Special pension schemes for workers in arduous and hazardous jobs: Functions and conditions to ensure equal treatment

Mittlaender, Sergio Article — Published Version Special pension schemes for workers in arduous and hazardous jobs: Functions and conditions to ensure equal treatment International Social Security Review Provided in Cooperation with: John Wiley & Sons Suggested Citation: Mittlaender, Sergio (2023) : Special pension schemes for workers in arduous and hazardous jobs: Functions and conditions to ensure equal treatment, International Social Security Review, ISSN 1468-246X, Wiley, Hoboken, NJ, Vol. 76, Iss. 1, pp. 109-126, https://doi.org/10.1111/issr.12318 This Version is available at: https://hdl.handle.net/10419/287828 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. http://creativecommons.org/licenses/by-nc-nd/4.0/ Special pension schemes for workers in arduous and hazardous jobs: Functions and conditions to ensure equal treatment Sergio Mittlaender Fundação Getulio Vargas Law School (FGV Direito SP), São Paulo, Brazil; Max Planck Institute for Social Law and Social Policy, Munich, Germany Abstract Most jurisdictions grant differentiated and more beneficial treatment –usually in the form of early retirement, and commonly under special pension schemes –to workers in arduous or hazardous jobs. Several justifications for such treatment have been advanced, including i) compensating the worker for the hardship, ii) protecting the worker from the hazard, and iii) realizing the principle of equality in the distribution of costs and benefits in the social security system. This article analyses these functions from a socioeconomic perspective and explains how early retirement for workers in arduous and hazardous jobs is necessary to ensure equality by treating “unequals unequally”, and in proportion to their inequality. Moreover, this article presents a precise formula to calculate when a worker should be allowed to retire, so that workers in occupational domains with a shorter life expectancy do not systematically enjoy lower expected benefits from the pension system while having contributed the same amount. Implications for the design and desirability of special pension benefits are discussed. Address for correspondence: Sergio Mittlaender, Professor of Law, Fundação Getulio Vargas Law School in São Paulo (FGV Direito SP), Rua Rocha 233, São Paulo 01330-000, SP, Brazil; email: [email protected]. Senior Research Fellow, Max Planck Institute for Social Law and Social Policy, Amalienstrasse 33, 80799 Munich, Germany. Open Access funding enabled and organized by Projekt DEAL. International Social Security Review, Vol. 76, 1/2023 © 2023 The Authors. International Social Security Review published by John Wiley & Sons Ltd on behalf of International Social Security Association. 109 This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License, which permits use and distribution in any medium, provided the original work is properly cited, the use is non-commercial and no modifications or adaptations are made. 1. In Italy, the benefit was introduced by Decreto Legislativo 11 Agosto 1999 and regulated by Decreto Legislativo 21 Aprile 2011. In France, it was introduced by Loi 2010-1,330 du 9 novembre 2010, regulated by Loi 2014-40 du 20 janvier 2014, and subsequently reformed by the Ordonnance 2017-1,389 du 22 septembre 2017. In Finland, the “years-of-service”pension is regulated in the Työntekijän eläkelaki [Employees Pensions Act] (395/2006), Section 53. Keywords pension scheme, eligibility, equal treatment, occupational safety, international Introduction Differentiated and more beneficial treatment, dispensed only to certain people covered by the social security system, requires a justification to comply with the principle of non-discrimination or with the constitutional right of equal treatment. In fact, most countries provide special pension benefits to workers in arduous or hazardous jobs based on the grounds that they compensate workers for the hardship of the job, protect workers from the hazards of the work or, more rarely, are required to realize equality and implement proportional justice. In the European Union (EU), more than two-thirds of the countries have special pension schemes for workers in arduous or hazardous jobs (Natali, Spasova and Vanhercke, 2016; Eckefeldt and Pătărău, 2020), and recent reforms introduced a full-fledged system providing special benefits to such workers in Italy, France and Finland. 