Basic elements

While the TLM approach originated as a proposal for a new European employment strategy in the context of mass unemployment (Schmid, Reference Schmid1998), it developed into a rather broader and more general framework that can be used to analyse labour market behaviour and evaluate social policy measures. Given the wide range of existing literature on TLMs, it is beyond the scope of this article to discuss all aspects of the approach (for a review, see Schmid and Gazier, Reference Schmid and Gazier2002; Schmid, Reference Schmid2008). Here we give a general overview of the approach and we focus on the criteria for good TLM arrangements.

Within the TLM literature, a distinction is usually made between the analytical and the normative component of the TLM approach. The analytical part refers to the empirical phenomenon that the nature of labour markets is changing: the number of transitions and combinations between different life domains is increasing and the boundaries between paid employment and other relevant life spheres are becoming more and more blurred (Schmid and Schömann, Reference Schmid and Schömann2004; De Gier and Van den Berg, Reference De Gier and Van den Berg2005). Some of the transitions that individuals make during their life course are characterised as critical life events or critical transitions. These transitions are critical or risky in the sense that they may not only provide opportunities but they may trigger processes of social exclusion as well. In the TLM literature (for example, Schmid, Reference Schmid1998; De Gier and Van den Berg, Reference De Gier and Van den Berg2005), five such transitions are distinguished: transitions between employment and education; between paid employment and unpaid family activities; between employment and unemployment; between employment and retirement; and transitions within paid employment (such as transitions from one job to another or from full-time to part-time employment). These five transitions are associated with corresponding life-course risks. In the spirit of Giddens (Reference Giddens1994), it is recognised that individuals not only have to deal with the traditional external risks – such as illness, involuntary unemployment and disability – but increasingly face new internal or ‘manufactured’ risks. Schmid examines three of these new emerging risks related to the critical transitions: ‘the increasing risks of social exclusion related to failures in education and training’, ‘the increasing risks of precariousness related to temporary jobs and compressed work careers’ and ‘the increasing risks of long-term unemployment or forced inactivity related to the erosion of internal labour markets’ (2006: 9–13). These new risks are (partly) self-produced and are associated with discontinuities in the working life other than those caused by involuntary unemployment and other external factors.

The normative component of the TLM approach essentially provides the answer to the changing nature of risks and thereby prescribes how policies and institutions should be designed in order to improve the performance of the labour market. The traditional social security system only covers the old external risks, such as disability and involuntary unemployment. ‘In the theory of TLM and social risk management, however, the life-course risks are regarded partly as new risks that require a recalibration of existing institutional set-ups’ (Schmid, Reference Schmid2008: 284). The need to provide protection against the new risks becomes more and more pressing as these risks are increasing. The assumption is that, with the support of TLM arrangements, individuals are able to cope with critical transitions and to manage the related risks. Accordingly, transitional labour markets can be seen as risk management institutions. Schmid (Reference Schmid, Schmid and Gazier2002b) therefore argues that ‘social policy’ should be transformed into ‘social risk management’.

TLM arrangements thus facilitate transitions and combinations between different life domains and employment relationships. But which conditions should such arrangements meet in order to be classified as TLM-friendly? Unfortunately, the TLM literature does not provide clear and general criteria that can be applied directly: in the studies that mention criteria, they are not elaborated systematically. For example, Schmid (Reference Schmid1998, Reference Schmid, Schmid and Gazier2002b, Reference Schmid2008: 255) states a number of criteria, yet he does not specify them in a detailed manner. Likewise, in the study of Maier et al. (Reference Maier, Graaf and Frericks2007), the criteria set formulated by Schmid (Reference Schmid, Schmid and Gazier2002b) is mentioned but not discussed in detail, even though the ambition expressed in this study was to perform a policy evaluation based on TLM criteria.

