sou · GWB3105EN · 2009-01-01 00:00:00 — Cross-country comparisons show that Swedish young people with no more than a pre-upper secondary education have lower employment rates than the average in the first years after quitting school.45 But after a couple of years, the labour market outcome for Swedish young people lacking an upper secondary education is better than the average. 44Nordström , O. [2004]. 45OECD [2008b]. The Long-Term Survey 2008 Increasing the Labour Supply Figure 3.6 at which young people who had not completed upper secondary school at the age of 20 obtained their first job, percentage and year of birth Note: Entry is defined here as when individuals reach an income equal to 50 per cent of the median income for 45-year-olds. Of those born in 1967, about 50 per cent obtained their first job at the age of 19 and by the age of 25, over 80 per cent had obtained their first job. Source: , O. and others. [2006]. Level of education determines labour market outcome The effects of choosing different education programmes can be seen in an example from the cohort born in 1978. According to Statistics definition, at 28 years of age about 16 per cent of the men and about 11 per cent of the women lacked a complete upper secondary school education.46 About 40 per cent had studied at university, although about half of these had not received any 46 In its definition, Statistics does not require a school-leaving certificate. Instead it is enough to have managed to get a transcript of final grades describing the courses in which the student has received pass grades, regardless of the number of courses. Increasing the Labour Supply The Long-Term Survey 2008 In some groups there were many who were still studying, particularly those in shorter university programmes. Among women and men with only a pre-upper secondary education, almost 25 per cent are not in the labour market or in the education system, while in the cohort with at least three years of university studies, less than 5 per cent are not in the labour market or in the education sytem (see table 3.1). The employment rate differs substantially from one group to another. Among those who had not completed upper secondary school, many fewer were employed, particularly among women.47 The employment rate was highest among those who have completed at least a three-year university programme. There was some difference in employment between women who had qualified for university at upper secondary school and those who had not. There was less difference in income than in employment between those with no more than a pre-upper secondary school education and those who had an upper secondary education but no more. This indicates that those with the least education have more difficulty in getting a job but if they do get one, the differences in income are quite small. Median income generally increases as the level of education rises. Women more than men appear to strengthen their position in the labour market with higher levels of education. With a university education of at least three years, women have a higher employment rate than men while the rate for women in all other groups is lower than for men. Median income in all education groups was lower for women than for men. 47 It should be noted that people on parental or sick leave are defined as employed. The Long-Term Survey 2008 Increasing the Labour Supply Table 3.1 Labour market status 2006 for people born in 1978, by highest level of education achieved employed and not in did not qualify for 2 years or other years with a degree at least 3 years, no (Swedish) degree at least 3 years Note: People who immigrated to after 1990 have been excluded. Source: Statistics and calculations. The clear connection between a weak position in the labour market and a short education could very likely be explained by some underlying factor such as family background or integration Increasing the Labour Supply The Long-Term Survey 2008 There is a strong connection between family background and the level of education individuals acquire.48 Research in the shows that special measures for children with poorer opportunities are worthwhile if they are initiated early, usually before school age.49 According to these studies, the initiatives should focus on children in worse home conditions. Swedish studies with a long-term perspective have shown that young people without an upper secondary school education have had a more difficult time at school than other students as early as the intermediate level.50 For students with poorer school results, school problems worsened during the time they attended school. Thus there are indications that early inter- vention would also be effective in . Postponing the transition from upper secondary school to univer- sity is expensive for both the public sector and for the individuals concerned. In an international perspective, Swedish students are relatively old when they begin their university studies. As a result, they also graduate at a relatively later age.51 In addition, it takes Swedish students a long time to complete their education, which further delays labour market entry and . For example, in 2006, gross study time for a degree was six years, which corresponded to four years of full-time studies.52 Compared with other countries, also has relatively many who begin studies but do not complete them. About two thirds of those who study at university are under 30 years, but most of the increase in the number of university students since the beginning of the 1990s has occurred in the group older than 30 years. The percentage with an upper secondary school certificate who begin university studies within five years rose in the 1990s (see figure 3.7). Between the 1988/89 and the 2000/01 academic years, 48Appendix 8 to the Long-Term Survey 2008 (SOU 2008:69). 49Heckman, J. [2008]. 50Murray, Å. [1994]. 51OECD [2007c]. 52Statistics [2007b]. 53OECD [2007c]. 