14 In Brazil, the People’s Republic of China, and the Russian Federation, the norm that allows such workers to retire earlier is understood to perform a crucial social role and has remained virtually intact throughout all recent reforms of these national social security systems. Still, several crucial questions remain. In what dimensions are those workers different? This depends, as will be explained, on the current amount of effort and energy that workers spend on their work and on the different risks they are exposed to; namely, the present risk of injury and accident as well as the future risks of incapacity, illness, and the reduction in quality and expectancy of life that arise due to the type of work they perform. The suitability of special pension schemes to compensate workers for, or protect them from, each of these harms depends on the structure of the market in which they intervene. This determines to what extent workers are already compensated through wage premiums for some of those harms, whether and to what extent they still need to be compensated for other harms, and whether there are other branches of the social insurance system that already provide such compensation. Moreover, at what cost should their situation be equalized? This answer determines the extent to Special pension schemes for workers in arduous and hazardous jobs International Social Security Review, Vol. 76, 1/2023 © 2023 The Authors. International Social Security Review published by John Wiley & Sons Ltd on behalf of International Social Security Association. 110 which special pension schemes should be shaped to foster the prevention of arduous and hazardous working conditions and who should pay for the costs of the scheme. In the end, the most relevant question to be addressed is what kind of equality, if any, should be offered, and to whom and when? It determines to which extent the statutory retirement age should differ depending on the hazards that workers are exposed to. Accordingly, this article specifies when a worker who has worked for a certain number of years in an arduous or hazardous job should be allowed to retire, depending on different factors, with the aim to ensure fairness in the pension system by balancing out contributions and expected benefits. This debate has acquired high relevance as differentiated benefits have been advanced as a fair and adequate measure to counterbalance the trend of increasing the retirement eligibility age for workers, which imposes a disproportionate burden on those whose health suffers due to arduous or hazardous work. These workers are the ones who are most at risk from the current policy shift towards longer working lives. The European Commission, in fact, has recognized how: “a specific category that often benefits from more favourable schemes and rules covers workers in arduous and hazardous jobs. Even though, during the past decade, the main trend has been towards tightening eligibility conditions and phasing out schemes, some countries have pushed through reforms creating more favourable conditions for this category”(European Commission, 2018, p. 105). The International Labour Organization (ILO) Invalidity, Old-Age and Survivors’ Benefits Convention, 1967 (No. 128), asserts that “[i]f the prescribed age is 65 years or higher, the age shall be lowered, under prescribed conditions, in respect of persons who have been engaged in occupations that are deemed by national legislation, for the purpose of old-age benefit, to be arduous or unhealthy”(article 15). The physical effort and strenuousness involved in certain professions justifies the worker’s exit from the arduous or hazardous job since workers need to be in good physical condition to exercise their job and might be unable to perform a physically strenuous activity well when at an older age. There are, however, different policies apt to redress their situation, and these policies have different financing mechanisms, which are more or less just depending on the extent to which they correct or create unequal conditions for workers in arduous or hazardous jobs. This article analyses the functions and justifications advanced by scholars, courts and legislators for differentiated and more beneficial treatment of workers in arduous or hazardous jobs. While there are different rights that the law might grant to such workers (Eckefeldt and Pătărău, 2020), the most paradigmatic and Special pension schemes for workers in arduous and hazardous jobs International Social Security Review, Vol. 76, 1/2023 © 2023 The Authors. International Social Security Review published by John Wiley & Sons Ltd on behalf of International Social Security Association. 111 usual one is a lower retirement age compared to workers in the general scheme. In the analysis that follows, the focus lies on this right, denoted herein the “special pension benefit”that workers in arduous and hazardous jobs might be entitled to. The legal analysis considers European countries that provide such a benefitto those workers as well as for the three emerging countries mentioned, namely Brazil, the People’s Republic of China (hereafter, China), and the Russian Federation (hereafter, Russia). Results provide insights into why special pension schemes are in place and concern how they should be designed to realize legitimate legal goals. In specifying the negative consequences of special pensions, and comparing them with alternative policies, this article reveals when special pensions could and should be substituted for alternative ones, what the main threats are to their implementation and, consequently, to achieving legitimate legal goals. The essential function of special pensions