d’introduire une neutralité actuarielle dans le dispositif au moment du calcul des droits à la pension de retraite. En outre, les droits et les conditions devraient être les mêmes pour les salariés du secteur privé et ceux du secteur public.

•

Réduire la rigidité des régimes professionnels de retraite. Parallèlement à la réforme du régime de retraite public, il conviendrait d’envisager d’adopter des dispositions qui assouplissent les régimes professionnels de retraite et les rendent moins tributaires du régime de retraite public. L’introduction de nouvelles dispositions générales concernant les régimes professionnels de retraite, par exemple des dispositifs à cotisations fixes, destinées à permettre le transfert des droits à pension entre le secteur public et le secteur



privé auraient pour effet d’accroître la mobilité des travailleurs (y compris des travailleurs âgés), d’accroître leurs chances de trouver un emploi et éventuellement de réduire les sorties du marché du travail. •

Dissocier les prestations d’invalidité des pensions de retraite. Le régime des pensions d’invalidité devrait être entièrement dissocié du régime de pensions de retraite et rattaché au régime d’assurance maladie. Il serait ainsi plus aisé de corréler plus clairement les évaluations médicales et les pensions d’invalidité, tout en faisant passer le message que les pensions d’invalidité ne doivent pas servir de voie d’accès à la préretraite.

•

Réduire le nombre de bénéficiaires des prestations d’assurance maladie de longue durée. Le nombre de jours d’arrêts de travail pour maladie pris par les travailleurs âgés est pratiquement le double de celui des travailleurs d’âge très actif. En règle générale, les prestations maladie ne sont pas seulement plus faciles à obtenir, mais aussi plus élevées que les prestations d’invalidité. Pour réduire le nombre de bénéficiaires, un système de contrôles et de suivi devrait être mis en place et le montant généreux des prestations pourrait être réduit, par exemple en introduisant un délai de carence et en diminuant le montant des prestations au bout, par exemple, d’un congé maladie de trois ou six mois.

•

Revoir les conditions d’attribution de certaines prestations du secteur public aux chômeurs âgés. Les salariés du secteur public peuvent prétendre à une indemnité spéciale de chômage de longue durée. Cette prestation est accordée aux personnes licenciées à la suite d’une réduction d’effectifs et elle peut leur être versée dès l’âge de 55 ans, jusqu’à l’âge légal de la retraite si elles ne trouvent aucun autre emploi. Dans la pratique, cela signifie que les travailleurs du secteur public qui se retrouvent au chômage à l’âge de 55 ans peuvent toucher leurs indemnités jusqu’à leur départ en retraite, autrement dit, jusqu’à 67 ans. Cette disposition très généreuse devrait être revue de toute urgence et les conditions d’attribution de ces prestations devraient être les mêmes pour les travailleurs âgés licenciés dans le secteur public prestations et ceux licenciés dans le secteur privé.



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•

Renégocier l’accord sur l’amélioration de l’inclusion au lieu de travail après 2005 et définir des objectifs quantifiés. Des mesures de cet ordre sont longues à mettre en oeuvre et peuvent aisément tarder à donner des résultats positifs. Cependant, pour inverser à long terme ces évolutions négatives (autrement dit pour influencer les attitudes, le comportement et les pratiques de recrutement en général des entreprises), il est important que ces programmes soient exécutés sur une période relativement longue. Par conséquent, l’accord devrait être prorogé après 2005, mais cela devrait se faire dans le cadre d’une renégociation de l’accord qui permette d’y incorporer les réformes du régime d’assurance maladie, comme il a été suggéré plus haut. En outre, des objectifs mesurables dont le suivi et l’évaluation sont faciles devraient être introduits dans le cadre de toute renégociation.

•

Augmenter la durée moyenne du travail. L’augmentation de la durée du travail n’empêchera pas les taux de dépendance économique d’augmenter. Toutefois, elle stimulera la production et contribuera à atténuer les effets des pénuries de main-d’œuvre ou des réductions générales des prestations dans les régimes de protection sociale à l’avenir. Un nombre non négligeable de personnes travaillant à temps partiel souhaitent allonger leur durée de travail. Par conséquent, si l’on fait exception du nombre élevé d’arrêts de travail pour maladie, la proportion assez importante de personnes qui travaillent involontairement à temps partiel montre qu’il existe des possibilités d’augmenter la durée très faible du travail en Norvège.

•

Revoir les politiques d’immigration. Il serait possible d’atténuer les pénuries actuelles et futures de main-d’œuvre, par exemple dans les secteurs de l’enseignement et de la santé, en augmentant les flux d’immigration de personnes d’âge actif. Il serait souhaitable, à cette fin, d’encourager l’ouverture d’un débat en Norvège sur le rôle que l’immigration peut jouer en aidant à relever les défis du vieillissement démographique et les changements qu’il faudrait peut-être apporter aux politiques d’immigration en vigueur.


INTRODUCTION

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INTRODUCTION

The Norwegian population will age rapidly over the next 50 years. The proportion of those 65 years or older is projected to increase from around 15% of the population in 2000 to 24% by 2050. At the same time, labour force growth will slow considerably. Thus, population ageing will generate increased pressures on public expenditures that are already high and bring about labour shortages, which could create bottlenecks and a slow-down in economic activity. Although employment rates for older people are relatively high in Norway, faced with the pressures of population ageing, older workers should be given better incentives to continue working in terms of pension entitlements, suitable training opportunities and improved working conditions. It is of utmost importance that labour force participation rates remain high and that older workers are retained longer in employment. The main purpose of this report is to reflect on the different avenues for reform that will need to be pursued in order to meet this objective. Chapter 1 provides the background to the report by setting out the challenges ahead. It highlights the importance of improving the employment prospects of older workers as the key to meeting the ageing challenge. Chapter 2 discusses the current labour market situation for older workers in terms of their employment and unemployment situation, but also in terms of absenteeism and people outside the regular labour market. Chapter 3 discusses the role of supply-side factors in influencing the participation rates of older people and how incentives to work are affected by benefit levels and eligibility criteria in the welfare system. But removing supply-side barriers to employment is not enough. Actions on the demand-side are also needed. Thus, Chapter 4 examines those factors which negatively affect the attitudes of employers towards older workers. Chapter 5 looks at barriers that workers themselves face to gaining access to better jobs and to remaining in these jobs longer. Finally, Chapter 6 examines the possibilities to raise the overall employment rate in the future, emphasising the importance of introducing a broad range of reforms. It also examines the importance of co-operation between government bodies, social partners and individuals. AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004

CHAPTER 1. THE CHALLENGE AHEAD

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Chapter 1 THE CHALLENGE AHEAD

1.

The demographic challenge

The Norwegian population is ageing as a result of declining fertility rates and rising life expectancy. The total fertility rate has fallen from almost three in the beginning of 1960s to 1.85 in 2000, but in contrast to the development in most other OECD countries, it has increased since a low point in the mid-1980s. Fertility rates are projected to stabilise at 1.80 over the coming decades – the fifth highest level in OECD (Figure 1.1). Figure 1.1.

a

Life expectancy at birth and total fertility rates in Norway, 1960-2050 Life expectancy women

Life expectancy men

Fertility rate

90

3.2 3

85

80 2.6 75

2.4 2.2

70 2 65 1.8 60 1960

1970

1980

1990

2000

2010

2020

2030

2040

Source: Statistics Norway, population projections 2001–2050 (baseline projections).


1.6 2050

Fertility rate

Life expectancy at birth

2.8

36 – CHAPTER 1: THE CHALLENGE AHEAD Starting from one of the highest levels in OECD, life expectancy has continued to rise during the past decades. In 2000, life expectancy at birth was 76.0 years for men and 81.4 years for women, giving Norway the seventh highest life expectancy rate in the OECD area. By 2050, life expectancy is projected to further increase to 84.2 years for men and to 88.1 years for women. Changes in fertility rates, improvements in life expectancy and changing immigration policy shape the outlook for population growth. A broad indicator of the rising economic burden that an older society may place on the workingage population is given by the old-age dependency ratio, i.e. the ratio of the population aged 65 and over to the population aged 20 to 64.1 An examination of the old-age dependency ratio reveals that, despite recent stability, the ratio for Norway is set to increase from its current level of 26% to 45% in 2050 (Figure 1.2). For the OECD area and the European Union, these ratios will more than double during the next 50 years, reaching 46% and 53%, respectively. Thus, while the old-age dependency ratio in Norway is relatively high currently, it is projected to converge to the OECD average by 2050 and to levels well below the average for the EU. The old-age dependency ratio tells only one part of the story. The total dependency ratio defined as the ratio of people below 20 years and above 64 to the working-age population (20-64), takes also the number of children into account. In Norway, the number of children is expected to be very stable during the next five decades, thus the increase in the total dependency ratio will be smaller than the increase in the old-age dependency ratio. In fact, the total dependency ratio in Norway will only rise from 70% in 2000 to 86% in 2050.2 This increase is also less dramatic than that projected for the OECD and EU averages.

1.

The old-age and total dependency ratios are conventionally defined with respect to the population aged 15 to 64. However, in most OECD countries, the large majority of teenagers aged 15 to 19 are still in school and so it was decided to exclude this group from the denominator.

2.

Both the old-age dependency ratio and the total dependency ratio are quite stable with respect to different assumptions concerning future trends in mortality, fertility and immigration. In fact, according to the three main variants of the population projections by Statistics Norway (high, medium and low), the old-age dependency ratio in 2050 varies from 44.3% to 46.7% and the total dependency ratio varies from 80.1% to 91.7%. AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004


Figure 1.2.

– 37

Demographic dependency ratios, 2000-2050 Percentages

80

120

A. Old age dependency ratioa

B. Total dependency ratiob

Japan 70

110

Czech Rep. 60

100

Japan

Mexico

EU

50

90

OECD Norway Sweden Sweden EU Norway US OECD

40

30

Sweden EU Norway

20

US Sweden

80

EU US OECD Norway Sweden

US

Turkey

OECD US

70

Sweden US Norway OECD EU

60

Norway OECD EU

Turkey

Turkey

Korea Turkey 10

0 1975

50

Mexico

2000

2025

2050

40 1975

2000

2025

2050

a) Ratio of the population aged 65 and over to the population aged 20-64. b) Ratio of the sum of the population aged less than 20 and the population aged more than 65 to the population aged 20-64. Source: National projections; EUROSTAT Population Projections (1999 revision); and UN, World Population Prospects 1950-2050 (the 2000 Revision).

Altogether, the population in Norway is projected to grow from the present level of 4.5 million people to 5.6 million by 2050. However, much of this growth will be skewed towards the older age groups (Figure 1.3), and is thus likely to put upward pressure on public spending in terms of pensions, healthcare, etc. In fact, almost three-quarters of the population growth will take place in the age group 60 and over. Thus, in 2050, there is likely to be almost twice as many people above the age of 60 as there are today but only 5% more in the age group 20-49. Consequently, if the participation rate from the labour market continues to fall, growth in Norway’s labour force could possibly stagnate over the course of the next half-century.


38 – CHAPTER 1: THE CHALLENGE AHEAD Figure 1.3.

Projected population growth in Norway by age group, a 2000-2050 Index, population in 2000 = 100 0-19

20-49

50-66

67+

210 200 190 180 170 160 150 140 130 120 110 100 90 2000

2005

2010

2015

2020

2025

2030

2035

2040

2045

2050

a) The projections are based on the Norwegian medium population projection scenario. This assumes an increasing life expectancy, fertility rates of 1.8 and an annual net immigration of 13 000 from 2004 to 2050 (i.e. as the average over the period 1990-2001). Source: Statistics Norway, Population Projections for Norway, 2002-2050.

2.

Potential economic and social impacts

The ageing of Norway’s population is likely to have serious economic and social repercussions. On the basis of current rates of labour force participation, the ratio of workers to “retirees” (i.e. all persons aged 50 and over who are not in the labour force) is projected to decline from almost 3 to 1 in 2000 to just over 1.7 to 1 in 2050. This might exacerbate intergenerational tensions if the younger working generation is required to finance the large growing cohort of retirees through higher savings, increased taxes or higher contributions. These tensions will be intensified if individuals choose to retire earlier. A key factor in meeting these challenges will be the extent to which Norway’s potential labour supply can be fully mobilised, especially with respect to older people. The future size of the Norwegian labour force will depend not only on demographic changes but also on changes in participation rates. To what extent AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004


– 39

could slower labour force growth in Norway as a result of population ageing be offset by increased labour market participation? To depict the effects different participation rates could have on labour force growth during the next five decades, three different scenarios are used (Figure 1.4): •

First, in the “constant” or baseline scenario, participation rates by age and gender are assumed to remain constant at their 2000 levels. Accordingly, growth in Norway’s labour force is projected to slow and subsequently will be stagnant over the period 2025-2040 before rising again after 2040. By 2050, the labour force is projected to be around 2.67 million, i.e. about 320 000 higher than in 2000.

•

In the second or “minimum” scenario, participation rates for the older population are assumed to converge over the period 2000-2030 to the lower OECD average levels of 2000 and remain constant thereafter. This allows for the possibility that more workers in the future will choose to retire at an earlier age than currently. In this case, labour force growth starts to slow more rapidly and stays at a lower level. However, the labour force will still increase – although only by 170 000 people – to around 2.52 million in 2050.

•

Finally, in the “maximum” scenario, participation rates by age and gender are assumed to converge over the period 2000-2030 to the corresponding maximum rate observed across OECD countries in 2000 and remain constant thereafter.3 For Norway, this means a particularly steep increase in participation rates for men in all age groups, but especially so for the group aged 65-69. Under this scenario, the labour force will continue to grow at a similar pace as for the period 1990-2000 for the next three decades. Thereafter, it will slow somewhat to reach around 3.09 million in 2050 (an increase of 740 000).

Clearly, marked increases in participation rates would lead to much stronger labour force growth, thereby helping to meet some of the challenges posed by population ageing.

3.

Excluding Iceland, Luxembourg and Mexico.


40 – CHAPTER 1: THE CHALLENGE AHEAD Figure 1.4. Historical

a

Labour force growth in Norway, 1950-2050 Millions, projections after 2000 Constant

Minimum

Maximum

3.1 2.9 2.7 2.5 2.3 2.1 1.9 1.7

19 50 19 55 19 60 19 65 19 70 19 75 19 80 19 85 19 90 19 95 20 00 20 05 20 10 20 15 20 20 20 25 20 30 20 35 20 40 20 45 20 50

1.5

a) See text for an explanation of the different scenarios. Source: OECD estimates based on the Norwegian Labour Force Survey and Statistics Norway, Population Projections for Norway, 2002-2050 (medium variant).

Norway has already relatively high participation rates for older people. Nevertheless, the three scenarios show a wide range of possible labour force growth over the next half-century (Table 1.1). They also suggest that there is considerable scope for changes in policy and institutional settings that affect participation rates to influence the rate at which labour force growth develops over the coming decades and to limit the extent of any eventual slowdown in the labour force. In particular, they point to the importance of ensuring that a high proportion of older people continue to work. Table 1.1.

Projected growth in the Norwegian labour force a under different scenarios Average annual percentage change

Constant

Minimum

Maximum

2000-2020

0.46

0.26

0.93

2020-2050

0.12

0.06

0.30

2000-2050

0.25

0.13

0.54

a) See text for an explanation of the different scenarios. Source: OECD estimates based on the Norwegian Labour Force Survey and Statistics Norway, Population Projections for Norway: 2002-2050 (medium variant).



– 41

To see how the future potential labour force growth in Norway compares with other OECD countries, the “constant” scenario is applied to some selected countries in the OECD area (Figure 1.5). Over the next two decades, the Norwegian labour force will grow somewhat faster than the OECD average and in stark contrast to a declining labour force in the European Union. For the period 2020-2050, the Norwegian labour force will continue to record a small increase, again in contrast to a large projected decline in the EU labour force. Figure 1.5.

a

Labour force growth in OECD countries, 1950-2050 Average annual growth

1950-2000

2000-2020

2020-2050 %

-0.8

-0.6

-0.4

-0.2

0.0

Norway

0.2

0.4

0.12

Netherlands

0.6

-0.02

United Kingdom

1.4

2.0

2.2

0.65

1.65

0.63

-0.07

-0.04

1.8

0.61

0.08

0.57 0.58

-0.46

1.6

1.24

0.23

-0.18

1.2

0.86

0.46

United States

OECD

1.0

-0.05 -0.13

Sweden

EU

0.8

0.37

1.24

a) The projection of labour force growth over the period 2000-2050 assumes that participation rates by five-year age groups and gender remain constant at their 2000 level. Source: OECD estimates.

