Stefán ÓlafssonUniversity of Iceland

Nordic Conference on Innovation in Vocational Rehabilitation

Nordic Council of Ministers, Reykjavík, April 2005

Work and Activation in the Icelandic Welfare State:An International Comparison

Contents

• Work and activity in Iceland in an International Comparison

–Employment participation–Retirement–Disability

• General character of the Icelandic Model• Changing environment in Iceland and growth of disability pensioners•Policy changes in the West

–From Passive to Active Policies

•Policy Outcomes: Resisting Marginalization

Work and Activity:Iceland in Comparison

Employment Participation% males and females, at working age

0

10

20

30

40

50

60

70

80

90

100Ic

elan

da

Sw

itzer

land

Nor

way

Den

mar

k

Sw

eden

Uni

ted

Kin

gdom

Net

herla

nds

New

Zea

land

Can

ada

Uni

ted

Sta

tes

Aus

tral

ia

Aus

tria

Japa

n

Fin

land

Por

tuga

l

Irel

and

Ger

man

y

Luxe

mbo

urga

Fra

nce

Spa

in

Bel

gium

Gre

ece

Italy

Tur

key

% p

eo

ple

of

wo

rkin

g a

ge

Female Work Participation% of females, at working age

0

10

20

30

40

50

60

70

80

90

Icela

nda

Norway

Sweden

Switzer

land

Denm

ark

Canad

a

Unite

d Kin

gdom

New Z

eala

nd

Finlan

d

Unite

d Sta

tes

Nethe

rland

s

Austra

lia

Austri

a

Portu

gal

Ger

man

y

Japa

n

Franc

e

Irelan

d

Luxe

mbo

urga

Belgiu

mSpa

in

Gre

ece Italy

% o

f w

orki

ng a

ge f

emal

es

Senior ParticipationPeople aged 55-64, at work, year 2003

0

10

20

30

40

50

60

70

80

90

100

Icela

nda

Sweden

Norway

Switzer

land

New Z

eala

nd

Japa

n

Denm

ark

Unite

d Sta

tes

Unite

d Kin

gdom

Canad

a

Portu

gal

Austra

lia

Finlan

d

Irelan

d

Nethe

rland

s

Gre

eceSpa

in

Ger

man

y

Franc

eIta

ly

Austri

a

Belgiu

m

Luxe

mbo

urga

% w

orki

ng a

ge p

opul

atio

n

Near absence of early retirement in Iceland

Senior ParticipationAverage age of retirement 1997-2002

50

55

60

65

70

75Ic

elan

d

Irel

and

Japa

n

Por

tuga

l

Sw

itzer

land

Uni

ted

Sta

tes

Nor

way

Den

mar

k

Sw

eden

Tur

key

OE

CD

Can

ada

Spa

in

New

Zea

land

Uni

ted

Kin

gdom

Gre

ece

Aus

tral

ia

Italy

Ger

man

y

Luxe

mbo

urg

Fin

land

Fra

nce

Net

herla

nds

Aus

tria

Pol

and

Cze

ch R

epub

lic

Bel

gium

Slo

vak

Rep

ublic

Hun

gary

Men

Women

OE

CD

Soc

iety

at a

Gla

nce

2005

Active for Work?In work or seeking work, 2003

0

10

20

30

40

50

60

70

80

90

100

Icela

nda

Switzer

land

Norway

Denm

ark

Sweden

Unite

d Kin

gdom

Nethe

rland

s

New Z

eala

nd

Canad

a

Unite

d Sta

tes

Austra

lia

Austri

a

Japa

n

Finlan

d

Portu

gal

Irelan

d

Ger

man

y

Luxe

mbo

urga

Franc

eSpa

in

Belgiu

m

Gre

ece Italy

% p

opul

atio

n at

wor

king

age

Activation and Disability Prevalence

OECD 2005 and 2003

0102030405060708090

100

Icelan

da

Switzer

land

Norway

Denmar

k

Sweden

United

King

dom

Nethe

rland

s

Canad

a

United

Stat

es

Austra

lia

Austri

a

Portu

gal

Germ

any

Franc

eSpa

in

Belgium Ita

ly

Employment participation Unemployment Disability prevalence age 20-64

Disability and early retirement recipiency rates% of working-age population

OE

CD

Em

ploy

men

t Out

look

200

3

0

2

4

6

8

10

12

14

Franc

e

Austri

a

Belgiu

m

Denm

arkUK

Ger

man

y

OECD m

ean

Canad

aUSA

Nethe

rland

s

Japa

n

Sweden

Austra

lia

Icela

nd

Spain

Irelan

d

New Z

eala

nd

% o

f a

ge

s 1

6-6

4

Disability Prevalence in the Nordic Countries 1995-2002Disability pensioners as % of ages 16-64

