Intergenerational Justice
Workers versus pensioners

For most of the twentieth century the populations of all developed countries have been ageing, as a result of increases in the life expectancy of the elderly and a long-run decline in fertility levels. These demographic changes will have a profound impact on the economy, both by altering the proportion of the population available for work and by affecting the demand for health and other services. The growth in the numbers of the elderly has so far been offset by the fall in the proportion of children in the population: as a result there has been little change in the ratio of `dependants' to `prime-age' adults. Over the next 40 years, however, this stability will disappear: the dependency ratio is projected to rise sharply in all developed countries. This prospect has stimulated a lively debate in academic and policy circles that has focused on whether welfare gains for one age-group (the elderly, for example) inevitably come at the expense of another group, such as workers or children.

CEPR's research programme in Human Resources since 1900 is designed to bring together demographers, economic historians and social scientists to address such issues from a much needed long-term perspective. It was to further this objective that the Centre held a conference in Cambridge on 18/21 July on `Work, Retirement and Intergenerational Equity, 1850-2050: The Social Economy of the Second Half of Life', organized by Christoph Conrad, CEPR Research Fellow Paul Johnson, and David Thomson. Financial support was provided by the Nuffield Foundation, the Centre for Economic Policy Research International Foundation, the Department of Health and Social Security, the Anglo-German Foundation for the Study of Industrial Society, the French Cultural Delegation, and by the Rackham Program to Augment International Partnerships at the University of Michigan.
In his opening remarks, Peter Laslett (Cambridge Group for the History of Population and Social Structure) emphasized the interdisciplinary nature of the conference. He encouraged researchers from all disciplines to combine `cohort-based' with `cross-section' analyses: this was essential if we were to learn from the past in order to plan for the future.
Theories of Generational Conflict
The opening sessions of the conference considered transfers and potential conflicts among generations. In his paper, `The Welfare State and Generation Conflict: Winners and Losers', David Thomson (Massey University, New Zealand) emphasized this conflict. He argued that the prime function of modern welfare states has been to shift resources not so much between rich and poor, but rather between generations, as a means of easing the hardships that occur at various stages of the life cycle. Using evidence from New Zealand, Britain and the United States on the accumulating experiences of successive birth cohorts, Thomson found that not only tax and benefit regimes but also the whole range of social and economic policies had evolved to favour one particular cohort, the `welfare generation' who reached adulthood in the period 1940-60. This failure by welfare states to treat different generations equitably had led, according to Thomson, to the present loss of faith in the `welfare state experiment'. Welfare states are founded on an implicit contract between generations: those who are contributors in one period will benefit from the system subsequently as a new generation become contributors. Citizens can only be treated with complete intertemporal equity if the age composition of the population, as well as contribution and benefit rates, remain unchanged over time. These conditions do not exist in practice, creating the potential for intergenerational conflict. The evidence of unsustainable levels of `generational abuse' led Thomson to conclude that the welfare state as we know it will not survive. Whether an alternative path is possible depends on whether welfare policies can be restructured in a form which is acceptable to current generations.

The next two papers addressed the question of intergenerational transfers from an economic perspective. Jim Davies (University of Essex) focused on gifts and bequests in a theoretical paper on `The Economics of Private Intergenerational Transfers'. Writing on `Intergenerational Transfers in Industrialized Countries: Effects of Age Distribution and Economic Institutions', John Ermisch (National Institute of Economic and Social Research and CEPR) attempted to estimate the net transfer of resources between generations in Britain and Japan, and he compared these estimates to calculations based on US data. Ermisch defined intergenerational transfers very broadly: a transfer of resources between generations is said to take place when an age-group consumes more or less than its lifetime income. The net direction of transfers is revealed by comparing the `average age of production' of the population with its `average age of consumption'.

