This policy brief summarizes the findings in a paper where individual exit trajectories of Russians from the labor market to economic inactivity are examined using survival analysis methods based on the Russian Longitudinal Monitoring Survey for 1995-2015. Among other results, the analysis shows that the statutory retirement age has a significant impact on the time of exit from the labor market for both men and women, but the effect is very high for women. This is an interesting and unexpected result, given no penalty for working beyond the pension age of those already retired, the five-year difference in statutory retirement age between males and females, and the low pension age in Russia on an international scale. This questions the painlessness of rising the retirement age for women, should the decision finally be taken.
An ageing population, combined with a slowdown in economic growth, challenges the Russian public finances with an increased deficit of the Pension fund. In addition, the persistently negative natural population growth against the backdrop of ageing has predetermined a decline in the working-age population in the foreseeable future. Older cohorts are therefore becoming a potentially attractive source to increase the size of the labor force. All this has actualized the discussion about the need to increase the Russian retirement age (see, for instance, Maleva and Sinyavskaya, 2010). However, little is known about the labor market situation of older age groups and, in particular, about the process of their exit from the labor market
The Russian pension system, unlike the pension systems of many developed countries, hardly penalizes continuation of work after reaching retirement age and documenting a pension (working pensioners lose only pension indexation). The changes in pension law that have entered into effect since 2015 encourage continued work without recourse to retirement, but there have been few responses to the innovation so far. Coupled with the low pension replacement rate (i.e., the proportion of wages substituted by pension), this makes the process of leaving the labor market nontrivial, since a large number of people of retirement age remain on the labor market after reaching retirement age.
Denisova (2017) examines individual exit trajectories of Russians from the labor market to pension-age economic inactivity applying survival analysis to the Russian Longitudinal Monitoring Survey (RLMS-HSE). The major research questions are the following: What determines the length of stay of older age groups in the Russian labor market? What is the role of the statutory retirement age in this process?
Data and research methodology
The RLMS-HSE for the period of over 20 years, from 1995 to 2015, is the empirical basis of the research (http://www.cpc.unc.edu/rlms). I limit the sample to age 45-72 as there is practically no retirement by age before age 45, and 72 years is the upper boundary of the working age definition internationally accepted by statisticians. I exclude from the sample those who are on retirement and did not work or seek work for the entire period of observation, since their decision to end working activity remained outside the observation period.
An episode in the survival analysis of exit from the labor market into pension-age inactivity is an episode of working life. The analytical time in this case is the age of the respondent. The failure event (the moment of exit from the labor market to pension-age economic inactivity) is defined by the simultaneous fulfillment of three conditions: the respondent does not work, does not look for a job, and receives retirement pension. Only the final exits from the labor market into inactivity are considered, while temporary exits are disregarded.
I evaluate proportional hazard models, which suggest that exogenous economic factors shift the baseline hazard function (which reflects the average entire sample hazard rate at each age) proportionally. A semi-parametric Cox model specification with robust errors clustered at individual level is used.
The vector of explanatory characteristics includes education; marital status; experience in the labor market (work at an enterprise with a state share; entrepreneurship versus work for wages); health characteristics (subjective and objective); settlement type; and attainment of statutory retirement age. In all cases, I control for the year of the survey.
Given the differences in the behavior of men and women in the labor market, the regression analysis is run separately for the subsamples of men and women. The statistical significance of the differences in returns to factors between men and women is tested based on the results of the full sample regression with interaction terms.
Averaged process of exit from the labor market
The averaged process of leaving the labor market pending on age is conveniently described through so-called Kaplan-Mayer’s survival function (an estimate of the survival process). As seen from Figure 1, the process of exit prior to age 55 for women and 60 for men is very slow, while the rate of exit becomes almost permanent and slows down after 70 years. Men stay in the labor market longer: 25% of women leave the labor market at the age of 58 years, whereas for men this age is 60. The threshold of 75% of the sample that left the labor market is reached in the sample of women by the age of 70, and 71 for men.
