Living Longer, Working Shorter?

1. Living Longer, Working Shorter? Toward the Limits of Sustainable Welfare Bernd Marin European Centre Vienna CUNY Graduate Center, Skylight Conference Room February 14,2008 The European Union Studies Center The Graduate Center, CUNY European Union Center of New York EUSC Lecture Series 2008

2. The UN-European Region

3. Longevity, Ageing, Rejuvenation • Longevity does not imply ageing:Vienna 1995 - 2012 as a case in point • Individual longevity, collective ageing - and collective rejuvenation • Different forms of increasing life expectancy • Chronological, socio-cultural, psychological, biometric and prospective age

6. Longevity 1960-2000 : From Convergence To Divergence ?

7. Why doe we currently age only 2 years within 3 years time? Most recent gains in life expectancy 1995 - 2005

9. Further Cohort-Specific Life Expectancy at Age 65 by Generations (Austria 2005)

15. Living Longer, Working Shorter? • Extending Working Life (EWL) as an unachieved policy goal • Widespread though not universal failure in UNECE region, single dimension of regress even since 2002 in some MS • First small EWL achievements much behind increased longevity and population ageing reqirements • First small turnarounds between 1993 and 2001, but activity levels still far below 1970s/1980s - and far below Lisbon, Stockholm, Barcelona targets and MIPAA / RIS = Madrid / Berlin commitments Sustaining Unsustainable Out-of-Work Patterns

23. Living Longer, Working Shorter? • „Age exclusion“ or ongoing reduction of working life - both in relative (lifetime allocation) and absolute terms (work years) • Age exclusion is generally considered unacceptable, undesirable, unfeasible, and unsustainable • Prevailing facts: ever later labour market entry, much earlier workforce exit, ever tighter compression of working life during early / middle adult or „prime age“ 25-54 - contradicting both ageing and longevity • Reducing active working lifetimes, mass early exit, age discrimination and forced retirement not yet stopped Sustaining Unsustainable Out-of-Work Patterns

26. Living Longer, Working Shorter? • Predominance of non-working status during lifetimes: majorities of - adult - resident populations out-of-work • Widespread predominance of household (non-SNA) production over market (SNA) production, of unpaid work over paid work • Massive labour slack (inactivity or non-employment, unemployment and long-term unemployment, long-term sickness and invalidity) among the main barriers to more UN-European economic growth, competitive-ness, prosperity and rising living standards for all ages • Massive out-of-work patterns also main barrier to social integration and cohesion, health, mental health and well-being, happiness and life satisfaction

27. Living Longer, Working Shorter? • Inactivity or non-employment - not unemploy-ment - as the single most significant component of labour slack or out-of-work status (non-em-ployment 5 times higher than unemployment) • Above the age of 50, the ratio of non-employed to unemployed increases to 1:8 and rises even more sharply with age, as the risk of disability and other forms of early exit increases while the risk of unemployment decreases (!) • For the mature or post-prime-age group 55-64 non-employment is 30 times higher than unemployment (10 times for men, up to 90 times for women).(E.g. in Austria, Italy, Hungary, Slovakia, Belgium 81-89% non-employment vs. 0.3-1.5% unemployment) • Unemployment - considered to be a major problem in public discourse - is disproportionally low in the age group 55 - 64

30. Living Longer, Working Shorter? • The „end of the demographic bonus“ - periodization for EU-27 and a majority of UNECE member states: • 2007 - 2011: last „window of opportunity“ for structural reforms • 2012 - 2017: population of working age starts shrinking, but rising employment - and immigration - may temporarily offset this trend (required LF immigration 2-9 times the numbers projected?) • After 2018: ageing effect will become dominant throughout region • Projected economic growth to shrink significantly - and to be driven by innovation and productivity, not employment growth after 2018 • High intra-regional UNECE diversity in starting conditions and RIS implementation