Ermisch's estimates revealed that in both Britain and Japan, the average age of consumption was greater than that of production, reflecting a net transfer from young to old, with the difference between the average ages of production and consumption being largest for Japan. Ermisch also explored the robustness of these estimates to the assumptions concerning demographic behaviour and concluded that his findings were not sensitive to assumptions concerning household formation and fertility.
The discussion following these papers centred on the problem of extending the models to more realistic settings. It was noted, for example, that Ermisch had excluded work within the home from his estimates since it represented a transfer within households and because data on work at home were difficult to obtain. How would his results differ if home-work were included in the estimates?
Denis Kessler (CEREPI, Paris) suggested an alternative, `myopic' explanation of private bequest behaviour, in which individuals behave in accordance with their short-term interests rather than looking ahead to long-term needs. Furthermore, there may be substitutability between different types of transfers the level of one may be affected by the level of another. Ideally, investigators needed an accounting framework whereby a cohort can be tracked from birth to death, documenting what has been consumed and produced, or given and taken between age-groups and generations.
The paper on `Justice and Transfers Between Generations', by Norman Daniels (Tufts University), pre sented a philosophical perspective on generational conflict. Daniels argued that much discussion of this issue is misdirected, since it confuses competition among age-groups (those who fall within a certain age range) with competition among birth cohorts (those born in one particular year). Cohorts pass through different age-groups as they grow older.
At least in the case of health care and income support, the solution to the age-group problem is basic and the solution to the birth cohort problem is secondary, though both are important. One reason for this priority is that solving the birth cohort problem by itself does not answer the fundamental question: which transfers among stages of life are ones we want social institutions to help us make? There is no question of competition among age-groups: the balance of transfers to young and old does not matter in terms of equity, since all birth cohorts enjoy them during the course of their life. Indeed, Daniels noted, discriminatory treatment based on age will even out over time and should be acceptable to rational individuals. Birth cohorts, on the other hand, will only wish to preserve the institutions that solve age-group problems if there is a commitment to strive for equity in terms of the ratio of benefits to contributions made by each cohort. But since these ratios depend on external factors, such as demographic change and economic performance, some compromises will have to be made in order to establish a system that on the whole makes society more just by helping to solve the age-group problem.
Franz-Xaver Kaufmann (Universität Bielefeld) argued that a system could not overcome the problem of age discrimination unless it also addressed the problem of discrimination based on gender and on race. Kerstin Abukhanfusa (University of Stockholm) suggested that Daniels's approach ignored the non-redistributive functions of welfare states, such as their role as agents of social control.

Ideologies of Old Age
The next session focused on ideologies of old age. In his paper with Bruno Dumons, on `The Struggle for Old-Age Insurance in Europe 1880-1914: The Victory of State Intervention', Gilles Pollet (Université Lumière Lyon II) tried to explain the paradoxical emergence of social insurance schemes throughout a Europe which in political terms remained liberal. Part of the explanation, Pollet suggested, was the destitution which threatened most of the population in their old age. But the introduction of social insurance could also be explained as the result of a curious alliance of socialists, academics and Roman Catholics that created a political consensus in favour of social intervention. A consensus grew among European socialists over the need for labour insurance, and the scheme adopted in Germany in 1904 provided a useful model on which the consensus could be based. Roman Catholic interest, Pollet suggested, was largely a response to their fear of the growing socialist influence and led to explicit Papal support in an encyclical of Leon XIII that symbolized the beginning of European Catholic teaching on social intervention.
Andrew Achenbaum (University of Michigan) drew a parallel between Catholic support for social amelioration in early twentieth-century Europe with the social aspects of `liberation theology' in parts of Latin America today. Kaufmann noted that in Germany, at least, the attitudes of Catholics and Socialists towards state intervention had undergone considerable change. In the 1860s, Catholics had seen a dichotomy between state power and Church power, while socialists preferred cooperativism as a means of undermining the bourgeois state. At that time only the conservatives supported state intervention.
Hans-Joachim von Kondratowitz (Deutsches Zentrum für Altersfragen, Berlin), in his paper on `The Discourse on the Burden of Old Age', noted that in Germany at least the view of the elderly as a `burden' can be traced to debates in the early twentieth century. He examined the influence of contemporary debates on the state's attitude to the elderly, suggesting that initial enthusiasm for state-subsidized old-age homes gave way, with the deteriorating economic conditions of the late 1920s, to reduced provision for the `unproductive'. Under National Socialism attitudes towards the elderly were ambivalent. The state encouraged the construction of old-age homes, and this was often accompanied by a sentimental evocation of old age, but the elderly were also victims of a policy of euthanasia, especially in 1942-5. This illustrated two diametrically opposed strategies for dealing with the elderly, von Kondratowitz maintained, in which groups were dealt with according to their `worth to society'.
Achenbaum observed that similar images and stereotypes of the elderly could be found across Europe and North America. Jay Kleinberg (West London Institute of Higher Education) described how in late nineteenth-century America, single elderly women were portrayed as a burden and in need of assistance, while the married elderly were regarded as living contentedly, looked after by their families.

