Pensions: what if the executive wanted to increase the working population?


The President of the Republic, Emmanuel Macron, is currently defending the pension reform project in the name of fidelity to his commitments made during the 2022 presidential campaign. Then the outgoing Head of State proposed a gradual extension of the age retired at age 65. About 9 months after her re-election, Prime Minister Élisabeth Borne presented, on Tuesday, January 10, the main lines of the text that effectively foresees a postponement of the legal age, but ultimately to 64 years. According to the head of government, “our remuneration system will be in balance”.

However, in April 2019, Emmanuel Macron said the exact opposite, as the opponents of the reform continue to point out today, who on Thursday, January 19, marched en masse throughout the territory. Indeed, the current system does not require any reform to remain balanced, as we pointed out in a previous article.

Erroneous projections

In fact, according to the latest estimates of the Pension Guidance Council (COR) published in September 2022, the system generated a surplus of 900 million euros in 2021 and 3.2 billion in 2022. It should then record a deficit of around 10 billion euros per year until 2032.

However, the COR’s recent forecasts have been invalidated by reality: the announced deficits for the years 2021 and 2022 have therefore not been observed. Moreover, the COR’s projections are notably based on an increase in active population that would follow the same trend as observed between 2006 and 2019, 123,000 on average per year.

However, this number could be increased to return to the rates seen between 1990 and 2005, meaning approximately 173,000 more people per year in the labor force, which would avoid asking workers to work longer hours. Three levers could be activated: immigration, the employment rate of young people and the employment rate of the elderly.

Trends that can be reversed

Regarding immigration, the COR uses an estimate of between 62,000 and 87,000 annual net entries into the labor force. This balance has dried up in recent years, mainly due to a tightening of migration policy, since it was over 100,000 between 2001 and 2006. A relaxation would therefore allow to increase the number of contributors and the amounts that they would enter the pension. funds every year.

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The government could also adopt policies aimed at improving the participation of young people in the labor market. Let’s remember that today France has one of the highest unemployment rates for under-25s in Europe: 18.3% in November 2022, compared to 15.1% on average in the euro zone (15.1% ).

Finally, the employment rate of those over 55 could be strengthened: at the end of 2021, only 56.1% of those aged 55-64 had a job. So there is real room for maneuver to address this by further upskilling the seniors in the business. Without forgetting that, due to the effect of previous reforms that extended the duration of contributions, this rate has been mechanically increasing for 20 years.

Therefore, the COR adheres to trends that could be reversed in the long term with certain economic policy measures.

Life expectancy stagnates

During the 2022 campaign, the president-candidate also argued that it was necessary to “work more” and “more time so that we live longer”. However, this length extension argument is contradicted by recent data that teach a different lesson. If indeed before 2014 we gained 1 year of life every 4 years, this has not been the case since then, with a small month gained in 8 years.

If tomorrow we see a strong increase in life expectancy, why would we not agree to agree, without affecting the other parameters of the regime, the automaticity of an increase in the duration of contributions, in accordance with the reality of the situation?

At present, although life expectancy is only increasing very slightly, the increase in the contribution period to be able to collect the full pension is nevertheless clearly foreseen within the reform. Prime Minister Élisabeth Borne had thus presented her press conference presenting the project, on Tuesday, January 10, at this point. However, the previous reform of 2013 had already increased to 43 years the annual contribution required for generations after 1973.

the conversation

Instead of focusing effort on further extension of the contribution period, the government could therefore implement a policy to increase the labor force as described above. Or, choose to tax retirees (whose standard of living is now higher than that of the active) by taxing larger pensions. President Macron could give concrete content to his intention, formulated during his first term in 2018, to “reinvent” the welfare state.

Bernard Laurent, professor, EM Lyon Business School and Kévin Parmas, professor of economics, EM Lyon Business School

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Source : Le JDD

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