Employment Opportunities and Social Security: An Outline

The need for a pension reform is usually argued by reference to the demographic aging process. Even so, it is essential not to lose sight of an equally serious problem in this context: in order to safeguard the financial soundness of the social security system, the greatest number of persons possible needs to be integrated into economic activity. An increase in employment raises the public sector's revenues and lowers the volume of transfer payments. The challenges facing the social security system during the last decades were posed not only by the expansion of benefits, but also by the worsening of employment opportunities for the population of working age. Since the beginning of the 1970s, the demographic dependency ratio (older persons and children in relation to the working-age population) has declined. At the peak in 1970, this ratio was one fourth higher than in 1996. Nonetheless, the effective dependency ratio (persons without employment relative to those employed) has barely decreased because of the worsening of the labor market situation and the concomitant rise in the share of working-age persons without a job: in 1970 there were 100 persons employed for every 143 persons without a job; in 1996 this ratio was 100 : 136. At the same time, more and more working-age persons without a job became dependent on transfer payments. For example, in 1977 there were 7 persons of working-age who received transfer payments per 100 persons in employment; in 1996 there were 20. The rising number of persons in early retirement constitutes just one, if essential, element in this development. Older members of the workforce face particularly great difficulties in the labor market. There is a number of contributing factors: the competition by younger workers, lower productivity on account of wearing down of workers' physical condition and on account of technologically induced changes in work tasks and work organization, the dominance of the seniority principle in the remuneration especially for white-collar workers, the formation of internal labor markets in many areas and corresponding changes in the demand for labor in enterprises. As a result, older unemployed persons are at a disadvantage if vacancies are scarce. Thus, persons aged 50 and over face the highest unemployment rates of all age groups. In 1996, 46 percent of unemployed persons aged 50 to 54 had been out of work at least half a year – one fourth, longer than a year. Moreover, during the last few years the characteristics of many jobs have changed. Atypical employment relations have gained in importance. The greater the number of persons who, because of atypical employment relations, are insufficiently covered by the social security system or who are permanently excluded from the labor market, the greater the burden imposed on the social system. The developments observed over the last few decades may suggest appropriate policy responses. Within the framework of coordinated employment and social policies, measures need to be designed which not only further the integration of persons at the margin into working life but help to weave a tighter social net as well.Beschäftigungschancen und soziale Sicherheit. Ein Problemaufriß; Employment Opportunities and Social Security: An Outline