Under the “constant” scenario, the slowdown in labour force growth could result in a reduction in average annual real GDP growth by 0.40 percentage points over the next 50 years, as compared to average growth experienced over the period 1950-2000.4 Under the “declining” and “maximum” scenarios the

4.

In accounting for GDP growth, the contribution from labour force growth is often given a weight of around 0.65. The slowdown in labour growth of 0.61 percentage points – the difference in the average annual growth rate over


42 – CHAPTER 1: THE CHALLENGE AHEAD reduction in average annual real GDP growth would be around 0.47 and 0.21 percentage points, respectively. Of course, the impact of slower or negative labour force growth on overall economic growth could be offset by either a rise in total factor productivity growth and/or faster growth in capital inputs. Therefore, promoting higher rates of labour force participation among older people will play a key role in responding to the economic challenges raised by population ageing. The current labour market situation of older workers is therefore examined in more detail in the next chapter.

the period 1950-2000 (0.86%) and the projected growth rate over the period 2000-2050 (0.25%) under the “constant” scenario – means that annual average potential growth in GDP would decline by around 0.40 percentage points (0.65x0.61). AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004

CHAPTER 2. THE CURRENT LABOUR MARKET SITUATION OF OLDER WORKERS

– 43

Chapter 2 THE CURRENT LABOUR MARKET SITUATION OF OLDER WORKERS

Norway has one of the best performing labour markets in the OECD area. Between 1993 and 1998, Norway enjoyed a period of strong economic expansion that was accompanied by dramatic improvements in the overall labour market situation: employment growth was strong and the unemployment rate was cut in half to 3.2% in 1999. Since 1998, economic growth has stabilised to some extent with the unemployment rate rising to 3.9% in 2002. However, the labour market remains tight and there are concerns about containing wage inflation. Of particular concern is the emergence of labour shortages that will be exacerbated by the large groups of older persons leaving the labour market. Consequently, the purpose of this chapter is to identify those areas where action to improve the labour market outcomes of older people can help address the future challenges discussed in Chapter 1. 1.

Labour market participation

As pointed out in the previous chapter, maintaining and, if possible, increasing the current relatively high participation rates is a necessary step in addressing the challenges of population ageing. A.

Key issue I: Maintaining high participation rates

The overall labour force participation rate in Norway has increased significantly over the past three decades, rising from just under 70% in 1972 to almost 82% in 2002. Most of the increase can be explained by the dramatic rise – 26 percentage points – in female participation rates. In fact, with the exception of women aged 65-69, the participation rates of women in all age groups have significantly increased (Figure 2.1). On the other hand, male participation trends have been mixed. The participation rates of prime-age men have remained more or less stable and relatively high – never dropping below 90%. For older men the story is different. AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004

44 – CHAPTER 2. THE CURRENT LABOUR MARKET SITUATION OF OLDER WORKERS Figure 2.1.

Participation rates by gender and age in Norway, 1972-2002 Men

Women 100

100 50-54

25-49

90

90

80

80

25-49

55-59 50-54

70

70 60-64 60

60

50

50

55-59

65-69 40

40

30

30

20

20

60-64

65-69

0

0

19 72 19 74 19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02

10

19 72 19 74 19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02

10

Source: OECD Labour Force Statistics.

As a group, the participation rate of men aged 50-64 increased by 3 percentage points over the past decade – having declined more than 10 percentage points during the 1970s and 1980s. Despite some volatility, while the participation rates of men aged 50-54 and 55-59 have more or less maintained their 1972 level, the decline in the participation rate of men aged 60-64 has been steep – a drop of 20 percentage points. Consequently, in 2002 the participation rate of men aged 50-54 is more than 30 percentage points higher than that of the age group 60-64 – compared to only 11 percentage points in 1972. As well, at more than 76% in 1972, the participation rate of men aged 65-69 was relatively high – only 14 percentage points below men aged 50-54. Since then, the participation rate for the age group 65-69 has declined dramatically to only 24% in 2002 – or 65 percentage points below that of the group aged 50-54. As will be discussed in Chapter 3, the increased number of disability pensions and the introduction of the contractual early retirement scheme (AFP) appear to be the main factors behind the steep declines in the labour force participation of men aged 60-64 and 65-69. The rise in the participation rates of women aged 50-64 has been spectacular – from 46.2% in 1972 to just over 70% in 2002. However, for the age group 60-64, the increase has been less steep. Consequently, as was the case for men, the gap in participation rates between women aged 50-54 and 60-64 AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004


– 45

has grown from over 15 percentage points in 1972 to over 31 percentage points in 2002. It is also worth noting that the labour market participation of women aged 65-69 has declined by more than 10 percentage points since 1972. Figure 2.2.

Participation rates by age and gender in OECD countries, 2002 Percentages

Men aged 25-49

Men aged 50-64

ISL MEX JPN CHE LUX CZE GRC FRA AUT SVK NLD DEU PRT BEL ESP DNK GBR IRL CAN KOR ITA FIN USA NZL NOR TUR POL AUS SWE HUN

0

20 40 60 80 100

0

Women aged 25-49

20 40 60 80 100

0

0

20 40 60 80 100

20 40 60 80 100

Women aged 65-69

ISL SWE NOR FIN DNK NZL USA CHE GBR CAN JPN FRA PRT KOR AUS CZE DEU NLD IRL POL SVK AUT HUN MEX GRC ESP BEL LUX ITA TUR

TUR

20 40 60 80 100

ISL MEX KOR JPN TUR PRT USA NZL NOR IRL CHE AUS CAN DNK SWE GBR GRC POL CZE ITA NLD FIN DEU AUT ESP HUN LUX SVK FRA BEL

Women aged 50-64

ISL SWE FIN DNK SVK NOR CHE CAN AUT CZE PRT FRA POL DEU NLD GBR USA BEL NZL AUS HUN IRL LUX JPN ESP GRC ITA KOR MEX

0

Men aged 65-69

ISL JPN MEX CHE NZL SWE NOR KOR USA DNK IRL CAN GBR PRT CZE ESP AUS NLD GRC FIN DEU FRA SVK ITA AUT LUX TUR POL BEL HUN

ISL KOR JPN PRT USA MEX NOR TUR CHE NZL GBR SWE CAN AUS POL DNK IRL CZE GRC DEU NLD AUT FIN ITA ESP FRA HUN LUX BEL SVK

0

20 40 60 80 100

Source: European Labour Force Survey and national labour force surveys. AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004

46 – CHAPTER 2. THE CURRENT LABOUR MARKET SITUATION OF OLDER WORKERS In comparison to the rest of the OECD, individuals aged 50-64 in Norway fare relatively well with participation rates ranking amongst the highest in the OECD area (Figure 2.2). And in 2002, the gender gap of less than 9 percentage points in participation for the age group 50-64 is amongst the lowest in the OECD. Furthermore, the difference in participation rates in 2002 between older (50-64) and prime-age individuals (25-49) is only 11.7 and 12.3 percentage points for men and women, respectively. However, even though the participation rates of prime-age and older workers aged 50 to 64 are close to the highest rates in the OECD area, there is considerable scope to increase the participation rates of persons aged 55 and above, especially for women. 2.

Employment situation

To some extent, the employment situation of older workers is encouraging. In fact, older workers have profited from the recent economic prosperity. Since 1993, the number of jobs held by individuals aged 50 to 64 has increased by 168 000 or by 42%. Figure 2.3.

Differences in Norwegian employment rates between prime-age and older workers by gender, 1972-2002 Percentage points Men

Women

20 18 16 14 12 10 8 6 4 2

00

98

96

94

92

02 20

20

19

19

19

19

88

86

84

82

80

78

76

74

90 19

19

19

19

19

19

19

19

19

19

72

0

Source: Norwegian Labour Force Survey.



– 47

By contrast, over the same period the employment of prime-age individuals increased only 8.5% or by 109 000 jobs. Of course, the ageing process has meant a growing cohort of individuals aged 50-64 over this period – an increase of nearly 30%. But the employment rate for this age group has grown steadily over the past two years. Despite relatively high employment rates, the gap between older and prime-age workers persists though it has tended to decline recently (Figure 2.3). Between 1972 and 1987, the gap increased from less than six to almost 19 percentage points for women and from 8 to 13 percentage points for men. Since then, however, the gap has declined significantly for both men and women despite the introduction of the early retirement scheme in 1989. The gap for both men and women was 12 percentage points in 2002, the lowest difference for women since 1983. Since 1997, the gap for men has reversed its downward trend and has increased nearly 2 percentage points. A.

Current job characteristics

Future employment prospects for older persons will be influenced by the type of jobs they can attain and their workplace environment. Nearly 90% of older workers in Norway are classified as employees of whom only 3% are in temporary jobs (Table 2.1). Most of the remainder (almost 10%) are self-employed – almost double the proportion among prime-age workers. By gender, older working men are much more likely to be self-employed than older employed women. In terms of allocation by industry, older workers are under-represented in “construction”, “wholesale and retail”, “transport, storage and communication” and “financial, real estate and business services”, but overrepresented in “agriculture, hunting and fishing” and “public administration, education, health and social work”. Indeed, this latter sector accounts for over 40% of all jobs for older people and more than 60% in the case of older women. By occupation, older workers are concentrated in professional-related and, especially for women, service-oriented occupations and are over-represented in the category of legislators, managers, and senior officials – not surprising given the required experience level for such occupations. However, more than a third of older men in employment are still working in manual occupations.


48 – CHAPTER 2. THE CURRENT LABOUR MARKET SITUATION OF OLDER WORKERS Table 2.1.

Norwegian older workers by selected job characteristics, 2001 Older workers (aged 50 - 74) in each category: As a share of all employed persons in each category

All employed

Total 26.7

Men 27.3

By employment status: Self-employed Family worker Permanent employee Temporary employee

39.3 32.6 27.5 10.1

41.3 25.4 27.1 12.0

34.3 36.8 28.0 8.8

36.4

36.0

27.2 24.8 20.9 24.0 23.6

By industry: Agriculture, hunting, forestry and fishing Mining and quarrying, manufacturing, electricity, gas and water supply Construction Wholesale and retail Transport, storage and communication Financial, real estate and business services Public administration, education, health and social work By occupation: Legislators, senior officials and managers Professionals Technicians and associate professionals Clerks and related workers Service workers and sales workers Agricultural and fishery workers Craftsmen and related workers Plant and machine operators Elementary occupations

As a share of all older workers

Women Total 26.1 100.0

Men 100.0

Women 100.0

9.9 0.4 86.4 3.2

13.6 0.2 83.4 2.8

5.6 0.7 90.1 3.7

37.5

5.3

7.3

2.9

27.4 24.9 20.6 25.0 24.8

26.6 23.9 21.2 21.6 21.8

15.2 6.2 13.7 6.7 10.6

21.1 10.5 12.4 8.9 12.4

8.1 1.0 15.2 4.0 8.4

30.2

33.8

28.5

42.4

27.3

60.3

37.2 28.3 26.8 28.9 22.2 37.3 23.8 25.9 27.6

37.7 31.8 29.7 22.1 19.8 36.7 24.2 24.9 18.3

35.7 23.3 24.2 32.0 23.1 38.9 19.5 31.0 31.7

9.9 12.2 23.1 9.1 17.8 4.9 9.8 7.6 5.5

13.7 15.0 22.7 4.0 7.9 6.7 16.9 11.1 2.1

5.4 9.0 23.6 15.3 29.5 2.7 1.4 3.4 9.7


B.

Key issue II: Reversing the trend decline in hours worked

Though employment rates are relatively high and the gap between older and prime-age workers relatively low, one key issue plaguing the Norwegian labour market is the downward trend in hours worked. In the context of a tight labour market and an ageing population, this trend threatens to hamper economic growth. Since 1995, the average number of hours worked has fallen at least five hours per week for older and prime-age workers. The drop has been most severe for men and women aged 60-64 whose hours per week have dropped nearly nine hours and seven hours respectively. Consequently, in 2001, men and women aged 60-64 were working on average less than 30 hours and AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004


– 49

20 hours per week (Figure 2.4). With the exception of workers aged 60-64, the average number of hours worked amongst older workers is comparable to prime-age workers. As a larger share of women work part-time, it is not surprising to find that they work on average eight hours less per week than men. Figure 2.4.

Average actual weekly working hours in Norway by gender and age, 1995-2001 Men

Women

45

45 50-54 25-49

40

40

35

35 55-59

60-64

25-49

30

50-54

30 55-59

25

25

20

20

60-64

15

15 1995

1996

1997

1998

1999

2000

2001

1995

1996

1997

1998

1999

2000

2001


In Table 2.2, employment rates for people aged 50-64 (i.e. the proportion of the age group in employment) are shown for OECD countries both before and after an adjustment for actual hours worked per week.5 Older men in Norway work the fewest hours in OECD and Norwegian women the second lowest reported hours of work. Thus, taking actual hours worked into account reduces employment rates in Norway by more than 14 percentage points for men and by almost 26 percentage points for women, i.e. lowering employment rates from 78.3% to 67.3% and from 64% to 41.4%, respectively. Consequently, Norway’s ranking in terms of employment rates for older men changes from fourth highest to eleventh highest on an hours-adjusted basis and from third highest to seventh highest for older women.

5.

It would be preferable to make an adjustment on the basis of annual rather than weekly hours worked but the relevant data by age are not available.


50 – CHAPTER 2. THE CURRENT LABOUR MARKET SITUATION OF OLDER WORKERS Table 2.2.

Employment-population rates for persons aged 50-64 before and after a adjustment for hours worked, 2000 Unadjusted employment rates Men Women Rate Rank Rate Rank (%) (%)

Australia Austria Belgium Denmark Finland France Germany Greece Iceland Ireland Italy Japan Netherlands Norway Portugal Spain Sweden Switzerland United Kingdom United States Average

Adjusted employment rates

Rate (%)

Men Rank

Women Rate Rank (%)

Weekly hours of work Men

Women

67.6 56.3 51.5 70.3 59.1 54.7 57.7 66.0 95.8 71.1 54.4 84.1 65.5 78.3 70.8 64.9 73.7 83.6 68.6

11 17 20 9 15 18 16 12 1 7 19 2 13 4 8 14 5 3 10

46.6 32.4 27.0 60.1 57.6 42.9 39.6 29.5 82.7 34.7 23.1 54.8 38.2 67.3 48.6 25.6 70.4 59.2 52.9

11 16 18 4 7 12 13 17 1 15 20 8 14 3 10 19 2 6 9

68.6 57.6 46.9 59.6 50.8 53.4 59.0 71.3 116.7 76.5 54.0 96.1 57.6 64.0 69.0 63.9 65.5 86.7 65.6

8 15 20 13 19 18 14 6 1 5 17 2 16 11 7 12 10 3 9

33.3 27.4 18.2 41.8 42.1 33.3 29.0 27.8 69.9 24.6 19.3 49.1 19.1 41.4 40.6 21.6 52.4 37.8 33.5

11 15 20 6 5 12 13 14 1 16 18 4 19 7 8 17 2 9 10

40.6 40.9 36.4 33.9 34.4 39.0 40.9 43.2 48.7 43.0 39.7 45.7 35.2 32.7 39.0 39.4 35.5 41.5 38.2

28.6 33.8 27.0 27.8 29.2 31.0 29.4 37.7 33.8 28.3 33.4 35.8 20.0 24.6 33.5 33.7 29.8 25.5 25.3

73.7 68.4

6

59.6 47.6

5

76.8 68.0

4

52.4 35.7

3

41.7 39.5

35.2 30.2

a) The adjusted employment rate is obtained by multiplying the employment rate by actual hours worked weekly and dividing by 40. Source: OECD Labour Force Statistics and OECD database on hours of work.

