4.3 Impact of pensions on unemployment

Maybe it is not commonly known ( and advocates of prolonging working time pretend that the issue does not exist) but in a society there is only certain volume of useful work that needs to be done and requires employment. With growth of productivity that needed amount of work is continuously declining. Mechanization, computerization are bringing huge increases in productivity, the question is how these savings are passed to the people. During medieval ages people worked six days per week, often twelve hours daily. Nobody even dreamed about paid holidays. Today working time is usually five days, seven or eight hours daily, we are resting by the sea for 4-6 weeks.

Every year in society there are millions of jobs created as older people start their long awaited and earned pension. These jobs are gradually filled through intercompany rotation: senior employees are replacing pensioners, junior employees are being promoted to senior positions and graduates are getting their first jobs. However, if this natural circulation stops because senior employees are forced to postpone pension (whatever the reason) there is a consequence. Younger people are not able to find a job, because there is simply no work there. The circle of life had stopped. Every year by which pension age is prolonged the unemployment increases by 1-1,5% (depending from number of people in a grade). This is a terrible increase and it is a permanent one.  If there will be no corresponding decrease of working time in one of subsequent grades, the unemployment will not decrease. There is extremely dangerous long-term unemployment arising, which is ruining people’s lives and bringing whole “lost generations”. 

Long term unemployment is also creating downward pressure at wages, which is consequently causing the decrease of overall pensions (in continuous systems directly, through fall in pension contributions, in capital system indirectly through fall of profits because of diminished buying power – the same applies for continuous system as well) and so the situation is deteriorating even further. There is a downward spiral starting, where falling pensions are forcing people to work longer, which is causing unemployment, pressing wages down and further diminishes future pensions.

Standard situation is described above. However, if recession hits and potential pensioners are postponing leaving, there is an overhang of supply of labor against demand for labor.

Therefore solving the unemployment stemming from recession is also in solving the financial situation of future pensioners and active management of labor market. Lowering of supply of labor by allowing people to go to pension (who are reluctant to do so because of financial strains) also lowers general unemployment.

Fall in pensions for whatever reason does not constitute fall in resources, which would pensioners be normally consuming, if there would be no fall in pensions. These capacities, natural resources, services, human work bind to them are still waiting to be used.

There is no reason why should this sector of economy fall and consequently deepen the recession. What happened is inadequate allocation of financial resources which were lowered by processes and factors which have no influence at availability of these capacities of real economy.

If we understood the principles of profit creation, its dependence from enough buying power we should not tolerate its fall without any action. As fall of values of pension portfolios in capital system depends directly from inadequate volume of state transfers (the profit exists from major part only as a result of transfers, fall in transfers causes fall in profits) the government is responsible for the fall of pensions as well, because it did not adequately support buying power and so caused fall of companies profits. Therefore, it is government duty to correct what it messed up and simultaneously supplement missing buying power of pensioners in the form of subsidies to temporarily lowered pensions.

If it does not happen, there is this downward spiral coming to play.