sou · H3B3104 · 2015-12-08 00:00:00 — the Long Term Survey and existing studies the pace of structural change – i.e. the pace at which jobs are created and destroyed – in seems on the contrary to have been relatively stable since the 1960s. There are still no signs of an increase, despite the simultaneous reshaping of the labour market that job polarisation has meant. However, it is necessary for the economy, and not least the labour market, to have a good adaptive capacity both in the short term and the long term, to prevent the risk of these trends leading to higher structural unemployment. Good skills give good jobs in Adjusting the labour market to give a more upgrading profile requires a clear focus on education and adaptation. To examine more directly how skills influence the probability of getting a job the Survey has examined research and made its own analyses of the PIAAC survey (Programme for the International Assessment of Adult Competencies), conducted by the to measure adults’ basic skills in literacy, numeracy and problem solving in technology-rich environments. The wage premium on basic skills is relatively low in compared with the average, since has a relatively compact wage structure. However, in there is a steeper fall in the risk of unemployment or of exclusion from the workforce the higher an individual’s skills level is, compared with the average. In the report, older workers and people born outside of are identified as future key groups in the labour market. In these key groups it can be noted that the percentage of older people (55– 65 years of age) with good or high skills levels who have a job is 81 per cent, as compared to 50 per cent among those with insufficient skills. Among people born outside with good or high skills levels it can be noted that the percentage who have a job is 87 per cent as against 51 per cent among those with insufficient skills. A very important and positive result from the PIAAC survey is that there are no significant differences between people born outside or in as regards being in work, if the individual's skills level is taken into account. Neither do the equal chances of being in work if you have good skills seem to be explained by foreign-born people working to a greater extent in occupations that do not correspond to their skills level. The same picture emerges in an study of Swedish PIAAC data that controls for a large number of background variables. The Survey assesses that the Swedish labour market on average does not seem to be characterised by ethnic discrimination, but is mainly focused on individuals' skills. The results of the PIAAC survey show that in general has a population with good human capital. At the same time there is a relatively large proportion of the population with a very low knowledge level. It is more common among older people than younger to have weak skills. As regards foreign-born people, just over 35 per cent have insufficient skills in both literacy and numeracy, compared with about 5 per cent of native-born people. According to the Survey’s analysis of PIAAC data concerning numeracy, this seems also to apply to highly educated people from common immigration regions in the Middle East and , whose results on average were lower than native-born people with a low level of education and on par with immigrants with a low level of education from North and Western Europe. For this reason, the Survey assesses that in many cases fairly extensive supplementary education will be required, even for non- natives with a high formal level of education, to ensure that they are well integrated on the Swedish labour market. On the other hand, with the right skill set, the chance to find work is equal to that of native Swedes. Better public welfare systems require more work There are several factors that will probably mean that demand for both welfare services and social insurance will increase in the future; for example an ageing population, rising incomes and technological progress that may influence treatment possibilities in the health care sector. Structural change as a result of technological development and internationalisation may increase demand for social insurance. At today’s employment and taxation levels the demographically conditioned increase in demand for publicly funded welfare will lead, according to most scenarios, to a deficit in public finances by and large every year up to 2040. A deficit in public finances for several decades seems unlikely, however. It is more probable that various measures will be taken to achieve balance in public finances. According to scenarios, a higher level of ambition in welfare would lead to large deficits in public finances for a long period, given today’s employment rate and taxation level. Considerable adaptation would therefore be required to be able to finance improved welfare services without major public deficits. To maintain and be able to develop public welfare systems in future will require change. A higher number of hours worked, raised taxes or re-prioritisation are basically the options available, where potential for permanent improvement in public finances varies. The Survey makes the assessment that the greatest potential for developing publicly funded systems lies in increasing the number of hours worked in the economy. In the short term, tax increases can be used as a complement, but in the long term the potential for funding improvements to public welfare systems through raised taxes is limited. The Survey does not believe that productivity increases in publicly funded services would facilitate long-term financing of public welfare systems to sufficiently meet continually increasing demand for tax-financed welfare systems. Improved productivity in the private sector would also have a very limited effect on public financing, since a very large part of public consumption