Reasons for low hours of work One explanation for the relatively low hours worked is a relatively high incidence of part-time work. In fact, Norway has the ninth highest incidence of part-time work in the OECD area for both prime-age and older workers (Table 2.3). Moreover, the incidence of part-time work among older women, at over 34%, is considerably higher than that of older men, which only amounts to 6.8%.



Table 2.3.

– 51

Part-time work by age and gender, 2002 Percentage of total employment Both

Australia Austria Belgium Canada Denmark France Germany Greece Ireland Italy Japan Korea Luxembourg Mexico Netherlands New Zealand Norway Poland Portugal Slovak Repubic Spain Sweden Turkey United Kingdom United States

Men

Women

25-49

50-64

25-49

50-64

25-49

50-64

22.8 14.5 16.7 12.4 9.9 12.6 18.6 5.5 15.6 11.8 20.4 5.4 13.5 11.5 27.9 17.7 15.3 8.8 5.4 1.2 7.1 10.1 5.3 18.6 7.9

24.2 12.7 19.7 16.2 12.4 15.4 20.2 5.3 22.2 12.9 26.3 9.6 11.7 14.4 33.2 21.2 19.6 14.3 13.7 3.2 6.2 14.5 9.5 25.8 9.4

10.5 2.2 4.6 4.7 4.8 4.0 4.0 2.5 3.8 4.1 7.9 3.1 2.1 4.2 5.5 5.1 4.4 4.2 2.0 0.7 1.9 4.4 2.9 3.7 2.8

14.1 3.8 8.9 7.8 6.3 6.2 5.5 2.9 8.5 6.1 14.0 7.9 1.6 6.6 13.1 9.8 6.8 10.8 6.4 1.8 1.4 8.2 6.0 9.2 4.7

38.4 29.0 32.2 21.0 15.4 22.9 36.6 10.0 30.7 23.7 39.0 9.1 29.8 24.4 55.9 32.3 27.6 14.3 9.4 1.7 15.3 16.4 12.9 36.9 13.5

38.3 26.1 38.4 26.9 20.0 26.7 40.6 10.2 47.9 26.7 44.5 12.0 31.9 33.0 66.7 36.1 34.2 18.6 23.1 5.3 17.2 21.1 17.7 46.3 14.1

Source: OECD database on part-time work.

The other main explanation for low hours of work is absence from work (Table 2.4). In comparing older and prime-age employees, the overall incidence and reasons for working few hours are very similar. Holidays account for the largest share of reduced working time in most countries. The presence of illness and injury – albeit relatively small – also plays a role in Norway. This is true for older and prime-age employees of whom around 2% – accounting for 6% of all absence – worked fewer hours than normal due to illness or injury. For older Norwegians, this is, together with the Netherlands, the second highest rate of the countries shown in Table 2.4 after the highest rate of 3.6% is in Sweden.


52 – CHAPTER 2. THE CURRENT LABOUR MARKET SITUATION OF OLDER WORKERS Further, given the high incidence of part-time work, it is not surprising to see that the presence of variable hours is a major determinant of working time. All together, more than 31% of older employees in Norway worked less than their usual hours in the reference week with little or no gender differences, which is the fourth highest rate of absence. Table 2.4.

Employees absent from work by reason in selected OECD countries, a 2002 Percentages of total employment in each age group 25-49 Family/ Variable Other hours

Belgium Czech Republic Denmark Finland Ireland Netherlands Norway Poland Portugal Slovak Republic Spaiin Sweden Switzerland United Kingdom

1.9 0.6 0.6 1.1 0.2 1.6 1.7 0.3 0.6 0.1 0.3 2.4 2.4 1.9

0.3 0.8 8.0 10.1 0.3 2.1 4.2 1.2 0.1 0.2 0.2 8.1 1.8 17.0

Illness/ Injury 0.6 0.4 0.8 1.3 0.2 1.9 1.8 0.1 0.2 0.3 0.2 2.4 0.7 1.9

50-64 Holidays Total 17.6 12.3 16.0 22.3 10.9 19.6 22.1 6.4 16.7 14.6 13.5 24.7 10.9 12.6

20.4 14.2 25.4 34.7 11.6 25.2 29.8 7.9 17.6 15.2 14.2 37.6 15.7 33.4

Family/ Other 1.7 0.7 0.3 0.7 0.1 1.5 1.1 0.1 0.3 0.1 0.2 0.7 1.5 1.7

Variable Illness/ Holidays hours Injury 0.1 0.8 7.0 9.3 0.3 1.9 4.2 1.0 0.1 0.0 0.2 7.2 2.0 14.4

0.5 0.4 0.9 1.5 0.2 2.0 2.0 0.0 0.2 0.3 0.2 3.6 1.1 1.4

18.1 11.8 17.3 23.2 10.4 19.1 23.8 6.5 17.1 15.3 14.4 25.9 9.5 12.8

Total 20.4 13.7 25.4 34.8 11.0 24.6 31.2 7.7 17.7 15.8 15.1 37.4 14.1 30.3

a) Absence from work refers to employees whose actual weekly hours of work were less than their usual weekly hours of work. Source: European Labour Force Survey.

3.

Unemployment among older workers in Norway is low

Unemployment rates for older workers in Norway have followed a similar path to that of prime-age workers but at a lower level (Figure 2.5). A dramatic fall in oil prices in 1986 triggered higher unemployment levels and the onset of a slump in the world economy in the early 1990s exacerbated the problem with unemployment peaking in 1993. However, unemployment rates subsequently fell substantially to around 1% for older workers and 2.5% for prime-age workers. Since 1998, unemployment rates have risen slightly.



– 53

Still, unemployment rates in Norway for both older and prime-age workers remain among the lowest in the OECD area. Furthermore, while the incidence of long-term unemployment for older Norwegians is somewhat higher than for prime-age persons, it too is among the lowest in OECD. Figure 2.5.

Unemployment rates in Norway by age groups, 1987-2002 Percentages

6

25-49

5

4 50-54 3

2 60-64 1

55-59

20 02

20 01

20 00

19 99

19 98

19 97

19 96

19 95

19 94

19 93

19 92

19 91

19 90

19 89

19 88

19 87

0

Source: OECD Labour Force Statistics.

4.

Patterns of inactivity

The situation of older workers in Norway can largely be explained by the institutional framework and the incentives it creates. As discussed in the following chapter, schemes such as the early retirement pension (AFP) and the disability pension scheme effectively lower the retirement age and create a disincentive to participation among those eligible. The upshot is that very few older people are unemployed; most are inactive.


54 – CHAPTER 2. THE CURRENT LABOUR MARKET SITUATION OF OLDER WORKERS

A.

Key issue III: Reducing inactivity by strengthening work-incentives

Success in reducing inactivity will be an important element to maintaining and encouraging labour market participation. Not surprisingly, inactivity increases with age (Figure 2.6). In fact, by the age of 62 and well before the official retirement age of 67, inactivity rates for both men and women are above 40%. In particular, between the ages of 61 and 62, the inactivity rate of men jumps from 28% to just over 43%. It is also the case that at each single year of age, the inactivity rate of women is higher than for men.6 Figure 2.6.

Inactivity by single year of age in Norway, 2001

As a percentage of the population by single year of age Men

Women

100 90 80 70 60 50 40 30 20 10 0 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74


6.

The inactivity rate of women is also higher at each single year of age between 40 and 50. AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004

25-49

14.6 5.1 100.0

0.5 0.0 2.9

5.5 23.1

a

7.4 4.5 100.0

0.4 0.0 2.9

5.2 15.2

84.8 79.6

100.0

3.0 4.6

12.4 0.3 0.0 4.5

85.3 2.4

87.7

Total

0.4 3.2 100.0

0.7 18.6 9.0

3.2 31.9

68.1 64.9

100.0

0.3 1.3

21.3 0.3 5.0 14.4

77.6 1.1

78.7

Men

50-64

17.9 2.7 100.0

1.0 22.1 9.0

2.2 52.7

47.3 45.1

100.0

6.9 1.6

31.5 0.4 3.8 18.8

67.8 0.7

68.5

Women

9.2 3.0 100.0

0.9 20.3 9.0

2.7 42.3

57.7 55.0

100.0

3.6 1.5

26.4 0.4 4.4 16.6

72.7 0.9

73.6

Total

0.3 2.1 100.0

0.6 3.5 6.3

3.2 12.7

87.3 84.1

100.0

0.2 1.3

10.7 0.1 0.4 8.7

88.2 1.1

89.3

Men

Percentages

15.9 3.7 100.0

1.1 3.6 7.2

3.0 31.5

68.5 65.5

100.0

4.7 1.9

20.9 0.2 0.5 13.6

78.2 0.9

79.1

Women

50-54

8.1 2.9 100.0

0.8 3.6 6.8

3.1 22.2

77.8 74.7

100.0

2.5 1.6

15.8 0.2 0.5 11.2

83.2 1.0

84.2

Total


0.3 2.6 100.0

1.0 13.8 9.5

3.0 27.3

72.7 69.7

100.0

0.0 1.4

17.1 0.3 1.8 13.6

81.4 1.5

82.9

Men

18.8 4.4 100.0

1.3 18.1 8.7

1.6 51.3

48.7 47.1

100.0

5.7 1.6

28.8 0.3 1.3 19.9

70.4 0.8

71.2

Women

55-59

9.7 3.5 100.0

1.2 16.2 9.1

2.2 39.6

60.4 58.1

100.0

2.9 1.5

23.0 0.3 1.6 16.8

75.9 1.2

77.1

Total

Inactivity status in Norway and on average in OECD countries, 2001

a) The OECD average excludes Australia, Canada, Korea, Japan, Mexico, New Zealand and Turkey. Source: National Labour Force Surveys and the European Labour Force Survey.

0.3 3.9 100.0

0.3 0.0 2.8

Discouraged Retired Illness or disability

Family responsibilities Other Total

4.9 7.3

76.9 71.4

100.0

100.0 92.7 87.8

5.8 5.5

Unemployed Inactive

Active Employed

OECD

a

Family responsibilities Other Total

0.1 3.7

16.5 0.3 0.0 4.9

8.2 0.3 0.0 4.1

Discouraged Retired Illness or disability

81.4 2.1

91.8 89.1 2.7

Employed Unemployed Inactive

83.5

Women

Active

Norway

Men

Table 2.5.

0.3 1.9 100.0

0.8 44.2 10.0

1.0 57.2

42.8 41.7

100.0

0.8 0.6

43.8 0.7 16.8 24.9

55.6 0.6

56.2

Men

60-64

17.9 4.1 100.0

0.6 40.1 8.7

0.5 71.5

28.5 28.0

100.0

12.0 1.8

52.6 0.7 12.7 25.4

47.2 0.2

47.4

Women

9.4 3.1 100.0

0.7 42.2 9.3

0.8 64.6

35.4 34.6

100.0

6.4 1.2

48.2 0.7 14.8 25.2

51.4 0.4

51.8

Total

56 – CHAPTER 2. THE CURRENT LABOUR MARKET SITUATION OF OLDER WORKERS Compared to the OECD average, the incidence of inactivity and the reasons for inactivity are quite different in Norway (Table 2.5). First of all, inactivity for older people is significantly lower in Norway. As an example, inactivity of Norwegian men and women in the age group 60-64 is around 44% and 53%, respectively, compared with the OECD average of around 57% for men and 72% for women. By reason, for Norwegians aged 50 to 64, almost two-thirds of all inactivity is explained by illness or disability while for the OECD average this amounts to only one-fifth with retirement accounting for almost half of all inactivity. Further, almost 18% of older females in the OECD area are inactive because of family responsibilities, which is considerably higher than for Norwegian females (less than 7%). It is difficult to draw any firm conclusions from these comparisons of the status of people not in the labour force, since there are numerous reasons for the differences between Norway and the OECD average. The more obvious explanations may be differences in social security systems and definitions of, for example, disability and early retirement. However, the fact that the statutory retirement age is set at 67 in Norway may play a role. But it is clear that most other OECD countries have a relatively larger potential labour reserve than Norway consisting mainly of women, since on average around 23% of women aged 25-49 and 53% aged 50-64 were not in the labour force in the OECD area in 2001 compared with around 17% and 32%, respectively, in Norway.


CHAPTER 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES

– 57

Chapter 3 PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES

Finding a balance between guaranteeing an adequate income for the elderly while not undermining work incentives is a challenge facing all OECD countries. The relative generosity of each country’s welfare system is one important determinant of the actual retirement decisions of older people, but also a way to support vulnerable groups and to cover both temporary and permanent losses of labour income. Individual decisions to work depend highly on benefit levels and eligibility criteria in the public pension system and in other social security schemes. This chapter examines the details of the Norwegian welfare benefits system and assesses the likely impact these arrangements may have on the retirement decisions of older workers. 1.

Welfare schemes – a way out of the labour market?

As discussed in the previous chapter, the substantial drop in labour market participation starts already at the ages of 59-60 for both men and women. At this age, the share of persons outside the labour market more than doubles compared to persons in their early 50s. In 2001, around 85% of all men and 72% of all women aged 58 years participated in the labour force. However by the age of 62, only 57% of the men and 50% of the women do so. This decrease cannot be explained by changes in health status alone, although more than 36% of all people in the age group 60-64 are in receipt of a disability pension. A clearer picture of how the different exit paths influence retirement decisions can be gleaned from data on “retirement rates” by single year of age for older people, as estimated from changes in labour force participation rates (Figure 3.1). In the case of Norway; there are noticeable spikes in the retirement rate at the ages of 62, 65 and 67 (for men) and at 62 and 67 (for women). These spikes correspond to the age at which a large share of the population becomes eligible for the contractual early retirement pension (AFP) and the age at when the public old-age pension becomes available, i.e. the age of 67. The spike at the age of 65 is mainly explained by a lower retirement age in some occupations AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004

58 – CHAPTER 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES and occupational pension schemes. Thus, it appears that the different options to leave the labour market do influence retirement decisions in Norway. a

Figure 3.1.

Retirement rate by age in Norway, 2001 In percent

60

Females 50

40

Males 30

20

10

0

-10

50

51

52

53

54

55

56

57

58

59

60

61

62

63

64

65

66

67

68

69

70

a) Percentage decline in the participation rate between successive years of age, based on an average of participation rates in 2000 and 2001. Source: Norwegian Labour Force Survey.

In contrast to many other countries, Norway has only two major exit paths before the statutory age of 67 for the ordinary old-age pension – the disability pension system and the early retirement scheme (AFP). In 2000, more than 85% of the men and 66% of the women in the age group 50-59 who left the labour market did so because of illness or disability (Figure 3.2). This share is somewhat lower in the age group 60-64; however, it is compensated by the increase in the proportion of early retirees reaching 37% of all men and 23% of all women. For the age group 65-69, the ordinary old-age pension is, not surprisingly, the main route to retirement. In the future, there will be even greater pressure on the social security system since the number of people above 50 years of age will grow relatively faster than the prime-age will. Thus, even if the inflow rates to these systems stay constant, there will be dramatic increases in public spending. This is one of the reasons why Norway is in the process of reforming its old-age pension system.



Figure 3.2.

– 59

a

Reasons for leaving last job in Norway, 2000

As percentage of inactive in each age group Illness or disability

Early retirement

Normal retirement

Job ended

Personal reasons

Others

100 90 80 70 60 50 40 30 20 10 Men 50-59

Men 60-64

Men 65-69

Women 50-59

Women 60-64

Women 65-69

a) The category “job ended“ consists of both dismissals and the ending of a temporary contract; the category “personal reasons” also covers training. Source: European Labour Force Survey.

2.

Old-age pensions

For the majority of people in Norway, their income after retirement is still mainly derived from a public pension. Occupational pensions cover only about half of all employed. A.

Trends in public expenditures on old-age pensions

Currently, expenditures on public pensions in Norway account for only about 5% of GDP, one of the lowest figures in the OECD area (Figure 3.3). However, during the next five decades this will change dramatically. Norwegian public pension expenditures, as a share of GDP, are projected to double in the next 20 years or so and reach around 13% in 2050. The dramatic increase in expenditures is mainly driven by population ageing and the maturing of the supplementary pension scheme.


60 – CHAPTER 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES Figure 3.3.

