Recent research in the United States and New Zealand has suggested that over the last two decades, welfare systems have become increasingly generous towards older people and increasingly restrictive towards families with depend- ent children. In Discussion Paper No. 254, Research Fellow Paul Johnson and Jane Falkingham consider whether similar trends can be identified for Britain. Such a shift would have two important economic implications. First, a transfer of resources from investment in future workers to consumption by former workers may retard the long-term growth of the economy. Second, over-generous welfare benefits for the elderly will place heavy tax burdens on the working population, because the ratio of the retired to the working-age population is expected to increase markedly in all developed countries between now and 2025. The potential power that intergenerational conflicts may exercise over welfare structures makes it important to investigate whether there is any evidence for Britain of such tensions between the welfare claims of young and old.

Johnson and Falkingham first review evidence on changes in poverty levels and incomes among young and old in the United Kingdom. Examination of the poverty data is not conclusive. From 1972 to 1986, the proportion of households living in poverty that were headed by an elderly person fell from 65% to 35%, while the proportion with dependent children rose from 12% to 24%. Yet the number of poor pensioners has hardly changed; the relative decrease is a consequence of a great rise in the number of working-age adults forced to draw Supplementary Benefit because of changing labour market conditions, not welfare policies.
The authors also examine data on incomes. Official statistics show that the ratio of the retirement pension to average net earnings of male manual workers has increased by about two-thirds since 1951, but this highly optimistic view is not fully supported by other data. The reason for these divergent interpreta tions, Johnson and Falkingham argue, lies in the different units of analysis chosen by investigators. Some researchers take individuals as the basis of their analysis, while others work at the level of the household. Household analyses have presented a much more pessimistic picture for the elderly population, because the sharp rise in two-income households and the fall in average household size have both raised the per capita resources of people in non-pensioner households, while for pensioner households these trends have worked in the opposite direction.
Because both poverty and income data for Britain yield ambiguous results, Johnson and Falkingham also examine direct government expenditure on the elderly, both through pensions and the health and personal social services. They find little evidence of any transfer of resources from young to old since the 1960s changes in the age distribution of welfare payments and services merely reflect changes in the age structure of the population. The authors conclude that the analytical framework of intergenerational competition for welfare resources is inappropriate to the British case, because inequalities within broad age-groups in Britain are greater than those between these age-groups.

Intergenerational Transfers and Public Expenditure on the Elderly in Modern Britain Paul Johnson and Jane Falkingham

Discussion Paper No. 254, July 1988 (HR)