Care for the Elderly: State Versus Family
Birgitta Odén (University of Lund) analysed `The Role of the Family and the State in Old-Age Support: The Swedish Experiment'. She outlined the importance for old-age support of county, district and parish councils as well as networks of relatives, against a background of economic and social changes from medieval times onwards. The paper by Kerstin Abukhanfusa (University of Stockholm), `Towards Another Major Reform? Some Notes about the Implications of the Swedish Pension Scheme of 1913', documented the development of the Swedish social security system. Before 1913, policies were repress ive, designed to tie people to their land or capital; after 1913, the Swedish state embarked on a policy of distributing social rewards, such as a pension that could meet basic requirements without the need for supplements from poor relief. In Sweden, as in all European countries, an important distinction was made between the `deserving' and `undeserving'. Abukhanfusa discussed how pension schemes discriminated against unwaged work and in particular against women, since claims on social security were dependent on participation in the industrial labour market. This lack of universality persists, with elderly women still a relatively disadvantaged group.
Françoise Cribier (Centre National de la Recherche Scientifique, Paris) presented `A Comparison of the Way in which Two Cohorts of Parisians, Born in 1906-12 and 1919-24, Reached Retirement in 1972 and 1984'. There were marked differences between the experiences of the two cohorts, in retirement age, living standards, household structure and attitudes to work and retirement. Cribier attributed these differences to the broader changes in French society, such as the lowering of the retirement age and the improvement in pension payments in France between 1972 and 1984. This brought about a significant increase in the average per capita income of retired households relative to that for all households. Cribier's paper highlighted both the rapidity of these changes and the dramatic differences between the experiences of successive cohorts. It was dangerous, she concluded, to treat the elderly as a homogeneous group.
Gerdt Sundström (Institute of Gerontology, Jönköping) and Gillis Samuelsson (University of Lund) used both survey data and documentary evidence in their paper, `Caring for the Elderly in Sweden: The Experience of Two Groups of Elderly and their Parents'. 16% of Sweden's population have caring responsibilities within and outside the household; for Britain the proportion is 14%. The authors also established that patterns of care for the elderly showed surprising continuity over time. Although many elderly people managed largely on their own, a significant proportion relied predominantly on their families. An extensive home-help service has eased the dilemma of choosing between family and institutional care for those unable to manage on their own.
Care for the elderly has been widely debated in academic and local government circles, but the debate has not been well informed: very little comparative research has been conducted. Birgitta Odén proposed that to be successful, comparative research must distinguish between the economic, social and emotional needs of the elderly before discussing whether the family, the state, the voluntary sector or the private sector is best able to meet these needs.

Work, Retirement and Pensions
The relative merits of state and private provision were also highlighted in the next session of the conference. In `The Improvement of One's Corpse: Industrial Life Assurance in the Netherlands, 1800-1939', Ben Gales (University of Eindhoven) investigated the development of industrial life assurance in the Netherlands. Gales showed that private life assurance had become almost universal in the Netherlands by the early years of the twentieth century, but that the sums assured were usually very small, intended for funeral expenses rather than for a long period of retirement. He concluded that state and private provision for old age were complementary, since the introduction of state old-age pensions in the Netherlands appeared to stimulate rather than to retard private saving for old age.
In `US Collectively Bargained Pension Arrangements', Stephen Sass (Federal Reserve Bank of Boston) discussed union pension plans, which now account for about half of all private pension plans in America. Sass examined the origin of union pension plans and their evolution since the Second World War. He showed that they had experienced similar financial trajectories to that of the US social security system, moving from early years of surplus to their present condition of actuArial,Helvetica,Sans-Serif deficit. The poor financial prospects for new members deter young workers from joining these plans, exacerbating the actuArial,Helvetica,Sans-Serif deficiencies and so generating a crisis of confidence, similar to that which Thomson identified in state systems.
In his comments on these two papers, Leslie Hannah (LSE and CEPR) suggested that arguments in favour of state and private provision were evenly balanced. The insolvency problems of private schemes, outlined by Sass, are often used to support the case for state schemes; Hannah noted, however, that state schemes have also failed in the past, because of inflation, and may do so in the future, because of demographic pressure. Universal state pensions, on the other hand, are cheaper to administer than optional private schemes. John Ermisch suggested that we should view private, employer-based pension schemes not primarily as a way of saving for old age but as a form of hidden wage payment and as a way of generating employee loyalty.