31. When will the Ageing Process Reach it´s Peak?

32. Living Longer,Working Shorter?„End of the demographic bonus“/2 • Employment increase projected mainly through cohort effects - only marginally through pension reforms (e.g. rising LFP rates 50+ and simultaneously falling effective or actual retirement age) • Employment increase indispensable but insufficient impact on pensions • Highly different longevity achievements (up to 20 years in life expectancy), ageing paces and timing (up to 30 years time lag country differences in baby boom timing and respective ageing peaks) in UNECE region • By conclusion: diverging adjustment requirements and corresponding policy time frames between early movers and laggards in universal population ageing

33. Living Longer, Working Shorter? • The reluctance of employers to hire and retain „older“ workers • Age discrimination and negative attitudes towards „older“ workers • Steep age-wage profile outpacing productivity increases over the working life • Strict job protection may fire back as hiring and retaining barrier • Insufficient training and life-long learning to compensate for de-skilling weaking employability • Widespread preferences for leisure = early exit have emerged Determinants of Early Exit & Pre-Retirement / 1

34. Living Longer, Working Shorter? • Inadequate placement services weakening employability • Poor, unsafe and unhealthy work environment and, above all, demoralizing working conditions explain most of early exit • Morale much more important than health: respect, esteem, basic flexicurity and quality work - or a lack of - are more important than health, work load and stress, pay and other economic rewards, pension incentives, etc. • Work environment more important than employment, employment and non-employment more than unemployment, pension rules and work satisfaction more than health Determinants of Early Exit & Pre-Retirement / 2

35. Living Longer, Working Shorter? • „Making work pay“ through fairness and actuarial neutrality • (or even increasing pension rights with age) • „Lifetime indexing“: linking work and pension duration to life expectancy (analoguous to pension indexation to inflation) • Increasing opportunities and choices for flexible retirement • Repealing early retirement options and pathways • Combatting age discrimination and eradicating forced retirement • Changing employer attitudes and practices by eliminating employment barriers and improving employability Some Policy Conclusions

36. Living Longer, Working Shorter? • # Guiding Principles: „work first“, „making work pay“, raising overall, in particular post-prime age employment rates, lifetime indexing, fighting age discrimination and forced retirement • Lifelong education * Occupational training • Work safety * Health promotion • Professional * Job rotation, • rehabilitation upgrading, and enrichment • Late career measures * Mobility support • Age-specific adustments * Personal (family) of the work environment time-off • * Lifetime banking accounts • Partial pension schemes * Phased, flexible retirement schemes Some Good Practices / 1

37. Living Longer, Working Shorter? • Adjusting legal and first eligibility retirement age to rising (residual) life expectancy • Restrictions on early exit pathways and disability pension awards outpacing disability prevalence patterns • Introducing or strengthening actuarial adjustments in order to encourage later retirement • Improving the terms for delaying retirement by increasing accrual rates beyond certain ages beyond actuarial neutrality Some Good Practices / 2

38. Living Longer, Working Shorter? • Lifetime Indexing: automatic adjustment of early, normal, and reference retirement age to rising survival rates, prospective age, residual life expectancy and / or disability-free, healthy life expectancy • Experience rating or age-risk rating of social security contributions over the entire life cycle, making the compound non-employment and unemployment risk by age the yardstick for differentiating all social security contributions according to age-specific (and other major) out-of-work risks • Tax credits or subsidies for recruiting or retaining post-prime-age („mature“) workers. • All measures need to be experimented with and rigorously evaluated. Some Innovative Good Practices 3

41. Living Longer, Working Shorter? • Fully integrate foreign-born residents and citizens who may significantly differ in their work and retirement behaviour. • Promote self-employment: self-employed, small shop-keepers, and liberal professions work several years and up to decades longer than waged workers and employees. Assisting the transition to self-employment for middle-aged employees could be a major step towards effectively extending active working life. • Pension rules should always be universal, fully transparent, fair. Corporatist privileges are costly, demoralizing, and legitimize resistance to change and reform. Pension „justice“ must not only be done, but also seen to be done. Some Good Practices = To Do‘s / 4

