Issue, No.3 (September 2017)

Labour market participation of older workers in Lithuania and Estonia between 2010-2013

by Carmen Petrovici, LIS

Demographic ageing is a major problem in Lithuania and Estonia, two countries that recently introduced reforms in order to promote active ageing and labour participation of older workers. The old age dependency ratio¹ was in 2015 around the EU average of 28% in both countries; however, the projections for 2050 show Lithuania at over 60% dependency ratio, compared to 50.3% EU average, while Estonian predictions are slightly under the EU average, with a dependency ratio of 48.8% (Eurostat). Combined with a low fertility rate for both countries, demographic ageing is amplified also by the high migration rate, one of the highest in Europe: between 1990 and 2014, the net migration rate in Lithuania was more than three times higher than the EU average, with more than half a million people, majority young, who emigrated from Lithuania to find better work opportunities elsewhere (Bauman et al., 2015).

According to Eurostat, between 2010 and 2013 the overall employment rate (considering active population) of persons aged 20 to 64 years increased in Lithuania with over 5 percentage points reaching almost 70 % in 2013, being above the EU 27 average of 68.5. In Estonia employment rates for the same age category are even higher, with an increase of 6.5 percentage points to over 73% in 2013. Older workers (55-64 years) employment rate increased as well in Lithuania in the same proportion as the overall active population, reaching 53.4%, above the EU average (50.2 % in 2013). However, Estonia is taking the lead, with an increase of 8.8 percentage points in the participation rate of older workers, reaching 62.6 % in 2013.

Nevertheless, it makes a difference in the participation rate of older workers if they qualify for statutory retirement with full pension or not, and in both countries the statutory retirement age (SRA) is still under 65 years; while through the pension reform it is planned to be raised gradually at 65 years for all by 2026, thus closing also the gender gap. In Lithuania the SRA was 62.5 years for men and 60 years for women in 2010. In 2013, SRA reached 62 years and 10 months for men and 60 years and 8 months for women. The same situation we find in Estonia: in 2010 the SRA was 63 for men and 61 for women, while in 2013 it increased just for women at 62 in order to reach the same retirement age as men gradually.

Several policy measures were taken in order to promote active ageing. For example, in Estonia, at both points in time, it was possible to fully accumulate earnings from work and a full pension. According to Lithuanian law, in 2010 the pension was proportionally reduced with earnings from work; however, this changed and in 2013 full accumulation was allowed. Early retirement is still permitted in both countries up to 3 years prior to statutory retirement age, albeit with permanently decreased pension benefits, on average by 0.4% per month they retired earlier; while in the case of deferred retirement the pension is proportionally increased. In order to see if the prolongation of working life until 65 years (and beyond) is feasible, we look more in detail into the labour market participation rates of seniors, splitting them in 3 groups: ‘older workers’ aged 55 to SRA; ‘active seniors’ from SRA to 65 years and ‘elderly’ from 66 to 75 years old.

From Figure 1 and Figure 2 we can see that in Lithuania, between 2010 and 2013 the employment rate of older workers aged 55-SRA increased substantially by over 12 percentage points reaching 66.1% in 2013. Furthermore, as we can see from Table 1, for women, the participation rates are even higher than for men by over 3 percentage points, at 67.3% in 2013 for 55-SRA group.

A similar trend within the same age group can be observed in Estonia, as we can see from Figure 3 and Figure 4: the employment rate is increasing from 65.7% in 2010 to 67.2% in 2013, with a much higher employment rate for women, of 70.9% in 2013 compared to 63.3% for men. Another explication for the higher employment rates of elderly women is that the economic crisis hit more the typical ‘male’ employment sectors like manufacturing and construction (Masso and Krillo, 2011). However, in Estonia, we observe a slight decrease over time in the participation rate of women aged 55-SRA, still being over 70%; the gap between men and women reduces over time.

In 2013, we observe slightly higher participation rates for men than for women in the age group SRA-65 in Lithuania, with an impressive increase: the employment rates for men almost doubled in this period reaching 32% in 2013. Overall, in Lithuania there is an increase of 10 percentage points in the employment rate of people between SRA and 65, which gives a positive signal to the impact of active ageing policies. We also observed high rates of disability exits at the group 55-65, up to 17% in Lithuania in 2010 (however decreasing by 3.5 percentage points by 2013), being possibly used as an alternative exit from the labour market, when people do not qualify for full pensions.

In Estonia we observe a slight decrease of the participation rate of people above SRA and up to 65 years, however, their participation rate is still very high, at 37.7% in 2013, higher than in Lithuania. Even the last group, the elderly aged 66-75, almost doubled their participation rates in Lithuania, reaching 8.5 % in 2013, while in Estonia, where the participation rate of the elderly group was already high, at 12.2% in 2010, it further increased by 2.3 percentage points by 2013.

We can see from Table 1 that older workers, especially those under SRA, tend to work, on average, close to the full time hours in the two Baltic States, especially men. Women work, on average, less hours than men: with 1.7 hours less for the 55-SRA age group in 2013 in Lithuania and with 3.5 hours in Estonia. For the age group SRA-65, in Lithuania, in 2013, the gender gap is increasing: women work, on average, 3 hours less, while in Estonia for the same age group women work, on average, 3.7 hours less than men. Over time, in this age group men from both countries increased their working hours, while women decreased them, due to the fact that were more part-time opportunities available for them, for ex. in 2013, 41.3% of active women aged 65 and older were working in part-time jobs, compared with only 25.8 % in 2004; while for older men the proportion of part-time workers increased from 11.7% in 2004 to 33.4 % in 2013 (Statistics Lithuania, 2014).

Furthermore, over time, concomitant with the increased duration of working life, we observed a decreased unemployment rate for young people aged 17-29 in both countries and an increase of 7.4 percentage points of their employment rate in Estonia reaching 55.8 %, while in Lithuania employment remained at about 42.5 % with an increase in the enrollment rate in tertiary educational programmes. This shows, once more that the prolongation of the working life can go hand in hand with an increased employment for the young generation, therefore active ageing policies are beneficial for all, in the long run decreasing the dependency ratio that weights over the young active population.

To sum up, overall, the trend is positive in both countries, with a substantial increase in the participation rates of older workers, even of those who are above SRA, which gives a positive signal on the feasibility of prolonging the statutory retirement age until 65 and promoting active ageing even beyond that. Women tend to work longer years; possibly due to their often interrupted careers, women do not qualify for (early) retirement; however, they work on average fewer hours than men. The results also indicate that the economies of both countries are on an upwards trend after the economic crisis.

¹ The old age dependency ratio is the ratio between the projected number of persons aged 65 and over and the projected number of persons aged between 15 and 64 (active population). The value is expressed per 100 persons of working age (source: EUROSTAT).

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