French President Sarkozy wants to raise the minimum retirement age from 60 to 62 and the age for receiving full state pensions from 65 to 67. This would be gradually introduced, adding 4 months to the requirement each year, reaching full implementation by 2018. The reforms he proposes are quite modest and much needed. The government has been borrowing from banks to make pension payments and now, with debt rising, the French government can no longer postpone reforms. Sarkozy, I think is correct to push reform now. With the Greek crisis, attention is mounting about national debt across Europe. The French system is actually quite flexible when it comes to retirement.
In general, the mandatory retirement age in France is 65. However, under current rules, one can opt for retirement at age 60 so long as one has worked 41-42 years. (Civil servants have to have 40 years of service). In 2008, the law changed so that mandatory retirement age is 70. So once one hits 60, retirement is an option. But one can also opt to work longer. In some professions, there are “special retirement regimes” such as public transport, mining, bus driving, etc. where retirement can start at 50-55. Then there are the early retirement programs. For instance, women earn two years for each child. These will remain unaffected by Sarkozy’s reform.
Students are protesting with the workers because they see the increase in age as a threat to their employment. Unemployment among the young is notoriously high, 23% among 15-24 year-olds. So they would like those at the top to cycle out so that they can cycle in.
The French have tinkered with the system for years. In 1981, Mitterrand actually reduced the mandatory retirement age from 65 to 60, something Sarkozy is now criticizing, saying that it postponed the inevitable, making it harder to reform now. In 1993, the government increased the number of years required for private sector employees to work from 37.5 to 40. It wasn’t until 2003 that the government succeeded in extending public sector employees to 40 years.
Currently only 12-15% of French workers between the ages of 60-65 are working (20% in the US). The average age of retirement age in France is 59 years (64 in the US). For those of us born in the US after 1959, the age for full benefits is 67. This change was made with little notice back in 1983. The earliest that Americans can start receiving benefits is 62. Civil servants are eligible for retirement after 30 years of service. There is no mandatory retirement age in America. (For a nice round up on retirement ages in OECD, visit The Society for Human Resources Management page.)
Many French workers received 50-60% of their incomes under state run programs, plus there are the company pensions and union benefits. Civil servants receive up to 75% of their final salary for life. Retirement benefits for American civil servants are based on the last 3 years of their income. In the current economy, this is encouraging many people to stay in the workforce longer so as to increase their last 3 years of income, and thus their benefits.
French students are blockading refineries. They may be arrested for this because under French law, preventing those who wish to from doing is punishable with prison time and possible civil penalties. Some 20 of 219 refinery are blocked. 4000 gas stations of 12,500 are out of gas. Distributors are pooling their reserves for distribution. In the end, the French Senate will approve the reform and the French economy will have taken a hit as a result of fuel shortages. So given the options for protest movements, I'll keep the whacky Tea Partiers.
Tuesday, October 19, 2010
French Protests Are Over the Top
Posted by USWest at 11:00 AM
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18 comments:
Nobody likes to be told that they can't have a free lunch anymore. I think it's interesting that you compare the French strikers to the Tea Party because I think both are reacting negatively to the same "party's over folks" message. The difference is in the nature of the "party."
In France (and much of western Europe but France is one of the stronger examples), they have an overly generous welfare state funded largely through high deficit spending combined with periodic currency devaluations (to trade off debt for inflation). The combination of years of kicking the economic can down the road and the impossibility of continued devaluations because of EU Monetary Union means France can't continue as it did from 1945-2000.
In the US, we have the end of decades of little industrial competition in which industries that were poorly suited to the typical strengths of the US economy were able to thrive beyond what they normally would do because of the after effects of WWII and the Cold War. But with Europe and East Asia recovering from WWII and Northern Eurasia abandoning Communism, we have competition again. The readjustment means the days of high school drop outs living high on the hog are done and gone.
The fantasy that both the French strikers and the Tea Party activists indulge in (and it is self indulgent in my opinion) is that there is a choice about whether or not to pay the piper. The choice is not whether or not but rather how it should be done.
For the French that answer is largely a question of economic distribution. For the American Tea Party activists, the price the piper demands may be higher in some ways. An entire sub-culture that defined the American dream as a house, a car and a boat for unskilled laborers is probably on the way to extinction.
Of course, fluid and flexible cultural adaptation is an American specialty so I am confident the country will find a way to adapt. But for the middle aged Tea Party crowd, it will not be pleasant.
Yeah, I did that little closing comparasion hoping for a bite. ;-)
I am more sympathetic to the French protestors and I think "free lunch" is unfair. Pensions are earned, not "free" - they are part of the employment bargain. The French government, which could raise revenues by taxing the rich and powerful, instead is choosing to raise revenues by asking French people to take what amounts to a massive lifetime paycut or tax increase. If the monkeying with the retirement age were rephrased to be a regressive head or poll tax, it might be more clear to you all why they are upset. I would be livid if the US government chose to balance the budget by enacting a regressive $5K/person annual tax. The French decision to take away years worth of retirement benefits is like that.