42. Quality Work andSelf-Employment asEarly Exit Immunizers?

43. Living Longer, Working Shorter? • Establish regular long-term national sustainability and Monitoring RIS reports (e.g. 5 year intervals with review and appraisal cycles) • Establish regular long-term joint UNECE sustainability and Monitoring RIS reports • Externally assess, corraborate or question national and UN-European reports • Discuss discrepancies between EUROCOM, OECD, IMF, World Bank, UNECE, European Centre Vienna and academic assessments, synchronise databases and test models externally • One best guess projections vs. stochastic forecast modelling and quantifying demographic uncertainties, in particular sensitivity analyses on longevity gains Some Proposals for Future Monitoring / 5

44. Living Longer, Working Shorter? • When it comes to early exit basic social safety nets, never confuse old age security (which can by definition apply above working age only) with unemployment, accident, work injury, sickness, invalidity insurance, disability benefits etc. • Never (ab)use pension policies for labour market - or any other supposedly „good“ - purposes • Never award lifelong disability „pensions“ instead of temporary benefits • Never allow for special pension schemes for special interest groups (regimen speciales, however strong their corporatist pressure or noble the causes underlying their claims) Some Bad Practices = Not To Do‘s / 1

45. Living Longer, Working Shorter? • Do not any longer allow for different retirement age by gender (i.e. do not longer ignore the European Court of Justice rulings) • Do not give an unlimited autonomy or veto power to social partners regarding retirement practices and the implementation of pension schemes • Do not be generous to early retirees as such as it will force you to be non-solidaristic or less generous to the poor, to sick people, to persons with disabilities and all others disadvantaged and in need - thus, order your generosity priorities. Some Bad Practices = Not To Do‘s / 2

46. Living Longer, Working Shorter? Some Practices / Institutionsto Rethink? • Just for thought: Could EU-27 within UNECE-Europe 56 remain the only (con)federation worldwide without converging labour markets, social security, social protection and pension systems ? Not only without unitary and harmonized institutions, but even without easy portability of social rights? (in contrast to to the US, Canada, Australia, Russia, China, India and Brazil)

47. Living Longer, Working Shorter? • How to fairly and effectively differentiate eligibility ages of earnings-related vs. guaranteed minimum pensions ?(the latter available many years later than the former ?) • How to make work-retirement decisions more flexible and widen corridors (age spans in which one is entitled to retire) without encouraging ever earlier exit ? • How can collective bargaining agreements be prevented from fixing mandatory retirement age for specific occupati-onal groups (pilots, military, railway, opera singers, ballet dancers, bull-fighters, etc.) below the legal one ? Some Remaining Uncertainties / 1

48. Living Longer, Working Shorter? • How can the outflow rates for the two-digit millions of people on disability benefits be increased from currently less than 1% ? • Who should be supported in order to create the most effective work incentives, and how can it be guaranteed that simple age-targeting will not miss ist goals ? • How can age discrimination legislation be made more effective ? • Why has the great majority of governments from UNECE member states still not yet implemented a ban on mandatory, forced retirement ? What are existing plans to do so within what time frame? And if not, why ?? Some Remaining Uncertainties / 2

49. Living Longer, Working Shorter? • A vague sense of problems and doubts about the future viability of mandatory systems • Little confidence in government policies • Largely unchanged attitudes regarding current retirement practices and little popular support for rising pension age • Widespread belief in „lump-of-labour“ fallacy that elderly workers „should give up work to make way for younger and unemployed“ • In countries such as Denmark, Finland, Ireland, the Netherlands, the UK public awareness and sensitivity has been raised by governmental campaigns to undo the lump-of-labour myth Public Opinion Poll Survey Findings / 1

50. Living Longer, Working Shorter? Public Opinion Poll Survey Findings / 2 • A growing opposition to forced retirement at any age fixed for all (with great differences between the North-Western and the South-Eastern parts of the UNECE region) • Broadest support for contributory conceptions of social justice (including the view that later retirement should lead to higher pension and that pensioners should be allowed to earn freely on top of their pension)