Should we retire later?

I’m working on a longish piece on how to pay for the global financial crisis, and it seems like a good idea to deal with some side issues separately. One of the standard post-crisis responses of governments, i has been to increase the age at which people become eligible for public old age pensions. This change is likely to flow through to other policies, for example by shaping the presumptions around the tax treatment of private retirement income.

I want to step away from these financial positions and ask the question: does it make sense, in general, for people to retire at older ages than in the past? For those who want the “shorter” version, my answer, on balance, is “Yes, at least in Australia”.

There are two main factors that should influence the age at which we retire. First, improving productivity means that any given standard of living can be achieved with less work, and we would expect at least some of this benefit to take the form of an increase in leisure, including more years spent in retirement. Second, and going in the opposite direction, we are living longer and (because of higher education levels and increased difficulty of entry to the workforce) starting work later[1]. So, with a fixed retirement age, the number of years out of the workforce is increasing, while the number in the workforce is decreasing.

At least in the Australian context, the second of these factors is dominant. In the last 30 years, the expectancy of remaining life at 60 has risen from 18 years to 24. I’ll guess that average age of entry to the workforce has also risen by about 5 years, say from 17 to 22. That implies a “typical” 1980 life course for full-time workers retiring at 65 of 48 years with 30 years pre- and post-work. The comparable figures now are 43 and 41. So, a proportion of the productivity growth in this period has been used to reduce the proportion of lifetime years spent at work, from over 60 per cent to just over 50 per cent.

By contrast, at least for full-time workers, there has been no reduction in annual hours of work. Official full-time conditions were fixed in the early 1980s at 38 hours/week with four weeks annual leave + public holidays and some long-service leave. That hasn’t changed, but there was a big increase during the 1990s in people working longer hours, and that’s been . Given that prime-age adults also have responsibility for children, this doesn’t make a lot of sense.

Those who think employment conditions reflect voluntary bargaining might argue that this apparently unsatisfactory outcome must reflect the preferences of workers and employers. I don’t buy this, at least as far as workers are concerned. But even if it were true, preferences are affected by policy settings such as pension ages. Leaving the pension age unchanged when life expectancy changes pushes people to work harder since their required savings increase. This is, on the face of it, a bad outcome. So, it makes sense for public policy to encourage later retirement, and discourage ultra-long working hours.

fn1. This assumes that time spent at school/uni should not be regarded as “work”. There are some complex issues here I’ll try to discuss more.

300 thoughts on “Should we retire later?

  1. @Ernestine Gross

    The GFC was the product of an orgy of greed and parasitic fraud perpetrated by army of mindless libertarian zombies followers of Hayek, Friedmanic and Rand. Prominent in that army was uber libertarian zombie Alan Greenspam who used loose monetary policy and collaterally proved that Wilton Friedmanic was wrong about money and inflation, as there was no general inflation from his loose monetary policy just bubbles in asset markets. The fraud was facilitated because the libertarian zombie Hayeckian converts had infiltrated government (not by democratic means) and had removed the regulations that stopped their mischief. In the wake of the abysmal failure of their Hayeckian-Friedmanic religion, the undead have risen once more and are wailing in chorus to deny the obvious failure.

    Don’t feed them and their maggot ridden corpses will hopefully return to their graves where their Hayekian ideas already are. Or continue to feed them and let their continued wailing be the best form of pre-release advertisement for JQ’s forthcoming book!

  2. @Ernestine Gross

    The only way libertarians make money from markets is through commissions for selling or fee for providing ‘advice’. When libertarians play the market they invariably lose money. This is because they neither understand economics or markets. Nor do they understand humans or business people.

    Take for example:

    “I do not have much time for the notion that consumer preferences are manipulated by sellers. It is a lot cheaper to find out what consumers want and just market it to them.”

