"Pension at 60" Hardly Reduces Unemployment

Report of the Centre for European Economic Research on employment effects of early retirement. The Centre for European Economic Research (ZEW) in Mannheim analysed the costs and employment effects of a "pension at 60". The financial requirements for an aggregate tariff fund is about DM 60 billion. The employment effects, by contrast, are small. A total of merely 10,000 to 50,000 jobs would be made available over a period of ten years.

A total of 750,000 of the about 2.5 million employees aged 56 to 63 and entitled to a tariff fund at immediate retirement and a five-year term would actually claim a tariff fund, according to ZEW estimates. The rest of the employees either do not meet the requirements for a long-time insurance, i.e. they do not have 35 years of waiting in the pension system, or they are likely to have no interest in early retirement. The numbers were determined on the basis of data from the Verband Deutscher Rentenversicherungsträger (Association of German Pension Schemes).

On average, the costs per prematurely retiring employee are about DM 80,000. For a total of 750,000 workers, there is a financial need of DM 60-87 billion. This corresponds to 0.8 to 1.16 % of gross wages and salaries. The employment effects depend largely on whether vacant jobs are filled again. The rate of jobs vacated by a premature exit from the labour market being filled again is 10 to 20%, according to ZEW estimations. Only about 14,000 to 28,000 of the approximately 140 000 positions vacated by a premature pension of at least three years are expected to be filled in the course of a year.

Due to the partial financing by the tariff fund, companies will be burdened with additional costs. However, increasing labour costs usually leads to job losses. By an early exit from the labour force, additional vacancies for job seekers are created. At the same time, however, there are also job cuts due to the costs that arise from the financing of a tariff fund. On balance, an average of only 10,000 to 50,000 positions are being filled over a period of 10 years.

Contact

Prof. Dr. Viktor Steiner,  E-mail: steiner@zew.de