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From unemployment to disability? Relationship between unemployment rate and new disability pensions in Iceland 1992–2007

Sigurður Thorlacius, Stefán Ólafsson
DOI: http://dx.doi.org/10.1093/eurpub/ckq186 96-101 First published online: 23 December 2010

Abstract

Background: The study was carried out in order to examine the effect of unemployment on the incidence of disability pension in Iceland by examining changes in this relationship from 1992 to 2007. Methods: The annual incidence of disability pension for the period 1992–2007 was calculated. Correlations and significance tests for the relationship between unemployment rates and disability pension incidence rates were calculated. The relationship was examined for different disease groups. Results: Two big fluctuations occurred in the unemployment rate during the study period with an upswing in unemployment from 1993 to 1995 and in 2002 and 2003. In both cases, there were corresponding increases in the incidence of disability pension. The incidence of disability pension declined again when the level of unemployment went down, even though not to the same extent. Conclusions: Health and mental and physical capability determine the overall incidence of disability pension, but marginal fluctuations over time seem to be related to environmental conditions in the labour market, especially the unemployment rate. The observed disability pension incidence pattern in the two unemployment cycles of the study period indicates mainly that people with impaired health are forced out of the labour market in times of increasing unemployment rather than pointing towards a negative effect of unemployment on health. Our findings indicate that there is a need to strengthen the vocational rehabilitation system in Iceland as well as the support system for employment and social participation.

Introduction

The relation between unemployment and health is much researched but somewhat inconclusive as regards to questions of causality.1–5 In a study of unemployment and mortality among Finnish men in 1981–85, Martikainen formulated two hypotheses on the implied relationship. A selection hypothesis assumed that unemployment and mortality were caused by a common background factor. Hence, the frequently observed association between unemployment and poor health or higher mortality might be seen as spurious. People with a poorer health condition are generally more likely to be selected for unemployment than others. The other hypothesis implied a direct causal relationship from unemployment to mortality.5,6 Recent studies have concluded that both effects are at work and that individual level studies of the relationship between unemployment and health or mortality may exaggerate the direct causal effect of unemployment.5–8 Böckerman and Ilmakunnas8 using panel data showing the self-assessed health status and employment participation of their subjects found that those who end up as unemployed have a significantly poorer health condition before their unemployment starts, in comparison to those continually employed. This indicates the importance of the selection hypothesis in explaining the association between poor health and unemployment.

In the present article, we approach this issue by relating the development of unemployment levels to the incidence of disability pension (DP) in Iceland during the period from 1992 to 2007. The main criterion for entitlement to DP in Iceland is ill health.9–12 When Icelandic disability pensioners are classified according to the International Statistical Classification of Diseases and Related Health Problems (ICD),13 the two biggest groups by far are people with mental and behavioural disorders on the one hand and those with diseases of the musculoskeletal system on the other.12 The former group has expanded faster than other groups after 1992.14 Unemployment has also been a significant factor in the life of new disability pensioners. In a study on the social circumstances of new recipients of DP in Iceland in 1997, almost half (45%) had experienced unemployment at some point of time and 35% during the last 5 years.15 This finding refers to a period when unemployment had increased significantly (from 1992 to 1995), yet remaining on a rather low level compared with other Western countries.16,17 Unemployment has generally remained at close to 1% in the post-war period. In the 1990s, it went up to a maximum of 5.5% in 1995 and just under 4% in 2003. These two peaks during the 1990s and early 2000s provide us with our test case for examining the association between varying rates of unemployment and incidence of DP. Iceland is now facing a dramatic and unprecedented increase in the level of unemployment due to the financial collapse from October 2008. The relevance of this research issue is thus of great significance.