Determinants of exit
The analysis of older cohorts’ exit from the labor market via survival methods confirms important determinants of the process, previously identified in literature. The impacts of health and of financial incentives are in this group of results.
Figure 1. Survival functions, men and women
Health status is the key factor for men’s exit into inactivity: the exit to inactivity is accelerated by 71 percentage points for males with bad health, whereas for women this factor is statistically irrelevant.
A higher per capita household income is correlated with later exit from the labor market. A higher income from the main place of employment has no statistically significant effect when we control for household income and is at an extended boundary (15%) of statistical significance if we do not. Both variables indirectly reflect the pension replacement rate, and I interpret the results as an indirect confirmation that workers at the top part of the income distribution, being inadequately insured by the pension system, remain on the labor market longer.
The identified peculiarities of the exit to pension-age inactivity of the Russian elderly are of major interest. Unlike many developed countries, only highly skilled persons remain in the labor market longer than others, while the behavior of middle-skilled groups, and skilled and unskilled workers does not statistically differ between them.
Employment at state-owned enterprises slows down women’s exit to inactivity but is not significant for men. Self-employment and entrepreneurship prolong the presence in the labor force, by 41 percentage points for women.
The regression analysis demonstrates that the statutory retirement age has a significant impact on the time of exit from the labor market for both men and women, and the effect is significantly higher for women: the hazard rate of inactivity rises by 63 percentage points when a woman reaches 55 years, and by 25% when a man reaches 60. For men, an effect comparable in size is the self-assessment of health as poor.
The results, on the one hand, confirm those for developed countries: health status is the key factor for men’s exit into inactivity, and financial motives have a significant impact. At the same time, the peculiarities of the Russian labor market are reflected in a differing labor market exit process of various professional groups, in the sense that self-employment and entrepreneurship and work at state enterprises postpone exit into inactivity. The high sensitivity of women to the statutory retirement age, which by 2.5 times exceeds the sensitivity of men, is one of the new and unexpected results, taking into account that the statutory retirement age for women in Russia is very low by international standards. This questions the painlessness of rising the retirement age for women, should the decision finally be taken. Indeed, given the very low pension age for females, an (gradual) increase in the retirement age for women would seem not to raise strong objections. However, our result testifies that the normative border of the retirement age has a decisive influence on women’s choice of time of exit from the labor market, even under control (as far as data permits) on differences in education, situation in the labor market and family circumstances. In this situation, the process of rising the retirement age, if such a decision is taken, can be rather painfully accepted by those who so strongly focus on its current meaning in their life plans.
- Denisova, Irina, 2017, “Exit of senior age cohorts from the labor market: survival analysis approach” – forthcoming in Population and Economics.
- Maleva T.M., Sinyavskaya O.V., 2010 “Raising the retirement age: pro et contra, Journal of the New Economic Association, No. 8, pp. 117-139.
In this brief, we summarize the results of a recent analysis focused on identifying the key determinants of engagement in paid work after retirement based on life histories data from the Survey of Health, Ageing and Retirement in Europe (SHARE). We find a strong link between the probability of work after retirement and indicators of quality of work prior to labor market exit, such as high physical and psychosocial demands, lack of control or receiving adequate social support. These results suggest a potentially important role of job-quality regulations. We find no significant association with past experience of adequate rewards with respect to efforts in the main job, which suggests that involvement in paid work after retirement may to a lesser extent be driven by financial concerns. This might mean that policy initiatives targeted at higher level of labor market activity among retirees should stress non-material aspects of employment in later life.
The collection of data in the 7th wave of the Survey of Health, Ageing and Retirement in Europe (SHARE) proceeded in 2017, and the Centre for Economic Analysis (CenEA) has recently published a report based on information collected in previous waves of the survey. The report entitled “The Polish 50+ generation in the European context: activity, health and wellbeing” examined among other issues the determinants of labor market activity of people aged 50+ with a special focus on Poland (Myck and Oczkowska, 2017).