that is not performed by any other branch of the social security system is to create a fair distribution of costs and benefits between workers who suffer a reduction in life expectancy caused by the work they perform and those who do not face this risk. To perform this function without creating an unequal treatment that is not justified, the special benefit provided to these workers must be calculated precisely, and this article specifies how the special benefit should be calculated. The remainder of the article is organized as follows: next, the main ways by means of which different legal systems recognize arduous and hazardous jobs, and the type of benefit most often provided to those workers, are described. In turn, the consequences of arduous and hazardous jobs that can justify the goals of compensation, protection, and fairness, as well as alternative social policies that also perform those functions are explained. The article then investigates these three potential functions of special pensions and draws the contours of how the special scheme should be designed to perform these, including the sources of finance and interaction with other policies. Before final conclusions are presented, the article specifies the conditions for special pensions to ensure the equal treatment of workers in unequal conditions and presents a formula to calculate the retirement age of workers in arduous and hazardous jobs. Legal recognition and treatment of arduous and hazardous jobs Most countries with a well-established social security system provide differentiated and more beneficial treatment to workers in jobs or working conditions that the law recognizes as arduous or hazardous. Out of the 27 EU Member States, only five do not have any differentiated provision for those workers (Denmark, Ireland, Malta, the Netherlands and Sweden) (Natali, Spasova and Special pension schemes for workers in arduous and hazardous jobs International Social Security Review, Vol. 76, 1/2023 © 2023 The Authors. International Social Security Review published by John Wiley & Sons Ltd on behalf of International Social Security Association. 112 Vanhercke, 2016). In Brazil, beneficial treatment allows workers exposed to heavy hazards to retire up to 15 years earlier than the minimal retirement age, in Russia up to 10 years earlier, and in China, France and Italy up to 5 years earlier. 2 In contrast, many countries including Australia, Japan, Switzerland and the United States of America do not have any special provision for those workers. Few countries have a legal definition of arduous or hazardous work. The French Labour Code (art. L4121-3-1) considers pénible –a concept that includes both elements of arduous and hazardous work (Volkoff, 2015)–those jobs in which the employee is “exposed to one or more factors of professional risk determined by decree and connected to marked physical constraints, an aggressive physical environment or certain health patterns likely to have a lasting, identifiable and irreversible impact on health”. Countries that have such an abstract definition provide lists of environmental conditions that allow workers who can demonstrate that they were exposed to those factors to claim more beneficial treatment. In China, for instance, these conditions include underground work, high altitude, high temperature, strenuous activity, or any other work that is harmful to the health or body. 3 Other usual factors include underwater work, handling of certain chemical materials, or proximity to nuclear elements. Most countries, however, recognize arduous and hazardous work for broad categories of workers through lists of occupations or professions that are deemed arduous or harmful, such as work carried out by miners, metalworkers, aircraft staff and pilots, dancers, seafarers, assembly line workers, drivers of heavy vehicles, and bullfighters. Other countries recognize only a few occupations as arduous or hazardous and define workers in those fields as entitled to some social protection benefit that is tailored to them. For instance, Germany and Norway grant early retirement only to miners and seafarers. When recognized, workers engaged in arduous or hazardous activities are entitled to special provisions that facilitate early labour market exit. While the special benefit dispensed to such workers consists most often in access to full pension benefits prior to reaching the statutory pensionable age and, but less often, in the possibility of part-time work with full or almost full wages at an older age, it can also be implemented through a more advantageous accrual of pension rights or, at least in theory, through lower contributions paid by those workers while still active. 2. In Brazil, the matter is regulated by Lei No. 8.213/1991, art. 57; in China, by the State Council’s Provisional Measures Concerning the Retirement and Resignation of Workers, art. 1, Number 2;in Italy, by Decreto Legislativo 21 Aprile 2011, n. 67, art. 1; in France, by the Code de la Sécurité sociale, art. L351-6-1. 