54Statistics [2007b]. The Long-Term Survey 2008 Increasing the Labour Supply the percentage of those who began university within two years of completing upper secondary school studies increased, only to decrease somewhat thereafter. Figure 3.7 Percentage beginning university studies within 1- 5 years after the end of the upper secondary school year Per cent with an upper secondary school certificate Source: Statistics [c]. The number of new university students increased by 39 000 between 1986 and 2006. It is of interest here that the number who earned their first degree only increased by 17 000 during the same period (figure 3.8). Even though there is presumably some lag since it takes a number of years of studies before qualifying for a degree, the difference between these numbers is remarkable. One explana- tion is that a relatively high percentage of new university students are foreign students who do not intend to take a degree in , but rather only to study here a short time.55 If the incoming students are excluded, the number of students beginning university has declined in recent years and is back to approximately the same 55 Statistics [2007b]. Ninety per cent of the foreign students stay no more than two terms. Increasing the Labour Supply The Long-Term Survey 2008 level as in the mid-1990s. This drop cannot be explained by smaller cohorts of young people but rather by the declining frequency at which students go on to post-secondary education. Figure 3.8 University entrants and graduating university students /87–2006/07 Entrants excluding incoming students Note: Graduating students include those earning their first degree. Source: Statistics and calculations. Fact Box 3.2 Incoming students, academic year 2006/07 Incoming students made up about 7 per cent of all students in the 2006/07 Swedish academic year. In comparison, they represent about 25 per cent of university entrants. Almost all (95 per cent) incoming students study individual courses and 40 per cent come via some exchange programme. Most of the incoming students come from Europe. About 20 per cent come from and the sharpest increase has occurred in this group. Source: for Higher Education [2008a]. The Long-Term Survey 2008 Increasing the Labour Supply Only about 47 per cent of Swedish university entrants earn a degree within seven years.56 Some of those who have not earned a degree would be able to do so. About 20 per cent have earned more than 120 credits, but it is unclear how many of these meet the degree requirements. A high proportion earn relatively few points; seven years after registering, approximately 25 per cent have earned fewer than 80 credits. Those beginning their studies when they are under 25 are over represented among those who have earned degrees and more than 120 points, while those over 25 are over represented among those who have earned relatively few points (figure 3.9). This could be due to the older students having other motives for their studies, but it may also be due to more difficulty in beginning university studies a relatively long time after upper secondary school studies.57 56Statistics [2007b]. 57In 2007 a system of university degrees that was new in part was introduced. At the same time, the credit system for universities was changed from credits' to higher education credits. One term of full-time studies is equivalent to 30 higher education credits. Increasing the Labour Supply The Long-Term Survey 2008 Figure 3.9 Percentage who had earned a specified number credits seven years after first registering for the university term 1999/00, by age Note: Incoming students are excluded from the survey. Source: Statistics [c] and calculations. All in all, this survey shows the problems with having an influx of university students as a goal of education policy. The relatively low percentage earning more than 120 credits in seven years also indicates problems of efficiency in the Swedish higher education system. But from the point of view of the labour market, it is not clear that it would be optimal if all who began university took a degree. For some positions, only certain knowledge from univer- sity is needed, not a degree. There is relatively information about incoming students. information is needed on the reasons for studying in and why most stay such a short time. The Long-Term Survey 2008 Increasing the Labour Supply 3.3Many factors steer labour market exit Exiting the labour market later in life can also increase the number of hours worked in the economy. In an alternative scenario reported in more detail in appendix 1 to the Long-Term Survey, the impact of such a change in labour market behaviour on GDP is estimated.58 In the alternative scenario, the exit age increases by 0.1 years every year from 2012 to 2021. Thereafter the exit age in the alternative scenario is assumed to be permanently one year higher than in the base scenario. The higher employment results in an increase in the GDP level of approximately 2 per cent in the long term. In addition to giving a generally higher standard of living, it would also generate more tax revenue. 3.3.1Exit now occurs both earlier and later Generally the decision to exit working life is permanent. Few who retire or are awarded sickness and activity compensation return to the labour market.59 Between 1970 and 1995, there was a downward trend in the average exit age for men in , while there was a weak increase in womens actual exit age (see table 3.2). Since the mid-1990s, the average exit age has increased for both men and women. Average exit age in Note: Exit age is calculated based on the average labour market exit age of people over 50 years who were in the labour force at 50. () [2000] and the [2007c]. The exit age differs from the age at which people start to collect the old age pension. In 2006 the average age at which people started 58See appendix 1 to the Long-Term Survey 2008 (SOU 2008:108). 