In order to deal with this ‘black box’ in the TLM approach, criteria are derived here from a wide range of TLM literature. Basically, we have merged two sets of criteria into one. The first set was developed by Schmid in the early stage of the TLM approach: ‘Although they are neither exhaustive nor representative, they nevertheless are intended to satisfy at least some of the following four criteria for “good” transitional labour markets’, referring to ‘empowerment’, ‘sustainable employment and income’, ‘flexible coordination’ and ‘cooperation’ (Schmid, Reference Schmid1998: 10). In later studies, Schmid (Reference Schmid, Schmid and Gazier2002b: 398, Reference Schmid2008: 255) makes use of new public management theory and social choice theory to construct four more refined criteria: ‘individual freedom’, ‘solidarity’, ‘effectiveness’ and ‘efficiency’. The two sets of criteria are partially overlapping and can be combined into the following general framework that includes all elements of both sets:

• • empowerment: this criterion is actually found in both sets of criteria, although in the second set it is termed ‘individual freedom’;

• • sustainable employment and income: although not present in the second set, this criterion is essential in the TLM approach;

• • solidarity: this criterion, which refers to equality and risk-sharing, is crucial for the management of risks;

• • effective and efficient governance: this final criterion concerns the implementation of the arrangement and comprises the last two criteria of both sets: ‘efficiency’, ‘effectiveness’, ‘flexible coordination’ and ‘cooperation’.

In the next part of this section, we elaborate these criteria systematically.

The first criterion: empowerment

Based on the capabilities approach of Sen (Reference Sen1999), empowerment implies ‘strengthening the personal resources on which individuals can draw’ (Schmid, Reference Schmid, Schmid and Gazier2002a: 186). With the aim of inducing proactive labour market behaviour, more responsibility should be transferred onto the individual. In order to do so, new social rights or entitlements, which are attached to the individual rather than the employment status, should be established (in the vein of Supiot, Reference Supiot2001). ‘The most general rule relevant to social risk management is that – apart from pure individual responsibility – individuals or self-organised collectivities (associations) can take over more responsibility only if they are empowered to do so’ (Schmid, Reference Schmid2006: 23). Schmid (Reference Schmid2006, Reference Schmid2008) argues that new entitlements are required to make individuals capable of taking up new responsibilities. The central assumption is that, when individuals are supported by such empowering social rights, they are encouraged to make risky transitions (Schmid, Reference Schmid2008). These entitlements refer not simply to transfers, but also to participation in employment decisions: they provide a set of mobility options throughout the life course and allow for choices to be made between different employment statuses, depending on (shifting) individual preferences (Schmid and Schömann, Reference Schmid and Schömann2004). In return for these new rights, individuals would not only accept greater risks related to life-course transitions, but also more duties, for example concerning the financing of the arrangement (Schmid, Reference Schmid, Schmid and Gazier2002b). These new rights should not be unconditional, but rather conditional on ‘contractual negotiations between employers and employees or between the parties of industrial relations system’ (Schmid, Reference Schmid2008: 323). One example would be a legal right to reduce the number of working hours, on the condition that employers have something to say in negotiating the implementation (Schmid, Reference Schmid2008: 320). In this way, TLMs act as a kind of flexible buffer that expands during an economic decline and shrinks during better times. To summarise, in order to facilitate risky transitions and to allow individuals to take on more responsibility, a TLM arrangement should empower individuals with new social entitlements that broaden the set of mobility options during the life course.

The second criterion: sustainable employment and income

The second criterion requires that the arrangement enables and encourages transitions back to the labour market. Paid employment plays a central role in the TLM approach. Nevertheless, in contrast to the ‘make work pay’ approach, this does not mean that all incentives should be directed towards the regular labour market. In fact, within the TLM approach, activities in other life domains – such as education and care for children and older people – are explicitly acknowledged as economically and socially valuable. The TLM approach to full employment does not therefore necessarily imply standard and continuous full-time employment but rather long-term employability: ‘the challenge is not to “make work pay” at any rate but to make “transitions pay” for keeping or increasing employability’ (Schmid, Reference Schmid1998: 10). This criterion thus concerns making good transitions pay.

