Restructuring in public sector can lead to exclusion from working life

A research report published in September 2006 shows that restructuring in the Norwegian public sector may in some cases increase the probability of being excluded from working life through unemployment, sickness or disability. Another report compares different types of redundancy pay arrangements used in the public sector, and concludes that severance pay packages which presuppose that employees resign voluntarily are an incentive towards more active job seeking.

A new research report shows that the public sector has undergone significant organisational changes in recent years. In September 2006, the Fafo Institute for Labour and Social Research published its study Den nye staten (in Norwegian, 537Kb PDF), based on a project commissioned by several trade union organisations in the public sector.

In the course of the period 1990 to 2004, the number of person-years worked in the public sector decreased by 30%. A significant reason for the changes is that state sector bodies or enterprises have moved towards the private sector, primarily through deregulation or the establishment of state-owned limited companies. Moreover, in many cases these enterprises have resorted to reducing staff numbers.

Changes have also taken place in other areas of public sector administration, through the introduction of new management or steering mechanisms, such as deregulation, and further staff cuts have occurred. The report concludes that these developments have not only affected the situation of those made redundant, but also of those who still work in these establishments, as well as impacting on their trade union representatives at different levels.

Increased exclusion from working life

A central issue of the Fafo report is the extent to which restructuring leads to increased exclusion from working life. The study considers four different state administrative bodies or enterprises subject to different restructuring processes. Two of them – Mesta, which was previously part of the Norwegian Public Roads Administration (Statens Vegvesen), and Norway Post (Posten Norge AS) – have experienced particularly large-scale restructuring processes (NO9712139F, NO0109101F). Both of these organisations have also been converted into private limited liability companies, although fully owned by the Norwegian state.

The study shows that restructuring has led to a higher risk of unemployment among employees in Posten. The workers are also more likely to become recipients of disability allowance or go on occupational rehabilitation. The risk of being excluded from the labour market is greatest among women and employees with lower education. It is too early to conclude that Mesta is undergoing the same developments, although some signs indicate that it is moving in a similar direction.

Both enterprises used to be public sector bodies with a traditionally low rate of exclusion of employees from working life, but now, after a period of downsizing, both are reaching levels more commonly identified with private sector companies. Meanwhile, two other state administrative bodies, the National Tax Administration (Skatteetaten) and the Norwegian Police Administration (Politi- og lensmannsetaten), have also been subject to restructuring, but without having experienced the same exclusionary effects. In these cases, the restructuring has not generated as many redundancies.

The Minister for Government Administration and Reform, Heidi Grande Røys, has, in response to the Fafo report, underlined that restructuring will continue in the public sector, but within a reasonable framework and in dialogue with employee organisations.

Different forms of redundancy benefits

Another report, published by the economic consulting company ECONBruk av sluttordninger ved statlige omstillinger 1998–2005 (in Norwegian, 726Kb PDF) examines different types of support measures used to manage redundancies in the public sector. This report also focuses on redundant employees in parts of the public sector which have been subject to restructuring in recent years.

The ECON report examines the use of so-called ‘stand off’ pay (‘ventelønn’), which is a form of unemployment benefit for employees made redundant in the public sector. The number of employees on such benefits increased during the 1990s, mainly due to wider restructuring in the public sector. Employees made redundant in this sector are often faced with the choice of accepting such stand off benefits, which assume that the employee is dismissed and starts seeking new employment, or severance pay packages, which assume that they voluntarily resign.

The survey shows that employees who are uncertain about their job prospects tend to choose stand off benefits, because this payment is higher than ordinary unemployment benefits, and because the eligibility period for receipt of the payment is longer. However, the study also indicates that receiving this form of unemployment benefit makes employees less inclined to actively seek new employment.

Conversely, those who choose to resign voluntarily in return for severance pay are less likely to be registered as unemployed. The survey further reveals that severance pay arrangements affect downsizing processes in that they encourage employees with good prospects in the labour market to leave. Moreover, such arrangements are seen to be – to a larger extent than the stand off pay benefits scheme – an incentive for employees to apply for new jobs.


The stand off pay scheme has been subject to considerable controversy, and its abolition was proposed in 2005. However, the change in government in that year meant that this proposal was not implemented and the existing arrangement has thus continued (NO0506102F, NO0510103F).

Kristine Nergaard, Fafo Institute for Labour and Social Research

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