SHARE is a panel survey conducted every two years and focuses on health conditions, material situation and social relations of the population aged 50 years and older. In 2017, in the 7th Wave, interviews were conducted with over 80,000 participants in 26 European countries and Israel. While the survey usually focuses on contemporary conditions of respondents, the interviews in Wave 3 (the SHARE-Life conducted in 2008-2009) is concerned with respondents’ life histories and topics such as family history, mobility and work histories.
In this brief, we draw on one of the chapters from the report and present results of a analysis that combines information on the quality of the main job of the respondents’ working careers, with information on engagement in paid work among retired individuals to examine key determinants of undertaking paid work after labor market exit.
Work histories in SHARE
The life-history interview includes a series of 12 questions evaluating effort-reward imbalance in the main job of individuals’ working careers (Siegrist and Wahrendorf, 2011; Siegrist et al., 2004; 2014). Based on these questions, five dimensions of the quality of the workplace were identified: physical and psychosocial demands, control, social support and reward (see Table 1). Figure 1 presents an example of the distribution of answers to one of the questions used to define these dimensions, which asked about the extent to which the respondents’ main jobs was physically demanding. Generally, men’s past main job is more often described as physically demanding than women’s. While less than half of respondents in France and Sweden claimed physically strenuous main job, the respective measure in Poland and Greece was as high as 75%.
Table 1. Dimensions of job quality
|Dimension||SHARE Questionnaire Items|
– „My job was physically demanding.”
– „My immediate work environment was uncomfortable (for example, because of noise, heat, crowding).”
|Psychosocial demands||– „My work was emotionally demanding.”
– „I was exposed to recurrent conflicts and disturbances.”
|Control||– „I was under constant time pressure due to a heavy workload.”
– „I had very little freedom to decide how to do my work.”
|Social support at work||– „I received adequate support in difficult situations.”
– „There was a good atmosphere between me and my colleagues.”
– „In general, employees were treated fairly.”
– „I had an opportunity to develop new skills.”
– „I received the recognition I deserved for my work.”
– „Considering all my efforts and achievements, my salary was adequate.”
Notes: answer categories: “strongly agree, agree, disagree, strongly disagree”. Source: adapted from Siegrist and Wahrendorf (2011).
Figure 1. “My job was physically demanding”
Notes: includes wave 3 respondents with at least 10 years of seniority who retired by the time of wave 6; weighted. Source: own calculation based on SHARE data waves 3 (2008-2009) and 6 (2015).
Following Wahrendorf and Siegrist (2011), for the purpose of further analysis, we construct five measures of workplace quality based on the questions listed in Table 1. For each dimension of job quality, we calculate a sum-score of answers (from 1 “strongly agree” through 2 “agree”, 3 “disagree” to 4 “strongly disagree”) to selected questions, and identify the upper (lower) tertile of observations. We create five binary indicators (with 1 meaning “yes”) describing the quality of work in the sense of high physical or psychosocial demands, lack of control, and adequate social support or adequate reward. The results are presented in Figure 2 in association with the frequency of paid work after retirement.
Figure 2. Associations between quality of work in the past and frequency of paid work after retirement
Notes: includes wave 3 respondents with at least 10 years of seniority who retired by the time of wave 6 from selected countries (CZ, FR, DE, GR, PL, ES, SE); weighted. Source: own calculation based on SHARE data waves 3 (2008-2009) and 6 (2015).
In most cases the percentage of retirees engaged in paid work was significantly higher among those positively evaluating the quality of their past workplace. The only dimension where no significant difference was found in the level of involvement in paid work was between the retirees who estimated rewards at work as adequate to their efforts and those who assessed them otherwise.
What determines paid work after retirement?