What exactly are good and bad transitions according to this criterion? In the TLM literature, a distinction is made between integrative, maintenance and exclusionary transitions. Transitions are integrative if they function like stepping stones and enhance the labour market position (for instance, from unemployment to employment), maintenance transitions preserve one's employability (such as transitions from one job to another) and transitions can be labelled as exclusionary if they resemble dead-end streets, leading to downward spirals of long-term unemployment, poverty and social exclusion (O'Reilly et al., Reference O'Reilly, Cebrián and Lallement2000). On the one hand, exclusionary transitions are to be avoided. On the other hand, integrative and maintenance transitions should be encouraged and facilitated. Again, even though the ultimate goal is the return to the labour market, this does not imply that everyone should have a stable and secure full-time job. Transitions to unpaid (care) work or another non-employment status may also be defined as ‘maintenance’ as long as the way back to regular employment remains open, and employability is maintained or even enhanced (Schmid and Schömann, Reference Schmid and Schömann2004). So, a good TLM arrangement should discourage transitions that lead to the permanent exit from the labour market and should permit and support transitions back to the labour market by forming easily accessible and enduring bridges that facilitate transitions towards employment or between different employment statuses. It should be noted here that the transition to retirement is rather exceptional in this approach since it represents not only a permanent exit from the labour market, but also an inevitable transition in the common life course. As a result of this duality, this transition should of course not be prohibited, but instead the strategy should be to abolish financial and institutional incentives to retire early and abruptly, while investments in employability should be promoted. In this way, active ageing through flexible and gradual retirement should replace early (and abrupt) retirement (Hartlapp and Schmid, Reference Hartlapp and Schmid2008; Schmid, Reference Schmid2008: 305–314).

The question now remains how to make good transitions pay. In economic terms, the ‘sustainable employment and income’ criterion demands compensation of the direct opportunity costs of (partial) career breaks in order to facilitate transitory periods to a non-employment state (Schmid and Schömann, Reference Schmid and Schömann2004: 25). In other words, some form of income replacement is required when one temporarily leaves the labour market. Furthermore, given the fact that the TLM approach emphasises the importance of employability throughout the life course, ‘making transitions pay’ is not just about a short-term income compensation but calls for a long-term reward for making transitions as well. Economic theories, such as the human capital theory, the theory of statistical discrimination and tournament models, as well as numerous empirical studies, point to the enduring negative impacts (‘scarring’) of discontinuous working careers on wages and employment (Arun et al., Reference Arun, Arun and Borooah2004; Roman, Reference Roman2006; Strandh and Nordlund, Reference Strandh and Nordlund2008). Making transitions pay thus implies income replacement during the transitory period of non-employment and a mitigation of the scarring penalties resulting from career discontinuities.

The third criterion: solidarity

A distinctive feature of the TLM approach is the introduction of social justice at the level of social security. ‘Solidarity has to be promoted through generality and inclusiveness in risk-sharing’ (Schmid, Reference Schmid, Schmid and Gazier2002b: 398). The solidarity criterion entails two elements: generality or ‘equality of access’ and ‘risk-sharing’. Equality of access implies that all workers should be covered, including the self-employed, part-time employees, those on temporary contracts and other frequently excluded groups. Additionally, the degree of risk-sharing should be based on the framework of ‘equality of resources’, developed by Dworkin (Reference Dworkin2000). Schmid (Reference Schmid2006, Reference Schmid2008: 224–231) applies this concept to classify four ideal-types of risk management. In the traditional social security system, risk-sharing is limited to external risks, whereas, as discussed previously, according to the TLM approach risk-sharing through social insurance should be extended to (new) manufactured risks. While traditionally the insurance principle only applied to external risks, in the TLM approach the degree of risk-sharing also depends on whether the risk can be managed by the individual. If the resulting damage and (income) losses are so extensive that the individual is unable to cope with the risk, the cause of the risk becomes irrelevant and collective provision is required. An implication is that society should be held accountable for risks that have too damaging consequences for the individual and society, even if the risk is the result of individual choice. This relates particularly to the new risks: because the new risks give rise to negative or positive externalities, they should be dealt with as collective risks rather than individual risks (Schmid, Reference Schmid, Schmid and Gazier2002b: 409, Reference Schmid2008: 237). Conversely, some risks are the result of external factors, yet their consequences can be mitigated or eliminated by individual action (Schmid, Reference Schmid2008: 285). For instance, although the event of a job loss may be completely out of range of the individual, its negative effects can be reduced by (re)training. This essentially means that, on the one hand, a higher degree of individual responsibility should be demanded with regard to external risks which can be managed by the individual, while, on the other hand, a higher level of solidarity is required for new manufactured risks which cannot be dealt with by the individual.

