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2.11.2016 Kati Kuitto

Countries that pay more attention to human capital development and capacitating policies throughout the life course, and not just at the tail end of working life, are successful in extending working lives. This is the main finding of our recent comparative study (pdf), pointing to the long-term effects of social policy on the whole.

The reversal of early exit

Not only in Finland, but also in many other welfare states, pension systems have been geared towards people working longer and retiring later. The trend of an early exit has indeed been overturned. As in many other countries, people in Finland – women in particular – work longer today than they did at the beginning of the 1990s. The employment rates of those aged 55 and above have increased, as well. But can we credit public policies for those developments, and what matters? Taking a comparative, longitudinal perspective helps us see the wood for the trees.

Pension system rules and incentives work as intended

In our study, we analysed how the retirement age, financial incentives to retire early and the generosity of pensions and unemployment benefits are related to the labour market participation of the elderly in 15 OECD countries. Over time, scaling down pension system incentives that pull people into retirement early proved to be an effective way to keep the elderly at work and to defer retirement. In addition, long and generous unemployment benefits are related to a lower labour market participation of people over 55 years.

So far so good – pension system incentives seem to work as intended. A more intriguing aspect discovered in our study, however, is the substantial positive impact of social investment policies on preventing an early exit. The effect for extending working lives is even greater for women than for men. What is it about social investment that matters?

Strengthening people’s capacities over the whole life course

Social investment has been the concept in the social policy arena for some time now. Broadly understood, it’s about public policies which aim at developing human capital and making efficient use of it. Early childhood education, education throughout life and active labour market policies, which generate and activate human capital, are at the heart of social investment strategies. So are public care services, which enable those with care responsibilities – mainly women – to participate in the labour market and thus make use of their human capital.

Some welfare states pay more attention to social investment than others. Also, the primary target groups of such policies – the children, the youth, the working-age population or the elderly – vary across countries. Traditionally, the Nordic welfare states have been forerunners, but many countries are catching up with their social investment involvement today.

Public policies are also about signalling

In order to make people work later and longer, the challenge from both a systemic and an individual perspective is thus to increase employment chances for people at all stages of working life. This requires not only incentives and social investment throughout the life course, but also a coherent political signalling for the importance of high-quality early education, life-long learning and a change of attitudes towards older employees at workplaces.

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Finnish Centre for Pensions – Central body of and expert on statutory earnings-related pensions