Raising retirement age is unnecessary

Shay Niv

It is far more logical to encourage increasing the participation in the labor force than raising the retirement age.

12 years have passed since the public committee on raising the retirement age submitted its recommendations to equalize men and women's retirement at 67 over a period of 20 years. Four years later, and ahead of most Western countries, the Israeli government adopted the recommendations in part, raising the retirement age of men to 67 almost immediately, but raising the retirement age for women by only two years. The government also decided that, if by 2012, no new committee was established to raise the retirement age further for women, it would automatically rise to 64.

Israel being Israel, this committee was only established in 2011, and it too recommended raising the retirement age for women, not a difficult recommendation given that a woman headed the Ministry of Finance Budget Department. After a public struggle, it was decided not to decide until 2017.

In practice, Israel was one of the first countries to raise the retirement age. Poland raised it last May to 67 for men and 65 for women. Polish men will have 20 years to adapt to the change, and Polish women will have 40 years. Two years ago, France decided to raise the retirement age by just two years to 62. In 2006, the British government decided to gradually raise the retirement age to 66 by 2024 and to 68 by 2044. Current Prime Minister David Cameron wants to raise the retirement age to 68 by 2016. The US has raised the retirement age from 66 to 67.

In other words, Israeli men retire later than most of their peers in the world. Nonetheless, the Israeli government is again in a hurry to be the first to raise the retirement age. This time, there is no talk about actuarial deficits in the old pension funds, and the impact of an aging population in Israel is less acute than in other countries. Israel's birthrate is higher than in other countries, which means that the labor market should have enough young working hands without further burdening the elderly.

The caveat is "should", because if the participation of haredi (ultra-orthodox) men in the labor force continues to stay very low, the high birthrate will only become burdensome over time. It is far more logical to encourage increasing the participation in the labor force than raising the retirement age, but it is enough to look at Prime Minister Benjamin Netanyahu's choice last week on the haredim (ultra-orthodox) to realize how logic works in this country.

Work harder, tire faster

Israel is not only the country where people retire later, it is also where people work more hours. In a position paper entitled, "Retirement - just not at 67", Ministry of Industry Trade and Labor Research and Economics Department director Benny Pfefferman warned against adopting too quickly every recommendation from Europe about raising the retirement age, partly because Israeli workers wear out faster. Writing in April 2003, he explained, "Israelis work 3-4 hours more per week than their European peers, mostly through overtime. On the basis of a calculation of work-hours throughout a lifetime of work, an Israeli retires at 65 as if he were 68 in European terms. If he retires at 67, on the basis of the economic plan's recommendations, it will be as if he were retiring at 72 in Europe."

In other words, Israelis' effective retirement age is already 72, unless someone plans to limit work-hours tomorrow morning. Not only will that not happen, the committee that the Ministry of Industry established is due to discuss the possibility of easing the Hours of Work and Rest Law (5711-1951), at the urging of employer organizations. (Hint: employees are unlikely to benefit).

Pfefferman says that Israeli workers are also more worn down than their European peers because of work conditions. For example, blue collar workers have inadequate safety measures and there is insufficient investment in automation. Israeli white collar workers suffer from the lack of job training. He says that the gap between the skills of older workers and technological progress is widening, creating a disincentive to keeping older employees on the payroll. Pfefferberg, an expert on Israel's labor market, writes "personal opinion" prominently at the top of his paper.

Heaven forbid that anyone should think that this is the official position of the Ministry of Industry, Trade and Labor. Even now, when "Globes" asked to speak Pfefferman, the ministry made it clear that it must first form its opinion on the matter. This is naturally legitimate, but it is astonishing that the ministry responsible for industry, trade and labor has not yet formulated an official position on the retirement age.

The Ministry of Industry is prepared to say only one thing unequivocally: a sensitive issue like the retirement age has no place in the annual economic arrangements bill, or any other model of fast-track legislation that is subject to pressure and extraneous interests. The question is whether the Ministry of Industry's voice will be so clear when the Ministry of Finance begins to apply pressure.

A Bank of Israel study published a year ago found that raising the retirement age increases the proportion of older adults participating in the labor market. In other words, even if some older employees are fired before reaching the retirement age, raising the age also raises the average age of workers.

While this is good news that ought to ease many people's concerns, Pfefferman has an explanation for this. According to his methodology, the growth in the participation in the labor force by older workers occurred during times of rapid economic growth. Employees increased their workforces and had no reason to fire experienced older employees, even if their productivity was in decline.

However, that is not the case in times of economic slowdown, let alone a recession, when employees have to cut their workforces, and in many cases, it is the older employees, who usually have higher employment costs, are the first to be let go. In the absence of sufficient skills or government incentives to employ older workers, many of them are liable to find themselves outside the labor market for 10 or 15 years before their official retirement age, and they will yet not be eligible for old-age pensions, which are linked to the age or retirement, and in case are less in Israel than in the West.

The Ministry of Finance does not deny its wish to ease expenses or the rate of growth of old-age pension expenditures. This is undoubtedly one of the motives for raising the retirement age further. They simply call it "keeping the financial soundness of the National Insurance Institute." This too is important.

Published by Globes [online], Israel business news - www.globes-online.com - on July 22, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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