The fourth criterion: effective and efficient governance

The final criterion refers to the implementation of the arrangement and consists of two sub-criteria: effectiveness and efficiency.

The degree of effectiveness of the arrangement is determined by two basic components. First, the arrangement should allow for flexible coordination. A two-stage approach is particularly appealing. In such an approach, general rules for the implementation are negotiated at the central level, while the specific details are left to negotiations at the organisation or industry level. The arrangement should thus allow for a coordinated bargaining process between employers and employees on its specific implementation. This implies that more decision power should be transferred onto individuals and local agencies. In that way, the arrangement could be tailored to the individual preferences and local circumstances. The second component of this sub-criterion is that the arrangement has to support cooperation between different (public and private) actors in order to make use of potential synergies. In practice, this strategy calls for a mix between public and private actors in the implementation of the arrangement (Schmid, Reference Schmid, Schmid and Gazier2002b: 399–424).

Next, the efficiency criterion requires the costs of the arrangements to be contained. Long-term costs and benefits should be balanced, and opportunistic behaviour in favour of short-term solutions should be discouraged. In order to enhance efficiency, the costs entailed in cheating and moral hazard should be limited by applying specific management techniques: this may be monitoring, evaluation and controlling, but it could also be self-regulation, which can for instance be achieved by individual accounting systems and (limited) drawing rights. Self-regulation may be enhanced through rules formulated in individual contracts or collective agreements (Schmid, Reference Schmid, Schmid and Gazier2002b: 399–424).

To summarise, a good TLM arrangement should empower individuals, create sustainable employment and income, enhance solidarity and be governed effectively and efficiently. Equipped with this normative framework, we assess in the subsequent section to what extent the Dutch life-course scheme meets these four criteria.

Main features

In January 2006, the Dutch government implemented the life-course scheme. Although it was expected that almost two million employees would participate in that year (Delsen, Reference Delsen, D'Addio and Whiteford2007), the scheme turned out to be less popular: about 340,000 employees (5.5 per cent of all employees) participated in the LCS in the year of its introduction (CBS, 2007). This unpopularity is partly due to the fact that the LCS has to compete with an employer-sponsored savings plan (‘Spaarloonregeling’). In fact, employees are not allowed to participate in both the LCS and this other savings scheme.

Basically, the LCS offers all employees a legal right to save up to a maximum of 12 per cent of the yearly gross wage, under favourable tax conditions, in order to finance a period of unpaid leave. The state provides fiscal support by applying the deferred tax principle: the contributions to the LCS are exempt from taxation, but instead the savings are taxed at the moment of withdrawing. Moreover, the employees receive a tax credit of 191 euros per year of participation when they take up the savings for leave. This tax credit is independent of the annual contribution. Employers, too, are allowed to contribute to the account, provided that the same financial contribution is made to employees who do not participate in the LCS. The maximum amount of the savings account is 210 per cent of the yearly gross wage, which can replace 70 per cent of the previously earned income for three years. The savings scheme can be used on an unlimited basis: once it has been used (partly), it can be replenished to the maximum level. An important feature is that these special accounts are administered by financial institutions rather than by the employer. Employees are allowed to take up their leave for whatever purpose: for example for care reasons, a sabbatical period, educational leave or early retirement. When LCS participants take up parental leave, they receive an additional tax credit, which amounts to 50 per cent of the gross minimum wage for the maximum duration of the statutory parental leave period (it should be noted that, from January 2009, being a LCS participant is no longer a precondition to be eligible for these parental leave credits). Because the LCS is an instrument for employees to finance a period of unpaid leave, unemployed people are not allowed to take up the leave. It is, though, possible to withdraw the complete savings account when the employment relation ends, but in that case the LCS tax credit is not granted and income tax has to be paid on the entire amount. However, this option should be covered by the terms of the contract. Finally, it should be noted that the Dutch LCS is a right to save money for leave purposes, but does not provide a right to take up leave. When an employee actually wants to take up leave, the permission of the employer is required (Delsen, Reference Delsen, D'Addio and Whiteford2007). In the next part of the paper, the LCS will be evaluated according to the four TLM criteria.

