Ifo Viewpoint No. 1: State Pension at 60

Hans-Werner Sinn
Munich, 26 Oct. 1999

In connection with the Alliance for Jobs initiative, the IG Metall trade union is lobbying for a state pension at 60 on a pay-as-you-go basis, with temporary intermediate deposits of the Tariffond contributions collected from employers and employees.

This proposal is a renewed attempt to conceal unemployment which does little to solve the problems on the labour market; in fact it would only make them worse. Former Labour Minister Norbert Blüm made a similar proposal with his early retirement scheme. Early retirement helps eliminate older unemployed workers from the unemployment rolls, and also, to some extent, to replace older workers with younger ones. The result, however, is an increase in the tax on wages, which makes the factor labour more expensive and reduces the total number of jobs. This leads to additional unemployment, which a future government will likewise seek to conceal with similar methods, leading again to an increase in the tax on labour and to a reduction of jobs.

The pressure to produce fast results in combating unemployment before the next election leads to a vicious circle of a constant decline in good jobs. More and more money is spent for idleness, and more and more burdens must be borne by the working population. The labour market shrinks with every reform measure.

Early retirement not only destroys jobs; it is the opposite of what is necessary to consolidate the German social security system.

The German population is ageing and fewer children are being born. In 35 years there will be twice as many elderly people for every working-age person, even without early retirement. In these circumstances not a decrease but an increase in the retirement age would be better suited to counter the growing fiscal burden placed on the working population.

Hans-Werner Sinn
President of the Ifo Institute