Facilitating longer working lives: the need, the rationale, the how Discussion

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Facilitating longer working lives: the need, the rationale, the how Discussion Didier Blanchet, Insee. Three main points. Little doubt that longer working lives (WL) must be part of the adjustment to increasing life expectancy (LE) But some questions - PowerPoint PPT Presentation

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  • Facilitating longer working lives: the need, the rationale, the howDiscussionDidier Blanchet, Insee

  • Three main pointsLittle doubt that longer working lives (WL) must be part of the adjustment to increasing life expectancy (LE)But some questionsThe why : is increasing LE a sufficient justification for increasing WLs ? The how :Making postponement pay : is it enough ?The interaction with job shortages : how far can we consider that it is a non-problem ?

  • (A) Lower retirement ages : why reversing the trend ? Increasing LE is an appealing justificationbut LE not new in the history of mankind and, till now, the bounty of longer lives has not been allocated to work, quite the contrary no one would argue that this has been fully mistakena correct argumentation must address this puzzleKey explanation of the puzzle: productivity gainsthat are not expected to stop, at least under baseline scenarios All this requires closer examination

  • Reversing the trend : more elaborate reasons? A change in the relative intensity of productivity and LE effects :Acceleration of LE, not compensated anymore by demographic growthDeceleration of productivityChanges in the nature of productivity gains ?Resistance to mandatory levies, competition with other social needs ?All these are potential candidates but mean that the problem is more complex than what simple demographics suggest

  • A problem that remains complex : one further illustrationJoint paper with F. Toutlemonde (Revue Economique, Sept 2008)Optimal allocation or training/work/leisure over the life cycle.Shows that an equal sharing of LE between T, W and L requires, inter alia :Consumption norms that move in parallel with productivityA depreciation profile for human capital that moves in parallel with LEEven if the latter condition seems roughly fulfilled for health capital, less warranted for skillsStill more problematic at the micro-level : the problem of one-size-fits-all policies

  • (B) The how : making postponement pay ?One of the main messages from the first volume of the ISS projectFor France : high subsidy to working before the NRA, high taxation aboveThe 2003 reform has tried to remove this double anomalyThe profile of benefits around the NRA is now close to actuarial neutrality But the impact on effective retirement ages has remained limited up to nowHere again, a closer look is required

  • Reinforcing actuarial neutrality: what are the limits ? In fact, the impact of simply restoring AN around a given pivotal age is ambiguousCan lead either to earlier or later retirementAnd, in both cases, no long run impact of pension expendituresIt is only through rightward or downward movements of the profile that pension expenditures can be controlled Graphical illustration

  • Restoring AN versus global moves of the benefit profileAvant rformes

  • Restoring AN : what for ? No miracle : pension costs can be contained only by reducing the generosity of the system1993 : rightward and downward shifts2003 : rightward shift2010 : translation of the windowAN : a more subsidiary role, albeit with some obvious virtues :Lower penalties for those who are obliged to leave earlyPossibility to limit the degradation of pension levels for those who can go on working

  • (C) Raising RA under mass unemployment : what are the limits ?The why and the how are already complex questions in a full employment settingStill more difficult when U rates are highThe optimist view : RA and U are fully independant variablesLooks plausible in the long run, but conflicting with common sense Can we overcome the contradiction ?

  • RA and the unemployment rate (1) Results from the last NBER volume useful to reverse the burden of the proofBut identifying a causal effect of retirement policies on U has been difficultAnd mainly based of experiments of decreases in RAs and or increases that have occured under relatively favourable macroeconomic conditionsPossibility of an asymetric reactionWe cannot fully rule out that labour demand may react only very progressively to increases in RA.

  • RA and the unemployment rate (2)The short run/long run articulation may help reconcile opposite views about the boxed economy hypothesis.Not an argument in favor of inaction, but calls for some cautiousness and attention to demand side policies