Mon, Dec 12, 2011 - Page 9 News List

Policies to address euro crisis must balance generational needs

Most economists have rejected variations of the ‘lump-of-labor’ fallacy, saying there is no evidence that older workers are taking jobs from the younger generation

By Alan Wheatley  /  Reuters, LONDON

“This is part of the lump-of-labor fallacy. You can’t just substitute a younger person for an older person. It really depends on the type of job,” he said.


In a demographic context, the policy emphasis on working longer is hard to dispute. In the 50 years since the OECD was founded in 1961, life expectancy has jumped by 10 years, to 76 for men and 82 for women.

Despite quite extensive changes in a clutch of countries to make pension systems financially sustainable, budgets are groaning under the strain.

Before the latest reforms, for example, Italy’s spending on pensions was 29.4 percent of government spending, up from 19.1 percent in 1990 and dwarfing the OECD average of 16.5 percent.

Charles Robertson, chief global economist at Renaissance Capital, said pension spending was a key cause of the eurozone crisis.

“To bring Italian pension spending down to German spending levels would require pension payments to be cut by a third. Given the 12 million Italian pensioners [roughly one-quarter of voters], it is little wonder that former [Italian] prime minister Silvio Berlusconi and his allies were so reluctant to address the pension issue,” he said in a report.

Delaying retirement to tackle unaffordable pension outlays might magnify youth unemployment in the eyes of voters, but economists take a more dispassionate view.

Creating jobs for youngsters comes down to giving employers incentives to hire young workers and reforming employment laws that protect “insiders” with permanent jobs at the expense of “outsiders” on precarious short-term contracts. These are often women and youths. Only one in five Italians under 25 has a job.

Above all, governments need to stimulate aggregate demand as well as raise the standards of education, training and skills.

“In many cases the qualifications that people acquire are just not fit for the skilled work that people want them to do,” said George Magnus, a senior economic adviser at UBS and author of a book on the economic consequences of ageing.

However, raising education levels is for the long haul. Generating jobs by boosting demand and output is the immediate imperative.

“The lump-of-labor argument is as meaningless today as it ever was,” Magnus said. “If we had more growth in the economy, I don’t think we’d be having a heated debate about oldies taking away jobs from young people.”

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