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Edited on Tue Jan-24-06 06:47 AM by Dover
From a 2004 article: ...Let me turn to another once distant concern. The retirement of the baby-boom generation is now less than one business cycle away! The WEO makes two important points about the challenges posed by aging populations in developed countries.
First, reform, especially pension reform, will become increasingly difficult to implement as populations age because it will hit retirees who are becoming more numerous daily and, thus, more politically powerful.
Second, the problems are large enough that no single-point solution can resolve it. For instance, if the fraction of the population consisting of workers was sought to be kept constant by bringing more working-age people into the workforce--this is called increasing the participation rate--we would require an average increase of 11 percent across the group of industrial countries. In Japan, participation rates would have to be above 100 percent. Presumably, the unborn and phantoms would have to be enlisted in the workforce.
But when greater participation is used in a package along with extending work lives and increasing the level of immigration, the required numbers fall dramatically and seem eminently feasible both politically and economically.
In conclusion, while downside risks have increased, global growth is still robustly above trend. Countries should use the relatively benign environment to re-create the room for policy maneuver that was given up while ensuring the recovery. There is also no better time for reform than the present, when recent adversity reminds citizens of the cost of standing still, while better times help ease the pain of reform. Domestic reforms in many cases can also contribute to reducing global imbalances.
However, people will need to be convinced that the benefits of reforms are worth the costs. That will require real leadership which I'm hopeful will continue to emerge in the years to come.
..snip..
How urgent do you see reform of the pension system in Europe? And what's your assessment of the experience in France, Italy, and Germany?
MR. RAJAN: Well, "urgent" is, I think, a good word because I think there is not that much time before it starts weighing, before the retirees start increasing in number and this starts weighing. Also, as we emphasize in the Outlook, it becomes politically harder because you have to spread some of the pain on people who have been assured a pretty good pension, so they will have the incentive to oppose it.
We see pension reform as part of a whole package. It can't just be done in isolation. If you, for example, want to extend working lives, you also have to give the elderly more opportunity to work by increasing flexibility in the labor markets and by creating more opportunities there. So I would see pension reform as part of a whole package of reforms, which include product market and labor reforms.
We also, I think, have some suggestions in the World Economic Outlook. For example, we think that extending work lives, especially given that people are growing older, their life expectancy is increasing, that certainly seems a better way to do it than cutting benefits, if you had the choice between those two, and it also has better short-term effects. It doesn't force a much higher level of saving, which might then impinge on economic growth. So extending work lives may be a better way to do pension reform than cutting benefits.
But, in general, I think a number of measures have to be taken in concert, and I think when you look at it that way, it becomes a whole lot more feasible and less painful.
http://www.imf.org/external/np/tr/2004/tr040929.htm
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