0

1

2

3

4

5

6

7

8

9

10

Denmark Finland Iceland Norway Sweden

Dis

abili

ty p

ensi

oner

s as

% o

f 16

-64

year

s

1995

2000

2001

2002

Nososko 2004

General character of the Icelandic Welfare Model

Icelandic Welfare ModelIceland has a mixed welfare system:

• Welfare services – Similar as in Scandinavia• State hospitals – health care• State schools – public housing system• Day care services• Social services other

• Social security – Anglo-Saxon influences• Rather low benefits• Great use of income-testing• Poverty alleviation aimed• Equalization effects not as large as in Scandinavia

• Emphasis on self-help in the culture

Social Expenditures as % of GDP OECD 2001

0,00

5,00

10,00

15,00

20,00

25,00

30,00

35,00Ir

ela

nd

Unite

d S

tate

s

Canada

New

Zeala

nd

Austr

alia

Spain

Icela

nd

Luxem

bourg

Port

ugal

Unite

d K

ingdom

Neth

erlands

Pola

nd

Gre

ece

Fin

land

Norw

ay

Italy

Austr

ia

Sw

itzerland

Belg

ium

Fra

nce

Germ

any

Denm

ark

Sw

eden

% a

f V

LF

USA Germany Scandinavia IcelandWelfare goals obtained:• Insurance coverage Small Considerable Large Large• Quality of benefits Low Class-specific Large Low• Use of means-testing Large Limited Limited Large• Public welfare services (health, day care... Small Small Large Large• Extent of poverty in society Large Medium Small Small-med• Equality of living conditions Low Medium Large Large• Equality of sexes Medium Low Large Large• Effect of class structure Large Large-med Small Small•

Quality of 3 Welfare Regimes and Iceland

Comparative overview

Scandinavia obtains welfare goals best – by far

Changing Environment in Iceland

Higher Unemployment Level during the 1990s

0

1

2

3

4

5

6

7

8

9

10

Unemployed as % of labour force

%

Heimild: Þjóðhagsstofnun og Hagstofa Íslands

Increasing Prevalence of Disability in Iceland

0

1

2

3

4

5

6

7

8

9

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

% p

op

ula

tion

16

-64

Men

Women

Relationship Between Unemployment and Disability Prevalence

Incidence of disability and the rate of unemployment Females 1992-2003

0,0000,1000,2000,3000,4000,5000,6000,7000,8000,900

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Nýg

engi

50-

75%

öro

rku

0

1

2

3

4

5

6

Atv

innu

leys

i kve

nna

%

Incidence of disability (50-75%)

Unemployment rate (%)r=0,6

Relationship Between Unemployment and Disability Prevalence

Incidence of disability and the rate of unemployment Males 1992-2003

0,000

0,100

0,200

0,300

0,400

0,500

0,600

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Nýg

engi

50-

75%

öro

rku

0

1

2

3

4

5

6

Atv

innu

leys

i kar

la

Incidence of disability (50-75%)

Unemployment rate (%) r=0,63

Increasing Long-Term Unemployment in Iceland during the 1990s

0

5

10

15

20

25

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

% o

f un

empl

oyed

Relationship Between Long-Term Unemployment and Disability Incidence

0

200

400

600

800

1000

1200

1400

1600

1800

2000 2001 2002 2003

Num

ber

Incidence of disability 75%

Long-term unemployed (6 months+)

r=0,85

Some reasons for increasing number of disability pensioners in Iceland

•Benefits are not particularly high compared to wages in the labour market•Disability benefits are however high compared to other benefits in the system

•Sickness benefit 25.000 Íkr./month•Unemployment benefit 90.000 -- •Disability benefit 120-150.000 --

•Incentives are for the long-term sick and unemployed to convert to disability pension•Less than 1% return to labour market per year• >>>Disability trap is a real danger!•Also: Increasing pressure in the labour market

Policy Change and Policy Outcomes

From Protection to Participation

The policy shift of the 1990s:•Change of thinking – change of needs:

•Towards the Active Society-Third Way Pol.•From Welfare to Workfare•Clinton: End of “Welfare” as we know it

•Cost containment of the welfare state•Great rise of early retirement + aging problem•Low employment participation of the disabled•Concerns with...

•Unemployment•Marginalization•Social exclusion

Types of Welfare States

Esping-Andersen´s Three Models (1990 og 1999) + 1

• American Model• Minimalist, little protection, small role in soc.• Big role f. private sector, firms provide benefits

• German Model • Employment related rights, class-based rights• Not very egalitarian; very expensive form

• South-European Model • Less advanced Bismarckian, class-based rights,• Family has large role, not particularly egalitarian

• Scandinavian Model • Rights as citizen rights, public protection, good quality

of subsistence security and welfare services

State Spending aimed at New Risksin different Welfare RegimesActivation and Services, 1980-1999

Services for elderly and disabled

Services for families

Active labour market support

Services for elderly and disabled

Services for families

Active labour market support

Scandinavian 1,77 1,60 0,88 2,73 1,78 1,67Continental 0,46 0,38 0,13 0,75 0,74 1,14

