Work and Activation
in the Icelandic Welfare State:
An International Comparison
Stefán Ólafsson
University of Iceland
Nordic Conference on Innovation in Vocational Rehabilitation
Nordic Council of Ministers, Reykjavík, April 2005
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
0
Turkey
Italy
Greece
Belgium
Spain
France
Luxembourga
Germany
Ireland
Portugal
Finland
Japan
Austria
Australia
United States
Canada
New Zealand
Netherlands
United Kingdom
Sweden
Denmark
Norway
Switzerland
Icelanda
% people of working age
Employment Participation
% males and females, at working age
100
90
80
70
60
50
40
30
20
10
Ic
el
an
N da
or
w
Sw ay
Sw ed
i tz en
er
la
D nd
en
m
ar
U
C
k
ni
te ana
d
d
N Ki n a
ew g
d
Ze om
al
an
d
U Fin
ni
te l an
d
d
N Sta
et
he te s
rl a
Au nds
st
ra
l
Au i a
st
Po ria
rt
G uga
er
m l
an
y
Ja
pa
Fr n
an
c
Lu Ir e
e
x e la
m nd
bo
ur
Be ga
lg
iu
m
Sp
a
G in
re
ec
e
Ita
ly
% of working age females
Female Work Participation
% of females, at working age
90
80
70
60
50
40
30
20
10
0
Ic
el
a
Sw nd a
ed
N en
Sw orw
a
i
N tze y
ew rl a
Ze nd
al
an
d
Ja
D pa
U en n
n
m
U i ted a r
ni
te Sta k
d
Ki te s
ng
d
C om
an
a
Po da
rt
Au uga
st l
ra
Fi li a
nl
an
d
I
N rel
et
he an d
rl a
n
G ds
re
ec
e
Sp
G ai
er n
m
a
Fr ny
an
ce
Ita
Au l y
st
r
Lu Be ia
x e l gi
m um
bo
ur
ga
% working age population
Senior Participation
People aged 55-64, at work, year 2003
100
90
80
Near absence of early retirement in Iceland
70
60
50
40
30
20
10
0
50
55
OECD Society at a Glance 2005
Hungary
Slovak Republic
Belgium
Czech Republic
Poland
Austria
Netherlands
France
Finland
Luxembourg
Germany
Italy
Australia
Greece
United Kingdom
New Zealand
Spain
Canada
OECD
Turkey
Sweden
Denmark
Norway
United States
Switzerland
Portugal
Japan
Ireland
Iceland
Senior Participation
Average age of retirement 1997-2002
75
Men
Women
70
65
60
Ic
Sw ela
i tz nd a
er
la
N nd
or
w
D ay
en
m
U
Sw a rk
ni
te ed
d
Ki en
N ng
et
h do
N erl m
ew a
n
Ze ds
al
an
U Ca d
ni
n
te ad
d
a
St
at
Au e s
st
ra
l
Au i a
st
ria
Ja
pa
Fi n
nl
a
Po nd
rtu
g
Ire a l
G lan
Lu er d
xe m a
m ny
bo
ur
g
Fr a
an
ce
Sp
a
Be in
lg
iu
G m
re
ec
e
Ita
ly
% population at working age
Active for Work?
In work or seeking work, 2003
100
90
80
70
60
50
40
30
20
10
0
Employment participation
Unemployment
Ita
ly
e
Sw lan
i tz da
er
la
n
N d
or
D way
en
m
ar
U
k
S
ni
w
te
d ede
K
in n
g
N
et dom
he
rla
n
C ds
an
U
ni
te ada
d
S
ta
Au tes
st
ra
li
Au a
st
Po ria
r tu
G ga
l
er
m
an
Fr y
an
ce
Sp
a
Be in
lg
iu
m
Ic
Activation and Disability
Prevalence
100
90
80
70
60
50
40
30
20
10
0
Disability prevalence age 20-64
OECD 2005 and 2003
D
an
y
K
Ja
pa
Sw n
ed
en
Au
st
ra
li a
Ic
el
an
d
U
SA
et
he
rl a
nd
s
m
ea
n
C
an
ad
a
EC
er
m
U
Sp
ai
n
Ire
N
la
ew
nd
Ze
al
an
d
N
O
G
Fr
an
ce
Au
st
ria
Be
lg
iu
m
D
en
m
ar
k
% of ages 16-64
Disability and early
retirement recipiency rates
% of working-age population
14
12
10
8
6
4
2
0
Disability Prevalence in the
Nordic Countries 1995-2002
Disability pensioners as % of 16-64 years
Disability pensioners as % of ages 16-64
Nososko 2004
10
9
8
7
1995
2000
2001
2002
6
5
4
3
2
1
0
Denmark
Finland
Iceland
Norway
Sweden
General character of the
Icelandic Welfare Model
Icelandic Welfare Model
Iceland 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
0,00
Sweden
Denmark
Germany
France
Belgium
Switzerland
Austria
Italy
Norway
Finland
Greece
Poland
Netherlands
United Kingdom
Portugal
Luxembourg
Iceland
Spain
Australia
New Zealand
Canada
United States
Ireland
% af VLF
Social Expenditures as % of GDP
OECD 2001
35,00
30,00
25,00
20,00
15,00
10,00
5,00
Quality of 3 Welfare Regimes and Iceland
Comparative overview
USA
Welfare goals obtained:
• Insurance coverage
• Quality of benefits
• Use of means-testing
• Public welfare services (health, day care...