Public expenditure on old-age pensions in Norway and other OECD a countries, 2000-2050 As a share of GDP Levels in 2000 (%)

Change between 2000 and 2050 (% points) Italy France Germany Poland Austria Spain Sweden Belgium Finland Portugal Japan Czech Republic OECD Average Denmark Hungary Netherlands Canada Norway New Zealand United States United Kingdom Australia Korea

0

2

4

6

8

10

12

14

16

-4

-2

0

2

4

6

8

10

12

a) For France, the estimates refer to the period 2000-2040. Source: OECD (2001b).

B.

The current public pension system

The Norwegian old-age pension scheme consists of a basic pension, a supplementary pension and a special supplement. Old-age pension benefits are granted only when reaching the official age of retirement at 67. The system is a defined benefit scheme and is fully integrated in the state budget. The basic pension is paid to all residents with at least three years of contributions between the age of 16 and 66. A full basic pension requires a minimum residence period of 40 years; shorter periods reduce the pension proportionally. A full basic pension is one G for a single person.7 People with earnings exceeding one G for

7.

Most benefits from the National Insurance Scheme are determined in relation to a basic amount, G (“Grunnbeløpet”). It is based on the expected general wage AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004


– 61

any three years during their working life receive an earnings-related pension, i.e. the supplementary pension. Those pensioners who have no or only a small supplementary pension are entitled to a special supplement (from 1 May 2003, the minimum pension amounts to NOK 101 964). The supplementary pension scheme was introduced in 1967 to complement the basic amount and mitigate the sharp fall in income after retirement. The amount of the supplementary pension depends on the number of years with a pensionable income and the yearly pension points.8 A full supplementary pension requires as a general rule 40 years of work with a pensionable income. In the case of less than 40 years, pension entitlements are reduced proportionally. The average pension points of the person’s best twenty income years multiplied by the supplementary pension percentage, 42%, and the proportion of pension earning years in relation to the required 40 years, provides the supplementary pension in terms of basic amounts (or G). The maximum supplementary pension that can be granted varies from one year to another but is at present approximately NOK 200 000. With minimum old-age pensions as a floor and upper limits on pension points as a ceiling, old-age pension replacement rates fall as former income rises and range from above 100% for workers with a former income below 2 to 3 G to less than a third for high-income workers. Consequently, high-income earners need to rely heavily on occupational pension schemes if they are to obtain a pension close to their previous salary. The lack of flexibility in the retirement decision To encourage continued labour force participation of older workers, it is important that pension systems are flexible in terms of retirement age. The system should, among other things, leave room for combining income from work and pensions. At present, the system is rather inflexible and gives no possibilities to have a smooth transition from work to retirement or, more increase and as at 1 May 2003 the annual amount of G was NOK 56 861, which is equivalent to EUR 6 900 (in March 2003, EUR 1 corresponded to NOK 7.9). 8.

Pension points are computed for each year by multiplying pensionable income by G minus one (i.e. subtracting the basic pension). The pensionable income is the sum of all income up to 6 G plus one third of income between 6 and 12 G. Income exceeding 12 G is disregarded. Thus, the maximum pension points that can be credited for any single year are 7 G.


62 – CHAPTER 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES generally, to withdraw earlier than the age of 67. Although it is possible to delay retirement beyond the official retirement age, the old-age pension is paid out from the age of 67. Thus, withdrawing before the official retirement age is only possible through the early retirement schemes (AFP) or through a disability pension (both schemes can be used on a part-time basis). A higher degree of flexibility could be introduced by abolishing the statutory retirement age of 67 and applying actuarial methods for calculating entitlements, or – as in other countries – by having an age-retirement interval. To have a smoother transition from work to retirement would also require that income from work and pensions can be easily combined without much loss. This would not only simplify any decision to abolish the existing early retirement scheme and reduce the inflow to the disability pension system, but would also enhance people’s flexibility with regard to when to retire. The impact of the public pension system on retirement decisions The level of Norwegian pensions can be benchmarked against those available in other countries as a way of assessing their relative generosity and likely impact on retirement decisions (Figure 3.4). The replacement rate, i.e. the level of pension benefits relative to former earnings can be used as an indicator of whether public pension systems are constructed in such ways that they provide incentives to go on working after a certain age (OECD, 2001c). Clearly, high replacement rates provide a greater incentive to retire, all else equal, than low replacement rates. But retirement decisions will also depend on changes in pension wealth, i.e. the change in the net present value of all future pension payments that the eligible person can expect to receive from working an additional year. Clearly pension wealth is affected not only by the size of the pension, but also by the point of retirement, since that determines over how many years the income stream is paid. Thus, even if replacement rates were only modest, workers may still choose to retire rather than work an additional year if continuing to work would effectively result in a large drop in their pension wealth.


– 63


a

Figure 3.4.

Retirement incentives in Norway and other OECD countries Percentages A. Net replacement rates

110

110

100

100

90

90

80

80

70

70

60

60

50

50

40

40

30

30

20

20

10

10 0

0 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 Norway

Sweden

Netherlands

UK

55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71

Age US

Norway

Germany

France

Age Switzerland

B. Change in pension wealth from working an additional year 100

100

80

80

60

60

40

40

20

20

0

0

-20

-20

-40

-40

-60

-60

-80

-80

-100

-100 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 Norway

Sweden

Netherlands

UK

Age US

55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 Age Norway Germany France Switzerland

a) The estimates refer to public pensions including occupational pensions, where relevant, for workers earning the equivalent of Average Production Worker (APW) earnings in each country. Source: OECD estimates.

There is no simple relationship between the level of replacement rates and effective retirement ages across countries and, of course, financial incentives to withdraw can come from other sources such as social security benefits, own savings, etc. Nevertheless, Panel B in Figure 3.4 shows a large fall in the pension wealth at the age of 67 in Norway, which is a strong disincentive to continue working after the age of 67. On the other hand, replacement rates are relatively low for Norway. However, replacement rates do not increase with age AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004

64 – CHAPTER 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES unlike in many other OECD countries. In order to discourage early retirement, the public pension system should encourage delayed retirement by letting replacement rates increase for every extra year of work beyond 67 and by perhaps relaxing the earnings test rule. There are two main reasons for the strong disincentives to go on working after the official retirement age. First, between ages 67 and 70, labour incomes above 2 G reduce pension entitlements by 40% and thus weaken incentives to go on working. From the age of 70, however, the old-age pension is paid out independently of other incomes. Second, the general rule is that work after the age of 67 does not accrue new pension rights, which reduces the incentives further.9 Thus, as shown in Figure 3.4, there is no positive adjustment of pension entitlements after the official retirement age. C.

Reforming the public pension system

In spite of Norway’s favourable fiscal position due to substantial oil revenues, it will still be necessary to change the pension system over time in order to ensure its financial sustainability. If not, it may be necessary to increase taxes substantially or cut public services.10 Therefore, the Norwegian government decided, in March 2001, to appoint a pension commission to decide on the major objectives and principles for a new pension system. The commission consisted of representatives from the political parties in the parliament, independent experts and a council consisting of the main social partners. In the final report presented on 13 January 2004, the commission recommended modernising the pension scheme to strengthen the link between earned income and entitlements. It was suggested that pension entitlements should correspond to 1.25% of yearly labour income and that a contribution rate of 17.5% of labour income should be shared between the employee and the employer. It also suggested introducing a flexible retirement age from 62 with unrestricted possibilities to combine work and pension income. However, after the

9.

Up to 2007, people between 67 and 70 will be able to accrue pension rights. The reason is that the supplementary pension system was introduced in 1967 and is still maturing, i.e. it is not yet possible to have the 40 years of contribution, which is necessary to receive a full supplementary pension.

10.

Press release “Goals, principles and alternative courses for the pension system” issued by the Pensions Commission, 4 September 2002. AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004


– 65

age of 70, labour income no longer accrues new pension rights (this age limit is suggested to be raised in line with increases in life expectancy). Moreover, it is suggested that pension entitlements should adjust to the remaining life expectancy at the age of 67 and that outgoing pensions be linked to the mean of wage and price changes. Finally, the commission recommended that the new pension system should affect fully persons born in 1965 or after. Those born between 1951 and 1964 should be covered partially by the new and the old system, while those born before 1951 would not be affected by the reform. Box 3.1. The Swedish flexible old-age pension system Reasons behind the reform: First of all, the old pension system had become too costly and risked becoming financially unsustainable faced with an ageing population. Secondly, to cope with the overall future pressure on public expenditures, incentives to work had to be improved and thus the link between lifetime earnings and pension entitlements had to be strengthened. A closer link between contributions and pension entitlements was also a way to ensure greater fairness between individuals such that a person with a longer work record would receive a correspondingly higher pension entitlement than a person with a shorter work record, all else equal. Main elements of the reform: The new pension system can, in broad terms, be characterised as a switch from a defined-benefit to a defined-contribution scheme. The system consists of an earnings-related pension and a minimum guaranteed pension. In turn, the earnings-related pension consists of a definedcontribution PAYG component and a defined-contribution pre-funded component. The total contribution amounts to 18.5% of income, and income up to the ceiling will generate pension rights. The earnings-related pension is autonomous in relation to the state budget with a contribution of 16%. The pre-funded system is based on the remaining 2.5% of the contribution and individuals choose from a large number of mutual funds how their contributions should be invested. Increasing flexibility: From the age of 61 onwards, it is possible to work and draw a pension at the same time. The pension can be drawn at 100% or partially in steps at 75%, 50% or 25% and combined with full-time or part-time work. Since there is no longer a stipulated retirement age, pension entitlements can be earned for an indefinite period. However, the guaranteed pension benefit cannot, in contrast to the earnings-related pension, be drawn before the age of 65. Actuarial calculations: By switching to a new formula based on lifelong earnings instead of the 15 best years out of 30, incentives to work and to maximise earnings while in work have increased. New pension entitlements will always be accrued on any pensionable income. Therefore, if a person continues or re-enters employment after retirement, the pension will increase. The calculation of new entitlements takes into account the shorter remaining life expectancy when new entitlements are converted to pension, thus the age at which new pension credits are earned affects the pension level as well


66 – CHAPTER 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES The proposals of the pension commission will be circulated for public consultation and the government, in turn, will submit a report to Parliament. The Parliament will subsequently determine the main principles for the reform. Whatever reforms are decided upon, these will not enter into force until 2010 due to the need for passing new legislation as well as the need for adapting new administrative structures and systems. The suggested reforms are in line with the new Swedish public old-age pension system. In 1999, Sweden switched from a system similar to the current system in Norway to a more flexible and financially sustainable retirement system (Box 3.1). D.

Developing the occupational pension system further

In many countries the private pension system plays a fundamental role in providing retirement income or in topping-up the public pension system. In Norway though, only about 50% of all employees are covered by an occupational pension scheme. In general, all state and municipal employees are compulsory members of an occupational pension scheme while only 30% of private sector employees are covered (most manual workers have no access to these schemes). There exists a vast array of different occupational pension schemes in Norway. Thus, the arrangements are – in this respect – quite different to the other Nordic countries (Solem and Øverby, 2002).11 The Norwegian tax law stipulates that these schemes cannot pay benefits before the age of 67, if the scheme is to enjoy tax privileges. This is to ensure that private pensions do not serve as a tax-subsidised early retirement. Further, it is not possible to receive a full occupational pension and still work full-time. When combining pension and work income, the pension is reduced proportionally with the reduction in the worker’s earned income. But there are some exemptions from this main rule: it is possible to receive a full occupational pension and still work fulltime, if the occupational pension is from a governmental or municipal system and the work income comes from an employer in the private sector or vice versa. Moreover, the transfer of entitlements can only take place between homogeneous pension schemes, for instance from one private occupational scheme to another.

11.

These schemes differ widely in construction, however, estimates by the Ministry of Finance in co-operation with the Banking Insurance and Securities Commission indicate that these schemes account for about 14% of total pension entitlements for those eligible. AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004


– 67

Introducing new general rules for occupational pensions, to make portability of pension rights between the public and the private sectors possible, would increase the low mobility of workers (also of older workers) and thereby possibly reduce the inflow to AFP and disability pensions. Introducing more defined-contributions based schemes would – at least partly – solve this problem.12 Another issue that should also be considered is how to increase the coverage to all employees in the labour market. Although, this is up to the social partners to decide upon, it would clearly increase equity. 3.

Alternative pathways to early retirement

Despite Norway’s relatively high statutory retirement age, a key problem over the past decade has been the fall in the effective age of retirement (see Figure 3.5).13 Since the late 1980s, the effective retirement age has fallen by around four years for both men and women, which has been encouraged by the introduction of the AFP scheme in 1989. The effective retirement age has followed a downward trend since the mid1960s for women and since the early 1980s for men (except for some years in mid-1990s). Since the declining trend has shown no signs of levelling off in recent years, there is a serious risk that the situation could deteriorate further and older workers continue to exit earlier from the labour force. Thus, the economic challenges ahead could worsen. This trend is similar in many countries and it has become routine for older people in Norway and most other OECD countries to retire earlier than the statutory retirement age (Figure 3.6). In general, women appear to retire earlier than men, except in Ireland and Luxembourg where women work for around half-a-year longer. Further, there seem to be no close link between the levels of statutory retirement ages and effective retirement ages. Overall, the effective

12.

The vast majority of occupational pension schemes are defined-benefit schemes. The reason is that tax deductions for premiums to defined-contribution schemes were first allowed from 2001 (Ministry of Finance).

13.

The effective age of retirement refers to the average age at which people aged 40 and over withdrew from the labour force over any given five-year period. It is estimated using information on participation rates and effectively assumes that no exits from the labour market occur because of death and that the population structure by age remains constant over time.


68 – CHAPTER 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES retirement age is still relatively high in Norway, but this could change rapidly if the downward trend continues. a

Figure 3.5.

Average effective retirement age in Norway, 1960-2002 Men

Women

70 69 68 67 66 65 64 63 62 61 1997-02

1995-00

1993-98

1991-96

1989-94

1987-92

1985-90

1983-88

1981-86

1979-84

1977-82

1975-80

1973-78

1971-76

1969-74

1967-72

1965-70

1963-68

1961-66

60

a) Average age of withdrawal from the labour force for individuals older than 40 based on changes in participation rates by five-year age cohorts over five-year intervals. Source: OECD estimates based on the Norwegian Labour Force Survey.

Although there are generally no possibilities to retire earlier than the age of 67 under the Norwegian old-age pension scheme, several occupations have lower retirement ages (e.g. policemen can retire at the age of 60 and physicaleducation teachers at the age of 65). More generally, the social security system provides a number of alternative pathways into early retirement. Thus, older people in Norway can withdraw, on average, several years before the official retirement age by using one of the following four possible exit routes: the early retirement pension (i.e. the AFP-scheme), the disability pension, long-term sickness benefits, and the unemployment insurance. Older workers who leave the labour force are most likely to do so on long-term sickness, transferring to a disability pension after one year. In fact, almost 22% of the total population aged 50–59 received disability benefits in June 2002.



– 69 a

Figure 3.6.

Effective and official retirement ages in OECD countries, 1997-2002

Men 80 75 70 65 60 55 50 France

Belgium

Hungary

Belgium

Slovak Republic

Hungary

Austria

Slovak Republic Czech Republic

Luxembourg

Poland

Italy

Austria

Effective

Finland

Poland

Germany

Spain

Netherlands

Czech Republic

Turkey

Greece

Canada

United Kingdom

Australia

Norway

Sweden

New Zealand

Ireland

United States

Portugal

Denmark

Korea

Switzerland

Japan

Iceland

Mexico

45

Official

Women 70 65 60 55 50

Effective

Netherlands

France

Finland

Luxembourg

Italy

Australia

Germany

Greece

United Kingdom

New Zealand

Spain

Canada

Turkey

Sweden

Denmark

Norway

United States

Portugal

Switzerland

Japan

Ireland

Korea

Mexico

Iceland

45

Official

a) Average age of withdrawal from the labour force for individuals older than 40 based on changes in participation rates by five-year age cohorts over five-year intervals. Source: OECD estimates.

