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A Smaller Safety Net?

by Elaine Schwartz    •    Sep 10, 2010

In France, a 24 hour workers’ strike brought retirement rights back to the headlines. Saying that a 60 year old retirement age was no longer affordable, French President Sarkozy has proposed moving it up to 62. French workers disagree.

In the U.S., a leader of the Older Women’s League (OWL) reacted angrily to a comment about Social Security from former Senator Alan Simpson. Mr. Simpson is the co-chairman of the recently created National Commission on Fiscal Responsibility and Reform. Using rather vivid language, Mr. Simpson said that Social Security would not have the future capabiity to continue its current obligations. In an email, OWL responded that Mr. Simpson displayed, “…his clear disrespect for Social Security, women and the American people…”

You can see the dilemma. Our resources are limited. In most eurozone countries and in the U.S. federal spending is skyrocketing. To what extent should we provide support to an aging population?

The Economic Lesson

Social Security is a pay-as-you-go system; today’s workers pay the benefits for today’s recipients. When Social Security began in 1935, there were 42 workers for each beneficiary, life expectancy was close to 62, and benefits began at 65. Today, U.S. life expectancy averages close to 78 and minimum benefits can begin at 62. By 2027, the full benefits age will gradually have risen from 65 to 67. Currently, while there are approximately 3.3 workers for each beneficiary, for 2030 the projection is 2.2.

In France also, and in other OECD countries, the older population is growing and birth rates have diminished. By 2050, if current labor force participation rates remain the same, in Europe, there will be one worker for every retired person.

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