3. In China, the State Council’s Provisional Measures Concerning the Retirement and Resignation of Workers, art. 1, Number 2. Special pension schemes for workers in arduous and hazardous jobs International Social Security Review, Vol. 76, 1/2023 © 2023 The Authors. International Social Security Review published by John Wiley & Sons Ltd on behalf of International Social Security Association. 113 In fact, after years of debate, and several legislative changes to the initial project, France adopted a full-fledged system of specific provisions in 2014 (with substantial changes in 2018) that provide a menu of choices for those workers. It considers pénible any work involving night shift, work shift, repetitive work, work in a hyperbaric chamber, or when exposed to extreme temperatures and noise. These workers accumulate points over the years that they can later use i) for early retirement, ii) to change from full-time to part-time work without wage reduction, or iii) for the financing of educational programmes to reconvert to another profession. 4 The consequences of arduous and hazardous jobs Arduous work means exertive or strenuous work that requires a high level of physical or mental effort and energy. The classification of a certain activity as arduous requires a comparison between such an activity and those that require a level and intensity of effort and energy considered normal, average, or median (Bruno, 2015). There are objective criteria to measure the exceptional effort and energy spent while in a job, such as calories spent per hour of work (while seated desk-work consumes 92 kilocalories per hour, working on a car assembly line consumes 176, gardening 323, coal mining 425, and loading trucks 435) (Lieberman, 2013, p. 219), but the classification of a job as arduous is always a subject of debate (for instance, how many more calories does a worker need to consume for a job to be considered arduous in comparison to another job). Hazardous work imposes risks to the worker’s health. These include, as depicted in Table 1, i) the present risk of accident or injury while working, ii) the future risk that the worker will not be capable to perform either the specific job she or he performs or any type of job in the future, and iii) the future risk of illness causing a reduction in life quality or in life expectancy. Certain jobs might 4. See text of the Code de la Sécurité sociale, art. L4163-7. Table 1. Consequences of arduous and hazardous work Arduous Hazardous Present Present Future Exceptional physical effort and energy Risk of accident and injury Risk of incapacity to perform (i) the specific work or (ii) any type of work Risk of illness causing (i) reduced life quality or (ii) reduced life expectancy Source: Author’s elaboration. Special pension schemes for workers in arduous and hazardous jobs International Social Security Review, Vol. 76, 1/2023 © 2023 The Authors. International Social Security Review published by John Wiley & Sons Ltd on behalf of International Social Security Association. 114 involve one or more of those risks. Carrying very heavy loads, for instance, involves the present risk of injury to the back, the risk that this will develop into a permanent back injury preventing the worker from performing virtually any type of job in the future, and the risk of reduced quality of life after retirement due to injury-related movement difficulties. In contrast, working in contact with asbestos might not impose, by itself, any risk of accident or injury in the present, nor the incapacity to perform the job in the future, but instead, potentially, a heavy toll on a person’s life expectancy due to the development of serious illness in old age (Alleman and Mossman, 1997). The future risks involved in hazardous jobs include, for example, the long-lasting harm caused by mine dust on miners (leading to pneumoconiosis), hyperoxia and decompression stress on commercial divers (leading to a loss of lung function), contact with mercury, lead, arsenic, silica and other chemical agents by industrial or construction workers (leading to different serious diseases), and of low-dose exposure to ionizing radiation by workers in nuclear facilities (leading to cancer) (Schubauer-Berigan et al., 2015). Potential functions of special pension schemes To compensate the worker for hardship or hazard The first potential function of special pension schemes is to compensate the worker for the arduousness of, or for hazards related to, the work. It involves the intervention of the State in the labour market by providing a benefit to affected workers as compensation for such negative consequences of the work. A competitive labour market, however, already has mechanisms providing some form of compensation to workers in those sectors through wage premiums. Instead of operating in a vacuum, the legal intervention allowing workers in those jobs to retire earlier interacts with wages set in the labour market, and the final consequence for the worker –i.e. the provision of a real compensation or not –might be different from the one intended by the legislator. In the absence of special pension