The replacement rate for early retirees will depend on the former firm and the path used for retirement. In general, replacement rates range from 50% to 90% of former income. The replacement rate for the disability pension is around 50% to 55% depending on the person’s former income but, in order to increase the employees’ incentives to apply, employers in many firms pay a small company pension in addition to the state paid disability pension, thereby increasing the replacement rate up to 80%. The standard replacement rate for the unemployment benefit is 62.4%. Replacement rates for the AFP-scheme vary between 50% and 60%, depending on the employer. Also for this scheme it is becoming increasingly common that firms pay an additional company pension to former employees (Dahl, Øivind and Kjell, 2002). AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004

70 – CHAPTER 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES A.

The contractual early retirement scheme (AFP)

In the 1988 wage settlement, it was decided to introduce an agreement-based early retirement pension (AFP). To avoid high wage increases, many employers associations subsequently accepted the trade union’s demand for a reduction in the retirement age (Brinch, Hernœs and Strøm, 2001). The AFP-scheme was introduced in 1989 for large groups of employees aged 66 and over. This age limit was then successively lowered during the 1990s to 62 in March 1998. The system has become more widespread than in 1988 and covers, at present, 43% of all employees in the private sector and all employees in the public sector, i.e. approximately 60% of all employees (Hernœs, Sollie and Strøm, 2000). Main elements of the system To be eligible for an AFP pension, the worker’s company has to be covered by the relevant agreement and certain individual requirements must be fulfilled as well. First of all, pension rights must have been credited under the public pension scheme for at least 10 years during the period starting with the year in which the person turns 50 and including the year before the year of claiming the AFP pension. Second, only people employed at the time of claiming benefit are eligible. Third, the claimant must have as a general rule a yearly income above one G at the time of claiming benefit. Finally, it is required that the pension is conditional upon an average income of at least twice the basic amount during the ten best income years since 1966. If these requirements are fulfilled, the claimant can chose to retire at the age of 62. The amount of the AFP pension is calculated based on actual earnings history and a projection of earnings from AFP take-up up to age 67 as though the retiree had been working (see the former section on public pensions). Further, those who withdraw on an AFP pension but continue to work are considered to be part-time pensioners and as such receive a pension share equal to the actual reduction of the labour income. For instance, if the labour income after retirement is 40% of the pre-retirement income, the person is considered to be 60% retired and the benefit is thus calculated accordingly (a yearly income of about EUR 1 800 will, however, not change the anticipated work/pension share). The effect of AFP on labour supply The system has grown considerable in popularity since its introduction, and in 2001 almost 19% of the population in the age group 62-66 was receiving AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004


– 71

a pension under the AFP-scheme (Figure 3.7). One reason for this is the lowering of the eligibility age to 62. In 2001, there appeared to be a slowdown in the increase, which may be explained by the low number of people in the prewar cohorts but also by the tightening of the additional wage amount that can be earned without a reduction in the pension. Figure 3.7.

Recipients under the AFP-scheme in Norwaya

As a percentage of the population aged 62-66

24 20 Men

16 12 Total

8 Women

4 0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 a) Prior to 1992, only those aged 65 and over were eligible for an AFP pension. In 1993, eligibility was extended also to those aged 64 and in 1997, this age level was further lowered to 63. Since 1998, the AFP scheme covers people in the age group 62-66. Source: OECD estimates based on data from the Rikstrygdeverket.

The introduction of the AFP-scheme is a major explanation for the drop in the labour market participation among older workers in the past decade. In fact, participation rates for those aged 62-66 declined from 48% in 1985 to 39% in 2000. The decline in this age group was substantially stronger among men than among women. While participation rates between 1985 and 2000 for men fell by 15 percentage points from 59% to 44%, women’s participation rate fell by only 5 percentage points from 39% to 34%. Estimations by the National Insurance Administration indicate that the AFP-scheme actually reduced the expected age of retirement for those aged 60 and over by 8½ months between 1995 and 2001. Brinch, Hernœs and Strøm (2001) studied the impact on labour force participation of abolishing the AFP-scheme. The main conclusion of their simulation is that if the AFP-scheme had been abolished at the end of 1999, the overall labour force participation for the population aged 16-74 would be 1.8 percentage points higher in 2005 or, more strikingly, 10.3 percentage points AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004

72 – CHAPTER 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES higher for the age group 62-74. Another study by Hernœs and Strøm (2000) investigated the effect of taxing AFP pensions as labour earnings instead of as pensions. They find a substantial decline in immediate and delayed retirement but also a significant shift towards full-time work among men. In contrast, women’s labour supply is hardly affected. Thus, the empirical evidence points to substantial negative effects on labour supply induced by the AFP-scheme. B.

Sickness and disability pensions

As in several other OECD countries, disability benefits are sometimes used as a channel to exit the labour market. For example, older workers without a severe disability may be able to obtain disability benefits for labour market reasons, i.e. when it is considered that they have only a low chance of finding a new job, or because medical controls are not very strict. Partial benefits may also be available for relatively minor disabilities. In many countries, workers on a disability benefit can subsequently transfer to the old-age pension, which is usually more generous, once they reach the official retirement age. Moreover, in some countries, the period on the benefit is counted as adding to an individual’s insurance contribution record for the purpose of calculating the amount of the old-age pension. In a number of countries disability pension has accounted for a considerable proportion of early exits from the labour force (Casey et al., 2003). From long-term sickness to disability pension Receipt of a disability pension in Norway usually follows one year of sick leave. Depending on the person’s age, a longer period on sickness benefits could be followed by medical rehabilitation or a transfer to the public employment service for vocational rehabilitation if that is deemed necessary. To be eligible for a sickness benefit, the person is required to have an income history of four weeks (prior to 2004 the requirement was 14 days). Further, after three days of consecutive sick leave, a doctor’s certificate is needed and, for periods lasting longer than eight weeks, a second doctor’s certificate is needed. For sick leave lasting longer than twelve weeks, the national insurance authorities decide on the right to further sick leave or if special measures such as medical treatment are required. Benefits for employees equal 100% of a salary up to 6 G and are paid from the first day of sickness for a period of up to 260 working days (52 weeks). The employer pays the benefit for the first 16 calendar days and, thereafter, the national insurance scheme. Self-employed persons get sickness benefits corresponding to 65% of their total income from the previous year from the 17th day of sickness for a period of up to 248 days. AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004


– 73

Since the mid-1990s, there has been a steady increase in the number of long-term sick in Norway (Figure 3.8). This increase together with the rise in the number of disability benefit claimants is at odds with long-term trends in the health status of the Norwegian population and not well understood. However, one explanation for this increase could be growing labour shortages. When labour is scarce, “marginalised” workers who are more prone to be absent, e.g. because of poor health or social problems, are offered jobs, which may increase the sickness absence further. Second, an active labour market policy may include efforts to mitigate marginalisation and temporary as well as permanent exclusion from the labour force. Relevant measures involve labour market training and assistance in finding a job. The policy is aimed at those who become unemployed as well as those who have not succeeded in establishing themselves in the labour market. If some of these individuals are more prone to absence for health or other reasons, increasing absence rates may be an adverse side effect of active labour market policy (Askildsen, Bratberg and Øivind, 2002). A third potential reason is that working conditions may have worsened – especially in municipalities, which are responsible for elderly care and teaching. Finally, it should also be remembered that the route to a disability pension usually goes through the sickness insurance. Thus, the sickness insurance system is becoming a major exit path for older workers in Norway. Absence because of sickness has a significant impact on labour supply, especially in terms of hours worked but also in terms of participation rates – especially for older workers since it often leads to a disability pension. On average, around 1.5 weeks of full-time work per year and per person (seven working days) are lost because of sickness. However, the number of days lost varies significantly across gender and age groups (Figure 3.9). There is a clear pattern between age and days on sick leave, on the one hand, and gender and days on sick leave, on the other hand. In general, women are more absent than men are and older people more absent than younger – at least up to the age of 67, when suddenly the trend is broken. For people aged 67 and older, sickness absence goes down to figures that are lower compared to all other age groups. One possible explanation for this may be that only healthy people continue to work after the age of 67.


74 – CHAPTER 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES a

Figure 3.8.

Long-term sickness in Norway, 1992-2001

In thousands 30 000 28 000 26 000 24 000 22 000 20 000 18 000 16 000 14 000 12 000 10 000 1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

a) Long-term sickness is defined as sick days paid by the national insurance scheme, i.e. sick days following the period paid by the employer. Employers currently pay for the first 16 days of sickness absence, up from 14 days prior to April 1998. From 1 January 2000, the data also includes government employees. Source: Trygdestatistisk årbok 2002.

Figure 3.9.

a

Lost working time in Norway because of sickness, 2002

As a percentage of total working time in each age group Men

Women

14 12 10 8 6 4 2 0 -1 16

9 20

4 -2

9 -2 25

-3 30

4 35

9 -3

-4 40

4 45

9 -4

4 -5 50

-5 55

9

4 -6 60

-6 65

6

67

68

69

a) The sickness absence rate shows the number of full-time equivalent work days lost. Both part-time/full-time work and partial/full sickness leave are taken into account. Further, the data only cover sickness absence certified by a doctor, which underestimates the total sick days by 10 to 15%. Self-certified sickness absence is only asked in a survey of Norwegian firms and cannot be broken down into age-groups. Source: Statistics Norway and National Insurance Administration (RTV).



– 75

Norway’s disability rate is among the highest in OECD As discussed earlier, Norway has a relatively high share of older people who report illness or disability as the reason for being inactive compared with most other OECD countries (Figure 3.10). Few alternatives to withdraw before the official retirement age compared to other countries and a rigid old-age pension system are probably two important reasons. Moreover, relatively generous benefits levels (including employer top-ups) for sickness may also be a factor. Figure 3.10. Inactivity because of illness or disability in selected OECD countries, 2000 As a percentage of population in each age group Men 55-59

Men 50-54

0

5

10 15 20 25 30 35

0

5

10 15 20 25 30 35

IRL ESP BEL LUX CZE USA CHE PRT ICE ITA DEU HUN GRC SVK AUT FRA

0

5

0

5

10 15 20 25 30 35

10 15 20 25 30 35

Women 60-64

NOR NLD UK SWE DNK FIN ICE USA LUX PRT CZE BEL ESP CHE FRA DEU HUN ITA IRL AUT GRC SVK

NOR NLD DNK UK SWE HUN CZE FIN USA PRT BEL LUX ESP FRA DEU AUT CHE ITA ICE IRL GRC SVK

5

10 15 20 25 30 35

FIN NOR UK SWE DNK NLD

Women 55-59

Women 50-54

0

Men 60-64

FIN UK NLD NOR CZE LUX SWE USA DNK IRL HUN ESP FRA BEL DEU PRT CHE ITA GRC AUT ICE SVK

FIN UK LUX DNK NOR HUN NLD CZE USA SWE IRL BEL ESP FRA DEU PRT GRC ITA ICE CHE AUT SVK

NOR SWE FIN DNK NLD ICE PRT UK USA ESP ITA CZE LUX IRL HUN CHE DEU GRC FRA BEL AUT SVK

0

5

Source: European Labour Force Survey.


10 15 20 25 30 35

76 – CHAPTER 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES On the other hand, there is some evidence across countries that relatively easy access to early retirement schemes goes hand-in-hand with relatively large numbers of older workers on disability benefits. The end result is an early-exit culture, which increases the burden on both the retirement and disability schemes, because it makes it easier for employers to suggest to those of their employees who are about to lose their job to request a disability benefit or an early retirement benefit. In Norway, disability pension benefits, like old-age pension benefits, consist of a basic pension, a supplementary pension and/or a special supplement. The benefit is also calculated in the same way as the old-age pension benefit. The level of the supplementary pension depends on the number of years with accrued pension rights and the annual pension points obtained. For a full disability pension, 40 years of contributions are required. However, to calculate a person’s disability pension, future insurance periods and future pension points are estimated based on historical working record. Until the early 1990s, labour market conditions were a factor in the disability assessment. However, at present the ability to work must be permanently reduced by at least 50% to qualify for a disability pension. Persons born disabled or having become disabled before reaching the age of 26 are credited with a minimum pension. Figure 3.11.

Disability pension claimants in Norway, 2001

As a percentage of the population in each age group Men

Women

Total

55 50 45 40 35 30 25 20 15 10 5 0 25-49

50-54

55-59

60-64

65+

Source: Norwegian Ministry of Labour.

The disability rate is also closely correlated to age, much more so than sickness absence (Figure 3.11). While 5% in the age group 25-49 is receiving a disability pension, the same figure goes up to 15% for the age group 50-54 and AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004


– 77

then increases further by age. In the age group 65-67, almost half the population receives a disability pension. As a result of the increase in long-term sickness, many people currently on long-term sickness will transfer into the disability system. This will certainly raise the number of disability pensioners substantially in the near future. A major problem associated with the present disability pension scheme is the extremely low turnover rate, i.e. the outflow from disability pension to employment. The transfer from disability excluding deaths is, in fact, almost negligible except for people transferring to an old-age pension. C.

Few older people on unemployment benefits

In some countries, unemployment benefits serve as a pathway out of the labour market.14 As was shown in Chapter 2, unemployment rates have remained low in Norway – especially so for older workers. Nevertheless, some features of Norway’s unemployment benefits may be creating disincentives for older workers who lose their job to find a new job. In general, unemployment benefits can be received for up to 104 weeks (reduced from 156 weeks for new applicants after 1 January 2003). However, persons turning 64 are entitled to an unemployment benefit until they reach the standard retirement age at 67 at the same time as requirements for active job search are lowered. Thus, it is possible to receive unemployment benefits from the age of 62 up to retirement, i.e. 104 weeks of unemployment benefits prior to the age of 64. Given that unemployment is very low for older people, the exemption from active job search from the age of 64 should be reconsidered. Moreover, for employees in the state sector, a special long-duration unemployment benefit is available. This benefit is available to persons being laid off because of downsizing and can last from the age of 55 to the official pension age if no other job is available. From 1 July 2002, this benefit has to be

14.

In Finland, for example, there is a programme called the “unemployment pension”, which can be received from the age of 60. However, prior to this scheme, the so called “tunnel to an unemployment pension” exists. The latter programme extends the benefit period for persons 55 years or older up to the age of 60 from when they do not have to actively search for a new job, i.e. they become inactive. The possibility to receive unemployment benefits without being obliged to look for a job was offered until recently to long-term unemployed persons aged 50 and over in Belgium.


78 – CHAPTER 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES paid by the authority or the public company dismissing the employee. This very generous rule – exclusively for persons employed in the state sector – should be re-considered and aligned with the general rules for unemployment benefits. Further, all persons receiving unemployment benefits, including older people, are obliged to accept job offers or training offers. More generally, job-search requirements and demands of occupational and geographical mobility are less strict, in practice, for persons above 60 years of age. Thus, the unemployment insurance could actually work as an exit route, although few seem to use it as such. One reason may be that there is less stigma attached to retiring either on AFP or disability benefits. D.

Combating early retirement in Norway

Although Norway has the second highest employment rates for older workers in the OECD area, labour supply has become a key constraint for achieving faster economic growth. Therefore, the government and the social partners are encouraging people on different benefits such as disability, AFP and sickness to return to work or at least to supply some work. In addition to reforming the disability pension scheme and the old-age public pension system, the government and the social partners also signed (in October 2001) an agreement aiming to achieve a more inclusive workplace to the benefit of individuals, employers and society. The agreement runs for four years and the core aim is to reduce the sickness absence, the inflow to disability but also to take greater advantage of older workers and persons with limited functional capacity. This agreement will be discussed in detail in the next chapter. But while this agreement takes several steps in the right direction, there are a number of areas where further reforms are required to combat early retirement. Strengthening financial incentives to remain longer in work First of all, to stop the fall in effective retirement ages, it is of utmost importance to strengthen the link between contributions and pension entitlements. Typically, both the AFP-scheme and the disability pension provide fairly generous benefit levels because they assess pension years and pension points as if the individual retired at 67. Thus, a person on a full disability pension or AFP will get the same pension as a person who continues working up to the official retirement age. Furthermore, social security contribution rates are lower for pensioners. Altogether, these systems strongly encourage retirement before the age of 67.