expenditure is made up of salaries that in the long term tend to rise at the same rate as in the business sector. Distribution will be a future challenge Pension incomes will increase in the future, for example as a result of increasing real incomes and thus increased earned pension, but also through indexation of pensions. Pensioners’ real purchasing power will increase steadily to 2060. Despite the increase in real incomes, pension incomes will increase considerably slower than incomes for people who are working. The positive real income growth will not, however, benefit all older people to the same extent. In the past decade the guarantee pension has fallen from 35 to 30 percent in relation to the median income of the population. This relative weakening will continue since guarantee pensions are subject to price indexation rather than wage indexation. To date this has been mitigated to some extent by increased housing supplement and increased basic income tax allowance. The proportion of older people with a low economic standard – where disposable income is less than 60 per cent of the median income in the economy – will increase under current regulations. In 2060 calculations show that about 50 per cent of female pensioners will have a low economic standard (compared to 20 per cent today) and among the oldest women the percentage will be even higher. For men the proportion would increase to about 35 per cent in 2060 (from around 10 per cent today). Since the Swedish pensions system is based on income earned in many people born outside who have come here as adults will have a relatively low income-based pension. The guarantee pension includes a requirement in which full guarantee pension requires 40 years of in after the age of 25. Even if special rules exist for individuals who receive a permit as a refugee, the requirement means that many foreign-born people will not be entitled to full guarantee pension when they retire from work. All in all this means that many foreign-born people will have to resort to the means-tested support for the elderly. There is thus much to indicate that differences in material wealth will become greater between working people and retired people. The future could thereby include a line of conflict between generations. The 2015 Long-Term Survey of the Swedish Economy 2015 – a future focus agenda In view of the uncertainty about specific future circumstances that follows from the long-term perspective the Survey has decided not to make any detailed policy proposals. Instead, the 2015 Long- Term Survey of the Swedish Economy indicates a desirable direction for formulating future and more concrete policy proposals in a future focus agenda. This future focus agenda should help improve the adaptive capacity of both individuals and society. Through this 's long-term economic development can be strengthened. The first part of the future focus agenda takes note of what is required for all future resources in the economy to grow. High productivity is the key to growing wellbeing. Productivity growth is dependent on many factors, many of which are not included in the public commitment. The Survey points out two important tasks for the public policy makers, however: Formulating general regulatory frameworks that promote the adaptive capacity of the economy, and safeguarding good public administration that contributes to a high level of trust in society. The second part of the future focus agenda takes note of what is required to ensure that a sufficiently large part of all future resources can be used for a public welfare commitment in line with the demands of the population. The Survey points out the necessity of more hours worked to make it possible in the long term to ensure tomorrow’s welfare, as tax increases and shifting priorities will not be sufficient to maintain and develop welfare systems in the long term. To achieve an increase in hours worked initiatives are required above all to equip individuals with good skills, since they are central both for entering the labour market and for remaining there for a longer period. General regulatory frameworks will promote the adaptive capacity of the economy It is not possible with any great certainty to predict the changes that will take place in the Swedish economy, or the industries, regions or individuals who will be affected by such changes. Consequently, the Survey considers that the fundamental focus of policy for good adaptive capacity should be general. With this approach, the role of the government should be to formulate general regulatory frameworks, and refrain from drawing up rules that favour specific types of technology, markets or consumers. In the opinion of the Survey, in most cases it is more effective to transfer assessment and management of commercial risks to market actors, rather than public sector actors. It is also part of the public commitment to apply a principle of to tax revenue. However, general, rather than selective, rules also have other advantages, such as more effective allocation of resources and greater transparency. The Survey points to tax policy, housing policy, climate policy, energy policy and labour market policy as policy areas whose current regulatory frameworks now appear to be far or very far from the ideal type of a generally formulated regulatory framework. In these areas the regulations are characterised by a large number of exceptions and – often historically grounded – special rules that reduce adaptive capacity and invite strategic behaviour on the part of actors. At the same time the Survey wishes to emphasise that adaptive capacity and general regulatory frameworks cannot be the sole objective for a well-functioning economy, but must be balanced against social, integrity and environmental considerations. In particular in a situation where demographic or technological trends