The role of the five measures of job quality was further examined using models of probability of paid work after retirement. Apart from quality indicators regarding the main job, controls included total labor market experience, unemployment incidence, as well as detailed demographics and information concerning current health status and material conditions. Odds ratios were estimated separately for men and women from a group of selected countries: Czech Republic, France, Germany, Greece, Poland, Spain and Sweden.
Higher education is positively associated with the odds of employment after retirement, but have the opposite effect for age, poor health and living in rural areas. Each additional year of labor market experience increases the odds of working after retirement, but we find no significant effect of unemployment episodes.
Both men and women without experience of high physical demands and lack of control in their main job have higher odds of working after retirement than those who declared such experiences. For example, men who did not experience highly, physically demanding main jobs have 1.4 times higher odds of work after retirement compared to those who did. The respective odds for those who did not experience lack of control are 1.9. On the other hand, high psychosocial demands and adequate social support have significant influence only among retired women. Women who did not report high psychosocial demands had 1.25 times higher odds of work after retirement, while those who received adequate support in their past job had 1.5 times higher odds. We find no significant effect of the experience of adequate rewards with respect to efforts in the main job, and similarly no significant association between material conditions and employment of retirees. Both of these may imply that involvement in paid work after retirement is to a lesser extent driven by financial concerns.
Further discussion and policy implications
Differences in the degree of engagement in paid work after retirement with respect to the assessment of past job quality suggest a potentially important role of job quality regulations. At the same time, lack of significant association between the material situation and paid work after retirement implies that policy initiatives targeted at higher levels of labor market activity among retirees may benefit from stressing the non-material aspects of employment in later life.
Results point to a strong link between quality of work in the past and probability of work after retirement, which is in line with what other studies have showed: e.g. that low quality of work in the past strongly correlates with the desire to retire as soon as possible (e.g. Dal Bianco et al., 2014). Given the demographic pressure on public finances observed or expected in many developed countries, and foreseen reductions in the generosity of pension benefits, increasing the level of engagement in paid work after labor market exit may become an important policy challenge. The results summarized in this brief suggest that governments should, on the one hand, pay attention to the labor market conditions faced by those currently employed, and on the other hand focus on a broad set of incentives to encourage employment among older generations, going beyond financial remuneration.
- Dal Bianco, C., Trevisan, E., Weber, G., 2014. „I want to break free. The role of working conditions on retirement expectations and decisions”, European Journal of Ageing, 12(1), 17-28.
- Myck, M., Oczkowska, M. (eds.), 2017. „The Polish 50+ generation in the European context: activity, health and well-being. Results from the SHARE survey” („Pokolenie 50+ w Polsce na tle Europy: aktywność, zdrowie i jakość życia. Wyniki na podstawie badania SHARE”), CenEA (in Polish).
- Siegrist, J., Li, J., Montano, D., 2014. “Psychometric properties of the effort-reward imbalance questionnaire”. Düsseldorf University.
- Siegrist, J., Starke, D., Chandolab, T., Godinc, I., Marmot, M., Niedhammer, I., Peter, R., 2004. “The measurement of effort-reward imbalance at work: European comparisons”, Social Science & Medicine, 58, 1483-99.
- Siegrist, J., Wahrendorf, M., 2011. “Quality of Work, Health and Early Retirement: European Comparisons”, in: Börsch-Supan, A., Brandt, M., Hank, K., Schröder, M. (eds.). “The Individual and the Welfare State: Life Histories in Europe”. Springer Berlin Heidelberg.
- Wahrendorf, M., Siegrist, J., 2011. “Working conditions in midlife and participation in voluntary work after labour market exit”, in: Börsch-Supan, A., Brandt, M., Hank, K., Schröder, M. (eds.). “The Individual and the Welfare State: Life Histories in Europe”. Springer Berlin Heidelberg.
2016 was the first full calendar year of the new Polish government elected to power in October 2015. The year marked a number of major changes legislated in the area of socio-economic policy some of which have already been implemented and others that will take effect in 2017. In this policy brief, we analyse the distributional consequences of changes in the direct tax and benefit system, and discuss the long-term implications of these policies in combination with the policy to reduce the statutory retirement age.