59Ministry Publication Series Ds 2007:21. Increasing the Labour Supply The Long-Term Survey 2008 to collect the old age pension was 64.7 years. This age remained basically between 1998 and 2006.60 But the spread has increased since more start to collect the pension both before and after the age of 65. The percentage of people who began to collect the old age pension at 65 fell from 82 to 64 per cent between 2002 and 2007. The percentage of 60–64-year-olds with income from the state old age pension increased both for women and men between 1991 and 2005 (see table 3.3). Exit from the labour market before age 65 usually occurs via benefit systems other than the state old age pension system. Table 3.3 shows the percentage of people with specified types of incomes and table 3.4 shows various types of income as a per- centage of total income from gainful employment, sickness benefits, unemployment benefits and pensions.61 Even though more people aged 60–64 start collecting the old age pension, the old age pension as a percentage of income has not increased to any great extent. There are large differences between how many people have a particular type of income and how large a percentage of total income these types of income represent. The old age pension is a small part of 60–64-year-olds incomes. It may mean that many work at the same time that they collect the old age pension. Supplementary pension schemes are a considerably more important source of support than the old age pension is for 6064- year-olds. It is worth noting that the disability pension/sickness and activity compensation are an important source of income for 60–64-year-olds, particularly for women. The importance of this source of income has, however, diminished over time. Many more had private pension income in 2005 compared with earlier years, and private pensions as a percentage of income have also risen for 65–69-year-olds. About a quarter of 65–69-year-olds have earned income, which constitutes about an eighth of income. The importance of earned income has, however, increased, while the old age pension makes up a considerably lower share of income in 2005 than it did previously. A sharp increase in supplementary pension schemes and private pension schemes is a contributing factor. 60The [2007c]. 61The figures do not show the percentage of disposable income for each type of income. The Long-Term Survey 2008 Increasing the Labour Supply Percentage with a particular type of income Disability pension/SA Note: Since individuals may have several different types of income during a year, summing the items is not possible. SA is sickness and activity compensation. Source: (ordered data). Increasing the Labour Supply The Long-Term Survey 2008 Table 3.4 Income as a percentage of the sum of income from gainful employment, sickness benefits, unemployment benefits and pensions Disability pension/SA Note: Only income from work, pensions and public income insurance schemes are included in the survey. Public transfers, for example, the housing supplement for pensioners, are not included. This survey does not therefore describe disposable incomes. SA is sickness and activity compensation. Source: (ordered data). 3.3.2Health and education affect work opportunities Good health is vital to make working to a more advanced age possible. Health generally worsens with increasing age, a significant factor in being able to work. The rising average life expectancy is a clear sign that health has improved over time. Together with exit age developments, it has meant that the number of years after exiting working life has steadily increased (see table 3.5). The Long-Term Survey 2008 Increasing the Labour Supply Table 3.5 Expected remaining average life expectancy at age 65 Source: Statistics [b]. Self-reported ill-health for older men has been relatively stable over time, but has increased for women aged 45–54 (figure 3.10). It increased sharply for women aged 55–64 during the early 2000s but subsequently returned to earlier levels. It is important to emphasise here that self-reporting health measures may often be hard to interpret. What individuals experience as a high degree of reduced work capacity may vary over time, depending on social norms and other factors. Moreover, developments in technology and more health education and knowledge on the part of the public contribute to increased diagnosis of health problems over time and thus also to their disclosure in health interviews. The interventions possible by health care providers will also be important in making it possible to work to a later age in the future. Health care has contributed to the increase in average life expectancy, but at the same time there are differing views on how longer life expectancy affects quality of life (see also section 7.2.3). Increasing the Labour Supply The Long-Term Survey 2008 Figure 3.10 People with a substantially reduced work capacity owing to long-term illness 1980–2006 55–64, men 55–64, women 45–54, men 45–54, women Note: The questions posed were: Do you have any long-term illness, trouble after an accident or any other debility?,do you regularly take medicine for anything? and does the problem result in a major reduction in work capacity?. Source: Statistics [d]. Those now nearing retirement age have a better level of education than did earlier generations and work in other occupations. One explanation for the rise in the exit age in the past 10 years may be that compared with previous generations, people born in the 1940s are the first generation having a substantially higher proportion of people with a university education. Most quantitative studies of actual retirement age show that people with a university education retire later than those without.62 62 This should be interpreted taking into consideration that the level of education, in addition to being purely human capital, is also a proxy for other explanatory information for a later retirement. For