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12.4.2022 Arie Riekhoff

Working life is constantly changing. This has consequences for pensions as well. In Finland, the good news is that employment rates have been rising, careers have been relatively stable and various non-standard forms of employment are covered by the pension system. The challenge is to anticipate developments in the labour market that affect the economic and social sustainability of the pension system in the longer run.

In the context of the ongoing Finnish social security reform project, researchers of the Finnish Institute for Occupational Health and the Finnish Centre for Pensions recently published a report on the transformation of working life and the labour market. The aim of the report was to provide an overview of developments in working life during the past two decades that affect the efficacy and sustainability of social security.

Although old-age pensions are not subject to the reform plans, findings of the report also bear relevance for pension policy makers and observers. There are at least four trends to keep an eye on.

1. Educational expansion is coming to a halt

In the past two decades, employment rates of especially those in the age group 55-64 have increased substantially while working lives have extended. One of the driving forces has been educational expansion: people with higher education tend to continue working longer.

However, in the younger age groups we can see that the share of those with high educational attainment has stalled since the early 2000s. With this engine of extending working losing its power, it could mean that the ongoing rise in retirement ages will slow down in the next decades.

2. Labour market attachment of young people is hampering

While employment prospects at the end of the career have improved, the employment situation at the beginning of young people’s careers has become bleaker. Youth unemployment continues to be at high rates and, as seen during the Covid crisis, it is particularly sensitive to economic downturn.

Moreover, the report shows that there has been a trend among young men and especially women towards decreased workability and longer sickness absences. Delays and interruptions in early-career labour market attachment are likely to have direct and indirect effects on pension accrual.

3. A creeping growth of non-standard forms of work      

Despite many concerns in the media and public discourse, there is no trend towards a full ‘Uberisation’ of employment. However, some forms of non-standard employment have been increasing since 2000. While covered by the pension system they are not entirely unproblematic in terms of pension insurance.

Working part-time typically means lower monthly earnings and therefore results in lower pension accrual. In solo self-employment, underinsurance is a widespread problem. Those who have multiple jobs are often in a salaried position while simultaneously being self-employed. How should they pay pension contributions: as an employee, as an entrepreneur, or both?

4. People change jobs more often

The days of lifetime employment with a single employer seem to be over. Studies have found that now people change employers more often during their careers. Technically, this is not a problem in the Finnish pension system, as accrued pensions are fully and automatically portable between employers.

However, studies also show that the returns of tenure with the same employer and job mobility are changing. Being able to switch employers has increasingly become a precondition for earnings growth, while there are gender and socioeconomic inequalities in being able to do so. This could lead to greater inequalities in pension benefits in the future, as well.       

The need for a new type of welfare state?

The Finnish welfare state was built on the idea of people having stable careers of full-time employment, while providing support to those few who experience a turn of bad luck due to, for example, sickness or unemployment. Changes in the labour market during the past 20 years have added some cracks in this foundation of social security, with implications for the pension system.

The question is how to avoid that growing heterogeneity in life courses and careers leads to greater inequalities in old age. The four highlighted transformations show that this is not just the domain of pension policymakers, but also of labour-market and education policymakers.  

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Social security reform

A report on the transformation of working life and the labour market

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