Costs of work disability in Finland – Evidence from the municipal sector

ICOH 31st International Congress on Occupational Health

Seoul, June 4

Session: Work Disability and Integration

Pauli Forma

Director of Working Life Services

Keva, Finland

Aim of the presentation • To present findings on calculations on costs of work disability.

• The presentation focuses on biggest municipal sector organisations (cities and health care districts) in Finland.

– 20 percent of the Finnish labour force works in the municipal sector.

– Local authorities provide basic public services for the residents (child care, education, health and medical care and care for the elderly).

– 75 percent of the municipal employees are women.

– Average age of the municipal employees is 46 years.

• Costs of sick leave, work accidents, occupational health care and disability pensions have been calculated.

• Calculations are based on Keva’s service for customers, data comes from the registers of Keva and the employers.

• In addition, practices of the employers on preventing and handling work disability have been evaluated.

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Background • Work disability causes substantial costs at the level of national

economies.

– On average, OECD contries spend 2 % (Finland 2.9 %) of their GDP and around 10 % (Finland 12 %) of their public spending on sickness and disability benefits (OECD 2010).

– In Finland, it has been estimated that overall costs of lost labour input* is 25 billion euros a year (12.5 % of GDP) (Ministry of Social Affairs and Health 2014).

• Less is known about the extent of work disability costs for employers.

– Better understanding of the costs could encourage employers to actively diminish work disability.

• In addition to avoiding costs, lower level of work disability raises productivity and wellbeing at work, and has a positive impact on participation in working life and extending the length of careers.

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* Costs of occupational accidents and diseases, disability pensions, sickleaves and presenteeism.

Costs of work disability

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Direct costs: • Administrating the absences

(statistics, rehabilitation, reorganisation of work).

• Replacing absent staff (deputies, overtime, extra-workers).

• Salaries and benefits related to absent staff (salaries, vacations etc.) *

• Costs of occupational health care *

Indirect costs: • Negative implications to service

production (productivity, difficulties in delivery)

• Losses due to lower quality of services (complaints, checking and repairing of errors)

• Losses in wellbeing at work, reputation and competitiveness of the organisation.

Work accident (insurance fees)*

Costs of disability pensions*

In this presentation, costs of components marked with * have been calculated. In addition, overall costs (both direct and indirect) has been approximated.

Sick leave

Total costs of work disability in the municipal sector in Finland

• Direct and indirect costs due to work disability are 12.7 % of the payroll in the municipal sector (2.2 billion euros/year).

– With cost-structure of the ”best” employer, costs would be 18 % (410 million euros) lower.

– With cost-structure of the ”worst” employer, costs would be 25 % (550 million euros) higher.

• Costs are determined by age and occupational structure of the organisations, but also actions and policies of the employers are crucial. – Early intervention, quality of occupational health care, rehabilitation and

return to work-policies, preventive culture to avoid work accidents are important.

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Structure of work disability costs

61

7

6

25

Sick leave

Occupational health care

Work accidents

Disability pensions

Disability pensions 1.8 %

Sick leave 3.2 %

Occupational health care 0.5 %

Work accidents 0.5 %

TOTAL direct costs 5.2 %

TOTAL direct and indirect* costs 10.6 %

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An example of the costs in one big Finnish city, % of the payroll

Distribution of work disability costs in the municipal sector in Finland

* approximation

Direct costs of work disability in different organisations as a %-share of the payroll

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• Bars describe costs in different organisations.

• Costs vary substantially between organisations.

• Differences are bigger when it comes to more severe work disability problems (disability pensions) than sick leaves.

Distribution of the sick leaves according to duration and costs

67

26

7

1-14 days 15-60 days over 60 days

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Distribution of sick leaves according to duration

24

47

29

1-14 days 15-60 days over 60 days

Distribution of sick leave costs according to duration

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Length of absence Length of absence

Does cost awereness matter?

• Cost awereness of work disability costs has risen among public sector employers in Finland.

• Calculating the costs and analysing reasons behind them raises work disability on the employers’ agenda.

• When employers have seen the costs of work disability more clearly, they have:

– Set more goals, i.e. level of sick leaves.

– Hired ”case managers” for managing work disability issues in the organisation.

– Improved their HR-systems to achieve better management of work disability.

– Paid attention to role of supervisors, especially improving their skills in early prevention.

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Conclusions • Calculating the costs is a good strategy when trying to get

more attention on work disability.

• It is not easy to calculate costs of work disability.

– It is challenging to get the relevant data from HR systems.

– Employers lack expertise in collecting and analysing the data.

– Measures are not well-established, e.g. how to measure sick leaves.

• It is important to remember that costs are determined by work disability.

– The focus should be on work disability and diminishing it.

• In the future, organisations should integrate economic perspective of work disability costs to normal management system of the organisations.

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Appendix

1.1.2011 Etunimi Sukunimi 11

Keva in brief

• Keva handles the pension matters of employees of local governments, state, church and the Social Insurance Institution Kela in Finland. We provide earnings-related pension services for some 1.3 million public sector employees and pension recipients.

• At the beginning of 2013, Keva had 934 member organisations as employer customers. Our member organisations include all Finnish cities, municipalities and joint municipal authorities as well as a number of municipal associations and limited liability companies.

• Keva is responsible for the funding of local government employees’ pensions and for investing pension assets. These pensions are funded through contributions from local government employers and employees. In 2012 Keva’s contribution income amounted to approximately EUR 4.8 billion. The value of our investments is around EUR 35.8 billion (31 March 2013).

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