benefits, workers in a competitive labour market will consider how arduous or hazardous the job is and will accept it in place of some other job that does not involve such conditions only if they are offered some offsetting advantage such as a higher wage. Firms must offer compensating wage differentials to incentivize workers into accepting such jobs (Rosen, 1986; Hwang, Reed and Hubbard, 1992). Compensating differentials are necessary to equalize the monetary advantages and nonmonetary disadvantages (arduousness or hazard) among different jobs, with evidence of positive wage premiums for shift work (Kostiuk, 1990; Lanfranchi, Ohlsson and Skalli, 2002), Special pension schemes for workers in arduous and hazardous jobs International Social Security Review, Vol. 76, 1/2023 © 2023 The Authors. International Social Security Review published by John Wiley & Sons Ltd on behalf of International Social Security Association. 115 work in contact with pollution (Cole, Elliott and Lindley, 2009), seasonal work (Del Bono and Weber, 2008), unsafe and dangerous work (Gunderson and Hyatt, 2001; Lalive, 2003), and work involving the risk of a fatal accident (Black and Kniesner, 2003; Viscusi and Aldy, 2003; Kniesner et al., 2012). Workers in those sectors earn higher wages than workers in normal sectors and employment levels in arduous and hazardous sectors are lower than in normal sectors. In the presence of special pension benefits that are not subsidized, the costs of financing the benefit are borne only by the involved parties; namely, either employers, employees, or both in any specific proportion. The benefit–early retirement –has a value for workers, given by the present value of the stream of pension payments that they will receive during the years of early retirement, and that they would not receive if they were working in other sectors. The effect of early retirement is that to attract workers, employers do not need to offer the same wage premiums that they would need to offer in its absence. The legal intervention is, in this case, innocuous, except for a shift in the timing in which workers receive the compensation for the arduousness or hazard. In the absence of early retirement, they receive it while working, earlier in life, through higher wages. In the presence of early retirement, the wage premium diminishes, and workers receive compensation when they retire. There is no welfare loss as employment levels in those sectors remain at the same level as they would have been in the absence of the mandated benefit, and wage differences reflect the amount that workers value the benefit (Summers, 1989). In the presence of subsidized special pension benefits, while workers receive the benefit in full, its costs are financed through contributions collected from all insured persons, independent of whether they are entitled to the special benefit, or from all firms, independent of whether they employ workers entitled to it. Employers do not need to offer wage premiums since workers will take those jobs for a lower wage knowing that they are also receiving future compensation for the arduousness or hazard in the form of the right to retire earlier. Employers do not pay for this benefit that their workers receive, and the State compensates those workers by bearing the costs of their early retirement. Therefore, when the benefit is subsidized, it compensates workers, but only at a high price: first, a share of the value of the benefit is captured by firms through their possibility to lower wages and still attract workers; second, arduous and hazardous jobs are maintained instead of reduced; third, the costs of the subsidy are paid by other parties, who must suffer a reduction in the provision of some other public service or bear the costs through higher taxes. If workers are not aware of the hazard, then they will accept to work for the same wage they would earn in normal sectors. This is problematic for at least three reasons: first, workers are not compensated for the hazard through wage premiums –they are, in fact, if employers are aware of the hazard, being Special pension schemes for workers in arduous and hazardous jobs International Social Security Review, Vol. 76, 1/2023 © 2023 The Authors. International Social Security Review published by John Wiley & Sons Ltd on behalf of International Social Security Association. 116 Rh¼RnyhhþRnRh ðÞL=yn ðÞ The term yhhcaptures the loss of life expectancy caused by yhyears of hazardous work, and the last term on the right-hand side of the equation captures the protective function of special pensions through early exit from the hazardous job RnRh ðÞ, weighted by the accrual rate, in years, in other non-hazardous jobs L=yn. The key argument is that it is insufficient simply to allow a worker who, for example, has worked for 20 years in a harmful job, which carries the risk of a loss 0.2 years of life expectancy per laboured year, simply to retire four years earlier. This would be neither proportional nor truly fair. If one were not to consider the last term of the equation, and the protective function of early retirement for those workers, then assuming a general life expectancy of 80 years in the population, age 65 as the general retirement age, that workers in normal jobs need to work three years for one year of pension, and that this worker starts working at age 20, then she or he could retire at age 61. 