Age Before Beauty? Productivity and Work vs. Seniority
Social Security systems are likely to come under severe financial stress in the near future, mainly
because of the progressive aging of populations. By 2050, the ratio between the elderly population
(aged 65 and above) and the working age population (aged 15 to 64) is expected to double with
respect to its 2010 level in almost all European countries (Visco, 2005). The ratio between retirees
and people of working age is going to increase even more dramatically (Galasso, 2008).
Developed economies, starting with China, will soon face similar generational tensions. Even though the financial distress of Social Security Systems (SSSs) in advanced economies resembles a ticking
bomb, the pace of reforms does not appear to be suficiently fast. The explanation for this delay
is probably linked to the shift in the demographic structure toward old age: it is politically easier
to shift the burden of the reforms to the younger generations. We argue that the reforms need to
be accelerated to avoid additional increases in Social Security taxes. As we show in this paper,
these increases are likely to have major effects by leading to changes in the level of human capital
and in the age profile of wages. We not only rationalize these features in the general equilibrium
of the economy, but also show they are related to each other within European countries.