The Law and Justice party (Prawo i Sprawiedliwość, PiS) won an absolute majority of seats in both houses of the Polish Parliament in the parliamentary elections of October 2015. Earlier that year, Andrzej Duda of PiS was elected President of the Polish Republic. In both cases, the electoral victories came on the wave of pledges of significant financial support to families with children and to low-income households, especially pensioners. The new president pledged to cut back the pension age to the levels prior to the 2012 reform, which introduced a gradual increase from 60 and 65 to 67 for both women and men, and to nearly triple the income tax allowance. Following Duda’s victory in May 2015, PiS reiterated these pledges in the parliamentary election campaign and added the promise to increase the total level of financial support for families with children by over 140% through a nearly universal benefit called “Family 500+” and to hike the minimum wage by over 8%.
Despite a rather tight budget situation, the government went ahead with the “Family 500+” and successfully rolled it out in April 2016 (Myck et al., 2016a). The new instrument directs support of 500 PLN per child per month (110 EUR) to all second and subsequent children in the family in the age group between 0 and 17. Benefits for the first child in the family in this age group are granted conditional on overcoming an income threshold of 800 PLN (180 EUR) per person per month. Since April 2016, over 2.7 million families have received the benefit and 60% of them received the means tested support (if they have more than one child this is paid out in combination with the universal benefit).
The second key electoral pledge – to increase the tax allowance from 700 to 1,850 EUR at an estimated cost of 4.8 billion EUR – has so far been postponed (CenEA, 2015a). Increases in the allowance became a major policy issue in October 2015 when the Constitutional Tribunal ruled that maintaining its level below minimum subsistence, as it was at the time, was unconstitutional. To satisfy the Tribunal’s ruling, the allowance would have to increase to ca. 1,500 EUR at a cost of nearly 15 billion PLN (3.4 billion EUR, and about 0.8% of GDP, CenEA 2015b). Instead of a simple increase in the allowance, the government decided to implement a digressive tax allowance for 2017. This raised the value to the required minimum subsistence level for the lowest income tax payers, but since it is rapidly withdrawn as taxable income rises, the allowance will be unchanged to a large majority of taxpayers and will cost the public purse only 0.2 billion EUR (CenEA, 2016). This policy will be more than paid for by the fiscal drag given the decision to freeze all other parameters of the tax system, which will cost the taxpayers 0.5 billion EUR (Myck et al., 2016b).
The policies that directly affect household budgets will in total amount to about 5.5 billion EUR in 2017 (1.3% of GDP and 6.2% of the planned central budget expenditures) and will include also an increase in the minimum pension to benefit about 1.5 million pensioners. The cost of the “Family 500+” reform makes up the large majority of this value (5.4 billion EUR). Households from the lower income decile groups will benefit the most from this reform package, with their monthly disposable income increasing on average by 15.1% (ca. 60 EUR). High-income households from the top income decile will see their income grow on average by only 0.5% (see Figure 1). Overall, nearly all of the gains will go to families with children, with single parents gaining on average about 95 EUR and married couples with children about 84 EUR per month. Other types of families will, on average, see negligible changes in their household disposable incomes (see Figure 2). Thus, the implemented package clearly has a very progressive nature and redistributes significant resources to families with children.
