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In the 1990s, individuals aged 18–64 were eligible for disability insurance, if their work capacity was reduced by at least 25 percent (50 percent before 1993). In the beginning of the period, before 1991, disability insurance could also be granted for labor market reasons (i.e., if unemployed had been compensated long enough to exhaust their benefits – obtained benefits for 300 days). This possibility was gradually phased out after 1991. In 1995, the enforcement of the rules was tightened. When evaluating applications for disability pensions, local insurance offices now had to request a medical certificate and a work-related test of the applicant's degree of work capacity. Local offices also had to consult the applicant's employer, physician, or other qualified personnel, and even pay personal visits to the applicant. The possibilities for rehabilitating the applicant should also be investigated. From 1997, work incapacity should be evaluated in relation to all possible employment opportunities. Potential income changes resulting from changes in employment should not affect the evaluation⁴ (National Social Insurance Board, 2005).

This paper aims to look at model retirement behavior with a focus on early retirement where there is an option for “buy‐outs”. An employer can offer employees generous pension programs if the employees agree on early retirement. Earlier studies have neglected such offers, but in doing so, estimates of the individuals' responses to financial incentives in a retirement decision are likely to be biased upward.

The authors propose an estimation strategy where the retirement decision and the accesses to early retirement pension (ERP) offers are estimated in a simultaneous equation system, yielding unbiased estimates of the model parameters. They apply the model using detailed Swedish register data.

The results indicate that the marginal effects in retirement probability with respect to a change in financial incentives is less pronounced if ERPs are accounted for. Further, results imply that the early retirement probabilities would decrease, depending on year, by 14‐28 percent for males and 7‐18 percent for females if ERP offers were absent.

As the motives for early retirement pensions most likely stem from how the collective agreement occupational pensions are financed, this emphasizes the need for a debate on the preferable construction of these systems. This becomes particularly important in view of the increased old age dependency ratios that are expected in the near future.

Although these offers have important policy implications they have received limited attention. This paper fills an important gap in the existing pension literature, and it analyzes early retirement and tries to assess the importance of special early retirement pension programs for these outcomes.

Concerning migration on a national level, two phenomena emerge: people migrating from one region to another and people moving from the countryside to the cities. The geographical shift of the population between regions in a country is a slow process. In Sweden, only a few percent of the population migrate yearly. Nevertheless, migration has caused and still causes considerable redistribution of the population toward the metropolitan regions in Sweden. This section will emphasize general trends in population concentration through urbanization and migration in Sweden and compare these trends with changes in other countries.

As summarized in our introductory Chapter 1, the trend toward ever-healthier elderly seems to have been broken (Figures 8 and 9). The share of young and middle-aged Swedish men and women, reporting very good or good health status to the Survey of Living Conditions, started to decline already in the 1980s. As a consequence, as the cohorts are graying, the share of elderly people, reporting very good or good health status, has also begun to decline. Increasing health problems among Swedish oldest old have also been reported from the SWEOLD (SWEdish panel of living conditions of oldest OLD) study (Parker et al., 2004). Similar trends have been reported for the United States and for the entire EU-15. Part of the explanation appears to be the growth at young ages in allergy, asthma, diabetes, other long-standing illness, and health problems associated with obesity. In the time perspective of our simulations, these trends in long-standing health problems might have less impact on the health of the elderly (and their demand for healthcare and old-age care or their life expectancy) than on the health of people in their middle ages but still be important. In this section, we will present some additional information on the development of health status during the last 20 years or so for the Swedish population.