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
– The 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 justification…
• …but  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 mistaken
– a correct argumentation must address this puzzle
• Key explanation of the puzzle:
– productivity gains…
– …that 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 growth
– Deceleration of productivity
• Changes 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 illustration
• Joint 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
productivity
– A depreciation profile for human capital that moves in
parallel with LE
• Even if the latter condition seems roughly fulfilled
for health capital, less warranted for skills
• Still 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 project
• For France : high « subsidy » to working
before the NRA, high taxation above
• The 2003 reform has tried to remove this
double anomaly
– The profile of benefits around the NRA is
now close to actuarial neutrality
– But the impact on effective retirement ages
has remained limited up to now
• Here 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 ambiguous
– Can lead either to earlier or later retirement
– And, in both cases, no long run impact of
pension expenditures
• It 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 profile
Replacement
rate
A
Avant réformes
Retirement age
Restoring AN : what for ?
• No miracle : pension costs can be
contained only by reducing the
generosity of the system
– 1993 : rightward and downward shifts
– 2003 : rightward shift
– 2010 : translation of the window
• AN : a more subsidiary role, albeit with
some obvious virtues :
– Lower penalties for those who are obliged to leave
early
– Possibility 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
setting
• Still more difficult when U rates are high
– The optimist view : RA and U are fully
independant variables
– Looks 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 proof
• But identifying a causal effect of retirement
policies on U has been difficult
• And mainly based of experiments of decreases
in RA’s and or increases that have occured
under relatively favourable macroeconomic
conditions
– Possibility of an asymetric reaction
– We 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