Empowerment

The first criterion requires that the arrangement empowers individuals through new entitlements or social rights, which enable them to cope with risky transitions and allow for choices to be made according to individual needs and preferences.

At first glance, the LCS seems to meet the empowerment criterion. As for the autonomy element, the scheme enhances the opportunities of individuals to become the director of their own life course (Plantenga, Reference Plantenga2005). The LCS also gives employees the right to save for (part-time) leave and to negotiate on this matter. In addition, the right to use the account for parental leave or long-term care is provided by law. The conditional right to take up leave is in fact a new entitlement, and more individual responsibility concerning one's career is expected in return. Moreover, it seems that the right to negotiate leave fits in with the flexible buffer concept of the TLM approach: it can be expected that requests for leave are rejected in a tight labour market during an economic boom, while they will probably be granted when labour demand is low.

Although the LCS thus provides a new social right, it remains to be seen whether it is sufficient to empower individuals. There are two main reasons that suggest that the LCS lacks empowerment capacity. First of all, it should be recognised that the actual use of leave requires that a certain level of savings has been accrued. People just starting their working career do not have the option to make use of the LCS to finance a period of leave simply because it takes time to accumulate a considerable level of savings. An implication is that it is unlikely that young people will actually make use of the scheme. This practical obstacle of the scheme is especially relevant because the responsibility for care is usually the highest in the early life-course stage. This issue, however, is solved to some extent by the provision of additional parental leave credits. In general, though, it can be argued that the LCS is not an effective instrument to empower individuals who have a relatively short work history.

Secondly, one of the basic principles of the scheme is that permission of the employer is required to take up LCS leave. The fact that individuals do have a right to save for leave while they do not have the right to take up leave limits the capacity of the new entitlement to empower employees. The question therefore remains whether employees are willing to apply for LCS leave and whether employers are inclined to comply with such a request. Empirical findings on the exercise of the legal right to adjust working hours are insightful in this respect. In the Netherlands, since 2000 a statutory right to decrease (and extend) working hours is provided by law subject to the condition that no ‘serious business reasons’ compel refusal (see Burri et al., Reference Burri, Opitz and Veldman2003). Schmid (Reference Schmid2008: 320) in fact identifies this right as a good TLM practice. It appears that the majority of the requests to reduce the number of working hours were fully granted. Nevertheless, just half of the employees who wished to work fewer hours actually made such a request. Employees are hesitant to inform their employer of their preferences, not only because they expect that this will have negative financial consequences, but also because they fear that a reduction of working hours is not possible in their job, that their employer will not grant the request anyway and that they will put their position within the organisation at risk (MuConsult, 2003). Because making use of the LCS depends entirely on the approval of the employer, while the right to working time reduction is only limited by the incidence of ‘serious business reasons’, it is likely that employees will be (even more) hesitant to apply for LCS leave.

In sum, although the LCS provides employees the right to save for leave and to negotiate on this issue, its empowerment capacity is limited by two main factors: there are important practical obstacles due to the timing of risks, and the employee needs the permission of the employer to take up leave.

Sustainable employment and income

The arrangement should enhance the sustainability of income and employment according to two main principles. Firstly, the arrangement should support maintenance and integrative transitions and discourage exclusionary transitions. Secondly, the arrangement should make transitions pay, not only through income replacement during transitory periods out of the labour market, but also by mitigating long-term career penalties.