Methods

Information on recipients of DP is recorded in a disability register at the Icelandic Social Insurance Administration (SIA). Disability pension is granted according to the National Social Security Act. Full DP (degree of disability assessed as being at least 75%) is granted to those between the ages of 16 and 66 years suffering from considerable and prolonged disability, and partial DP (degree of disability assessed as being 50–74%) is granted to those who have less pronounced disability or considerable expenses due to disability.18 Prior to September 1999, the disability evaluation was based on information on the applicant’s medical, financial and social circumstances.9,10,15 Since September 1999, the assessment of disability grade has been based on the functional capacity of applicants, assessed with the British functional capacity evaluation ‘All work test’, later renamed ‘Personal Capability Assessment’.10,11 From 1990, the SIA has granted a rehabilitation benefit when the prognosis regarding disability is uncertain and the claimant undergoes rehabilitation or other active treatment.19

This study includes all new recipients of DP (partial or full disability pension) in Iceland in the years 1992–2007. Data from the disability register of the SIA were obtained on the number of new recipients of DP, their gender and main diagnosis according to the ICD.13 For the calculation of the annual incidence of DP, information was also obtained for each year of the study from the disability register of the SIA on the total number of recipients of DP and from Statistics Iceland20 on the number of inhabitants in Iceland aged 16–66 years. The population at risk for DP is defined as individuals aged 16–66 years living in Iceland, excluding those already receiving DP. Additional information was obtained from the SIA on whether new recipients of DP in 2002, 2003 and 2004 had received rehabilitation benefit prior to disability evaluation and if so for how long time. Information on the unemployment rate was obtained from Statistics Iceland.20

Data are presented separately for males and females and correlations and statistical significance are calculated for the two subperiods as well as for the main disease groups.

The study was reported to The Privacy and Data Protection Authority in Iceland and it received the consent of The National Bioethics Committee of Iceland. There are no conflicts of interest that might bias the work of the authors.

Results

Figure 1 shows the unemployment rate and the incidence of DP for each year from 1992 to 2007. Among females, there was an increase in the unemployment rate and a parallel increase in the incidence of DP in general for the years 1993–95 and a decrease in both the following years (more pronounced for the unemployment rate). The DP incidence did not decline as much as would be expected on the downswing of unemployment, if unemployment was the sole mover in the DP incidence. The unemployment rate rose again in 2002 and 2003, significantly followed by an increase in the incidence of DP in 2003 and 2004, with a fairly clear 1-year lag this time. The unemployment rate decreased again in 2005, 2006 and 2007 followed by a decrease in the DP incidence in 2006 and 2007. Among males the relationship is similar, although the increase in the DP incidence during the upswing of the unemployment rate in 1993–95 was of a lesser magnitude. As for females, the DP incidence did not decrease in relation to the unemployment rate in 1998–2001. Then there was a considerable increase in the unemployment rate in 2002 and 2003 followed by an increase in the DP incidence in 2003 and 2004 and a decrease in unemployment from the year 2004 followed by a decrease in DP incidence in 2005 and 2006. DP due to diseases of the circulatory system followed the unemployment rate more closely than DP in general, while DP due to mental and behavioural disorders increased during the study period irrespective of the unemployment rate. DP due to diseases of the nervous system and diseases of the musculoskeletal system and connective tissue (not shown in the figure) had a similar relationship to the unemployment rate as DP in general. In the latter period of growing unemployment, there is a more marked lag in the increase of the DP incidence following the rise in unemployment. Figure 2 shows changes in the mean number of unemployed and the number of new recipients of DP each quarter of the year from 2001 to 2007, i.e. in the latter study period. In both, the genders unemployment started to rise at the beginning of 2002 and culminated early in 2003 while disability started to rise towards the end of 2002 and culminated at the end of 2004. Thus, there was a lag of ∼1 year between onset of increased level of unemployment and increased level of new registration of disability pensioners. Of the 3472 new recipients of DP in the years 2002–2004, there were 520 (15%) who had received rehabilitation benefit for a period of 3–18 months preceding the disability evaluation. Data on granting of rehabilitation benefit prior to DP shows that this explains the 1-year lag between onset of increased level of unemployment and increased level of new registration of disability pensioners in the latter upswing of unemployment. Another important characteristic is the fact that for both genders, the DP incidence does not decline in proportion to the unemployment level. This is comparable with what happened on the downswing of unemployment from 1996 to 2001. It seems to be that each new rise in unemployment raises the DP incidence rate to a permanently higher level.