I certainly don't think the fact that US workers earn much less in terms of long-term benefits is good or something that the French (or anyone) should emulate.
RBR writes, "An entire sub-culture that defined the American dream as a house, a car and a boat for unskilled laborers is probably on the way to extinction." Well, I for one will oppose that bitterly. To the extent that this impoverishment of large groups of Americans is the result of free trade, it explains why people like me are skeptical of the benefits of free trade. We should be fighting to save that dream, not from our position of economic privilege scoffing at it.
By the way, I have a different sociological take on these particular student protests. They function in France, I believe, rather like a carnival. The students engage in protests as a masquerade if they were the proletariat, rather than the privileged, and the result (closure of roads, businesses) functions as a holiday for everyone else. I don't mean that it is intentionally so, I just meant that the protests in France seem to be a routine occurrence that allows society to shut down for a while and lets people engage in the role reversal of carnival. The Christmas holiday in America, by the way, derives from just such a role-reversal carnival. It is documented and well argued that Christmas was originally a day when peasants got to occupy the manor and get served by Lords in a jolly role-reversal day. They would go wassailing, demanding money and ale from their social betters (mostly bawdy singing, mostly stopping by and demanding food and drink). In the Victorian period, this was restructured as a intra-family affair where the role reversal is that children become Kings for a Day.
LTG,
Let me clarify my points a bit...
First, the law passed in France did not abolish pensions. Rather it raised the age at which one would be able to start collecting it a couple of years.
Second, the people protesting in France are not, by in large, the recipients of the pensions. Rather they are young people. The low pension eligibility ages in France (and in other countries in Europe) are used as a tool to get older workers out of the work force to boost the employment rate. So I'm not saying that the pensioners were getting a free ride. Rather it is the entire French population that has created a government run scheme for artificially boosting their employment rates that is funded by heavy borrowing.
Certainly full employment is a laudable goal. However, doing it by establishing low pension ages (relative to the average healthy life span of a person in that economy) puts 100% of the costs of those new jobs on the government accounts. It is, as we see in Greece and now France, unsustainable. Money for these things has to come from somewhere. We can't just wish universal prosperity into existence.
As for the US situation: The prosperity for unskilled workers in the Post WWII era in the USA was a function of the massive devastation caused by WWII itself and then by the self destructive economic isolation of the Communist countries. This allowed the US to be the only big producer in the global market. In other words it would be a mistake to think that the prosperity of the 50's and 60's (which started to decline in the 70's) was the result of protectionist trade policies. In a very real sense it was dependent on trade - it's just that in those days the trading relationship was temporarily weighted heavily in our favor by the factors I mentions above.
If we were to institute protectionism it would not restore high wages for unskilled workers without any costs. Rather it would hurt 3/4 of the economy for the benefit of 1/4 of it. Protectionism would lead to higher prices across the board for just about everything. It would probably also provoke retaliatory tariffs from our current trading partners which would kill jobs in export oriented sectors. All of that dislocation and redistribution of wealth would be done to benefit about a quarter of the population.
We could do what many Latin American countries did in the 1970s which is borrow heavily to use government spending to off set the increases in prices and to try to mitigate the harm done to consumers and export oriented sectors (like agriculture). But that borrowing was unsustainable and the countries ended up in debt crises in the 80s that proved at least as painful as the economic realities they were trying to avoid.
RE: scoffing at "a house, a car and a boat." What we are seeing in the economy today - i.e. the personal consumer debt crisis - is a direct consequence of the materialistic emphasis of the "American Dream." As wages for unskilled labor returned to normal levels many people responded by borrowing heavily. The housing bubble, combined with irresponsible lending practices by banks, encouraged people to borrow heavily to finance consumption that they could not afford. If we continue to define the American Dream in terms of the acquisition of material things, we will be condemning large portions of the population to cycles of unreasonable expectations followed by debt, followed by crushing disappointment and despair.
The only difference between France and the US in this instance is that the "French Dream" is state financed through national debt and the "American Dream" has been (lately) financed by high interest personal debt.
RE: the scoffing thing. I'll defend my self a little more.
While my current situation is undeniably relatively privileged, my life has exposed me to a lot of people who are not. I have a large and close extended family that is made up largely of exactly the demographic we are talking about. Also, I attended college in a typical rust-belt city in the Great Lakes and had several friends who were the first in their family to attend college that socialized with their friends and relatives working in the local factories.
I know from personal observation in these and other situations that there is a significant element of our society that has a profound sense of entitlement. They fervently believe that they are entitled to a high standard of living despite consistently taking the easiest road - partying instead of studying, dropping out instead of graduating, spending instead of saving etc etc etc.
I'm not one of those conservatives who think such people should be written off and told to "eat cake" or something. But I do think that for such people to expect to enjoy a life style clearly beyond their means (or the means of society) to provide is unreasonable.
People who make poor choices or have poor hands dealt to them by life should not be deprived of food, shelter, health care etc. But neither should they be provided with what I referred to "a car, a house and a boat" at others' expense.
