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Educational inequality also shapes labour market exit

ISS International Study

An unhappy elderly businessman, who has just been made redundant, on steps in front of a high-rise building.

The demographic change represents one of the greatest financial challenges for European pension systems. To counteract these, political measures have been adopted in almost all European countries, such as raising the statutory retirement age or cutting early retirement options. These measures affect older workers differently, depending on their level of education. Better education provides individuals with opportunities to exit the labour market voluntarily – as it is typically associated with more attractive, more stable, higher-income jobs, and healthier working conditions. Accordingly, lower and higher educated workers leave the labour market at different ages and for different reasons. This runs the risk of exacerbating social inequalities, as lower and higher educated workers leave the labour market at different ages and for different reasons, potentially widening pension gaps after the end of working lives, known as the social gradient.

In a recent study, ISS researchers Jana Mäcken and Lea Ellwardt as well as two further colleagues analyzed differences in voluntary as well as involuntary labour market exit between lower and higher educated workers in 15 European countries and examined which policies reduce the social gradient. The sample included more than 19.000 people.

The analyses show that in 13 of the 15 countries, lower educated workers were on average two percentage points more likely to leave the labour market involuntarily than higher educated workers. This social gradient was largest in the Czech Republic, Portugal, and Germany and smallest in Sweden, the Netherlands, and Denmark. Policy analyses showed that stricter employment protection legislation leads to a smaller social gradient in involuntary labour market exit. Also, higher participation rates in programs that promote lifelong learning were associated with a lower social gradient in involuntary labour market exit. Higher spending on rehabilitation was associated with a lower gradient in labour force retention.

Overall, the study showed that for lower educated workers it is more difficult to reach the new political goal of extending working lives. Policies that provide training opportunities specifically for lower-educated workers could help reduce educational inequalities in labour market exit.