Social Europe

politics, economy and employment & labour

  • Projects
    • Corporate Taxation in a Globalised Era
    • US Election 2020
    • The Transformation of Work
    • The Coronavirus Crisis and the Welfare State
    • Just Transition
    • Artificial intelligence, work and society
    • What is inequality?
    • Europe 2025
    • The Crisis Of Globalisation
  • Audiovisual
    • Audio Podcast
    • Video Podcasts
    • Social Europe Talk Videos
  • Publications
    • Books
    • Dossiers
    • Occasional Papers
    • Research Essays
    • Brexit Paper Series
  • Shop
  • Membership
  • Ads
  • Newsletter

Just transition: the pensions analogy

by Anton Hemerijck and Robin Huguenot-Noël on 5th February 2020 @r_huguenotnoel

TwitterFacebookLinkedIn

A ‘just transition’ must replace fear of, and resistance to, brown job losses with consensus behind social investment. Pension reform provides parallels and pointers.

just transition
Anton Hemerijck

Any ‘just transition’ worth its name must square a circle along three dimensions: effective production, fair redistribution and political feasibility.

The productive puzzle is about finding the most relevant technology for the transition to get going. Will green energy be based on solar or wind? Should nuclear power be included? And any transition implies winners and losers, thus raising questions of redistribution. Should the public purse subsidise isolated housing or exempt electric cars from road tax? Allocating costs and gains also has a temporal aspect—the pace of withdrawing old technologies while feeding in the new.

just transition
Robin Huguenot-Noël

The politics of a just transition is essentially about constructing consensus across these dimensions. Climate policy is thus increasingly framed as an investment strategy. The European Green Deal, adopted by the European Commission on January 14th, involves a Just Transition Fund to help coal regions phase out brown energies. An intertemporal offer par excellence—promising that short-term costs will be compensated by longer-term returns on investments, rather than allowing the wholesale destruction of human and social capital.

Get our latest articles straight to your inbox!

"Social Europe publishes thought-provoking articles on the big political and economic issues of our time analysed from a European viewpoint. Indispensable reading!"

Polly Toynbee

Columnist for The Guardian

Thank you very much for your interest! Now please check your email to confirm your subscription.

There was an error submitting your subscription. Please try again.

Powered by ConvertKit

Salutary lesson

While intertemporal consensus-building is rapidly becoming the modus operandi in climate policy, a salutary lesson is provided by how this logic can hit the buffers when it comes to pension reform, as currently in France. The quest for productive solutions is easily trumped by distributive conflict between government clamouring for ‘fiscal consolidation’ and vocal opponents defending ‘social protection’ in the here and now.

One of the most successful feats of mid-20th century social engineering, pension innovation after World War II unmistakably followed in its time a ‘just transition’ logic in individual terms. Essentially, political consensus was reached to subtract part of the income of the working-age population to fund the pensions of those entering retirement.

The model allowed short-term costs on employees to be converted into long-term benefits for retirees, in the expectation that current workers would be treated likewise when they reached pension age. Effectively eradicating old-age poverty, this was highly effective from the 1950s to the 1980s, as the working population grew in size and productivity increases were realised through improved education for the baby-boom generation.

Already before the onslaught of the global financial crisis, however, the sustainability of inclusive pensions in Europe was in jeopardy. Today, ageing populations dampen employment and productivity, while ‘secular stagnation’ at low real interest rates makes it difficult for large pension funds to guarantee carefree old age.

Reasoning from a zero-sum perspective of static efficiency, closing the looming ‘pensions gap’ pushes governments to contract higher debt or reform pension parameters: increasing contributions, raising the retirement age, reducing benefits. This enflames mass protest.

Intertemporal perspective

To follow a just-transition logic, pension reforms should approach productive and distributive questions from an intertemporal perspective.


We need your help! Please support our cause.


As you may know, Social Europe is an independent publisher. We aren't backed by a large publishing house, big advertising partners or a multi-million euro enterprise. For the longevity of Social Europe we depend on our loyal readers - we depend on you. Thank you very much for your support!

Become a Social Europe Member

First, we need to raise the stakes of welfare as a productive factor. Keynesian-Beveridgean provision was considered barely to affect the capacity of the economy—at best, social security would stabilise aggregate demand over the cycle. In the neoclassical critique, social protection was claimed to distort the supply side via moral hazard, resulting in self-exacerbating unemployment.