(The phrase "a car, a house and a boat" is something I heard from a blue collar friend of mine who said it was the ambition of all his buddies in the factory town he grew up in to get a job on the assembly line, marry their prom date, and buy "a house, a car and a boat." This was in the course of a conversation about the high local drop out rate and early average age of marriage locally).
I agree with RBR- about everything. When you are the last nation standing in the world, you will win the economic game. Part of our problem is that we succeeded in our foreign and economic policies. While we occupied the pinnacle of economic might, we claimed that we wanted to industrialize the world so that they would democratize and prosper as we did. We knocked out socialist governments in Latin America like red ants. Guess what, it worked! Look at Brazil, Turkey, Chile, and China to name a few- prosperous and democratic. So now the consequences- we built the competition. We did it for Europe and Japan, too. As we did that to counter communism which is pretty much gone. We won the Cold War. Now we pay.
I also have a hard time accepting the "reverse carnival" idea, interesting as it is. I lived in France in 1995 when everyone spent Autumn striking. Many public universities were shut down, and this bothered students (I was one of them) because they really wanted to finish their studies. Each day that they were prevented from attending class was one day longer they'd have to make up later.
Sarkozy has been working hard at making a lot of needed, overdue, and controversial changes in France. He can't borrow from China every 5 minutes like we do and France is very limited now by the EU. So he has to look for some ways to edge down debt.
Now LTG does make a good point that Sarko is not proposing to touch the elite classes. The retirement reforms (they aren't just pension reforms) really do affect the working class. But I repeat, the special regimes are not being affected. So I wonder how many members of the working class will really be affected. This also makes me wonder how much money will really be saved. But the appearance is bad. He should have found a reform that would effect the wealthier sectors of society-capital gains taxes come to mind. That was poorly played by the Sarko administration.
You know, to a degree, Bush did the same thing. He gave tax cuts to the wealthy, but created a whole new tax bracket at the bottom of the income scale, in effect raising taxes on poor people and creating a permanent underclass. That part offends my sense of fairness- especially since the bottom rungs don't have 100 different deductions like the upper income brackets do. We really need to add another bracket at the top.
As for our economy, we have to change the tax code to reward savings and hard word rather than investment and debt. Part of this housing crisis was brought on by people buying ever more expensive houses due to low interest rates and a desire to maximize tax dedications related to property ownership and investment. So yes, they wanted a house, a car, and a boat, and a second house as an investment property and a side business selling Avon or Amway to write off half their house, car, boat, and vacation as a business expense.
"First, the law passed in France did not abolish pensions. Rather it raised the age at which one would be able to start collecting it a couple of years."
Duh. But that's irrelevant. The purpose of the raise in retirement age is to CUT pensions to those who had considered them part of their employment bargain. That's how it saves money: on average, an employee recovers two years' less in pension earnings over a lifetime. Two years' worth of personal income is a big tax.
Not true. It's just delaying disbursement of the FULL pension. In fact, the reform may be bad in that is only puts off the inevitable for 2 more years.
USWest: the savings are that people die sooner. That's why your raise the retirement age. So that, on average, people collect two years' LESS of pension than if they started earlier. That's the point of it, to make sure less is paid out over a lifetime.
I think LTG is thinking of the life time value of the pension plans. If you aren't allowed to start collected until later than your lifetime benefit collected will be lower (is that a correct interpretation of your view, LTG?).
Of course, from that point of view we should take the life expectancy into account. Assuming an increasing average life span (a safe assumption for a country like France in the last 60 years), keeping the retirement age the same over the course of decades may actually represent an unsolicited pension increase. And adjusting the retirement age up may actually only put the pension benefits each person collects over their lifetime back to the original employment bargain when the original pension/retirement law was written.
Yes, of course I'm talking about the lifetime benefit. And it is also true that life expectancy means that that is greater now than it was 50 years ago. That doesn't change the fact that what the French did just now was cut benefits, even if they have been rising slowly over time. Although this isn't quite true. The life expectancy stats are a bit misleading. Most of the increase is medical advances on certain diseases. The majority who are unaffected by those diseases from those diseases live about as long as they used to.
I see what LTG is saying. But none of us knows what the life time value of a single pension will be. LTG doesn't think this matters because whatever your lifetime value, it will have been 2 years less because you had to work 2 years more. In any case, if you do have to work an additional two years, your pension disbursments will be larger. If dis two years doesn't increase your pension check, then, yes, that would be a cut. I am not certain that this is the case.
What the French need is more people working and contributing to the pension system. The underlying problem is high unemployment. France has the birth /immigrant rate needed to replenish. This forces the state to borrow more to cover the shortfall.
In any case, most people get more out of the system than they put in. And again, how many people will really be affected considering that the special regiemes (early retirement programs) aren't being touched.
I actaully think the protests are less about the pensions and more about disdain for Sarkozy. I mentioned this in one of my comments here. He is seen as too cozy with the rich and glamourous. So some of this is good old class warfare.
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