Labor Force Participation, Income Inequality and Social Security in Sweden Mårten Palme Department of Economics Stockholm University, Sweden

Pre-reform pension system The public old-age pension scheme consists of three parts: a basic pension, a special supplement and a supplementary pension (ATP). All are defined benefits PAYG schemes. Indexed by CPI (almost). Benefit level in the supplementary pension are determined as 60 percent of the average of the 15 best years of labor earnings. Linear reduction if less than 30 years of contributions. Actuarial reduction on 0.5 percent for every month of early withdrawal before 65 year birthday.

Post-reform pension system Notional defined contribution scheme percent of the wage sum offset to pensions. 16 to a PAYG scheme and 2.5 to a fully funded scheme. Includes a guaranteed level of benefits. All contributions to the scheme is counted when the benefit level is determined. Indexed by the average wage rate. Replacement level on about 60 percent for average worker.

Development of male labor force participation rates in Sweden by age group

Development of male labor force participation rates in age group Various countries.

Share of workers out of the labor force versus implicit tax rate for remaining in the work force age group 55 to 65

Income inequality among households with household head older than age 65 in 15 different OECD countries in the year OECD equivalence scales.

Poverty rates among households with household head older than age 65 in 15 different OECD countries in the year Share of households below 50 percent of median income in the population of households with household head younger than age 65.

Conclusions Modest disincentives to early retirement through the social security system Low degree of income inequality and poverty among elderly despite modest income redistributions through social security system