Today, the evidence corroborates the contention that the quality of modern social policy positively affects long-term supply, especially with respect to employment and productivity, and indirectly demand. Central to the financial sustainability of the welfare state are the number (quantity) and productivity (quality) of current and future employees and taxpayers. Thus, to the extent that welfare in a knowledge economy is geared towards maximising employability and productivity, this helps bolster the sustainability of the welfare state, including of pensions, in ageing societies.

This requires a multi-dimensional ambit of policy interventions across the life course, from early child education and care, through lifelong education and training, active labour-market policies and work-life balance arrangements such as paid parental leave, flexible employment relations and work schedules, flexible retirement and long-term care. Such capacity-building social policies conjure up a ‘life-course multiplier’. The cycle initiates from early investments in children which may translate into better educational attainment and spill over into higher and more productive employment in the medium run. The latter, in turn, implies a larger tax base to sustain overall welfare commitments, such as pensions.

Seeing the pension predicament in terms of a productive problem to be managed in an intertemporal fashion, involving all age cohorts, requires a more inclusive coalition to support a truly paradigmatic welfare transition. Securing political compliance hence requires building dynamic governance arrangements, able to adjust policy in a process of social learning, with a strong commitment to fair and sustainable welfare from the young to the old—the bedrock of success of the European social model and of a greener future version. 

Lessons to draw

Lessons can be drawn from the pension-reform experiences in Finland and the Netherlands—also applicable to the ecological transition. A first is that reform sequencing matters.

Pensions are tightly connected to the labour market. Success in labour-market reform makes pension reform easier to swallow: workers who see labour-market conditions improve are more likely to support reforms than those who experience jobless growth. There is evidence that governments which have already enacted family and labour market reforms to facilitate life-course transitions find it easier to put pension reform on the political agenda as part of an inclusive, long-term ‘just transition’.

Finland provides a good example. In the 1990s, as the government wished to keep older workers in the workforce, various policy approaches were developed. These first concentrated on improving the occupational health, work ability and wellbeing of ageing workers. Reaping the fruits of these investments, Finland was able to follow suit in the early 2000s by giving employees the option of earning larger pensions than before, taking gender into consideration. This eventually allowed the government to postpone the age of retirement, thereby reducing the need for increased pension contributions without affecting the wellbeing of its elderly.

The Dutch lesson bears on mustering reform consensus, beyond party government, to include the constructive opposition and the social partners. In 2012, the Dutch government attempted to increase the retirement age from 65 to 67. The pension reform deeply divided the Dutch trade unions and reform progress on many other dimensions of welfare stalled. Over the long tenure of the centre-left coalition under Mark Rutte, the social partners were brought back to the table. Ultimately, the unions were able to make critical amendments, including special treatment for hard physical work as well as capacity-building incentives to lengthen working careers. A full pension accord was finally concluded between the subsequent centre-right Rutte administration and the social partners in June 2019, after a referendum of trade union members.

The overriding lesson from the constructive, lengthy and not always easy-going Dutch and Finnish pension-reform momentum is that success is more likely when it is an integral part of a productive, future-oriented welfare agenda. In both cases, the issue of the sustainability of pension commitments was not reduced to an isolated ‘older worker’ policy issue but became part of a more comprehensive reform strategy to develop a fully-fledged social-investment welfare state, from which future rewards would be reaped. Government and the social partners allowed each other to refine productive ideas for sustainable and fair distributive solutions through a process of joint problem-solving, which in turn strengthened mutual trust in the overriding effort.

As for France, from an intertemporal perspective the government has been unable or unwilling to widen the perspective on the fiscal sustainability of pensions toward a long-term endeavour of ‘saving pensions by investing in children and young families’, whose employment and productivity prospects essentially make up the carrying capacity of future pensions. The president, Emmanuel Macron, thus played into the hands of France’s most conservative unions, deepening the distributive decision-trap, which is bound to result in here-and-now mutual concessions, sure to further undermine younger cohorts’ ability to carry pensions in the future.

Months after the ‘yellow vests’ mobilised against Macron’s green-transition unfairness, a more comprehensive social-investment horizon could have inspired a more inclusive consensus and a stronger pension-reform coalition, thereby isolating the more self-serving unions who simply refuse to consider the long term.

TwitterFacebookLinkedIn
Home ・ Just transition: the pensions analogy

Filed Under: Politics Tagged With: just transition

About Anton Hemerijck and Robin Huguenot-Noël

Anton Hemerijck is professor of political science and sociology at the European University Institute. He researches and publishes on social policy, social investment and the welfare state, and is a frequent adviser to the European Commission. Robin Huguenot-Noel is an adviser on good financial governance at the Deutsche Gesellschaft für Internationale Zusammenarbeit. He previously worked as an adviser on investment and tax policy for the UK Treasury, the European Commission and the European Policy Centre.

