New report proposes alternative model for sick pay allowances

In an SNS report published today, Johannes Hagen from Jönköping International Business School, together with Hannes Malmberg from the Stanford University, presented a new model that will strengthen employers' driving forces to maintain an older workforce.

The proposal for increasing the retirement age raises the issue of workforce and health at the end of working life. What happens to those who can not work, though they would like to?

Research shows that more people have chosen to retire before 65 years' old, after the criteria for sickness benefit increased. In particular, this applies to low-income earners with a history of sick leave history.

"After the tightening of sickness benefit, the pension income has become an important safety valve for many with reduced working capacity. The Pension Group's proposal for increasing the retirement age means that this safety valve will be shut off. The proposal mentions the problem, but there are no concrete strategies or solutions aimed at these people," says Johannes Hagen.

One basic problem that Hagen and Malmberg assumed in their analysis is that the state, rather than the employer, carries the largest part of the cost of sickness benefit. This means that employers have relatively weak economic incentives compared with the state to keep sickness benefit allowances down.

In the report, Hagen and Malmberg propose a system in which a greater financial liability for sick pay compensation is imposed on employers. Using the municipal sector as an example, it is shown how specific incentives would provide motivation to reduce sick leave rates.

Portrait Johannes Hagen

Johannes Hagen, Universitetslektor, Jönköping International Business School

"We propose a system where it is the municipalities and county councils themselves that are responsible for their employees' sickness benefit costs when the costs are higher than expected. Employers who have lower actual costs than expected would be rewarded in the same way in the form of reimbursement from the state. The state would still have the full cost of the sickness benefit as a whole, while municipalities and county councils would bear the full cost of additional sickness benefits. Expected costs would be calculated on the basis of the composition of staff in terms of age, gender and education, for example," says Johannes Hagen.

"The hope with our proposal is that it will allow an increase in retirement age, while the sickness benefit allowance system will protect those in need in a safe way. We also want a discussion that leads to closer links between the pension system and the social security system. The model is easy to implement and we hope it will be considered," says Johannes Hagen.

SNS is a meeting place for knowledge-based dialogue on key social issues and whose members consist of companies, authorities and organizations. The report by Johannes Hagen and Hannes Malmberg is part of the SNS project "New challenges for the pension system" that addresses issues regarding both the occupational pension and the general pension.

The Pension Group consists of members from the following political parties: Socialdemokraterna, Miljöpartiet, Moderaterna, Centerpartiet, Kristdemokraterna och Liberalerna.