– 79

Moreover, the disincentive for employers to use the AFP scheme is, in terms of financial burden, quite low. Employers in the private sector bear only the full burden for the age group 62-63 and not more than 60% for the age group 64-66, as the state subsidises the remaining part. In the public sector, the government and municipalities bear the full cost for their respective employees aged 62-66. Thus, the AFP scheme is an easy way for firms and the public sector to lay off older workers when downsizing while escaping bad press. Since the late 1980s, the scheme has increased in magnitude as a result partly of lowered age criteria and partly by a broadening of the scheme. However, the introduction of the AFP may also have increased the pressure on the disability scheme from those not covered by the AFP and demands are now increasing from other groups in the labour market not yet covered. Thus, there is a large risk that early retirement will continue to grow in magnitude over the coming years if no radical changes are imposed. Moreover, since the AFP scheme only covers 60% of the labour market it could also be argued that subsidising it is unfair to those not eligible. On the other hand, this may also be an indirect reason for the loose eligibility conditions for obtaining a disability pension. Reforming the AFP scheme Since the AFP scheme is based on collective agreements between the social partners, it is not easy to abolish. However, reducing employers’ social security contributions for people aged 62 and above (see Chapter 4) while at the same time as the use of the AFP scheme is encouraged seems somewhat contradictory. A more appropriate strategy would be to: i) limit or abolish the state subsidy for financing AFP pensions to employers; ii) apply the same income tax rate and social security contribution to AFP recipients as to persons working and; iii) introduce an actuarial reduction in old-age pensions for recipients of AFP pensions. Changing these rules would not interfere with the collective agreements, but would definitely reduce the incentives for both employers and employees to use it as an exit route. Reforming the disability pension scheme To reduce the inflow to disability, the government has proposed a reform of the disability pension scheme. The proposal identifies two categories of disability pensioners: i) those who are considered to be permanently disabled; and ii) those whose future working capacity is uncertain. In other words, the scheme will be divided into one permanent disability pension and one AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004

80 – CHAPTER 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES temporary disability benefit. The latter category will be granted a time-limited disability benefit, lasting one to four years. After this period, the benefit will be reassessed to consider whether the person is capable of returning to work or not. This recognises that not all people with long-term health related problems should be assessed as permanently disabled. The proposed change in the disability scheme is an important initiative because it is the major withdrawal route out of the labour market for older people. In fact, 30% of the population above 55 years are recipients of this benefit and more than 70% of the total number of recipients is above 50 years. Thus, taking measures to reverse the trend is very important. However, in addition to these proposed changes, changes in eligibility rules should also be considered. Hence, introducing temporary disability benefits without strengthening eligibility criteria will probably not make a large difference for older workers. Moreover, the close connection between old-age pensions and disability pensions should be reviewed since this relationship sends out wrong signals. Thus, the following features of the current system of sickness benefits and disability pensions should also be re-considered: i) Sickness benefits amount to – in general – 100% of the salary up to 6 G (without any waiting period), resulting in low or no incentives to work. Benefits should be made less generous, e.g. by introducing a waiting period and by lowering benefits after, say, a three or six-month sickness period – and a checking or a monitoring system should be introduced. Moreover, sickness benefits are significantly higher than disability benefits, which increase incentives to remain on sickness benefits; ii) Sickness benefits are relatively easy to access, since only the claimant’s own doctor’s approval is required. Therefore, additional medical assessments by a doctor from the sickness insurance (or another doctor than the person’s treating doctor) should be introduced; iii) Disability pensions should be easier to review and not be granted permanently; iv) Both sickness and disability benefits are regarded as income and thus accrue pension rights at the same rate as labour income, which further reduces incentives to return to work, this should be reviewed;



– 81

v) Disability benefits are taxed on a lower rate than income from work, which skews the incentives further. This could be changed by, for example, taxing sickness benefits and disability benefits in the same way, i.e. as labour income; and vi) The close connection between disability pensions and old-age pensions should be relaxed – instead disability should be integrated with sickness insurance.


CHAPTER 4. ENCOURAGING EMPLOYERS TO RETAIN AND HIRE OLDER PEOPLE

– 83

Chapter 4 ENCOURAGING EMPLOYERS TO RETAIN AND HIRE OLDER PEOPLE

Factors influencing employers’ decisions to hire or retain workers are the other side of the equation explaining lower employment rates for older people than for prime-age people. In general, employers’ hiring and firing decisions with respect to older people depend on factors such as their perceptions about the adaptability and productivity of older workers, and the wages they have to pay for them relative to younger workers. These decisions will also be affected by government intervention in the form of targeted wage subsidies and other active labour market policies, employment protection legislation and other labour laws. Therefore, this chapter examines how attitudes to older people and institutional settings might affect employers’ practices. It also looks at measures that have been taken to influence employers’ behaviour and improve labour market outcomes for older people. 1.

Employment policies and older workers

There is no single measure that would dramatically increase retention or hiring rates for older workers. Moreover, some of the barriers preventing firms from retaining or hiring older workers may be found in employer practices concerning human resource management and attitudes towards older people. As such, the ability of government measures to change these practices is limited and changes will necessarily take time. A.

Attitudes towards older people

Employers’ decisions concerning the retention, hiring and training of older workers will be influenced by their general attitudes about the competency, productivity and adaptability of workers as they age. Although difficult to measure, there is a widespread belief that ageism is prevalent in the workplace. This may have been reinforced by a number of recent cases where companies have targeted older workers when laying off workers (see Box 4.1). AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004

84 – CHAPTER 4. ENCOURAGING EMPLOYERS TO RETAIN AND HIRE OLDER PEOPLE In 1995, a research programme on working life and ageing was introduced. The main reason for introducing the programme was the decrease in participation rates among older workers in the previous 10-15 years. The research programme consisted of more than twenty projects and ended in 2001.15 One general outcome from this programme was that employers’ attitudes are complex in the sense that they ascribe both positive and negative characteristics to older workers. In this context, younger workers are often preferred when new technology and work routines are introduced but older workers are preferred when customers consist of older persons, and when abilities such as loyalty, high experience and good management are important.

Box 4.1. Laying off older workers in Norway: the case of Norsk Hydro In 2002, over 5 000 employees were laid off at Norsk Hydro. The cost of these layoffs amounted to between a half to two-and-a half million Norwegian Kronor per employee. The reason for these large amounts was that the company did not follow the normal rules based on seniority and instead used packages and early retirement deals for those who “voluntarily” resigned. Workers 58 years and older were the most expensive ones to lay off, since they receive 70% of their former salary. The company’s arguments for not following the LIFO (last-in/first-out) rule was that it wanted a renewal of staff instead of only keeping employees with long seniority, i.e. older workers. Source: Økonomisk Rapport 16/2002.

Further, top-level managers are, in general, more positive to older people than mid-level managers. However, most hiring is done by mid-level managers, which therefore may bias recruitment in favour of younger workers more than might be expected from reported attitudes of employers. Thus, it is very important that long-term measures are taken in order to change attitudes among both management and colleagues at the workplace. As an example of this, the National Program on Ageing Workers in Finland has been quite successful in influencing general attitudes towards ageing and older workers, partly by raising the awareness through media and directly at the work places (Finnish Ministry of Social Affairs and Health, 2002; OECD, 2004 forthcoming).

15.

The outcome from this project is summarised in Solem (2002). AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004


B.

– 85

The presence of age discrimination

The negative attitude of employers vis-à-vis older workers noted above may also reflect a certain degree of age discrimination and could pose a barrier to employment opportunities for older people. For example, age limits imposed by employers on job vacancies may prevent some older job seekers from finding jobs. In some OECD countries, this practice has been banned. Currently, Norway has no legislation that particularly forbids age discrimination However, the government has decided to adopt the relevant provisions of the EU directive 2000/78/EC concerning anti-discrimination legislation and a bill has been submitted to Parliament so that the directive can be implemented in line with the European Union’s timetable.16 A number of studies have indicated that older people are subject to discrimination in the workplace. For example, older workers are often given less important jobs when firms invest in new technologies although they are well able to cope with the challenges of new technologies (Lahn et al., 1999). Another example is given in the report by the FAFO Institute for Applied Science (2002) on early retirement among employees in the private sector (Table 4.1). This study suggests that more than one-quarter of persons on AFP in fact wanted to go on working, but were directly or indirectly forced to retire because of technological change, downsizing or reorganization of the firm (Midtsundstad, 2002). Table 4.1.

a

Satisfaction with timing of early retirement in Norway, 2001

Percentages Wanted to Retired when retire earlier wanted

Wanted to Do not know retire later

White-collar / highly educated

29.8

33.7

30.1

6.5

Blue-collar

37.2

24.9

26.5

11.4

a) Former private sector employees only. Source: FAFO Institute for Applied Science (2002).

16.

EU countries have until the end of 2006 to comply with the directive in terms of prohibiting discrimination on the basis of age.


86 – CHAPTER 4. ENCOURAGING EMPLOYERS TO RETAIN AND HIRE OLDER PEOPLE The effectiveness of legislation against age discrimination is not clear, however, and legislation alone will not be sufficient to change attitudes and practices. Nevertheless, it sends out an important message that discrimination should not be tolerated. Therefore, measures to combat age discrimination in all aspects of the recruitment and retention of older workers should be developed. At the very least, age restrictions in job advertisements should be prohibited. Legislation to prohibit age discrimination could be preceded by an information campaign to raise awareness of the issues amongst employers. For example, the United Kingdom government has sought to change the climate of opinion by issuing a voluntary “Code of Practice for age diversity in employment”, which seeks to reduce age discrimination by employers (OECD, 2000b). 2.

Labour costs

One factor driving employer decisions with respect to employment of older workers may be labour costs. Employers generally face two large items of expenditures for their employees: wages and social security contributions. Wages are usually decided through negotiations between social partners; while the social security contribution rate is set by the government. A.

The impact of high relative wages for older workers

In many countries, wages tend to grow with age. This may reflect productivity gains associated with experience but may also be the result of an implicit contract between the employer and the employee. For example, wages may rise with seniority in order to enhance the employee’s commitment to the firm. Beyond a certain age, however, the wage would exceed the employee’s productivity, which would explain the employer’s incentive to encourage early retirement. In fact, across OECD countries, there is also a negative relationship between effective retirement ages and relative wages for older workers (Figure 4.1). Countries with high relative wages for older workers tend to have lower effective retirement ages than countries with less prominent seniority wage systems or countries where seniority is of less importance after a certain age. The correlation coefficient between relative wages for older workers and effective retirement ages is -0.60 for men and -0.75 for women, indicating that seniority wage systems may have stronger negative impacts on women’s labour force participation than on men’s.



Figure 4.1.

– 87 a

Relative wages for older workers and effective retirement age Men

Women 75

70

70 Effective retirement age

75

Norway 65 r = - 0.602 60

Norway 65 r = - 0.746 60

55

55

50

50 50

100

150

200

250

50

100

150

200

250

Relative wage

a) The relative wage for older workers is defined as the ratio between the salary in the age group 55-59 and the 25-29 group. For a definition of the effective retirement age, see Chapter 3. Because of data limitations the following countries were used: Australia, Belgium, the Czech Republic, Finland, France, Germany, Hungary, Italy, Japan, Korea, the Netherlands, Norway, Sweden, the United Kingdom (for men only) and the United States. Source: OECD database on earnings.

However, compared with other OECD countries, age-earnings profiles in Norway are relatively flat, both for men and women (Figure 4.2). For example, age-earnings profiles for both men and women are steeper in the United States and Germany. In general, women’s profiles are flatter than for men, and hence, the cost disadvantage of older women should be smaller than that for older men (i.e. assuming the age-productivity development is the same for both sexes). These comparisons suggest that seniority wages not corresponding to changes in productivity may be less of a problem in Norway than elsewhere. If true, this could account for higher employment rates for older people in Norway than in most other countries. In Norway, wages for some categories of workers follow wage plans mainly based on tenure in the firm. This is true both in the state, in the municipalities and in the private sector. In the state sector, about half of the employees follow a wage plan but this share is probably higher in the municipalities. In general, however, the seniority-based wage increase ceases after 10 years of tenure. Overall, the wage structure in Norway is very compressed, both between age groups and between different occupations.


88 – CHAPTER 4. ENCOURAGING EMPLOYERS TO RETAIN AND HIRE OLDER PEOPLE a

Figure 4.2.

Age-earnings profiles in selected countries

Earnings of 25-29 year olds = 100 Men

Women

150

150

140

140

130

130

120

120

110

110

100 25-29

30-34

35-39

40-44

45-49

50-54

55-59

Norway

Finland

Sweden

Germany

US

UK

60-64

100 25-29

30-34

35-39

40-44

Norway Germany

45-49 Finland US

50-54

55-59

60-64

Sweden UK

a) In the Norwegian data, the age group 60-64 is 60 years and over. Source: US Current Population Survey; Blöndal, Field and Girouard (2002), Statistics Norway.

B.

Social security contributions for older workers

Age-earnings profiles alone, however, do not give the whole picture of relative costs of older workers. Another large component of labour costs in most countries is social security contributions. For most countries, the contribution rate is a fixed percentage of the employee’s salary and varies dramatically between countries (Table 4.2). When this is combined with a seniority wage system, it raises the costs for hiring and retaining older workers further.17 The contribution rate in Norway of under 13% is significantly lower than in many other OECD countries, especially in Europe. This would, as well as the absence of a steep seniority-wage system, work in favour of older workers’ employment rates being relatively high in Norway since employers’ disincentives to retain or hire older workers would be much less pronounced in comparison to younger workers.

17.

Of course, if the social security contribution rate is a fixed percentage of an employee’s salary, the absolute gap in labour costs between older and younger workers will be higher than the gap in wage costs alone but the relative gap will be the same. AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004


Table 4.2.

– 89 a

Employers’ social security contribution rate in OECD countries, 2001

As a percentage of gross wage France Czech R epublic Belgium Hungary Italy Sweden Spain Greece Finland Portugal Turkey Austria Germ any Poland Mexico Luxem bourg Norw ay Netherlands Ireland United Kingdom Switzerland Japan Korea United States Canada Iceland Australia Denm ark New Zealand Slovak Republic

41.3 35.0 34.6 34.0 33.9 32.8 30.6 28.0 25.0 23.8 22.5 21.7 20.4 20.4 14.2 13.8 12.8 12.2 12.0 11.9 11.6 10.5 8.9 7.7 7.5 4.8 0 0 0 0

a) Based on an employee earning 100% of the average production worker wage. Source: OECD.

3.

Employment protection — obstacle or security?

Another factor influencing firms’ hiring and retention decisions is the strictness of employment protection legislation. The relationship between employment protection legislation and employment and unemployment of older workers is complex. In general, stricter legislation tends to reduce labour turnover but its impact on employment levels is less certain (OECD, 1999). Restrictive employment legislation may protect workers who already have a job (insiders), but at the expense of those without a job (outsiders). Older workers AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004

90 – CHAPTER 4. ENCOURAGING EMPLOYERS TO RETAIN AND HIRE OLDER PEOPLE are more likely than younger workers to be “insiders” since, on average, they have longer average job tenure. However, older workers may pass from the former to the latter category once they pass a certain age where their employer no longer believes that their marginal productivity is equal to their labour costs, and wants to lay them off. A.

The role of employment protection legislation

The OECD has ranked countries according to the strictness of employment protection governing individual dismissals based on a combination of several different factors such as the notice period involved, the amount of severance pay, the definition of unfair dismissals, etc. (Table 4.3). Altogether, Norway was ranked 16th among OECD countries in terms of strictness of its employment protection. However, employment protection for older workers in Norway may be even stricter than these comparisons suggest. In general, persons in Norway cannot be dismissed just because they reach the official retirement age of 67. The Norwegian Working Environment Act decides that after an employee reaches 66 years of age, but not later than six months before the employee reaches retirement age, the employer may inquire in writing whether the employee wishes to retire from his post upon reaching retirement age. A reply to this inquiry must be returned in writing not less than three months before the employee reaches the retirement age. Provided that this is explicitly stated in the letter, protection against dismissal lapses if no reply is received within the stated time limit. The periods of notice may be longer for elderly workers The Norwegian Working Environment Act does not directly protect jobs for workers with long tenure, but the courts have in several cases considered long tenure as objectively justified when it comes to the selection of which workers are to be dismissed. The importance of long tenure in this context is also regulated in different collective agreements. Further, the Working Environment Act decides that in the case of employees who, when notice is given, have been employed by the same firm for at least five consecutive years or a minimum of ten years, at least two or three months notice shall be given by either party. If an employee is dismissed after at least ten consecutive years with the same employer, the minimum period of notice varies by age as follows: at least four months after the age of 50; at least five months after the age of 55; and at least six months after the age of 60. In these cases, the employee may not terminate the employment contract with less than three months notice. AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004


Table 4.3.