Figure 1

The relation between the unemployment rate and the incidence of disability pension in Iceland from 1992 to 2007 by gender, in general (A-a and b) and by gender and disease group (ICD 10) (B-a–d)

Figure 2

The mean number of unemployed and the number of new recipients of disability pension each quarter of the year from 2001 to 2007 in Iceland, by gender

Table 1 shows the correlation between unemployment and DP in the 2-study periods. Due to the previously mentioned time lag between the unemployment rate and the incidence of DP in the latter period the incidence of DP is there correlated to the unemployment rate 1 year earlier. The correlation between the unemployment rate and the incidence of DP in general is high and significant for both genders. In the period of 2000–06, all correlations are high and statistically significant (P < 0.05), except for males with mental and behavioural disorders (r = 0.716, significant at P < 0.10). In the period of 1992–99, the correlation is not significant for the groups of mental/behavioural disorders and for diseases of the nervous system. For females with musculoskeletal diseases, the relationship is significant only at the P < 0.10 level.

View this table:
Table 1

Correlations and significance tests for the relationship between unemployment rates and disability pension incidence rates, by periods, gender and disease groups

1992–992000–06
FemalesMalesFemalesMales
RPRPRPRP
Disease groupa
    Mental and behavioural disorders0.2530.5450.0080.9850.7960.0320.7160.070
    Diseases of the nervous system0.5510.1570.2980.4730.8500.0160.8430.017
    Diseases of the circulatory system0.7790.0230.8620.0060.7610.0470.7610.047
    Diseases of the musculoskeletal system and connective tissue0.6570.0770.8380.0090.9030.0050.8800.009
    All disease groups (disability pension in general)0.8200.0130.7570.0300.9010.0060.8750.010
  • a: According to the International classification of diseases13

Discussion

For many years, public health in the developed countries has improved as a result of economic growth and increasing knowledge and technology of healthcare. This has led to decreasing mortality and increasing life expectancy. This development, however, has been somewhat hampered by the effect of unemployment. It has been shown that a period of increased level of unemployment is followed by increased mortality, especially that due to cardiovascular disorders.1 Other studies have documented extensively the individual level association between unemployment and poorer health conditions. It remains unclear, however, to what extent this association is due to a pre-determined selection of those with poorer health to the unemployment registers at times of more restricted labour markets or to a more direct effect of unemployment experience on health.

In this article, we approach this public health issue in the Icelandic context, which is one of generally low levels of unemployment in the post-war period. Yet the 1990s and the early 2000s saw a higher general unemployment level correspond to a great increase in the incidence of DP. The higher unemployment level was not persistent but fluctuated. Unemployment peaked twice in the study period and we thus get the opportunity to assess the relationship to the incidence of DP more closely, i.e. to what extent the more decisive unemployment experience is associated with growth in the DP incidence on the aggregate level. Such an exercise is obviously hampered by the fact of the aggregate level of the measures and lack of individual level linking of the phenomena as would be possible with a panel data, as in Böckerman and Ilmakunnas’s study.8

The main finding of our study is a strong correlation between fluctuations in the level of unemployment and the annual DP incidence in Iceland in the period from 1992 to 2007. In this period, there were two fluctuations in the unemployment rate and in both cases these were correlated to fluctuations in the DP incidence. The correlations between unemployment level and overall incidence of DP is high and statistically significant in both periods, but with a 1-year time lag in the latter period, due to a greatly increased use of rehabilitation benefit at that time, which delays the possible transition to disability pension for those involved (cf. direct information from SIA). The relationship applies to all disease groups, except for those with mental and behavioural disorders and diseases of the nervous system in the former period (P > 0.05). The relationship is also marked by the fact that it is more active on the upswing of unemployment than on the downswing.

It is important to bear in mind the nature of the relationship between the variables under investigation, unemployment and disability. Obviously only a minority of unemployed people end up receiving DP. The relationship between the incidence of DP and the variable level of unemployment is thus mainly a marginal effect. Granting of a DP is based on ill-health impairing the ability to work.9–12 Whether the method of assessment of disability is too lenient or too strict is difficult to assess. Certainly, there was a change in the evaluation procedure in September 1999 with the introduction of the British method of functional evaluation, the ‘All work test’. This method assesses the effects of the claimant’s medical condition and the resultant disability for all types of work. It assesses both physical and mental functions. A study examined the effect of the new method of disability evaluation by looking at the last 2 whole years preceding and the first whole year succeeding its introduction. After the introduction of the new assessment method, no significant change in the total number of new recipients of DP was observed.11 We are thus not inclined to make much of the role of the new disability assessment procedure for the relationship in question.

