Pensions and fertility

An interesting article by Francesco Billari and Vincenzo Galasso describes their research into fertility of those Italians who were affected by reduced pensions, compared to those who were not. Their data shows that fertility increased by 13% even after controlling for factors such as age. If children are seen as investment goods (might help you in old age) as well as consumption goods (can be a source of satisfaction), then their findings indicate that the investment view can dominate: apparently, couples tend to have more children when the adequacy of their pensions is in question.

This points out a useful policy for countries that have low fertility combined with an aging population: reduce the expectation of pension benefits immediately for people young enough to have more kids as a result. This helps make the long-run pension budget viable both by reducing the expected outlays (less benefits) and by increasing the expected income (more workers in the future).

Such a reduction will also stimulate the affected workforce to put more effort into providing a safety net for themselves, and count less on the state's ability to provide it. This leads to higher GDP growth, which makes everyone better off for it.

To make things fair, this should be coupled with increasing the retirement age (rather than reducing benefits) for people who are too old to have more children. When pensions were first introduced in the 19th century, they were primarily for the very small percentage of people who were too old and fragile to take care of themselves. This, not a twenty year long holiday, is the purpose of pensions.

Let's shift the system a bit towards its original purpose, and it will not be on the verge of falling apart as it is today. Since medicine is now making such mediocre progress with further increasing our lifespans, the change in the retirement age does not need to be much more than a couple of years.

You can have your early retirement if you can pay for it, but it's not fair to have it at younger workers' expense.

To make things just, perhaps those who raised more children could be spared some of the retirement age increase. After all, it is their children, and their investment in raising them, that is now supporting the existing retirees.


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