Research Report

Reducing Health-Related Labor Force Exits Among Elderly Workers

Reform the disability insurance system system so that employers have more incentive to prevent illness and early retirement. This is among the recommendations proposed by economists Johannes Hagen and Hannes Malmberg in a new SNS report.

Surveys from the Swedish Work Environment Authority show that 16 percent of employees are worried that their job in the long-term will bring health risks. For those between the ages of 50-64, 11 percent believe they will not work until the age of 65. The figures are highest for women in the municipal sector, where 24% see long-term health risks, and 15% don’t see themselves working after 65.

More and more people are choosing to withdraw their income pension early, particular low-income earners with a history of taking sick leaves. But this development is partially the result of the changes in the last decade to the disability insurance system, with stricter regulations for receiving compensation from the Swedish Social Insurance Agency (Försäkringskassan.)

If retirement age is raised, as recently suggested by the Parliamentary committee on pensions, elderly people with reduced working capacity risk being caught in the middle, according to Johannes Hagen and Hannes Malmberg.

”There is a need to re-think the income protections of the elderly, otherwise there is a risk that elderly people with reduced work capacity will be referred to income support,” says Hannes Malmberg, postdoctoral fellow in economics at the Stanford Institute for Economic Policy Research.

The researchers believe that employers’ incentives to prevent illnesses must be strengthened so that more people can have a longer work life. The report focuses on the municipal sector. In the model that the researchers have developed, municipalities and county councils are themselves responsible for their employees’ disability insurance costs when these costs are higher than expected. Employers who have lower actual costs than expected are in turn rewarded with reimbursement from the state. Expected costs are calculated on the basis of the composition of employees in terms of age, gender, and education.

“Our proposal is a kind of self-insurance based on the principle that one should place demands based on performance. Self-insurance systems are common in the private sector, such as in the United States within health insurance. Employers in other northern European countries also generally have greater responsibility for sick leave and early retirement expenses than employers in Sweden,” says Johannes Hagen, PhD, and researcher in economics at Jönköping International Business School, Jönköping University.

Authors

Johannes Hagen, PhD and researcher in economics at Jönköping International Business School, Jönköping University.
Hannes Malmberg, postdoctoral fellow at the Stanford Institute of Economic Policy Research, Stanford University.