Wednesday, April 24, 2013

Higher pension age and youth unemployment

One of the myths that is making the rounds is that as we raise the age of retirement, more young people will be unemployed.  There will be many economists who will comment on the idea and dismiss it out of hand. For example in Austria:

An economist has dismissed claims that a higher pension age means more unemployment. Former Institute for Economic Research (WIFO) chief Helmut Kramer said yesterday (Thurs) it was nothing but a "myth" that the number of young people out of work will rise if the average retirement age increases. "There is no connection between a later pension age and rising youth unemployment," Kramer explained.

The ex-WIFO head was made aware of studies on the situation in other countries making it clear that successful attempts to jack up the retirement age do not automatically cause an increase of unemployment among younger citizens.  As you read this examine the words chosen by the economist very carefully, he claims that "retirement age increases do not AUTOMATICALLY CAUSE AN INCREASE IN UNEMPLOYMENT" however he does not say that youth unemployment will not increase.

Kramer said other aspects mattered more in this concern. He named the wrong choice of university study subjects and poor education as influential aspects. So the main cause of youth unemployment is not an increase in the age of people working, but of the poor choices made by the youth--classic blame the victim.

Kramer said a bonus system could help to lower labour market service costs and encourage more people to work longer than they had to. He suggested that everyone willing to retire after the regular pension age should get a significantly higher pension than those quitting prior to the regular age for retirement.

Austrian law is supposed to keep men in work until 65 but research shows that the average retirement age for male workers and employees is 58.9. The situation is similar concerning women. They should remain active members of the labour market until the age of 60 but quit at 57.7 on average. The current average for the real retirement age of people in the European Union (EU) is 63.

The head of the Austrian Organisation of Conservative Pensioners, Andreas Khol, claimed that not everyone who stopped working early did so voluntarily. Khol said the government coalition of Social Democrats (SPÖ) and People’s Party (ÖVP) should implement laws under which "bullying companies" could be fined.

Economy Chamber (WKO) President Christoph Leitl rejected accusations that some firms were acting that way. Only 30 per cent of all Austrians who retired last year did so at the mandatory pension age. The ÖVP wants to create a pension bonus system as suggested by Kramer to make longer careers more attractive to everyone. Bernhard Felderer of the Institute for Advanced Studies (IHS) said: "People’s attitude would change if those who quit prior to the regular pension age face significant cuts of subsidies."

SPÖ Labour Minister Rudolf Hundstorfer decided to invest more on health awareness courses and brochures for employees. The labour minister envisages an increase of the pension age average of two years until 2020. The ÖVP called on its government partner party to do more for rise of four years.

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