Peter Whiteford Social Policy Division, OECD Peter.Whiteford@oecd

1. The Active Social Policy Agenda: An OECD PerspectivePaper for the European Regional Meeting of the International Social Security Association, Oslo, 15 - 16 May 2007 Peter Whiteford Social Policy Division, OECD Peter.Whiteford@oecd.org

2. Outline • Why is active social policy on the agenda? • Problems and challenges • Older workers: • Policy responses • People with disabilities: • Policy responses • Annex: • Families with children

3. Why is active social policy on the agenda? • Mix of economic and social concerns: • Population ageing and implications for labour force growth and economic growth and levels of public spending. • Equity concerns, including child poverty, women’s poverty in retirement and gender equity. • In particular, the jobless are the most disadvantaged, and the most disadvantaged are most likely to be jobless. • Fertility concerns • Emerging concerns – widening market income inequality, increasing evidence that early experiences of children have profound effects on future life chances. • All these factors suggest that OECD countries should encourage greater employment, particularly among those who are not participating in the labour force. • But, if countries should aim to encourage higher labour force participation, then policies need to support individuals and families in staying attached to or re-entering the labour force.

4. The challenges of population change • People are living longer and fertility has declined, particularly in Germany and Southern Europe. • The large “baby boom” generation – born 1946 to 1964 - has started to enter pre-retirement and retirement years. • These developments have significant implications for social programmes and for the future labour force. • Over the next 50 years, the share of the population aged 65 years and over will roughly double in most OECD countries. • There is also an earlier effect of the baby boom generation on the size of the population of older workers – a person born in 1946 reached 55 years in 2001.

5. Population ageing is likely to result in: • A sharp slowdown in labour force growth • Labour shortages • Slower economic growth • Higher public expenditures and higher taxes, or cuts in benefits

6. Projected labour force growth, 1950 to 2050

7. Ageing and the labour market – possible responses • Higher productivity. • Longer working hours. • Immigration. • Promoting the employment of older workers. • Increasing the labour force participation of women. • (Re)Integrating persons with disabilities in the labour market. • Reducing unemployment and receipt of social assistance. • In the longer run, maintaining or increasing fertility.

8. A further complicating factor – widening market income inequalities mean the welfare state has to work more effectivelyGini coefficient for household earnings

9. Active Social Policy • Aims to address root causes of widening market income inequality. • Reorient towards investment in children, youth. • Put heavy emphasis on employment. • It is also necessary to take a comprehensive and co-ordinated perspective on these challenges and policy responses – it is not much use to reduce early retirement if people move onto disability benefits instead.

10. Increasing employment is of key importanceEmployment and its effects on dependency ratios, 2003

11. The potentially mobilisable labour force varies in sizeExcess inactivity and unemployment as % of population 15 to 64, except students

12. The potentially mobilisable labour force varies in compositionExcess inactivity and unemployment as % of population 15 to 64, except students

13. Unemployment is only part of the problem • Some 35% of the OECD working-age population (i.e. 265 million people in 2005) do not have a job. • The bulk of them (almost 230 million) are not unemployed. • They mainly consist of students, women, early retirees and the disabled, many of whom rely on welfare benefits.

14. Reliance on benefits has increased% of working age population in receipt of income replacement benefits, full-time equivalents, 1980 and 2004

15. More than one in five persons of working age are reliant on benefits in many European countries% of working age population in receipt of income replacement benefits, full-time equivalents, 2004

16. Unemployment benefitsare a relatively small share of total benefit receiptShare of unemployment benefits in total benefit receipt, 2004

17. The jobless are the most disadvantaged… • For example, jobless lone parents on average have incomes about 45% of those of all families with children – and this under 40% in Hungary, Ireland, Italy, Poland, Portugal and Spain. • Jobless households with children in OECD countries are less than 6% of all households, but more than 30% of poor households – a poverty risk of more than 5 to 1.