– 91

Strictness of employment protection for regular employment in OECD countries in late 1990s

Country ranking United states United Kingdom Canada Australia Switzerland Belgium Denmark Ireland New Zealand Hungary Finland Poland Mexico France Norway Greece Austria Spain Turkey Japan Germany Sweden Italy Czech Republic Netherlands Korea Portugal

Overall strictness of protection against individual dismissals 0.2 0.8 0.9 1.0 1.2 1.5 1.6 1.6 1.7 2.1 2.1 2.2 2.3 2.3 2.4 2.4 2.6 2.6 2.6 2.7 2.8 2.8 2.8 2.8 3.1 3.2 4.3

Source: OECD, 1999.

Thus, in Norway, employment protection for older workers is quite strict, since they remain protected even after the age of 67. Moreover, rights and periods of notice increase both with age and tenure, which may help to explain the situation of relatively high retention rates among older workers in Norway. But it may also be one of the reasons for why employers are keen to “encourage” older workers to withdraw after age 62 via either AFP or disability benefits. Moreover, strict employment protection makes it less likely that firms will want to hire older workers, especially after the ages of 62 or 67.


92 – CHAPTER 4. ENCOURAGING EMPLOYERS TO RETAIN AND HIRE OLDER PEOPLE 4.

Subsidising labour costs for older workers

One way of facilitating access to the labour market for older people is by making it more attractive for employers to hire and retain them. This can be achieved by providing employers with subsidies. These subsidies can take various forms, but two common methods are through a direct wage subsidy or through a reduction in employer’s social security contribution. Indeed, a number of OECD countries have implemented such schemes (Box 4.2). Box 4.2. Employment subsidy schemes for older workers in selected OECD countries Austria: Employer’s unemployment insurance contributions are halved for hiring workers between 50 and 55 years of age and eliminated for those over the age of 55. This subsidy is one part of Austria’s Bonus-Malus system, where the “malus” is a penalty payment for dismissing a worker over the age of 50. It is staggered according to the age of the dismissed worker. Belgium: Employers hiring long-term unemployed people aged 45 and over are partially exempted from paying their social security contributions during five years. In addition, as these newly hired workers are entitled to an employment subsidy under the programme “Activa”, employers may reduce their wages by up to EUR 500 per month. Denmark: Under the Service Jobs Scheme, municipalities hiring individuals who are more than 48 years old and have been unemployed for at least 18 months are paid an indefinite wage subsidy of DKR 100 000 per year. France: Companies hiring an unemployed person aged 50 or above can take advantage of the “Contract to promote employment” (Contrat Initiative Emploi). The subsidy consists of a total reduction in employer’s social security contributions at the level of the minimum wage, i.e. amounting to around 40% of gross minimum wages. The subsidy is normally paid for 24 months for a permanent employment contract and indefinitely in the case of a person aged 50-64 who is disabled or has been either unemployed or on social assistance for more than one year. Germany: There is an “integration” subsidy (Eingliederungszuschüsse) available for hiring long-term unemployed persons aged 55 and over. The subsidy corresponds to 50% of wages. Sweden: The Special Employment Subsidies programme encourages employers to recruit persons above 57 years who have been unemployed for at least two years. The subsidy is paid to employers during a maximum period of 24 months and up to 75% of the wage costs to a maximum of SEK 525 per day, i.e. SEK 10 500 per month (roughly half of the average salary for a full-time worker).



A.

– 93

Wage subsidies to employers in Norway

In Norway, employers can receive a wage subsidy for hiring an unemployed person. The subsidy is targeted at groups with a high risk of long-term unemployment such as: immigrants, persons over 60 years, disabled and youths. The purpose of the measure is to motivate employers to hire these persons for ordinary jobs with normal pay and working conditions. The duration and the amount of the subsidy vary according to the person’s capacity and their need for support (Table 4.4). Thus, Norwegian wage subsidies are not, as in several other countries, targeted specifically at older people in general. Table 4.4.

Wage subsidies for hiring the unemployed in Norway, 1998 Maximum subsidy as % of wage

Long-term unemployed Youths < 25 years Older (60+) and Immigrants Disabled

Maximum length Maximum amount in months per month in NOK

50 50 75 40 75 40

6

9,000

12 6 6 6 18

9,000 12,000 12,000 12,000 12,000

Source: Centre for Economic Analysis (2001).

An evaluation of this wage subsidy scheme shows that 54% of all those hired under the scheme still had a job one-and-a-half years after the end of the subsidy period (Centre for Economic Analysis, 2001). Of the participants in the age group 60 and over, 40% responded that the subsidy was of great importance for obtaining their present job, while another 40% responded that the subsidy was of no importance for getting their present job. In October 2002, only 34 persons out of 1296 (2.6%) on this measure were older than 60 and only 119 persons (9.2%) were between 50 and 59 years. Thus, among the target groups for the subsidy, very few older workers benefited from it compared to younger and prime-age people. In fact, whereas the older people (50 and over) account for around 27% of all employed and almost 18% of all registered unemployed, the corresponding figure of older people in this measure was less than 12%. B.

Reducing social security contributions

In July 2002, the Norwegian government introduced a new system that reduces employer’s social security contributions for employees above the age of 62 by 4 percentage points (i.e. a reduction from 12.8% to 8.8%). The AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004

94 – CHAPTER 4. ENCOURAGING EMPLOYERS TO RETAIN AND HIRE OLDER PEOPLE reduction applies to all workers above 62 years of age – not only those recently hired. The measure is therefore designed to enhance the incentives for employers to both hire and retain older people. To date, it is too early to say whether employment rates have improved as a consequence of this reduction. However, if this measure produces the desired effects, the government is ready to consider a further reduction of the contribution rate. 5.

Measures taken by social partners

Because of existing labour shortages, which could well increase in the near future, employers and union organisations have also introduced several measures to reverse the downward trend in effective retirement ages and to reduce absence from work. Some of these measures are being used in collaboration with the government, but it is the social partners that have the responsibility to implement them. A.

Achieving a more inclusive workplace

The tripartite agreement In October 2001, the government and the social partners in Norway entered into an agreement aiming to achieve a more inclusive workplace to the benefit of individuals, employers and society. The agreement runs for four years and ends in December 2005. The original parties that signed the agreement were the Ministry of Labour and Government Administration, the Ministry of Social Affairs and the major social partners. The core of the agreement is to reduce sickness absence, the inflow to disability and to better utilise older workers and persons with limited functional capacity (see Box 4.3). The agreement is signed on a voluntary basis and in early 2003, around 85% of all central unions and employers organisations had signed it. In terms of employees covered by the agreement, coverage is much lower. In late 2002, it covered only 25% of all employees but by November 2003, this figure had reached 48.4%. Moreover, the parties involved are convinced that this number will increase further. The agreement was evaluated in the third quarter of 2003, and it was found that sickness absence on average had stagnated in firms covered by the agreement. There will be a final evaluation at the end of the period, i.e. end 2005.



– 95

Box 4.3. The tripartite agreement on a more inclusive workplace The agreement’s objectives are to:

• • •

Reduce sickness absence by 20% over the contractual period as compared with its level in the second quarter of 2001; Improve employment prospects for a greater number of employees with limited functional capacity; and Increase participation rates for older workers.

The social partners have the main responsibility to reach these objectives. Nevertheless, the government plays both a supportive role as a provider of economic incentives to those employers that make serious efforts to achieve the stated objectives. However, the main philosophy of the agreement is based on the assumption that employers and employees in individual workplaces will co-operate closely in carrying out research into the reasons for absence and early retirement and for developing appropriate solutions. Measures to reach these goals: To reduce the sickness rate, earlier interventions in combination with better methods to follow up persons with sickness benefits are being introduced (e.g. workplace-related measures). Companies are also introducing a “work-ability index” to measure the ability employees have in spite of sickness. Further, the government has increased the reimbursement of companies’ expenditures for purchasing health care services and rehabilitation. To improve employment prospects of persons with limited work-capacity, the government has introduced not only wage subsidies for employers who hire disabled people but also a special subsidy for adapting workplaces to the needs of disabled people. To improve the labour market prospects for older people, the government introduced the programme “The National Initiative for Senior Workers”. Moreover, to stimulate employers to retain and recruit older people, the social security contributions paid by employers have been reduced by 4 percentage points for persons over 62 years of age. The government’s obligations: Every enterprise signing the agreement will be recognized by the authorities as an “inclusive workplace enterprise” (IW-enterprise). Every IW-enterprise will sign a contract with their local security office, which will manage the arrangement. In addition to the measures discussed above, the government will also supply a regular contact person at the social security office to help companies to take necessary actions and to follow up employees on sick leave. The health services in IW-enterprises will be given a special refund rate from the National Health Service for efforts to bring employees on extended sick leave or disability benefits back to work. The government will also assist companies through better coordination of the public services (the Public Employment Services, the National Insurance Authorities and the Labour Inspectorate). The National Insurance Service has organised workplace centres in all of Norway’s 19 counties to assist the IW enterprises.


96 – CHAPTER 4. ENCOURAGING EMPLOYERS TO RETAIN AND HIRE OLDER PEOPLE

The employer’s obligations: Firms that enter into this agreement must commit themselves to work systematically to meet the objectives. When an employee is unable to continue her/his job due to sickness or bad health, the employer is obliged, in collaboration with the authorities, to supply training so the person can be qualified for another job in the company. The employee’s obligations: The employee is obliged to inform the firm about their own functional capacity when on sick leave, so that relevant measures can be implemented as quickly as possible. The employee should also agree to have a dialogue with the employer concerning changes in work tasks, participation in training or other necessary measures to continue working. In general, the employee should co-operate with the employer in adapting the workplace as required.

So far, only the first objective in the agreement has a quantitative target. The lack of targets in the other objectives will not only make progress in achieving these objectives hard to monitor but also difficult to evaluate. Thus, it is important to develop quantitative targets for the other two objectives and, in fact, this will be considered by the government during the current evaluation process. Achieving a reduction in sickness absence (i.e. the first objective) is of crucial importance. However, in IW-enterprises employees have the right to take sick leave without a doctor’s certificate for an extended period of eight calendar days per period of sick absence with a total upper limit of 24 days per year. The reason for introducing this rule is to place more responsibility on the employee and the employer since the doctors often prescribe sickness certificates for longer periods than what is usually necessary. At this stage, the sickness rates have in fact stagnated in the IW-enterprises. The National Initiative for Senior Workers The third objective of the inclusive agreement is to promote better use of older workers’ resources and competences in the workplace. This target is the responsibility of the Centre for Senior Policy (a NGO) through their campaign to combat early retirement among older workers. For this purpose, the centre, in cooperation with the social partners, developed the National Initiative for Senior Workers to make individuals, companies and politicians aware of the advantages of hiring and retaining workers over the age of 45. The centre is arranging conferences for different levels of management staff, union representatives and senior workers. It also runs information campaigns, creates networks of human resource managers and produces handbooks and other material on how to build AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004


– 97

up a senior policy in a company. The centre’s work is financed by funds from the Norwegian Government and through its own activities. B.

Encouraging older people to remain in work longer

By law, all workers in Norway above 60 years of age have the right to one additional week of vacation per year. Clearly, this imposes an extra cost to employers when hiring and retaining older people. Moreover, during the wage negotiations in the state sector in 2002 possibilities to encourage persons 62 years or older to continue working instead of withdrawing on an AFP pension were discussed. It was agreed that an economic incentive should be given to postpone retirement. The outcome was to offer workers 62 years or older who decided to remain in work the possibility to have one extra day off per month with full wage or an additional pay increase of 10% (or a combination of these two). However, it is up to the local employer to decide on how to use these measures. C.

Developments at the individual firm level

Partly as a result of the “tripartite agreement on a more inclusive workplace” and increasing labour shortages, many steps have already been taken at the firm level to better accommodate the needs of older workers. Some companies have, for example, developed alternative careers for their older workers, implying that they can continue working but with less demanding tasks. Others have introduced time flexibility or reduced working hours with compensation. One example of good practice in this area is the programme introduced at the transport company Linjegods (Box 4.4). Box 4.4. Good practice at the firm level in Norway: the case of Linjegods Background: The company faced a sickness absence rate above the national average, which was very costly and lowered their overall service quality. Average retirement age at the company is currently 58 years but in the context of competition with other companies for scarce workers it sought to retain the competence of its older workers longer. Therefore, the company faced two main challenges: i) how to reduce sickness absence; and ii) how to retain people longer in work.


98 – CHAPTER 4. ENCOURAGING EMPLOYERS TO RETAIN AND HIRE OLDER PEOPLE

Measures taken: In 2001, the company initiated a project where local linemanagers and elected representatives of the staff were encouraged to come up with solutions to improve the work environment. Thus, ideas and solutions would flow from employees to management instead of the opposite. Outcomes: The project has resulted in a closer follow up of staff absent on sick leave and increased co-operation with the corporate health service. The company has also introduced job rotation when it is possible or desirable and supplies different forms of health promotion activities. Further, the human resource division now meets with employees when they turn 55 to discuss their needs and desires and the possibilities of senior careers. A follow up discussion is held again when they turn 57. From the age of 62, there is also a possibility for employees to reduce their working time to 80% with 90% of their salary, but also to switch from inconvenient working hours to standard hours with wage compensation. Finally, the company has introduced an exit bonus payable to all employees who work up to the ages of 65, 66 and 67 (corresponding to one, one-and-a half and two months additional salary, respectively).


CHAPTER 5. STRENGTHENING EMPLOYABILITY

– 99

Chapter 5 STRENGTHENING EMPLOYABILITY

Employability can be defined as having the necessary skills and ability to either remain in a job, to switch easily between jobs or to find a new job in the case of job loss. More generally, it means ensuring that there is a good match between the type of jobs on offer and the types of jobs that are being sought. The degree of employability of each person depends crucially on his or her personal characteristics: e.g. level of formal education, having up-to-date skills, and relevant work experience and on the types of jobs available. It will also depend on appropriate incentives being in place for job seekers to take up available job opportunities. This chapter analyses older people’s employability and how it could be enhanced in Norway. 1.

Education attainment and labour market status

A

A key to higher participation rates

As discussed in Chapter 2, labour force participation rates in Norway are relatively high and stable up to the age of around 60. However, there is considerable variation in these participation rates when measured by level of education (Figure 5.1). Typically, for all age groups up to the age of 60, participation rates are the lowest for the least educated and show a declining trend between the ages of 50 and 60, where as they remain constant or increase for the highest educated. After the age of 60, participation rates decrease for all education levels but become twice as large for those with tertiary education relative to those with less than a secondary education. Thus, the impact education has on participation rates becomes even more marked as older people age further. Moreover, while participation rates within each age and education group are always lower for women than for men, these gaps decrease for persons with a higher level of education.


100 – CHAPTER 5. STRENGTHENING EMPLOYABILITY Figure 5.1.

Participation rates in Norway by age and level of education, 2001 Percentages Primary

Secondary

Univeristy

100 90 80 70 60 50 40 30 20 10 0 25-49

50-54

55-59

60-64

Men

65-69

25-49

50-54

55-59

60-64

65-69

Women


Low education – not a reason for unemployment in Norway Often, employers lay off older workers under the assumption that they are less productive than younger workers or lack relevant skills. Another reason may be that when firms are downsizing, the willingness of older workers to move to other regions or to find new jobs is lower compared with younger workers. However, Norway contrasts with many other countries in the sense that unemployment rates for older people are lower than for prime-aged workers (see Chapter 2). Usually, unemployment rates are also strongly linked with education levels and more often so for older people. In Norway, however, there appears to be no significant differences in unemployment rates by level of education for older workers: unemployment rates in the age group 50-54 range from 2% for people with primary education to 0.8% for those with a tertiary education; in the age group 55-59, there is almost no variation around an unemployment rate of just over 1%; and, in the age group 60-64, unemployment rates range from 0.5% for those with primary education to 0.8% for those with a tertiary education. These low figures are testimony to the tight labour market that currently exists in Norway, but may also – at least partly – be an indication of the relatively less AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004


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generous unemployment benefits that exist for older workers compared with other inactivity benefits. Thus, older people in Norway may prefer to withdraw on other benefits such as the AFP or the disability pension scheme (see Chapter 3). B.