are perceived to be accelerating, there is a risk that demands will arise for rapid readjustment of regulatory frameworks and economic policy to what are perceived to be new conditions. The Survey points out the risks of deviating from or reducing the quality of the work of government regulation to appease calls for swift action from the surrounding community. A high level of trust and good public administration need to be protected and developed The Survey considers that the high level of trust and the mainly well-functioning public administration that exists in help to strengthen the adaptive capacity of the Swedish economy. A high level of trust has proved to co-vary with good economic growth, high economic equality and a low level of corruption, but also with a high educational level and sound public health. The Survey wishes to emphasise that a high level of trust also contributes to good adaptive capacity in the economy. A society characterised by trust finds it easier to readjust to manage new, future challenges. The Survey points out the clear correlation measured between trust and the quality of a country's public administration, where quality refers to both impartiality and the rule of law, and to effectiveness. Maintaining the quality of and confidence in the rule of law and public institutions should therefore be high priority policy areas. In the first place it is a matter of securing the foundations of the rule of law. This refers to such things as fighting organised crime and fighting increasing threats to politicians and public officials. Safeguarding skills supply in the public sector and merit-based appointments to public sector positions is important both to ensure a high-quality basis for decision-making and to maintain values of rule of law and equal treatment as well as the absence of both negative and positive discrimination. Trust between people and in social institutions may also be assumed to be dependent on citizens perceiving that it is not possible to misuse the social security systems or welfare services, or to evade the taxation necessary to finance the welfare systems. Effective administration at central government, regional and municipal level is a concern for the entire economy. There are many good reasons for clarifying the division of responsibilities, adapting the organisation of health care, overall regional planning etc. to new conditions, as well as making a more equal and predictable application of regulations possible throughout the country. To combat corruption and provide incentives for effective use of municipal and regional funds, audit of local and regional administration should be conducted impartially and professionally. Long-term efforts to raise the quality of policy analyses, including impact assessments, in the public sector, should be started, even outside existing analysis agencies specialist areas. This is important in the public sector at national, as well as local and regional levels. Education is the key to good skills required for work The Survey notes that the type of work that does not require any skills or just weak skills is relatively rare in . Conversely, many Swedish firms operating in the international market are at the ends of value chains, where the work that is most productive is done. It is central that maintains a high skills level in the labour force to be able to meet future challenges from for example digitalisation and internationalisation. Consequently it is highly gratifying that the Swedish labour market seems to mainly function on merit and is not discriminatory. The correlation between an individual’s skills level and the probability of having a job is strong, irrespective of a person's ethic origin, for example. The most important path to good skills is via education. good level of skills must therefore be built in the education system. The falling Swedish scores in the (Programme for International Student ) test of young people’s performance have rightly attracted great attention. The inadequate prior knowledge from compulsory school risks leading either to difficulties for pupils to achieve educational objectives at upper secondary school and in higher education, or to reduced requirements at higher educational levels to accommodate to the prior knowledge of the student base. None of these lines of development are appropriate in an increasingly knowledge based economy. Given the fears that have existed of inadequate quality of teacher training and the forecast inadequacies of trained teachers, it would seem desirable to open alternative paths into the teaching profession and to consider how to increase its attractiveness. people do not seem to sufficiently include labour market considerations when making their choice of education and consequently and matching problems arise. In the opinion of the Survey it would seem warranted in view of this to review the current highly decentralised system for dimensioning different higher education programmes. The Survey also notes that the interest of young people in choosing programmes in the welfare sectors is limited, which can be a source of future problems, as a major shortage of labour is predicted in those sectors. In a world where a longer working life with more changes of occupation will probably be necessary, and where there is a greater spread in the educational background of the population, human capital in the population will need to be actively maintained and developed over time. Consequently, it is important to give everyone the chance of continuing professional development and adjustment necessary in their working life to enable them to adapt to changed requirements. Not least those who have lost or will lose their jobs as a result of automation or digitalisation will need matching and adjustment initiatives to find their way to new sectors in the labour market. It