18. …and the most disadvantaged are most likely to be jobless. • Persons not having finished upper secondary schooling account for over half of non-employment in OECD countries. • In 2001, the employment rate for persons not having completed upper secondary schooling was a little below 50% for the OECD area as a whole, as compared with over 80% for working-age persons with a university or tertiary degree. • 45% of working-age persons in the low-education group were neither working nor looking for a job in 2001, as compared to 24% of their medium educated counterparts and 15% of high-educated individuals. • The proportion of low-educated individuals who are inactive is over 50% in Central and Eastern European member countries, Belgium and Italy. At the other extreme, it is under 20% in Iceland, and also relatively low in Portugal (29%).

19. Live Longer, Work Longer: Ageing and Employment Policies

20. Trends in receipt of early retirement benefits are diverseProportion of working age population receiving retirement pensions, 1980 to 2004

21. If living longer means working longer, how to achieve this? • OECD has carried out a major study of Ageing and Employment Policies: • 21 separate country reports • Identifying work disincentives and barriers to employment of older people • Setting out policy recommendations • Synthesis report, Live Longer, Work Longer

22. Key barriers to working at older ages • Financial disincentives • Employer reluctance to hire and retain older workers • Weak employability

23. Key policy directions to encourage work at an older age Reward work Pension reform to cut implicit tax on working Restrict other early retirement pathways Better options for phased retirement Change employer practices GOVERNMENT EMPLOYERSUNIONSNGOs Improve employability Suitable training opportunities at all agesBetter help for older jobseekersSafe & healthy working conditions Tackle age discriminationAlign labour costs with productivity Protect employment opportunities not jobs

24. Reward work Ensure greater neutrality in work-retirement choices • Moving towards actuarial neutrality • Taking account of rising life expectancy Reduce early retirement options • Raising pension age • Phasing out formal early retirement schemes • Ensuring that other welfare benefits are not used as early retirement pathways Beyond neutrality – actively promote participation • Increasing pension rights with age • Part-time pensions • Combining work and pensions

25. Reward work Key issues: • Actuarial neutrality raises difficult issues concerning initial age, equity and adequacy of benefits. • Are measures to promote later retirement sufficiently targeted? • How to increase the flexibility of work-retirement decisions while discouraging early retirement? • How to deal with the stock of older people already on long-term benefits?

26. Direction of OECD pension reforms • Higher pension eligibility age • for men and women (11 countries; e.g. Italy, US) or for women alone (6 countries; e.g. UK) • Improved incentives to delay retirement • 10 countries; e.g. France, Germany, Italy, UK, US • Tighter qualifying conditions for retirement • 9 countries; e.g. France, Italy • Links to life expectancy or financial sustainability • in earnings-related schemes (Germany, Japan) • in qualifying conditions (France) • through notional accounts (Italy, Poland, Sweden) • through defined-contribution schemes (Australia, Hungary, Mexico, Poland, Slovakia, Sweden) • Direct cuts in generosity rare • lower accrual rates (Austria, Japan, Korea)

27. Change employer practices Tackle negative employer attitudes • Through age discrimination legislation • And through information campaigns and guidelines Align labour costs closer to productivity • Link earnings more closely to individual performance • Avoid wage subsidies that are simply targeted by age Focus on enhancing employability of older workers rather than on job protection • Reassess impact of job protection rules on labour mobility and hiring of older workers

28. Change employer practices Key issues: • Age discrimination legislation is no panacea. • Should wage subsidies go to employers or to older workers via an earnings top-up? • Important role for non-governmental organisations. • How can good practices be promoted among SMEs?