example, university education leads to fewer periods of unemployment and greater employability and has less impact on health, making it difficult to isolate the impact of education on retirement age. The Long-Term Survey 2008 Increasing the Labour Supply Today a considerably larger part of the population chooses to get a university education. It is therefore unclear if the existing correlation between higher education and actual retirement age will also hold true for tomorrows older workers. has the value of older workers education compared with that of younger workers been made clear. An education received a long time ago is generally less responsive to the needs of the labour market, but the value of an education can also increase if it is combined with long work experience. According to an survey of research on the importance of age in productivity, productivity declines with age.63 These productivity decreases can, however, be partially compensated for with the help of assistive measures and changes to the work environment In contrast, a review of studies at the macro level shows that economies with an older labour force grow more rapidly than economies with a younger labour force.64 3.3.3Not everyone benefits from working for a longer time Economic incentives can explain a large part, but not all, of an individuals decision to retire.65 One basic intention of the pension system reform was to strengthen the incentives to work. In most instances there is a clear connection between the length of an individuals working life and the pension provided by the system. But for relatively large groups, the financial incentives are weaker.66 This is true of people with relatively high incomes, as incomes over 7.5 base amounts do not give public pension rights, even though pension contributions are deducted. It also holds true for those with low incomes who are only eligible for the guarantee pension or those with incomes from sickness or activity compen- sation who receive the same pension regardless or whether or not they start to work.67 For people with low incomes, the housing supplement for pensioners also reduces the incentives to work after 63OECD [2006]. 64Malmberg, B., , T. & , M. [2008]. 65Palme, M. & , I. [2004]. 66Appendix 5 to the Long-Term Survey 2003/04 (SOU 2004:44). 67About 10 per cent of those having pensionable income in 2005, received it from sickness and activity compensation. [2007b]. Increasing the Labour Supply The Long-Term Survey 2008 age 61 since the housing supplement is also granted to those with sickness benefits. The old age pension system thus encourages continued labour force participation, but not necessarily continued work, for those with income from sickness and activity compensation. For those with sickness and activity compensation that exceeds the guarantee pension, there is a strong incentive to wait until age 65 to start collecting the old age pension since sickness compensation is pensionable. The of financing an early labour market exit via public income insurance thus eliminate the flexibility in the pension system for some groups. It is not only the state pension system that affects the retire- ment decision – pensions regulated by collective agreements and private pension savings are also important factors.69 These can often be started at considerably lower ages than the state pension. An early retirement pension is considered to have a strong influ- ence on the decision to move retirement forward.70 There are tax and deduction regulations that can make it advantageous for employers to offer a pension settlement instead of continued employment.71 Employers costs for occupational pensions for older workers are often quite high. This is due both to older workers often having a relatively high wage and the premiums in some systems rising with age. It is important to remember that labour market exit decisions are generally made in a household with two people and they often coordinate their retirement decisions.72 opportunity to stop working will therefore affect more than those who have the opportunity. This makes it even more important to review the 68The maximum compensation in 2008 was 650 per month for someone who is single. The housing supplement for pensioners can be granted to people who have the old age pension, sickness and activity compensation, widows pension, a special survivors pension, extra allowance for the wife of a pensioner or the equivalent benefit under the laws of another EU/EEA country. The housing supplement for pensioners is not awarded to those who start to collect the old age pension before age 65. 69Estimates of the extent of supplementary insurances can be found in , G. &Wadensjö, E. [2007]. 70Eklöf, M. & , D. [2006]. According to their estimates, the probability of early retirement would fall by 10–30 per cent if no one was offered an early pension. 71Ministry Publication Series Ds 2007:21. 72 Ministry Publication Series DS 2007:21. [2001b] finds that people living together are more likely than single people to choose to retire before the age of 65. The Long-Term Survey 2008 Increasing the Labour Supply economic incentives and regulations that concern the decision to retire. 3.3.4The norm of a pension at age 65 has begun to loosen Both employees and employers want to have low pensionable ages. In a 2005 survey, about 65 per cent of the employees stated that they wanted to retire before the age of 62.73 According to surveys, Swedish employers representatives are unwilling to take on people over 50-years-old and think that most employees should retire early.74 It is uncertain whether these attitudes to older workers will last in the future if the shortage of workers, particularly younger workers, increases. Before the Swedish pension system was reformed in the 1990s, the mandatory retirement age was 65. There are signs that this was standard and functioned as a generally accepted upper limit for working life.