Partner Ads

Most Popular Posts

sovereignty Brexit and the misunderstanding of sovereignty Peter Verovšek
globalisation of labour,deglobalisation The first global event in the history of humankind Branko Milanovic
centre-left, Democratic Party The Biden victory and the future of the centre-left EJ Dionne Jr
Covid 19 vaccine Designing vaccines for people, not profits Mariana Mazzucato, Henry Lishi Li and Els Torreele
eurozone recovery, recovery package, Financial Stability Review, BEAST Light in the tunnel or oncoming train? Adam Tooze

Other Social Europe Publications

US election 2020
Corporate taxation in a globalised era
The transformation of work
The coronavirus crisis and the welfare state
Whither Social Rights in (Post-)Brexit Europe?

Foundation for European Progressive Studies Advertisement

Read FEPS Covid Response Papers

In this moment, more than ever, policy-making requires support and ideas to design further responses that can meet the scale of the problem. FEPS contributes to this reflection with policy ideas, analysis of the different proposals and open reflections with the new FEPS Covid Response Papers series and the FEPS Covid Response Webinars. The latest FEPS Covid Response Paper by the Nobel laureate Joseph Stiglitz, 'Recovering from the pandemic: an appraisal of lessons learned', provides an overview of the failures and successes in dealing with Covid-19 and its economic aftermath. Among the authors: Lodewijk Asscher, László Andor, Estrella Durá, Daniela Gabor, Amandine Crespy, Alberto Botta, Francesco Corti, and many more.


CLICK HERE

Social Europe Publishing book

The Brexit endgame is upon us: deal or no deal, the transition period will end on January 1st. With a pandemic raging, for those countries most affected by Brexit the end of the transition could not come at a worse time. Yet, might the UK's withdrawal be a blessing in disguise? With its biggest veto player gone, might the European Pillar of Social Rights take centre stage? This book brings together leading experts in European politics and policy to examine social citizenship rights across the European continent in the wake of Brexit. Will member states see an enhanced social Europe or a race to the bottom?

'This book correctly emphasises the need to place the future of social rights in Europe front and centre in the post-Brexit debate, to move on from the economistic bias that has obscured our vision of a progressive social Europe.' Michael D Higgins, president of Ireland


MORE INFO

Hans Böckler Stiftung Advertisement

Renewing labour relations in the German meat industry: an end to 'organised irresponsibility'?

Over the course of 2020, repeated outbreaks of Covid-19 in a number of large German meat-processing plants led to renewed public concern about the longstanding labour abuses in this industry. New legislation providing for enhanced inspection on health and safety, together with a ban on contract work and limitations on the use of temporary agency employees, holds out the prospect of a profound change in employment practices and labour relations in the meat industry. Changes in the law are not sufficient, on their own, to ensure decent working conditions, however. There is also a need to re-establish the previously high level of collective-bargaining coverage in the industry, underpinned by an industry-wide collective agreement extended by law to cover the entire sector.


FREE DOWNLOAD

ETUI advertisement

Social policy in the European Union: state of play 2020

All chapters of Social policy in the EU: state of play 2020 consider the consequences of the unfolding public-health crisis. Contributors were asked not only to analyse key developments in the EU social agenda during 2019 but also to describe the initial Covid 19-driven EU and domestic policies between January and July 2020. The European Social Observatory (OSE) has again worked closely with the European Trade Union Institute (ETUI) and renowned scholars to draw up this edition. We aim to contribute to the debate among policy-makers, social stakeholders and the research community, while providing accessible information and analysis for practitioners and students of European integration. This year’s Bilan social complements the 20th-anniversary issue of the ETUI’s Benchmarking Working Europe, a state-of-the-art analysis of the impact of the pandemic on the world of work.


FREE DOWNLOAD

Eurofound advertisement

Industrial relations: developments 2015-2019

Eurofound has monitored and analysed developments in industrial relations systems at EU level and in EU member states for over 40 years. This new flagship report provides an overview of developments in industrial relations and social dialogue in the years immediately prior to the Covid-19 outbreak. Findings are placed in the context of the key developments in EU policy affecting employment, working conditions and social policy, and linked to the work done by social partners—as well as public authorities—at European and national levels.


CLICK FOR MORE INFO

About Social Europe

Our Mission

Article Submission

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641

Find Social Europe Content

Search Social Europe

Project Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

.EU Web Awards