29. Improve employability Ensure older unemployed are actively seeking work in exchange for better employment services • General exemptions from looking for work should be abolished • More resources should be devoted to helping older job seekers Encourage greater take-up of training • More flexible courses • Better opportunities for lifelong learning Improve the work environment • Greater flexibility in work hours • Adapting working conditions

30. Improve employability Key issues: • For older workers, returns to training may not be high, thus need to invest more in lifelong learning. But how to do this? • Who should pay for training and how can the more disadvantaged groups be encouraged to train? • How best to encourage public and private employment agencies to give more priority to helping older jobseekers find jobs? • How can employers – especially SMEs – be encouraged to improve working conditions for workers at all ages?

31. Older workers - conclusions • If work at an older age is rewarded and encouraged, we can all look forward to both living longer and greater prosperity • This also means taking a lifecycle perspective in terms of promoting women’s employment, better working conditions and greater opportunities for lifelong learning. • Implementing this agenda will require the co-operation of government, employers, trade unions and civil society

32. Successful Practice in Disability Employment and Rehabilitation Budapest, 30-31 January 2006. The case for more effective disability policies

33. OECD work on disability and sickness

34. Key challenges for disability policies • Population ageing, leading to increased incidence in health conditions but also future labour supply shortages • Changes in the work environment and rising labour market requirements • Low employment rates of disabled people and high benefit dependence • Lower resources and higher poverty risks of households with disabled people • Co-ordination of different social protection and employment schemes and reforms • High and often increasing sickness and disability-related public spending

35. Disability and disability pensions • The prevalence of disability for people aged 50 to 64 years is nearly twice as high as for the working-age population generally • Employment rates for people with disabilities are only around 40%—45% • Older disabled people have lower employment rates than younger people with disabilities • Across OECD countries benefit recipiency rates average 5.5%, but are close to 8-9% in Denmark, Norway, Sweden and the Netherlands • Roughly one in four persons who are not employed receive disability benefits • People over 45 are 70-90% of the stock of disability beneficiaries, and similar proportions of inflow to benefits

36. High public cash spending Public incapacity- and unemployment-related cash spending in % of GDP, 2003 Source: : OECD (2007, forthcoming), Social Expenditure Database, Paris (www.oecd.org/els/social/expenditure)

37. High disability benefit recipiency Disability benefit recipients in % of the working-age population Source: : OECD (2003, 2006 and 2007, forthcoming)

38. Growth in numbers of people receiving disability benefits has been worryingly rapidTrends in receipt of disability benefits, OECD countries, 1980 = 100

39. Disability benefit receipt traps people outside mainstream society Annual rates of outflow from disability benefits, 1999 (percentages)

40. Disability benefit receipt traps people outside mainstream society • Employment rates for working-age disabled people are significantly lower than for non-disabled. • For the 19 countries for which data are available, the employment rate for persons who assess themselves as having a disability was 27 percentage points lower than for persons saying that they were not disabled (employment to population ratios of 44% and 71%, respectively). • In more than half of OECD countries, the employment rate of disabled people varies between 40 and 50%. In Switzerland and Norway, the rate is over 60%, while relatively few working-age people with disabilities are in work in Poland and Spain (21% and 22%, respectively). • On average, the disabled account for 21% of non-employment in the working-age population, but there is a large overlap between the disabled and older groups because disability incidence rises strongly with age (OECD, 2003a).

41. Trends in disability policies in the OECD areaA generalised change in “philosophy” – but country approaches and implementations differ greatly • Move from benefit to integration orientation • Tightening of access to disability benefits • reduction in benefit levels • stricter medical and/or legal assessment procedures • emphasis on temporary benefits • new ways of dealing with partial disability • Promotion of employment integration • introduction/fostering of anti-discrimination legislation • increase of employers’ obligations towards disabled people • stream-lining of administration and individualisation of case management • measures to increase work incentives for disabled people