    But the stuff people want, good dependable quality goods, is expensive and doesn’t offer such a profit margin. That is why business people who are somewhat less guileless than libertarians find ways to sell what people don’t want. The profit margin if you can sell someone crap is very attractive. Not only that, you don’t have to worry that the customer becomes sated. They never wanted it is the first place, and when they find out that they have brought crap, you just sell them some different crap. Snake oil merchants in the 19th century new so much more about economics, markets and humans than libertarians will ever know! But libertarians are so funny in their risible stupidity and they are so willing to continue to display that stupidity because they are so stupid they don’t even know they are humiliatingly stupid as evidenced in the silly things they say and continue to say!

    Maybe continue to feed them so they stay and we can continue to laugh!

  3. @Freelander

    You say your usual scapegoats “removed the regulations that stopped their mischief”

    What were these regulations?

    Was the mischief the departure from the monetary policies that delivered the great moderation from the 1980s as suggested by the Taylor Rule in 2007? The early 2000s obsession with the specter of deflation?

    Did Friedman favour discretionary monetary policy ever?

    Was it the removal of the requirement for banks to lend to people who could actually pay the mortgages back?

    Was it removal of the limit on government charted underwriting to mortgages that might be sound? Was it Freddie Mae and Fannie Mac using an implicit government guarantee to underwrite these dud mortgages?

    Was it Joe Stiglitz saying in 2002 that Fannie Mae’s 2% capital ratio was sound, was not under-capitalisation, and represented no risk to the taxpayer?

    You blame libertarians for rentseeking and the creation of regulatory privileges, and the too big the fail syndrome?!! Next thing you know, you will be accusing Friedman of being a double secret democrat who voted for George McGovern, Carter, and Mondale.

  4. @Freelander

    The shadow open market operations committee minutes since 1973 are all on the web.

    The post-2000 minutes repeatedly warn of inflationary pressures and the need to tighten the stance of monetary policy.

    Anna Schwartz participated in most of these meetings post-2000 and many before.

  5. @Freelander

    And there I was, @21, convinced to have found a link back to the topic of the thread – an elegant one at that, if I may say so myself, without wishing to omit to acknowledge my great indebtedness to gregh’s wit @20.

  6. Jim,
    It was the same scapegoats that were so committed to free market principles that they ensured that government directed spending in most economies has continued to increase to the point where now it is typically above 40% of the economy, and in many of these “mindless libertarian zombie” economies it is above 50% – and then there are more regulations on top of that directing where and how we can spend the remaining amounts.
    Isn’t this “mindless libertarian zombiesm” wonderful?
    Just one question – how do we tell “mindless libertarian zombiesm” apart from democratic socialism?

  7. Ouch! The Zombies are turning on each other. Greenspam is covered in bite marks!

    Inflationary pressures were identified in 2000. Monetary policy didn’t address them. Yet, still no inflation. Refutation complete yet… Wilton worship continues undiminished.

    Despite turning on one of their own, the veritable Greenspam, (was he ever alive some question?), the libertarians zombies remain still true to their creed.

    Mindlessness rules OK!

  8. John, I can’t resist one more jab at the Mineral Council & the rabble within the Shadow Cabinet who continue to resort to lying about the RSPT. Today the government argued that ‘on the 2nd of May 2008 the government announced it would be having this review into the tax system. On the 6th of August 2008 a discussion paper was released on the tax review entitled the Architecture of Australia’s Tax and Transfer System. “That discussion paper raised the inefficiencies of royalties and pointed to a profits-based tax. It says these royalties can discourage high risk investments … it said a resource rent tax does not apply until the firm has earned above normal profits.” Time to stop the rot and let the Government get on with the job of governing. Bloody drongos.

  9. @Andrew Reynolds

    Yes, it is an elastic sneer.

    Its main user on this blog got most upset when I suggested he had said Hong Kong is a libertarian hell-hole.

    This is despite Friedman saying “if you want to see capitalism in action, go to Hong Kong” and that Hong Kong was perhaps the best example of a free market economy.

    At the end of World War II, Hong Kong was a dirt-poor island with a per-capita income about one-quarter that of Britain’s.