Does the life-course scheme provide incentives to (re)turn to the labour market? In order to accumulate money to finance a period of unpaid leave, employment is a necessary condition. This means that individuals who want to make use of the scheme (again), have an incentive to return to the labour market. It may be argued that the LCS builds a bridge that facilitates two-way traffic between paid employment and other life domains. When the request for leave is granted by the employer, the employee is allowed to return to his or her employer after the leave period. This corresponds to the impact of (parental) leave schemes: the job guarantee of leave schemes has a positive influence on the labour market attachment of leave takers (for example, Waldfogel et al., Reference Waldfogel, Higuchi and Abe1999; Baker and Milligan, Reference Baker and Milligan2008). It may therefore be argued that the LCS encourages integrative and maintenance transitions. Next, can it be expected that the LCS will discourage exclusionary transitions? Empirical data on the intended leave purposes of LCS participants show that the majority of the participants plan to use the scheme as an instrument for early retirement (CBS Statline, 2007). This holds for both men and women and across all age groups. Moreover, a relatively large group (29 per cent of the participants) has not yet decided which kind of leave they wish to finance with their LCS savings. Focusing on the group that has made a decision on the purpose of leave, the popularity of the early retirement option among the LCS participants is even more striking: 55 per cent of the youngest group (aged between 15 and 25) plan to use their savings for an early exit, this percentage being as high as 82 for the oldest group (aged between 45 and 65). Although the option to use the scheme to finance parental leave is significantly more popular among younger than among older employees and among women than among men, this leave option is rather unpopular in general (5.8 per cent of the participants). This also holds for the possibility to finance a sabbatical (4.7 per cent of the participants). In addition, the fraction of participants that plan to use their LCS savings for long-term care leave or educational leave is extremely small (0.6 per cent and 0.3 per cent respectively). The data therefore indicate that it is likely that the majority of the LCS participants will use the scheme for early retirement. Even though it is unlikely that this transition will lead to poverty and may therefore not be defined as a ‘pure’ exclusionary transition, the facilitation of early retirement clearly clashes with the spirit of active ageing (Schmid, Reference Schmid2008: 305–309).

The issue now remains whether the LCS makes transitions pay. The scheme is an instrument that employees can use in order to cope with a number of income risks related to transitions towards a state of non-employment (for example, care and education). In this way, the scheme compensates for the direct opportunity costs of transitions towards other life domains. Moreover, the Dutch scheme facilitates working time transitions and, as the scheme is attached to the individual instead of the employer, it does not chain the employee to his or her initial employer. Thus, the scheme creates no direct portability costs that may hamper job mobility. In contrast, given that being employed is one of the necessary conditions to take up the savings, the LCS does not provide participants with an appropriate instrument to manage the income risk related to unemployment. Although under certain conditions one is allowed to withdraw all savings when the employment relation ends, this may involve enormous costs as, in that case, the tax credit is not provided and income tax is due on the entire amount.

Next, what may we expect in terms of the long-term wage and career effects of the LCS? There are two important theoretical perspectives that provide a (partial) answer to this question. First of all, from a human capital point of view it can be argued that no loss of firm-specific human capital occurs, since the career break does not result in a separation between the employee and the employer. In addition, when individuals know that they are leaving the labour market for a definite and relatively short period of time, they have incentives to invest in human capital prior to the leave. The same can be expected based on the statistical discrimination theory: when the career break system is widely accepted and institutionalised career breaks are a common phenomenon, employees will not suffer from the negative stigma effects resulting from discontinuities in the working career.

Studies on the effects of career break systems are also insightful in this respect. Roman (Reference Roman2006) found that the overall impact of the Belgian career break system on wages is positive for those who left the labour market for up to one year. However, it is worth noting that a large group of Belgian workers used the system to exit the labour market permanently. Skans and Lindqvist (Reference Skans and Lindqvist2005) examined the impact of a Swedish subsidised career break scheme of three to twelve months on labour supply and wages. They found that taking a career break reduced post-career break wages by about 3 per cent and did not raise future labour supply. Since the repercussions of non-institutionalised career breaks are clearly negative (for example, Arun et al., Reference Arun, Arun and Borooah2004), the fact that overall the empirical evidence on the effects of career break systems is inconclusive suggests that such arrangements make transitions pay by mitigating the scarring wage penalties.

To conclude, the LCS constructs a bridge that supports two-way traffic between employment and other domains. Furthermore, the scheme compensates for the opportunity costs of transitions towards non-employment and may reduce the wage penalties resulting from career breaks. However, a realistic concern is that the LCS will be commonly used to finance early retirement.