is desirable that as many as possible of these individuals upgrade their human capital and make themselves employable in more qualified jobs in the labour market, since increased competition will otherwise arise in the limited part of the labour market that does not require a particularly high level of skills. In the opinion of the Survey it is reasonable that a part of a future increase in average life expectancy with relatively good health is spent in the labour market, to secure financing of the public welfare services. The most important mechanism to extend working life is to ensure that an increase in life expectancy is reflected in the age thresholds of the various welfare systems, as has recently been suggested by a government inquiry. In the opinion of the Survey it is important to safeguard the economic benefits to older people of prolonging their working lives. The rules for the occupational pension system need to be reviewed with the aim of reducing features that invite curtailment of working life. For low income earners who receive benefit from means-tested support schemes, such as housing allowance, measures to reduce marginal effects would increase the incentives to work longer. But economic incentives are probably not most important when the decision to retire is made. The Survey therefore considers that a central piece of the puzzle in extending working life must be to make the work itself more attractive. Policy is relatively limited in its ability to directly influence these factors; the main responsibility lies with the social partners. However, to the public commitment can be added stimulating employers to further improve the work environment, and formulating regulatory frameworks that to a greater extent give older workers the right to adapt their labour force participation. Allowing educational initiatives to also benefit older people may be a public commitment that is desirable to maintain their productivity level, but also to make it more meaningful to extend working life either in the context of the same occupation or in a new career. Finally, the Survey would like to point to the fact that an important measure to extend average working life would be to come to terms with the ongoing rise in long-term absence from the labour market due to sickness. The fact that foreign-born people with good skills seem to be treated equally with native-born people with good skills indicates that the introduction of foreign-born people into the labour market can be considerably strengthened if only they can be equipped with viable skills. In the opinion of the Survey people with an academic education from their country of origin can be an important source of high productive workers for the Swedish labour market. At the same time it can be noted that even foreign- born people with higher education from the predominant refugee immigrant regions on average have very low basic skills levels. In analyses of future trends there is nothing to indicate that it will be easier to enter the Swedish labour market for people with weak skills. Therefore it appears probable that supplementary educational initiatives of high quality are the best solution for most foreign born people, regardless of whether they have a high or low level of education from their country of origin. The Survey consequently believes that education must more clearly be both a right and an obligation for a person coming to and receiving support from the Swedish welfare system. However, a policy emphasis on education should not exclude more simple jobs. Simple service occupations – in retail, tourism and household services, as well as in care work – today constitute an important labour market for workers who have not yet become established in the labour market. It is positive that some of these service occupations, which were previously carried out in the black economy or not at all, through public subsidies can now employ people whose skills level would otherwise have made it difficult to get a job. It may also be economically motivated to subsidise employment of people who are particularly detached from the labour market for various reasons. However, the Survey does not consider it probable that it would be feasible to create a large low- pay sector in the Swedish labour market. The reason is that – in order to be effective in terms of the labour market – it would require extensive changes to the Swedish welfare systems, which in turn would mean having to abandon many distribution policy objectives. people in work is most important for financing future welfare The greatest and most reliable way to combine increased public welfare commitment with sustainable public finances is to increase the number of hours worked in the Swedish economy. The two greatest potential sources of more hours worked in of the future will in the opinion of the Survey be older people and foreign-born people. The Survey’s scenarios show that the impact on public finances of a raised retirement age can be expected to be considerable. In many respects has a labour market that stimulates older people’s labour force participation; for example a pension system that rewards an extended working life in that it is based on life-long income, a work environment that is generally good and taxation rules that favour older workers. The Survey considers that it is misleading to analyse and discuss immigration that predominantly consists of refugees and their families in terms of whether it will "pay off" or not. The public commitment should instead, as is the case with development policy, mainly be seen as an expression of a democratically agreed level of humanitarian generosity, On the other hand, in the opinion of the Survey it is important to try to estimate the impact on public finances and the economy of this commitment, in the same way as for other public commitments.