42. Examples of recent disability reforms • Luxembourg - since 2002 only individuals with assessed continued work incapacity remain on sickness benefit. Those no longer entitled to sickness benefits provided with job-search support, with clearly defined redeployment procedure to support access to employment. Successfully redeployed person receives permanent payment to compensate for difference between previous and new earnings. Person waiting to be redeployed classified as unemployed but receives waiting allowance - increased unemployment benefit set at higher level of disability benefits. • Denmark - disability scheme reformed in 2003. Disability assessment about what a person can do and not loss of capacity. Authorities assess extent to which person able to carry out subsidised job (so-called “flex-job”). Suppression of partial benefits granted to those with at least 50% reduced work capacity. Disability benefit now only granted to people whose capacity is permanently reduced and not able to carry out flex-job, even after participation in activation or rehabilitation programmes. Unemployed people with partially-reduced work capacity only able to perform flex-job receive special unemployment benefits, set at the same level as disability benefits. Permanent wage subsidy paid to employers of people on a flex-job to compensate for reduced work capacity, while flex-job workers receive standard wage.

43. Examples of recent disability reforms • Netherlands - Since 2006, entirely new disability benefit system in place. New scheme has two components: permanent disability benefit for people who cannot work any more and another benefit for persons whose disability is either partial or not permanent. Fine grid of partial disability benefits, with seven steps in line with the reduced capacity abolished. First category comprises permanently disabled workers with at least 80% reduction of earnings capacity, who receive a disability benefit at a level of 75% of their last wage. Workers with earnings capacity reduction of 15-34% can no longer receive a disability benefit. Instead, employment relationship is maintained (if possible) and employer has to adapt the workplace if necessary. In case of job loss, after exhaustion of sickness benefits, treated like unemployed. Workers with incapacity of 35-79% and those fully but not permanently disabled entitled to a benefit that is higher if worker is working for at least 50% of the remaining capacity. After five years, benefit will be reduced to a flat-rate payment if the worker is not utilising that capacity. • Switzerland – Reform in 2004, keeping 50% and 25% disability benefits, and adding new 75% benefit for people with 60-69% earnings incapacity. Aimed at reducing further the share of people on a full disability benefit, thereby raising incentives to return to the labour market on a part-time basis

44. Further reform is needed Transform the disability benefit schemeinto a flexible labour market programme • Assess needs and, if necessary, intervene earlier: Avoid disability benefit inflow through job search measures, training, rehabilitation and prevention • Disentangle eligibility for support from work ability and work status: Make cash benefits a flexible (in-work) tool that covers extra costs and the labour market disadvantage • Ensure that work for disabled people is financially attractive and sustainable

45. Further reform • Break the link from temporary sickness to permanent disability • Implement a “mutual obligations” approach • Strengthen individualised, tailor-made pre- and post-placement support • Integrate employers into the process, and design proper balance between obligations and financial incentives for them • Monitor outcomes carefully

46. SUMMARY AND CONCLUSIONS

47. Summary and conclusions • Across OECD countries, there are strong economic and equity reasons for arguing for policies to encourage increased employment, particularly for older workers and people with disabilities and women. • But this requires shift towards more supportive public policies, changed employer practices and changes in family responsibilities. • Different countries have different starting points and different challenges. There can be no “one size fits all” solutions.

48. Annex:Reconciliation of work and family life

49. OECD analysis of work-family balance • Promoting parental employment options, and balancing work and care commitments are key policy challenges • Parental labour market outcomes • Family outcomes • Babies and Bosses addresses the wide range of factors that affect the parental work and care choice. • Reviews cover 13 OECD countries in all (Australia, Denmark, Netherlands, Japan, Austria, Ireland, New Zealand, Portugal, Switzerland, Canada, Finland, Sweden and United Kingdom). • www.oecd.org/els/social/familyfriendly

50. Raising women’s employment rates could help to face the demographic challenge • In virtually all OECD countries women represent more than 60% of the total number of non-employed persons aged 25-54, and this proportion is often close to 70% or higher. • Since prime age women (25-54), together with older workers (55-64), constitute one of the largest demographic groups of non-employed persons who could be mobilised, raising participation among women is key.