Solidarity

The third criterion entails two basic elements: risk-sharing through extending the insurance principle to new risks and equality of access by generalising the arrangement to all income groups, self-employed individuals and other frequently excluded groups.

Firstly, the life-course scheme is in principle an individualised savings arrangement. The individual is held accountable for income losses resulting from a career break and is assumed to take responsibility for these risks. Even though it might be argued that the LCS provides intra-personal solidarity, it does not achieve risk-sharing between individuals: no collective vouchers or contributions are linked to the scheme. The tax credit involved is rather small and the additional parental leave credits are the only considerable collective provisions attached to the scheme. Schmid (Reference Schmid2008: 237) argues that granting tax credits may be a good strategy to support individuals whose income capacity is limited due to care obligations. Besides these parental leave credits, it can be claimed that overall the LCS does not result in risk-sharing but rather stresses individual responsibility.

Secondly, concerning the accessibility of the scheme, it should be noted that self-employed and unemployed individuals have no right to participate in the LCS. Moreover, there are considerable differences in the participation rates between different worker groups (CBS, 2007). In 2006, the participation rate of highly educated workers (8 per cent) was over twice that of lower educated workers (3.6 per cent). Moreover, the fraction of permanent contract employees who participated in the LCS was over four times that of temporary workers (respectively 6 and 1.4 per cent). This suggests that there is no equality of access to the scheme, which is confirmed by other studies. The LCS is a rather unattractive device for lower-income groups because the participants receive the tax credit when the savings are withdrawn instead of while the saving takes place (Delsen, Reference Delsen, D'Addio and Whiteford2007). Lower-income groups, parents with young children and the younger cohorts will have trouble building up a LCS account since they lack the financial resources (Keuzenkamp, Reference Keuzenkamp2004).

In conclusion, the LCS is in principle an individual savings account and realises a low degree of risk-sharing between individuals. Moreover, the scheme does not seem to be equally accessible to all income and worker groups. It may thus be concluded that the LCS does not meet the solidarity criterion.

Effective and efficient governance

The ‘effective and efficient governance’ criterion states that policies should be implemented by allowing for flexible coordination and cooperation. Moreover, this criterion requires that costs should be contained, and moral hazard and deception should be discouraged.

The LCS indeed allows for flexible coordination. The scheme can be covered by individual and collective labour agreements between employers and employees. Schmid (Reference Schmid2008: 308) explicitly praises this feature of the scheme. Since its introduction, social partners have utilised this option in order to make adjustments to the scheme. In this way, the life-course scheme can become a vehicle for all kinds of regulations regarding time for education, care and leisure. It should be noted, however, that by decentralising the negotiations, the risk arises that the scheme will shift towards a less TLM-friendly policy instrument. For instance, the protection of the early retirement option may be the outcome of these negotiations. This type of exit transition should actually be discouraged according to the sustainable employment and income criterion.

Although these developments are relevant for the future features of the LCS, there are also certain limitations to the impact of these negotiations. It is for instance unlikely that employer contributions will play a substantial role in raising the future attractiveness of the scheme, as employers are not allowed to fund the LCS account of their employees without paying the non-participating employees the same amount. Due to the fact that participation in the scheme is voluntarily, there exists the possibility of ‘opting-out’: employees have the option not to participate in the LCS and receive the same employer contributions. This limits the possible positive impact of flexible coordination considerably.

With respect to the efficiency condition, it can be argued that the costs of the scheme are contained. The LCS is individualised and self-financing to a large extent. The tax credit of 191 euros per year that is involved is rather small. The parental leave credits are substantial yet they are restricted to the maximum duration of parental leave. Thus, besides these credits, individuals must absorb completely the costs of transitions to non-employment. In general, it can be argued that individual savings accounts facilitate self-insurance over the life course (Bovenberg et al., Reference Bovenberg, Hansen and Sorensen2008: 77). It can therefore be concluded that the LCS meets this part of the ‘effective and efficient governance’ criterion.

In sum, the scheme allows for flexible coordination and, because the scheme is in principle an individualised savings arrangement, the costs related to moral hazard and deception are contained. A limitation is that employers are not allowed to increase the (relative) attractiveness of participating in the scheme through additional contributions.