In the current discussions about pension reform, the government’s basic approach seems to be that contributions should increase, payments should be cut and the retirement age should be raised. This will probably stem the bleeding from the various national pension funds, but although raising the retirement age may help reduce payments, it will also have serious side effects that the government must consider before making a decision.
In 2011, the threshold for civil servants to qualify for monthly pension payments was raised, from the “rule of 75” system (age and years worked add up to 75) to the current “rule of 85” system. The government is now contemplating raising the requirement from 85 to 90 so that a person must have worked for 30 years to be able to retire at age 60 and receive monthly pension payments, rather than a one-time lump sum. The retirement age for labor pension eligibility is also being raised to 65 years for monthly pension payments.
With the “rule of 90” system, a retiree will receive payments for five to 10 years less than under the old system, which will reduce the government’s financial burden. Some advanced countries have adopted this system, which suggests it would be a good reform.
The side effect of raising the retirement age would be that the average age of the labor force will increase, making it more difficult for young people to enter the labor market. This will result in less mobility into and out of the labor market and a more passive work environment and labor force. The willingness to innovate and take risks will go down, and many young people will not be able to find work. Youth unemployment does not only affect the unemployed, it also affects the social dynamic and creates serious social problems.
International Labour Organization data shows that there will be more than 200 million people unemployed around the world this year and that youth unemployment makes up a big part of that figure. Data from the Directorate-General of Budget, Accounting and Statistics (DGBAS) shows that, although unemployment was low last year, it is increasing among college and university graduates. This will result in a situation where older workers will have to do entry-level jobs and highly educated people will have to accept low pay.
Few new jobs have been created in Taiwan over the past dozen years and salaries continue to drop. Young people have to accept the situation. A job as a civil servant with guaranteed benefits looks safer than pursuing dreams of entrepreneurship or high pay. It avoids performance pressure, the risk of being laid off and promises a retirement without worries.
DGBAS data also shows that, due to the slow economy, the replacement of workers by technological advances and automation, foreign labor imports and the export of jobs to China, it takes university graduates an average of seven months to find a job and that unemployment among young people between the ages of 15 and 24 stands at 12.66 percent.
If hidden unemployment is added, accounting for students who have to retake their exams or people doing military service, it is easy to see that real youth unemployment must be substantially higher.
Although youth unemployment in Taiwan has not reached the 20 percent levels seen in some European countries and the US, a higher retirement age will add to these problems. Our young people will have to face an employment cliff, and one can only wonder how this generation, lost and unemployed, will be able to shoulder responsibility for the future cost of social welfare.
If the government takes a shortsighted approach and only tries to solve the current pension problems by raising the retirement age, youth unemployment will continue to grow. The government must devise complementary employment policies and invest more resources in training and nurturing a competitive work force. If it continues to simply kick the can further down the road, it will only destroy the younger generation.
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