Public committee proposes controversial changes to sick pay scheme

In September 2000, a public committee with broad representation from the social partners made a proposal to amend the Norwegian sick pay scheme. A majority on the committee favours a reduction in sick pay from 100% to 80% of normal pay during the first 16 days of sickness absence, which will be compensated for by tax reductions. The committee also proposes making employers bear more of the costs of long-term sickness absence.

The public committee considering changes to the present sick pay and disability pensions schemes, led by the former Labour Party (Det Norske Arbeiderpartiet, DNA) minister, Mats Sandman, delivered its report on 15 September 2000. The main rationale behind the establishment in 1999 of the so-called "Sandman committee", which has broad representation from the social partners, was growing unease in the government about the significant increases witnessed in the rate of sickness absence and the growing numbers of disability pensioners (NO0009103N). The committee's proposals are controversial, and there was significant disagreement among the committee's members on several of the recommendations made.

Proposals for change

In Norway, the national sick pay scheme is still a highly generous affair with 100% wage compensation from day one of sickness absence. The employer is responsible for compensation during the first 16 days of illness (the so-called "employer period"), after which compensation is paid for by the National Insurance Office (Rikstrygdeverket).

The committee proposes a number of changes to the present sick pay scheme:

  • during the "employer period", the employee should contribute 20% of the wage compensation, which means a reduction to 80% in the employer's contribution. From the 17th day of absence until the 52nd week of absence, the employee should be entitled to full (100%) compensation;
  • the employer should contribute 20% of wage compensation from the 17th day and throughout the period of sick pay (one year);
  • the national insurance contribution (an intrinsic part of income tax) should be reduced;
  • people with chronic diseases should receive special protection;
  • personal sickness certificates should be used for longer periods; and
  • people suffering from illnesses should to be followed up more closely at the workplace

The committee stresses that these changes would not affect the general level of income among sick employees, because incomes losses would be compensated for by the proposed tax reductions. The effects of the changes on the individual employees concerned will nevertheless vary; those with a low level of absence will benefit from the changes, while those with high levels of short-term absences will lose out.

The committee's majority grounds its proposals on the need to shape the sick pay scheme in such a way as to stimulate employers to direct their efforts towards the prevention of sickness absence, and to follow up each individual absence and encourage labour market participation. The sick pay scheme must also be shaped in such a way as to encourage people to remain at work. All the committee members representing trade unions oppose the proposal to reduce the compensation received during sickness.

Invalidity benefits

The committee also expressed worries about the number of people on invalidity benefits. In this area, however, there are no proposals to change the compensation level of those receiving national insurance benefits. The committee calls for the introduction of several measures to prevent more people becoming permanent users of invalidity benefits:

  • the possibility of combining work and benefits should be improved;
  • the introduction of a time-limited invalidity support in addition to a scheme for permanent invalidity benefits. Permanent invalidity pensions should be given only to those people for whom the possibilities of improving their working capacity are remote;
  • improved rehabilitation arrangements; and
  • introduction of stricter rules ensuring that rehabilitation has been tried or considered before an invalidity pension is allocated.

These measures fall within the so-called "benefits-to-work" policy, which basically means measures to encourage labour market participation among groups who otherwise would receive national insurance or social security benefits.

Background

The levels of sickness absence and the number of new invalidity pensioners have increased in recent years, after a drop in the first part of the 1990s (NO9807176F). The committee has thoroughly examined existing statistics and data on sickness absence, and argues that it is long-term sickness absence (defined as absence beyond three days) that has increased in recent years. As such, absence lasting more than eight weeks makes up approximately half of all sickness absence in Norway. The total figure for sickness absence in 2000 is estimated to constitute 9% of the total number of working days, which means an average of approximately 24 days of absence per employed person. The sickness absence rate is expected to continue to increase until 2005. There has also been a significant increase in the number of people receiving invalidity benefits in recent years. The greatest increases (in percentage terms) have been witnessed among employees under the age of 35. This has taken place despite the fact that the opportunities for receiving disability pensions were tightened in the early 1990s.

Expectations about demographic developments in the years to come have added to the worries about increasing sickness absence rates and increased use of invalidity benefits. Predictions indicate that there will be fewer people in employment compared with people receiving benefits, which will make the task of financing the costs of the national insurance scheme much harder. At the same time, the shortage of labour witnessed in many branches and sectors of the economy will most probably continue in the years to come.

Commentary

The Sandman committee has delivered a comprehensive discussion document on issues concerning sickness absence and invalidity benefits in Norway. Most people agree on the importance of taking initiatives to reduce these types of costs. The committee's report includes important considerations beyond those of the sick pay scheme, but it is changes to this scheme that will generate the most political controversy. The present arrangement, with 100% compensation from day one, is controversial and as such has been on the political agenda several times in the 1990s (NO9710129N). Both employers' organisations and some political parties wants to see alterations to the scheme - for example, introducing waiting days before payment of benefit or by reducing the compensation rate during sickness. Previous proposals to change the present scheme has not been able to foster a political majority, partly because the centre parties have been split on the issue. In recent years, the government has also been reluctant to change the scheme in order not to damage its relations with trade union, and thus damage cooperation on incomes policy and pay moderation. Instead, focus has been directed at preventive measures, and the social partners have initiated different types of measures to get the sickness absence rate down.

There are few indications to suggest that the sick pay scheme will be changed in connection with the 2001 state budget. The present minority Labour government has not proposed any changes, and there is nothing to suggest that such changes will be part of a political compromise in order to reach majority agreement over a budget for 2001. On the other hand, recent developments in the sickness absence rate may force a change of heart in the Labour Party and indeed the Centre Party (Senterpartiet, SP), both of which have been strong opponents of a reduction in the compensation level. This may in the long term lead to changes to the present scheme.

The proposals put forward by the Sandman committee will beyond doubt meet with significant discontent among trade unions. The Norwegian Confederation of Trade Unions (Landsorganisasonen i Norge, LO) points to the negative distributive effects of such changes, because they would worsen the situation of the weakest groups in the labour market. It is further pointed out that the growth in the level of sickness absence is mainly due to the growth in long-term absence, which is a problem that may not be relieved through reduced compensation for short-term absence. The employers' organisations have on the whole expressed satisfaction with the committee's proposals, but emphasise that their continuing support depends on the extent to which the different proposals are viewed and carried out in unison.

The committee's report is now to be considered by relevant organisations. It is expected that the issue of altering the present system for sickness absence and invalidity benefits will not be raised in parliament until after the election in autumn 2001. (Kristine Nergaard, FAFO Institute for Applied Social Science)

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