This issue was also touched on in the next paper, on `Labour Market Effects and Intergenerational Dynamics of Old-Age Assistance in the United States', in which Brian Gratton (Arizona State University) examined the change in the labour force participation of older workers over the twentieth century. Much of the debate has centred on the demand for labour, and it is argued that `ageist' employers have pushed older workers out of the labour market. As Gratton pointed out, however, `seniority systems' and rewards for long service are at odds with this interpretation of employer behaviour. He concluded that a significant part of the fall in participation has been due to the rise of a political movement that has succeeded in creating a retirement income guaranteed by the state, leading older workers to withdraw their supply of labour.
Christoph Conrad (Freie Universität, Berlin) challenged this view, pointing out that the establishment of social security systems has not coincided with periods of decline in labour force participation at older ages. He argued that the importance of unemployment could not be ignored the Depression was a major cause of reduced labour force participation among older workers, accelerating the trend towards withdrawal from the labour force.
In his paper on `Labour Force Participation and Social Pension Systems', Winfried Schmähl (Freie Universität, Berlin) examined the likely behaviour of pension expenditures and financing in the face of changes in demographic labour market behaviour. Schmähl used information on life-cycle patterns of earnings and labour force participation to explore how changes in the proportion of pensioners to the working population, the ratio of pension payments to earnings, and the prevalence of full- and part-time work might affect both the present earnings-related German pension scheme and a tax-financed flat-rate scheme. Schmähl remained pessimistic about the viability of the German pension system unless radical reforms were introduced.
Anne-Marie Guillemard (Université de Paris I) presented a paper on `The International Trend Towards Early Withdrawal from the Labour Market', which provided a sociological perspective on the recent shift towards earlier exit from the labour market. She noted that labour force participation by men aged 55 to 64 has fallen steadily in most West European countries over the last decade. This change in the relationship between work and retirement meant that new criteria, other than age, were now needed to govern exit from the labour force. This argument is pertinent to the debate on the future funding of social security and the effectiveness of retirement policies in regulating the size of the labour force.

Policies for the 21st Century
Christoph Conrad opened the panel discussion by quoting from the 1793 French Declaration of Human Rights, one generation must not impose its laws on future generations. Conrad considered whether it was possible for one generation to set up institutional arrangements that provide options for future generations. Structures considered equitable in one period may not be so viewed in later periods, giving rise to a policy paradox: in order to achieve equity, stability is called for; but stability prohibits flexibility. Kessler wondered whether it was possible to continue shifting the burden from one generation to the next. If the burden becomes too heavy individuals will go uncared for. Part of the burden could be relieved through a number of specific policies, for example changing the age of retirement. Measures to provide income support in old age were needed, according to Kessler, and these might include incentives to stay in the labour market. Older workers might be provided with capital to set up their own business, rather than the early retirement through unemployment that is the model in Japan. The establishment of such a dual labour market would short-circuit seniority rules, allowing younger workers upward mobility while retaining older workers in the labour market.
The discussion then focused on policies that might sustain the ratio of workers to non-workers in the face of adverse demographic movements. Such policies might include increased female labour force participation, a higher age of retirement, and more intensive pro-natalist policies. John Ermisch argued that increased female labour force participation would not solve the problem: Heather Joshi's work demonstrated that, aside from the four or five years spent on bearing children, lifetime participation rates for women were now as high as for men.
Pat Thane (Goldsmiths College, London, and CEPR) warned against developing policies to deal with ageing populations in isolation from other social policies. In the absence of a coherent policy for childcare, for example, there existed a conflict between pro-natalist policies and increased labour force participation by women. Kaufmann argued that adapting to an ageing population required a change in the social contract between age-groups and genders. Women are the primary carers for the old and the young. To reduce the pension burden in the future, society required more workers and so ought to encourage higher female labour force participation. Can the social security system afford to provide services that were previously performed at no cost by women? It was also noted that the trend at present is towards earlier retirement, a trend that will be difficult to reverse. Schmähl suggested that tinkering with existing public and private pension systems would not be sufficient.
Finally, David Thomson reminded the conference that individuals were political actors and not merely demographic units. Powerful interest groups with conflicting concerns will be active, and the political feasibility of reform proposals needed close scrutiny. The developed countries had to take action quickly and behave equitably in dealing with their ageing populations. Otherwise, intergenerational conflicts would be inevitable. At the end of the twentieth century the implicit welfare contract that binds members of successive generations is up for renegotiation and the aged have a great deal to lose.

A volume of papers based on those presented at the conference will be published in 1989 by Manchester University Press, edited by Christoph Conrad, Paul Johnson and David Thomson, under the title Workers Versus Pensioners: Intergenerational Justice in an Ageing World. A related CEPR volume, The Changing Population of Britain, edited by Heather Joshi, will be published by Basil Blackwell later this year. Other work by CEPR Research Fellows on the implications of changing age structures in the developed countries can be found in Discussion Paper Nos. 179, 197, 202, 211, 254, 259, and 263