Firms hiring more persons over 55

December 23, 2017 - 06:20

Norway’s national pension reform in 2011 has made it easier for private businesses to “rid themselves of” older employees. But a new study shows it has also made it easier to hire older workers.

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As older employees in Norway can now retire with pensions from age 62, it has become easier for firms to hire them. (Photo: ALPA PROD / Shutterstock / NTB scanpix)

Many elderly jobseekers have trouble finding employment.

A solid 30 percent of all bosses say they would not even consider calling in a jobseeker over the age of 55 to an interview, according the Norwegian Senior Policy Barometer in 2014.

A new study now conducted by a research fellow at the Frisch Centre for Economic Research in Oslo shows seniors getting help from an unexpected source – Norway’s national insurance retirement system.

“This is an advantage of the pension reform that the planners and politicians had not foreseen,” says Trond Vigtel.

People formerly had to wait until they reached 67

A key element of the comprehensive reform in 2011 was to make the retirement age more flexible. Norwegians can start getting their pensions at the age of 62, if they are willing to accept the drawback of lower pensions. Also, only two-thirds of employees in private firms are eligible for this early start on retirement offered in the reform.

“Following the implementation of the reform, the risk that employers run by hiring elderly persons has been partly reduced. Norwegians have strong legal rights as employees and it used to be that if a 55-year-old was hired, he or she would be likely to be on the payroll until the age of 67. It isn’t like that anymore.

Trond Vigtel is a research fellow at the Frisch Centre in Oslo and as part of his doctoral thesis work he investigated if and how the pension reform has impacted the job opportunities for the elderly.

He got results.

Biggest effect for those with little education

The pension reform in 2011 reduced the retirement age by five years – from 67 to 62.

In order to find the effect this has had on employers’ willingness to hire employees aged 50 to 61, Vigtel calculated the effect of reducing the retirement age one year at a time.

“The results indicate that if the earliest retirement age is reduced by just one year, the probability of a firm hiring an elderly jobseeker increases somewhere from 3.2 to 4.2 percent.

Trond Vigtel finds that the effect is greatest for employees with lower education levels. These are the persons who have the most trouble finding a new employment once they are on in years.

Vigtel has not been able to calculate a figure for the total impact the pension reform has had on companies’ willingness to hire elderly workers, but the effect he finds for a single-year drop in the retirement age is considerable.

“After the reform, companies are more willing to hire older workers,” he concludes.

Can retire now at age 62

The research fellow at Frisch Centre has studied private firms that lack so-called “AFP”, an early retirement pension scheme. These are often small companies where many of the employees have low educational levels and low wages. However, about 80 percent of today’s
62-year-olds in Norway are now entitled to get this contractual pension scheme.

Vigtel explains the findings:

“Before the reform there was probably more of a tendency for firms to avoid hiring seniors, as they were potentially more vulnerable to encounter health problems, or they were considered less productive. Many employers have feared that they could be stuck with a less efficient employee all the way until they reached the age of 67, when he or she was eligible for a pension. 

“Workers who develop health problems, but are not eligible for disability benefits from the national insurance scheme, can drop out of working life five years earlier.”

Trond Vigtel does not rule out that the pension reform has thus also contributed to reductions in disability payments to elderly workers, which are funded in another way.

Flexible pension age

Another aspect of the pension reform from 2011, however, is that it has generally led to more employees in the private sector working to a higher age than previously – which is what the planners and politicians behind the reform were hoping. The longer people work, the more income they make and of course they pay more income tax.

At the same time, a surprising number – especially men – choose to start receiving part or all of their pensions from the national pension scheme while continuing to work.

The Norwegian State does not mind if they do, as this is not a burden for the pension scheme or state coffers. The new pension system is constructed with a downside for starting to receive a pension before the age of 67 – those who start early get lower pensions for the rest of their lives.

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Read the Norwegian version of this article at forskning.no.

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Translated by
Glenn Ostling