7 She or he would work for 41 years, from age 20 until age 61, and live until age 76, given the expected loss of four years of life expectancy. After 41 years of work, she or he would enjoy an expected 15 years of pension income, wherein 2.73 years of work would have been required for each year of pension, which is less than workers in normal sectors. Instead, following the formula above, this person should be allowed to retire at age 62, according to the formula: Rh¼RnyhhþRnRh ðÞL=yn ðÞor Rh ¼65 20 · 0:2þ65 Rh ðÞ15=45ðÞ¼62 In this case, she or he would work for 42 years, lose 4 years of life expectancy for the 20 years laboured in the hazardous job, and enjoy an expected 14 years of pension income, from age 62 until age 76. She or he would have to work three years for each year of pension, just as workers in other sectors. When determined in this precise manner, the special benefit is fair and proportional, fulfilling all the conditions discussed above: it is i) general, ii) based on an ex ante accurate measure of life expectancy given the hazard imposed by the performed activity, and iii) considers only those years worked in a hazardous job and, therefore, the associated harm. One of the difficulties in calculating when a worker should be allowed to retire in this manner is related to the assessment of the hazard rate h, which depends on the type of work undertaken by the worker for a period of yhyears. Different activities 7. This would correspond to simply using the formula Rh¼Rnyhh. In the example above, it would correspond to Rh¼65 20 · 0:2¼61. Special pension schemes for workers in arduous and hazardous jobs International Social Security Review, Vol. 76, 1/2023 © 2023 The Authors. International Social Security Review published by John Wiley & Sons Ltd on behalf of International Social Security Association. 123 impose a different toll on the worker’s life expectancy, and this rate hshould be based on the average harm imposed on workers performing the same activity. Some workers in a certain hazardous job might, in fact, live longer than workers in normal jobs, and these workers would benefit disproportionally from early retirement. Yet, workers in the hazardous job would not be systematically better or worse off, on average, than workers in normal jobs if allowed to retire at Rh. In fact, the injustice that workers performing the same job for the same number of years might die at different ages, some benefiting more from the pension system than others, is inherent to old-age social insurance, and special pension schemes do not correct for this type of injustice. Rather, they aim to correct for injustice across types of jobs and occupations. In the absence of special pension schemes, miners would, for example, systematically receive lower benefits from the pension system because of their lower life expectancy caused by the job. A further difficulty is related to the age at which the worker starts performing the activity. If it is assumed that the harm imposed on life expectancy is greater for workers who start performing the job at an older age than for workers who start at a younger age, then a refined measurement of h, potentially dependent on the age at which the worker started performing that activity, should be considered if available. Conclusion Special pension benefits can perform different socioeconomic functions and the purpose they promote depends on how they are financed. If the intended purpose is to compensate workers to a higher extent than wage premiums set in a competitive labour market, then the special pension benefit must be subsidized. However, an outcome of this is that subsidized benefits allow employers to capture a share of the subsidies, which acts to help maintain jobs and sectors that would otherwise decline. Furthermore, the provision of the right to retire earlier, as a means to protect workers by preventing the hazard, is rarely apt to incentivize investments in prevention by employers. Of course, early retirement does lead workers to exit the hazardous jobs earlier, and when they do so, they are no longer exposed to the hazard, and thereby are protected from further harm. The effect is slight, however. Unless the worker is allowed to retire much earlier, the reduction in life expectancy that early retirement avoids is small. Similarly, alternatives such as a change to part-time work or developing new work competencies (so called “re-capacitating”) or occupational reorientation programmes for older workers in arduous or hazardous jobs are equally suitable to prevent further harm, but effective to a limited extent only. The proposal presented in this article explains how to achieve fair treatment using special pension schemes. 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