The explanation of our observed DP incidence pattern in the two unemployment cycles of the study period points thus primarily to the selection hypothesis, i.e. that those in the labour market who have impaired health seem to be more likely to be forced out of the labour market in times of increasing unemployment. A contributing factor in this may be increased pressure at workplaces. In a study from 2004, the authors found that survey material indicated that workplace stress had increased during the 1990s and early 2000s in Iceland.21 The fact that the responsiveness in the increased DP incidence is so close in time to the rising unemployment level would seem to indicate that possible negative health effects of the unemployment experience itself can hardly play a large role in the immediate increase on the upswing. The fact that there is an inertia in lowering of the DP incidence rate on the downswing may, however, be partly due to negative health consequences of unemployment experience which take longer to work their way through.1,22–24

Sickness absence might be thought to be of relevance in this context.25 Available figures indicate that the sickness absence rate is low in Iceland, while the disability rate is relatively high. Indications are thus that long-term sickness absence is relatively easily transferred into disability pension receipt in Iceland.26 The employees’ right to sickness benefit at an affordable rate (80–90% of former pay) is at maximum for up to 1 year. After that many apply for a rehabilitation benefit or DP. Unemployed workers are generally eligible for DP, conditional on passing the disability test.

Disability due to mental and behavioural disorders has grown steadily during the study period, but does not seem to be correlated to changes in the unemployment rate to the degree that applies to other disease groups. This increase does not seem to reflect an increase in the occurrence of mental and behavioural disorders in the population either.14 While this appears to be a common trend among the OECD countries,27 there are indications that this is also associated with a more forceful awareness raising campaign on behalf of support groups of the mentally diseased in Iceland.14,16

The inertia in lowering of the DP incidence on the downswing as well as the generally rising DP incidence over time in the last two decades can probably be traced to the fact that Iceland has lagged somewhat behind the other Nordic countries in evolving effective measures of vocational rehabilitation.16 The generally high level of employment prevailing in Iceland for the last five to six decades explains that there was not felt an urgent need to develop large scale measures of vocational rehabilitation or active labour market policies. That need is now clearly emerging forcefully with the accumulating financial crisis.

Lastly, there are also indications that the structure of the welfare benefits system in Iceland may have some effect in this respect.28 The DP benefit has been higher than the universal unemployment benefit and the social assistance allowance (the ultimate minima) in the last two decades. In addition, DP receivers are entitled to other cost-reducing measures (such as extra subsidies for medical cost and a tax-free allowance for children). This means that there has been a clear financial incentive for those previously active in the labour market who might qualify for a DP to seek that route, even in cases where the unemployment benefit might be the more relevant option. On the whole, Iceland has a higher rate of employment participation among both men and women at working ages (88.1% and 80.8%, respectively, in 2006)29 than the other Nordic countries,6,27 and much higher than the continental European countries.27 If the above-mentioned incentive effect is of significance, then one might expect that the size of the DP registers have been somewhat too big in Iceland and the unemployment registers accordingly too small. The effect can, however, hardly be considered serious given the generally high employment participation rate prevailing in the last decades.16,30 This also makes it difficult to directly generalize Iceland’s experience to other contexts.

Our findings indicate that it is necessary to strengthen vocational rehabilitation and work-place health promotion in Iceland and improve the incentive structure of the benefit system. The entitlement to rehabilitation benefits should be significantly lengthened from the present maximum of 18 months and made more conditional on active participation in vocational rehabilitation measures and education. The disability assessment method should be modernized in the direction of assessing work ability to a greater degree than presently, at the same time that the support system for employment and social participation is strengthened.

Conflicts of interest: None declared.

Key points

  • The results of this study indicate mainly that people with impaired health are forced out of the labour market in times of increasing unemployment rather than pointing towards a negative effect of unemployment on health.

  • Our findings indicate that there is a need to strengthen and reorganize the vocational rehabilitation system in Iceland as well as the support system for employment and social participation.

  • This issue is of interest for public health interventions and policy makers.

References

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