New skills – a way to strengthen employability

As noted above, participation rates are generally very high for older people in Norway, but decrease considerably by education level. Hence, like in most other countries, continuing efforts should be made to raise educational attainment. However, formal education needs to be upgraded and complemented by continuous training otherwise there is a risk that knowledge may become obsolete. Is there scope to improve older peoples’ level of education in Norway? In Norway, around 30% of the prime-age population have a high level of education and less than 9% have a low level of education, leaving the vast majority (around 60%) with an intermediate level of education. For older people, the corresponding proportions are 22%, 26% and more than 50%. In fact, in comparison with other OECD countries, education levels in Norway are relatively high, both for prime-age and older people (Figure 5.2). Furthermore, the share of prime-age persons in the lowest education category is smaller than in most other OECD countries while the share in the highest education category is amongst the largest, which augers well for the future. Indeed, there is likely to be a dramatic improvement in the average education level of older workers in Norway over the next decades (Figure 5.3). By 2025, the results of simple extrapolations suggest that only around 5% of all older workers in Norway will lack an upper secondary education level and almost 37% will have a tertiary education. This would place Norway at the top of the country rankings in terms of older workers with at least an upper secondary education. The gap in the proportion of older workers with tertiary education between Norway and some other countries such as Sweden, Germany and the United States would also be narrower. This rapid rise in average educational attainment could be an important source of future gains in productivity (Bassanini and Scarpetta, 2001) and should further improve employment prospects for older workers.


102 – CHAPTER 5. STRENGTHENING EMPLOYABILITY Figure 5.2.

a

Education levels in OECD countries, 2000

Percentages of the population in each age and gender group Men 25-49 Tertiary

Men 50-64 Upper secondary

Less than upper secondary United States Canada Switzerland Germany Finland Ireland Norway Sweden New Zealand Denmark Netherlands Australia United Kingdom Belgium Luxembourg Iceland France Korea Austria Hungary Greece Spain Czech Rep. Mexico Poland Slovak Rep. Turkey Italy Portugal

Canada Ireland United States Switzerland Korea Sweden Belgium Finland Norway Australia Spain New Zealand Germany United France Denmark Netherlands Luxembourg Iceland Greece Mexico Austria Hungary Czech Rep. Slovak Rep. Turkey Italy Poland Portugal

0

20

40

60

80

0

100

Women 25-49 Tertiary

20

40

60

80

100

Women 50-64 Upper secondary

Less than upper secondary Canada United States New Zealand Sweden Finland Ireland Australia Norway Denmark Belgium United Kingdom France Germany Netherlands Iceland Hungary Luxembourg Poland Switzerland Spain Czech Rep. Slovak Rep. Greece Austria Italy Mexico Portugal Turkey Korea

Canada Ireland Finland United States Sweden Norway Belgium Australia New Zealand Spain Denmark France Iceland Korea United Kingdom Germany Greece Netherlands Luxembourg Switzerland Mexico Hungary Austria Poland Portugal Slovak Rep. Italy Czech Rep. Turkey

0

20

40

60

80

100

0

20

40

60

80

100

a) Countries are ranked by the proportion of the population in each age and gender group who have a tertiary level of education. Source: OECD (2002b). AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004


Figure 5.3.

– 103

Projected rise in education levels of older workers, 2000-2025

Share of labour force aged 50-64 by level of educational attainment (%) Tertiary 100%

Upper secondary

5.3

11.3

11.7

12.0

20.8

21.0

Less than upper secondary 7.4 19.0

20.2

17.3

12.3

11.1

8.8

29.2 37.2

80%

58.0

45.8

52.0

60% 54.9

43.4

42.8

66.7

54.1

42.0

50.1

55.3

54.4

49.3

59.8

61.7 32.3

40%

36.9

20%

36.7 24.1

42.2

36.3 28.7

33.4 25.1

38.8

37.0

30.5 19.4

23.7

28.3

41.9

27.9

19.8

0% 2000 2025 2000 2025 2000 2025 2000 2025 2000 2025 2000 2025 2000 2025 2000 2025 Norway

Sweden

Denmark

Finland

UK

France

Germany

United States

Source: For 2000, OECD (2002b), Education at a Glance; for 2025, OECD estimates obtained by applying the participation rates observed in 2000 by educational attainment, gender and 5-year age group between the ages 50-64 to the corresponding population aged 25-39.

However, while formal education is important, changing job requirements mean that individuals regularly have to acquire new skills and upgrade their existing skills. Hence, vocational training and lifelong learning activities, in general, are important. Adult learning and training can also play a fundamental role in addressing the lack of formal education in the older working population. It can significantly enhance the employability and productivity of older workers, not to mention wages and firm profits (OECD, 2001c and 2001d).18 Moreover, there is a current shortage of skilled labour in Norway in certain professions such as doctors, nurses, teachers (especially in science and technology). As a result of population ageing, this shortage is projected

18.

Continuous education and training is also associated with various non-economic benefits such as better health and personal satisfaction.


104 – CHAPTER 5. STRENGTHENING EMPLOYABILITY to increase further in the future. In particular, large groups of nurses will leave the labour market over the next ten years or so, and at the same time the need for their services in the health and long-term care sectors will increase significantly. Thus, one of the most important measures in the immediate future will be to counteract the shortage of labour and bottlenecks through occupational and labour market-oriented training in areas where there is a shortage of skilled labour. 2.

Training of older workers

Firms are often reluctant to train older workers because it is more efficient to concentrate training on younger workers since economic returns are likely to be larger because of the longer payback time (OECD, 1999). At the same time, OECD (2003b) shows that many older workers see little benefit to themselves in investing their time and effort in training. However, if Norway and other OECD countries wish to encourage older workers to continue working longer, it is going to be important to change this perception on the side of firms concerning the returns from investing in training older workers. At the same time, it will be necessary to motivate older workers and prime-age workers to invest more in training. A.

Incidence of training declines with age

Currently, both in Norway and other OECD countries, the incidence of training for older workers is always lower than the incidence for prime-age workers (Figure 5.4). In Norway, the gap is about 13 percentage points, which is somewhat larger than in some other OECD countries such as Canada and the United States. Nevertheless, in Norway, around 40% of older workers received job-related training in the previous year, which places Norway second behind Denmark among those OECD countries for which comparable data is available. The relatively high incidence of training among older workers in Norway can be ascribed to several factors including the growing emphasis on training in collective agreements and a number of government measures to encourage greater participation in training.



Figure 5.4.

– 105

Incidence of job-related training for workers by age in selected a OECD countries, 1994-98 50-64

25-49

50

50

40

40

30

30

20

20

10

10

0

0

De

Ita N et he l y rla nd s I re Be la nd lg iu m (F l. ) Po la nd

60

nm ar k No Un rw ay it e d St at es Fi n N ew lan d Ze al UK an d (E ng la nd ) C an ad a Cz Aus t ec ra l h Re ia pu bl Sw i t z ic er la nd

60

a) The data refers to training received at some stage during the 12-month period prior to the survey. Source: International Adult Literacy Survey.

B.

The role of collective agreements

Since the mid-1990s, most collective agreements in Norway have sections dealing with competence development and the possibility for the employee to obtain leave for this purpose. In general, the social partners have acknowledged the great importance of training both for the individual, the enterprise and for society at large. They therefore underline the value of encouraging both employees to improve their competence and enterprises to offer their staff systematic education and training through internal and external courses. Several surveys indicate that both employers and the shop stewards in the public sector are rather satisfied with the content of collective agreements in this area (OECD, 2002c). However, it would be useful to conduct further research to investigate whether these agreements have effectively enhanced education and training opportunities for older workers. The aim of education and training, according to these collective agreements, can be to maintain necessary competence for a present job or to AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004

106 – CHAPTER 5. STRENGTHENING EMPLOYABILITY prepare a worker for a new and more qualified task in the company. In the private sector, the objective of competence development is to maintain and improve competitiveness. The partners in the public sector underscore the fact that continuous competence development is crucial for each institution’s ability to solve its tasks effectively and in order to adapt to future changes in the demand for public services. In these agreements, it is generally recognised that the expenses for training based on the needs of the enterprise shall be covered by the enterprise itself. A government committee proposed that the social partners should give priority to arrangements encouraging greater participation in further education and that a grant should be set aside in the yearly wage negotiations for this purpose. Financing lifelong learning is therefore likely to become an increasingly important issue in wage negotiations in the future. C.

The Norwegian Competence Reform

The Competence Reform in Norway was based on a report of a Government Committee (Ministry of Education and Research, 1997). However, the agreement reached between the government and the social partners in connection with the 1999 and 2000 wage settlements also formed an important basis for the reform. The main objective for introducing the Competence Reform was to meet the increasing demand for competence in society, in the workplace and by individuals. But it was also to promote an increase in the number of older workers, whose employment rates fell during the 1990s. The target groups for this measure are adults (whether working or not) who lack formal educational qualifications, older people who did not have access to education when they were young and adult immigrants with educational qualifications which are not recognised in Norway. One major reason for the reform was that the public education system could not sufficiently meet the demand for competencies in the workplace. Furthermore, the provision of education and training should as far as possible be driven by demands of enterprises and adapted to individual needs (Norwegian Institute for Adult Education, homepage). An overview of the most important measures of the Competence reform is given below (see Ministry of Education and Research, 2000, for further details).



– 107

Upgrading formal education levels of adults To upgrade skills for people with low formal education levels, the reform gives adults in need of primary, lower secondary or upper secondary education the legal right to such education. The teaching methods should, as far as possible, be based on prior learning (formal and non-formal) and be adapted to suit the needs of the individuals. Generally, the provision of adult education is the responsibility of the municipality or the county, but non-governmental study associations, distance learning institutions and other bodies may also be used to provide this education. Moreover, 37 municipalities from all over Norway are taking part in a project in order to chart the need for primary and lower secondary education and to develop teaching models that suit adults. For this purpose, the government is allocating money to develop new teaching methods targeting adults, but also with the intention to reduce participation costs in courses. Assessing non-formal competences Following the Competence Reform, a project called Realkompetanse Project 1999-2002 was established in order to develop a national system of accreditation of adults’ non-formal competencies and informal learning, which would be recognised in both the workplace and the education system. In general, non-formal competencies can be acquired through jobs in Norway or abroad, through activities in voluntary organisations, domestic work or other learning settings. To encourage higher education, it was also made possible for persons aged 25 or over – without upper secondary education – to enrol in tertiary education. However, this is only possible if the university or the college in question approves the non-formal competence as sufficient. These admissions are based on either written or oral tests, age limits in combination with guidance and self-assessment or relevant work experience. Finally, non-formal competencies may also lead to the shortening of a course or to exemption from examinations or tests. So far, this system has had some success in promoting training and re-training of adults. Up to 2002, 26 000 adults had benefited from these measures; the vast majority, 20 000, with regard to upper secondary education. However, in 2001, around 2 600 students were given places in courses at universities and colleges on the basis of their recognised non-formal


108 – CHAPTER 5. STRENGTHENING EMPLOYABILITY competencies. A clear majority of these students (mostly prime-age women) were enrolled in courses relating to health-care and teaching. Study leave for adults Employees that have been working for at least three years, and with the same employer for at least two years, have a legal right to a fulltime or a parttime leave of absence for up to three years in order to participate in organised education or training.19 Education beyond the level of upper secondary must, however, be job-related in order to entitle the employee to a study-leave. Moreover, employers have the right to refuse the request for a study leave if this interferes negatively with the employer’s prospects to plan production and manage personnel.20 While various study leave schemes exist in OECD countries, only a limited number of employees have participated in such schemes. They include special subsidies for part-time workers in Germany and a “leave-saving scheme” in the Netherlands (see OECD, 2003b, for a more complete list of existing schemes). In general, compensation for living expenses during study leave is a matter between employers and employees, but the State Educational Loan Fund can also subsidise adults taking up education.21 In 2000, the rules of these study loans, which provide support for most educational purposes, were changed in order to better adapt them to the needs of the competence-building programme

19.

In the 1998 wage negotiations, an agreed action plan for competence building was accepted as an appendix to the collective agreement. The action plan mainly represented a follow-up of the proposals contained in the government committee report in 1997 on the Competence Reform. In short, it emphasized the responsibility of the authorities for carrying out the reform. The action plan confirms the right of employees to be on leave for educational purposes on certain conditions. This later became part of the Norwegian legislation.

20.

Due to the lack of data, it is not possible to review the take-up of study leave in Norway and, at this stage, the Norwegian government has no plans to establish any registration system for persons taking study leave.

21.

The State Educational Loan Fund (Lånekassen) provides grants and loans to students in upper secondary schools and to university and college students. Most Norwegian students finance their studies through grants and loans from the State Educational Loan Fund. The loans are meant to cover the costs of studying in Norway, and the objective is to give everyone in Norway equal rights to education. AGEING AND EMPLOYMENT POLICIES: NORWAY– ISBN-92-64-02045-4 © OECD 2004


– 109

for adults. For example, monthly incomes in addition to the study loan grant were increased from NOK 3 550 per month to NOK 5 000 per month. Also the limit for the means-testing of family supplements was increased. In addition, in 1999, the tax on employers-financed education was abolished. D.

Effectiveness of training

Clearly as part of an evaluation of the effectiveness of these measures to boost adult training, it is important to establish how returns to training vary by age and education. However, as opposed to the returns on initial education, there are relatively few studies of the rate of returns to education and training for adults whether in Norway or in other OECD countries. The ones that do exist for Norway report very different estimates of the rate of return on training and do not provide much indication of which types of training appear to be most effective. A study by the Institute of Social Research reports fairly stable returns to adult education and training of 4% to 7% over the period 1980-1995 (Barth and Røed, 1999). However, Schøne (2002) estimates that the net rate of return to training is actually much lower, but still statistically significant, at only 1% once controls are included for individual characteristics (both observed and unobserved), accumulated firm-specific skills and measurement error.22 For older workers, these rates of return from training could be even lower given their shorter expected remaining length of job tenure relative to other workers and if they require more learning time than younger workers. Thus, it is important that training courses are available for older workers that are relatively short in duration and which build on their existing experience and skills. It is also important to carry out more evaluations of the effectiveness of different types of training, especially for older workers. 3.

Active labour market programmes and vocational rehabilitation

Apart from vocational training, it is also important that older people have access to active labour market programmes more generally to help them find jobs if they become unemployed and to vocational rehabilitation measures if injured or disabled. In Norway, there are several regular active labour market

22.

These rates of return are based on observed increases in wage rates as a result of training. Thus, they may not fully reflect all of the productivity gains from training since these may be partly captured by the firm if it pays for the training. Morover, these returns also reflect returns to training that is often of short duration (i.e. on average, less than one week).


110 – CHAPTER 5. STRENGTHENING EMPLOYABILITY programmes (ALMPs) for the unemployed as well as extensive programmes for disabled job seekers. The main programmes are wage subsidies, traineeships, various labour market courses to help find jobs and vocational rehabilitation measures. However, apart from wage subsidies – where age is one of the criteria for receiving a subsidy (see the discussion of these subsidies in Chapter 4) – there are no programmes that are specifically targeted towards older workers. At the same time, there are no explicit age limits to participation in these programmes and so older people can and do participate in them. A.

Older people are under-represented

In comparison with the age profile of the registered unemployed, older people participate much less frequently in active labour market programmes for “ordinary” job seekers than younger and prime-age people (Figure 5.5). For example, whereas the older unemployed accounted for almost 18% of all registered unemployed in the first half of 2003, the corresponding figure for participants in active labour market programmes was under 8%. Figure 5.5.

Age profile of participants in ALMPs and the registered unemployed in Norway, first half of 2003 Percentages of the total for each category

Participants in ALMPs

Registered unemployed

35 30 25 20 15 10 5 0

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