Imagine an extraterrestrial creature landing in Brussels on a grey January time. It hears about the euro zone crisis and asks for an explanation. Here is how one such explanation could run.
“The euro zone is in crisis because some of its countries have spent more than they have earned and thus they have accumulated debts that might be difficult to repay. One country, Greece, is in special trouble. European governments fear that if Greece is allowed to go into default, then creditors would fear that other countries might default as well and consequently these creditors will demand higher interest rates on these countries’ debts, making it more difficult for the debts to be repaid. To tackle this problem, European governments have established a rescue fund to lend money to heavily indebted countries. However, some of the countries that support this rescue fund are themselves heavily indebted and therefore cannot afford to provide enough support for the fund to overcome all possible debt crises. Recently, the credit rating of one of these countries, France, was downgraded. Since this country helps finance the rescue fund, the fund was downgraded. In the future it is possible that the downgrade of the fund may lead to a further downgrade of a country financing the fund.
“At the same time, Europe has a valuable resource which currently is standing idle. If this resource were put to use, it could generate a huge amount of income that could be used to pay the outstanding debt and increase living standards. At present, most European countries are spending lots of money to discourage their citizens from using this resource. For example, there are laws in place that make it illegal for the resource to be used and even in cases when it is legal, the income from this resource is often taxed at a high rate. Meanwhile many citizens have become convinced that this resource is useless and thus they no longer bother to maintain it. Consequently the resource is falling into ruin, thereby confirming people’s initial conviction.”
Upon hearing this story, the extraterrestrial creature will probably think, “These Europeans are surely mad! Why don’t they simply allow their citizens to use their valuable resource and thereby repay their debts and become more affluent?”
Europe’s valuable resource is its elderly population. Most of these people are retired even though they still have valuable skills. If they were employed, they would raise the average per capita income in their countries and generate tax revenue that governments could use to repay their debts. Many of these retired people would become productive if they were allowed to work longer without sacrificing the expected sum of their future pension receipts. Nonetheless many governments continue to enforce the retirement age that keeps people retirement for over a quarter of their lifetimes. People who do work longer often have pension benefits withdrawn.
Raising the retirement age is unpopular among the voters because people believe that this would mean more work for unchanged pension entitlements. It is also unpopular among many employers because they believe that they would be forced to keep expensive employees were gradually becoming less productive as they become older. Governments could turn these beliefs into misconceptions by offering their citizens the following deal: First, you are allowed to work longer but you’re not forced to do so. You have a choice between the current retirement system and the new one that allows you to earn more without losing any pension benefits over your expected lifetime. Second, if you decide to work beyond retirement age, you will no longer be protected by job security provisions and will have to renegotiate your salary with your employer. Consequently, only those people will continue to work will thereby make both themselves and their employers better off. Third, employers will be encouraged, through a variety of policy incentives, to retain their workers as they get older, create more flexible working conditions for them, and keep on retraining them as long as necessary.
These proposals have emerged from the Global Economic Symposium over the past four years. According to panelists at this symposium, “working longer” should be given the highest priority in reform packages that address the challenge of population aging. Employers should be helped to recognize the advantages of keeping workers when they get older because of their valuable experience, know-how and “no-who”. Provision for further education should be made to update the capabilities of older workers that, along with more flexible working conditions, would help older workers coordinate their working and private lives more easily, taking account of their health condition. Financial disincentives for employers to hire or retain older workers, such as seniority remuneration and higher employment protection, should be removed governments should provide more incentives to invest in skills development in order to enable greater career mobility later in life.
To sustain the productivity of older workers, employers should be encouraged to create an appropriate working environment, including flexible rostering patterns, work schedules and part-time work. When necessary, employers should adapt their workplaces to provide equipment that is more appropriate for older workers. Employers should be encouraged to exploit the social capital of their older employees by placing them in advisory or consultancy roles within their organizations. Pension providers should adapt their pension schemes, such as final salary schemes, to avoid creating a financial loss in older workers take on roles with lesser responsibilities for lower pay.
At this point in time, when European governments are seeking to consolidate their budgets while encouraging their economies to grow, it would be particularly important for politicians to take these proposals to heart. To repay our debts and achieve more prosperity we must find ways to make use of our valuable resource, the skills of our older workers.