• Extent of poverty in society
• Equality of living conditions
• Equality of sexes
• Effect of class structure
•
Germany
Scandinavia Iceland
Small
Low
Large
Considerable
Class-specific
Limited
Large
Large
Limited
Large
Low
Large
Small
Small
Large
Large
Large
Low
Medium
Large
Medium
Medium
Low
Large-med
Small
Large
Large
Small
Small-med
Large
Large
Small
Scandinavia obtains welfare goals best – by far
Changing Environment
in Iceland
Higher Unemployment Level
during the 1990s
10
Unemployed as % of labour force
9
8
7
6
%5
4
3
2
1
20
03
99
97
95
93
91
20
01
Heimild: Þjóðhagsstofnun og Hagstofa Íslands
89
87
85
83
81
79
77
75
73
71
69
67
65
63
61
59
57
0
Increasing Prevalence of Disability
in Iceland
9
8
Men
Women
% population 16-64
7
6
5
4
3
2
1
0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Relationship Between Unemployment and
Disability Prevalence
0,900
0,800
0,700
0,600
0,500
0,400
0,300
0,200
0,100
0,000
6
5
4
3
Incidence of disability (5075%)
Unemployment rate (%)
2
r=0,6
1
0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Atvinnuleysi kvenna %
Nýgengi 50-75% örorku
Incidence of disability and the rate of unemployment
Females 1992-2003
Relationship Between Unemployment and
Disability Prevalence
0,600
6
0,500
5
0,400
4
0,300
3
0,200
Incidence of disability (5075%)
0,100
Unemployment rate (%)
2
r=0,63
0,000
1
0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Atvinnuleysi karla
Nýgengi 50-75% örorku
Incidence of disability and the rate of unemployment
Males 1992-2003
Increasing Long-Term Unemployment in
Iceland during the 1990s
25
15
10
5
03
20
02
20
01
20
00
20
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
0
19
% of unemployed
20
Relationship Between Long-Term
Unemployment and Disability Incidence
r=0,85
1800
1600
Incidence of disability 75%
1400
Long-term unemployed (6 months+)
Number
1200
1000
800
600
400
200
0
2000
2001
2002
2003
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
•Unemployment benefit
•Disability benefit
25.000 Íkr./month
90.000
-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 Risks
in different Welfare Regimes
Activation and Services, 1980-1999
----------------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
1,67
Continental
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
2,20
1,10
0,10
Iceland
0,0
0,4
0,2
OECD Society at a Glance 2005
Iceland
Luxembourg
Poland
United States
Greece
Japan
United Kingdom
Canada
Slovak Republic
Australia
New Zealand
Italy
Austria
Switzerland
OECD-30
Portugal
Ireland
Spain
Norway
Finland
Germany
Belgium
France
Sweden
Netherlands
Denmark
% of GDP
Active Labour Market Policy
Expenditures as % of GDP in 2001
1,6
1,4
1,2
1,0
0,8
0,6
or
w
ay
0
OECD 2003
N
e
et d en
he
rl a
nd
s
Po
la
Po nd
rtu
ga
D
en l
m
G a rk
er
m
an
Au y
st
ria
Ic
Sw ela
i tz nd
er
la
nd
Sp
ai
n
Ita
Be l y
lg
iu
m
U
F
ni
r
an
te
c
d
Ki e
ng
do
m
Tu
rk
Au ey
st
U
r
ni
te ali a
d
St
at
es
C
an
ad
a
Ko
re
a
M
ex
ic
o
Sw
N
% of GDP
Expenditures on all Disability-Related Programs
as % of GDP in 1999
6
5
4
3
2
1
From Protection to Participation
Routes to Activation or Employment Retentionsome 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
Focus on vocational rehabilitation
(Quasi)
Compulsory
Timing of
vocational
rehabilitation
Intermediate
approach
Entirely
voluntary
Any time
possible (also
very early)
Austria
Denmark
Germany
Spain
Sweden
--
--
Intervention
not very early
Austria
Denmark
Norway
Spain
Switzerland
Belgium
Netherlands
Polland
Australia
France
Italy
Korea
UK
Only after
long-term
sickness
--
Turkey
Canada
Mexico
Portugal
USA
Activation Policies
Cf. 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 noncompliance
• “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 Policies
Cf. Duncan Gallie et. al. 2004; Zeitlin et.al. 2003
Evaluation of successes of activation policies:
1. In USA + many countries benefit receivers went down
2. Mixed effects on expenditures
3. Activation measures (and poverty relief) reduce social
exclusion experiences significantly
4. The social inclusion obtained is though often restricted
5. Employment effects of activation were often important,
but still less than hoped for (minority got sustainable jobs)
6.
7.
8.
9.
So employment effects are on the whole positive but modest
Lack of work motivation was not a significant cause of
unemployment, but youths without work experience had
fragile motivations
Removing disincentives of welfare benefits is not the all
important factor
Crafting programs for special needs is more important
OECD Policies
Transforming 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 things
3. High benefit levels and active labour market
policies can produce win-win combinations
4. High benefits can increase recipients numbers
5. Poverty alleviation is important (poverty
increases trapping of people in passivity and problems)
6. Character of programs is important
OECD Policies
Transforming Disabilities into Abilities (2003)
Policy recommendations for disability:
1. Introduce culture of mutual obligations
2. Recognize the status of the disabled
independently of work and income situation
3. Design individual work/benefit packages for
disabled persons
4. Promote early intervention
5. Involve employers in the process
6. Restructure benefit systems to remove
disincentives to work
7. Reform program administration
8. Improve coordination of transfer schemes
Thank you!
Stefan Olafsson
University of Iceland