Figure 1. Distributional consequences of changes in direct tax and benefit measures implemented between 2016-2017
The pension age and public finances in the years to come
The most recent major reform, legislated at the end of 2016 and which will come into effect in October 2017, represents an implementation of yet another costly electoral pledge. This policy has overturned gradual increases in the statutory retirement age, initiated by the previous government in 2012. Despite the very rapid ageing of the Polish population, the new government decided to return to the pre-2012 retirement ages of 60 and 65 for women and men, respectively. This comes at a time when, according to EUROSTAT (Eurostat, 2014), the old-age dependency ratio in Poland, i.e. the proportion of the 65+ population to the working-age population, will grow from the current 24% to 27% in 2020 and to 40% in 2040. With the defined contribution pension system, the shorter working lives resulting from this change will be reflected in significantly reduced benefits (Figure 2). For example, pension benefits of men retiring in 2020 will on average be 13.5% lower than the pre-reform value. For women that retire in 2040, the pension benefits will on average fall by 15.2%, which corresponds to a 43% lower benefit than the pre-reform value, and with consequences of the reform becoming more severe over time. The reform will also be very costly to the government budget. In 2017, it is expected to cost 1.3 billion EUR and its full effect will kick in after 2021, when the cost of the reform will exceed 3.9 billion EUR per year (Figure 2).
Figure 2. Reducing the statutory retirement age and its implications on pension benefits and public finances
Since coming to power in October 2015, the PiS government has implemented a majority of its costly electoral pledges. Direct changes in taxes and benefits will cost 5.5 billion EUR in 2017 and benefit primarily those in the lower end of the income distribution and in particular families with children. The reduced statutory retirement age will add an extra 1.3 billion EUR in 2017 and as much as 3.9 billion EUR four years later. The very generous “Family 500+” programme has significantly reduced child poverty and may have important positive long-term effects in terms of health and education for today’s beneficiaries. However, its fertility implications are still uncertain and the programme is expected to reduce the employment rate among mothers. While the government maintains that its financing is secured, it is becoming clear that maintaining the policy will not be possible without higher taxes.
The government came to power claiming that the implementation of this programme will be based on reducing tax fraud and that only a small fraction will be financed from tax increases. While it seemed likely at the time when these declarations were made, the expected major shift in the reduction of tax fraud has yet not materialised. The government have withdrawn from the pledge of reducing the VAT and from assisting those with mortgages denominated in Swiss Francs, while its income tax allowance reform was nearly thirty times less expensive compared to that announced in its electoral programme.
With a very tight budget for 2017 based on relatively optimistic assumptions, the key factors determining further realisations of the generous programme will be the rate of economic growth and related dynamics on the labour market. Developments of the labour market will also be essential for the longer-term economic success of the implemented reform package. This relates both to the future level of participation of women and to the success of extend working lives of people who will soon reach the new reduced retirement age.
- CenEA (2015a) Konsekwencje prezydenckiej propozycji podwyższenia kwoty wolnej od podatku (Consequences of the presidential proposal to raise the incoem tax allowance), CenEA press release, 3 December 2015.
- CenEA (2015b) Co z kwotą wolną od podatku po wyroku Trybunału Konstytucyjnego? (what will happen to the income tax allowance after the decision of the Constitutional Tribunal?), CenEA press release, 13 November 2015.
- CenEA (2016) Zmiany w kwocie wolnej od podatku za 800 mln rocznie (Changes in the income tax allowance at the cost of 800m per year), CenEA press release, 29 November 2016.
- EUROSTAT (2014) Eurostat – Population projections EUROPOP2013, access 21 December 2016.
- Myck, M., Kundera, M., Najsztub, M., Oczkowska, M. (2016a) 25 miliardów złotych dla rodzin z dziećmi: projekt Rodzina 500+ i możliwości modyfikacji systemu wsparcia. (25bn for families with children: plans for the Family 500+ reform and other options to modify the system of support.), CenEA Commentaries, 18 January 2016.
- Myck, M., Kundera, M., Najsztub, M., Oczkowska, M., 2016b, Zamrożony PIT i utrzymane wyższe stawki VAT – jak brak zmian w podatkach wpłynie na budżety gospodarstw domowych? (Frozen PIT and higher VAT – how lack of changes in taxees will affect househod budgets?), CenEA Commentaries, 05 October 2016.
- Council of Ministers (2016) Position of the Council of Ministers on the presidential bill proposal, Warsaw, 25 July 2016.