Job retention law leads to unwanted side-effects

The Law of 25 July 2002 on work incapacity and returning to work sought to increase job retention in Luxembourg, an issue which mainly concerns older workers. However, recent research has found that the first few years of its application have not contributed to the achievement of European and national targets. Instead, it has resulted in an increase in people claiming benefits and jobseekers, thus leading to a rise in ‘broad unemployment’.

Low employment among older workers

In the 15 older EU Member States before enlargement of the European Union in 2004 and 2007 (EU15), Luxembourg – along with Belgium – has the lowest employment rate among workers aged 55–64 years. Despite a rise in employment rates among people in this age group between 2001 and 2004, Luxembourg still retains the second-lowest position in this respect (see figure).

Rate of employment among older workers aged 55–65 years, by country, 2001 and 2004 (%)


Source: Eurostat, 2001–2004

Rates of employment among older workers aged 55–65 years, by country, 2001 and 2004 (%)

‘Broad unemployment’

‘Broad unemployment’ in Luxembourg amounted to 10.7% for people under 25 years of age and to 26.3% for those aged over 50 years in 2004. The term ‘broad unemployment’ refers both to persons claiming unemployment benefits and to others who are out of work – that is, those benefiting from active employment measures, people who have opted for early retirement or those in receipt of sickness benefit.

In Luxembourg, two systems are in place for dealing with people who have left the workplace prematurely, most of whom are older workers: the invalidity benefit system, which accounts for the largest proportion of persons in this category, and early retirement.

These systems help to lower the official unemployment figures and hide a high rate of broad unemployment. The latter grew alarmingly until 1997. Between then and 2002, broad unemployment decreased. However, a further increase has been recorded since 2002, in parallel with the introduction of the Law of 25 July 2002 on work incapacity and returning to work (Table 1).

Table 1: Employment data for working population aged over 50 years, 1998–2004
Number of people who … 1998 1999 2000 2001 2002 2003 2004
… are unemployed 564 620 683 736 840 1,164 1,542
… opted for early retirement 1,320 1,253 1,168 1,242 1,184 1,233 1,309
… have claimed invalidity         11,344 10,876 10,527
… opted for active measures   15 6 6 50 77 77
… comprise the active resident population 27,710 29,041 30,607 32,653 34,489 36,038 37,672
… are active without employment 1,884 1,851 1,851 1,978 13,418 13,350 13,455
… comprise the ‘broad employment’ population 29,594 30,914 32,458 34,631 47,907 49,388 51,127
Percentage of ‘broad unemployment’ 6.4% 6.1% 5.7% 5.7% 6.0% 6.2% 7.0%

Source: Ministry of Labour and Employment (Ministère du travail et de l’emploi), Activity reports; General Social Security Inspectorate (Inspection générale de la sécurité sociale, IGSS), ‘Invalides et actifs résidents’; Employment Administration (Administration de l’emploi, ADEM), data on active measures

Aims of work incapacity legislation

By introducing the Law on work incapacity and returning to work, the government sought to increase the possibilities of remaining in the workplace for people applying for invalidity benefit, by offering:

  • workers the option of continuing their job under conditions adapted to their altered state of health, with the same salary;
  • grants to companies that are willing to retain older workers, in order to reduce the high cost of workers with reduced working capacity and to encourage employers to retain such workers.

Internal reclassification

Since the legislation came into effect, companies have been obliged to reintegrate a worker who has health problems – a system referred to as ‘internal reclassification’. For the first time, companies were obliged to have their quotas of workers with reduced working capacity monitored, whereas up until 2002 companies were given the option of taking on a disabled worker or one with a reduced working capacity.

The new, more restrictive approach has caused a certain resistance among employers about having to accept the internal reclassification of workers with reduced output, ‘at a time when things are becoming more and more competitive’. Moreover, it has led to a practice whereby companies are searching for employees who could count as disabled or reclassified workers under the legislation, in order to fill the required quotas.

For employers, an appeal procedure has since been introduced regarding compulsory internal reclassifications. On this basis, employers can oppose being forced to ‘create a specific job which is adapted to a particular worker’s remaining working capacity’, or plead that ‘serious losses’ will be incurred as legitimate grounds for rejecting the internal reclassification.

From the employee’s perspective, the objective of appealing the legal provisions varies somewhat more, although in most cases the employee in question wishes to stop work.

External reclassification

‘External reclassification’ refers to cases where the employee is registered as a jobseeker. These provisions are more difficult to implement and the chances of recruitment have been shown to be very slight or largely the same as those of an older unemployed person or jobseeker, or of a disabled jobseeker.

Evaluation of a person’s incapacity to work

In theory, the Law of 25 July 2002 could be seen as a positive step. However, in practice it has encouraged ‘alternative ways out’ of working life, mainly among workers aged 50 years and over. This reality is reflected in:

  • the high take-up of invalidity claims and early exit measures;
  • the fact that the proportion of internal reclassifications amounts to only about 25% (Table 2);
  • the fact that extended periods of time off work, with unemployment lasting up to 12 or even 24 months, scarcely improves people’s chances of being re-employed: most of those reclassified externally are likely to become unemployed.
Table 2: Internal and external reclassifications, 2003 and 2004
  2003 2004
Total number of cases 923 1,247
Number of internal reclassifications 265 313
Number of external reclassifications 510 629
Number of outstanding cases 87 213
Number of inadmissible cases 61 73

Source: Ministry of Labour and Employment, Activity reports, 2003 and 2004

Research recommendations

A number of recommendations have been made in terms of research aimed at improving the employment retention of older workers in the workplace.

  • Analysing the reduced output of older workers could help to eliminate any stereotypes or prejudices or to remedy the alleged inconsistency between the level of remuneration and age, which employers argue leads to dismissals and also explains companies’ reluctance to take on older unemployed people or jobseekers.
  • More research could be conducted into the views of older workers – both those who are still in employment and older workers who have been made redundant – including an analysis of whether or not they agreed to an early departure from the workplace.
  • Research could help to provide an insight into the views of companies in this respect, distinguishing clearly between those that have largely rejuvenated their workforce and those with a mixed workforce.
  • Measures targeting older workers could be assessed in order to identify ways of bringing re-employment, job retention and pension measures more into line with the objectives of the European Employment Strategy, and to modify the legal framework in this area.


Hartmann-Hirsch, C., ‘L’Incapacité de travail. Une mesure de maintien à l’emploi aux effets pervers?’ (in French, 492Kb PDF), Population et Emploi, No. 19, Centre for the Study of Population, Poverty and Socioeconomic Policies (Centre d’Études de Populations, de Pauvreté et de Politiques Socio-Économiques)/International Networks for Studies in Technology, Environment, Alternatives, Development (CEPS/INSTEAD), 2006.

Claudia Hartmann-Hirsch, CEPS/INSTEAD

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