Liberal 0,53 0,29 0,28 0,59 0,33 0,74

South European

0,08 0,04 0,02 0,25 0,37 0,47

EU 15 0,65 0,55 0,25 0,98 0,83 1,00

Iceland 2,20 1,10 0,10

----------------1980----------------- --------------1999----------------

Peter Taylor-Gooby 2004

Active Labour Market Policy Expenditures as % of GDP in 2001

OE

CD

Soc

iety

at a

Gla

nce

2005

0,0

0,2

0,4

0,6

0,8

1,0

1,2

1,4

1,6D

enm

ark

Net

herla

nds

Sw

eden

Fra

nce

Bel

gium

Ger

man

y

Fin

land

Nor

way

Spa

in

Irel

and

Por

tuga

l

OE

CD

-30

Sw

itzer

land

Aus

tria

Italy

New

Zea

land

Aus

tral

ia

Slo

vak

Rep

ublic

Can

ada

Uni

ted

Kin

gdom

Japa

n

Gre

ece

Uni

ted

Sta

tes

Pol

and

Luxe

mbo

urg

Icel

and

% o

f G

DP

Expenditures on all Disability-Related Programs as % of GDP in 1999

OE

CD

200

30

1

2

3

4

5

6

Norway

Sweden

Nethe

rland

s

Polan

d

Portu

gal

Denm

ark

Ger

man

y

Austri

a

Icela

nd

Switzer

land

Spain

Italy

Belgiu

m

Franc

e

Unite

d Kin

gdom

Turke

y

Austra

lia

Unite

d Sta

tes

Canad

a

Korea

Mex

ico

% o

f G

DP

From Protection to Participation

Routes to Activation or Employment Retention-some options:1. Accomodated work (regulations, job retention)

2. Subsidised work (economic incentives as compensation for lower productivity)

3. Supported work (personal assistance, job coaching, job search...)

4. Sheltered work (special workshops...)

5. Reserved work (priority for special groups in jobs)

6. Vocational rehabilitation (training, rehab, education)

Other options: Lower benefits and/or restrict eligibility

Focus and timing of Vocational Rehabilitation and Training

(Quasi) Compulsory

Intermediate approach

Entirely voluntary

Any time possible (also

very early)

Austria DenmarkGermany

SpainSweden

-- --

Intervention not very early

Austria DenmarkNorwaySpain

Switzerland

BelgiumNetherlands

Polland

AustraliaFrance

ItalyKorea

UK

Only after long-term sickness

-- Turkey CanadaMexico

PortugalUSA

Focus on vocational rehabilitation

OECD 2003

Timing ofvocationalrehabilitation

Activation PoliciesCf. Duncan Gallie et. al. 2004

Difference between USA and European policies• Benefits are more generous in Europe (except in South)• (Activity rates are though not lower in North)• Work-for-benefits was only one of options in Europe• Schemes also offered employment in subsidized jobs

• Temporary contracts in publicly created jobs• Training and education was offered• Non-Work activities also offered (voluntary work)• People would not lose all benefits for non-compliance• “Activityfare” rather then “Workfare” (Gallie)

• More concern in Europe for Integration and HRD• The USA model involved greater labour market discipline>>>• Benefit reveivers were considerably reduced in numbers, like lone

mothers (-2,4millions, thereof 1,4m went to work).

Activation PoliciesCf. Duncan Gallie et. al. 2004; Zeitlin et.al. 2003

Evaluation of successes of activation policies:1. In USA + many countries benefit receivers went down2. Mixed effects on expenditures3. Activation measures (and poverty relief) reduce social

exclusion experiences significantly4. The social inclusion obtained is though often restricted5. Employment effects of activation were often important, but

still less than hoped for (minority got sustainable jobs)6. So employment effects are on the whole positive but modest7. Lack of work motivation was not a significant cause of

unemployment, but youths without work experience had fragile motivations

8. Removing disincentives of welfare benefits is not the all important factor

9. Crafting programs for special needs is more important

OECD PoliciesTransforming Disabilities into Abilities

Evaluation of activation and social policies of member countries in 2003:

1. No country has an outstandingly successful program

2. Many countries are though doing good things3. High benefit levels and active labour market

policies can produce win-win combinations4. High benefits can increase recipients numbers5. Poverty alleviation is important (poverty increases

trapping of people in passivity and problems)

6. Character of programs is important

OECD PoliciesTransforming Disabilities into Abilities (2003)

Policy recommendations for disability:1. Introduce culture of mutual obligations2. Recognize the status of the disabled

independently of work and income situation3. Design individual work/benefit packages for

disabled persons4. Promote early intervention5. Involve employers in the process6. Restructure benefit systems to remove

disincentives to work7. Reform program administration8. Improve coordination of transfer schemes

Thank you!Stefan Olafsson

University of Iceland