    In 1958 Cuba had a higher GDP per capita than Hong Kong.

    By 1997, when sovereignty was transferred to China, its per-capita income was roughly equal to that of the departing colonial power, even though Britain had experienced sizable growth over the same period.

  10. @Freelander

    You and Alice have never come clean on who was the libertarian infiltrator ALP MPs and ALP cabinet ministers from 1984 to 1996? Disciples of Friedman all, you say!

    Yours was a fantastical allegation to make against the Hawke and Keating governments.

    They were the last labour government to be run by products of the labour movement.

    The 1984-96 ALP generation were groomed for years working in the party, on the backbench, years in opposition or working their way up the union movement.

    These days, the ALP parliamentary party and MP’s offices is overrun by well-educated careerists happy to swap talking points with the opposing viewpoint if today’s focus groups tells them so. Their greatest frustration is Kerry Packer is no longer around to offer them a plum political consulting job after leaving Parliament.

    These careerists are straight out of university to go into MP’s offices and then parliament, some with a side journey as paid organisers for their faction, their party or in unions. As soon as their career falters, they jump ship with their pensions.

    The ALP used to be the cream of the working class.

    These days, it is the self-serving spawn of educated middle class, ABC born and raised; every ready to eat their children if this gets them up in this week’s polls. Not a true believer in sight.

    Rudd’s youthful inner circle in his office is a prime example of this careerism. They have never had a real job.

    Given the hours Rudd makes them work since their days together in opposition, the only time they brush shoulders with ordinary people is while taking notes at photo opportunities at hospitals, shopping malls and construction sites.

  11. “The GFC was the product of an orgy of greed and parasitic fraud perpetrated by army of mindless libertarian zombies followers of Hayek, Friedmanic and Rand.”

    If your abdication from the reality-based community was ever in doubt, this sentence proves those doubters wrong.

  12. @Freelander

    Conspiracy theories make a little more sense if their leaders are actually alive to give guidance, are well-known so enough people listen to this guidance, and preferably they are in robust enough health to be active on the public stage.

    Hayek is not well known outside of economists, and even among economists, and was very ill from 1985. His last significant books were published in the late 1970s and all were difficult to read, much less translate into policy action. Rand is an obscure figure indeed.

    Friedman semi-retired from active public life over the course of the 1990s. His last significant book was published in about 1980 – Free to Choose.

  13. @Jim Rose
    I hereby find myself accused of making allegations at Hawke and Keating that I never made…not here…but seeing as you thus come to accuse me of such…(one more accusation in a sea of blatantly erroneous accusations, labelling and falsehoods – what do I care JR? You lie. Most already know that.)
    I will admit it JR…Hawke and keating followed the neoliberal model to a point too far (and further than Menzies) whereupon the biggest idiot of all three of them, Mr Howard, kicked the winning goal of neoliberalism.

    You see JH’s daddy was the victim of government regulation, or so he claimed, when he lost his motor repair service station (but perhaps JH’s daddy was the victim of monopoly oil power and not the government at all). Since then millions have been the victim of John Howard’s myopic revenge agaisnt “the government”.

  14. John, I should add at #33 that yesterday, the ACTU, Australian Council of Social Services (ACOSS), Australian Conservation Foundation (ACF) and Consumers’ Federation of Australia urged the government not to baulk at necessary reforms to make the tax system any fairer. ACTU secretary Jeff Lawrence made it very clear that the RSPT misinformation being spruiked by the big miners is a disgrace, that is correct a bloody disgrace, and that “Mining magnates are putting at jeopardy improved superannuation savings for the workforce of more than 10 million, billions of dollars of infrastructure spending that our nation needs, and a cut to the company tax rate for 770,000 businesses”. Thumbs up Jeff.

  15. @Jim Rose
    You mention “conspiracy theories JR – would you care to cite, quote, or explain any conspiracy theories you have come across here in this blog? In this discussion?

    Nothing I have read would come across as a “conspiracy theory” of course unless you mean those who dont agree with you.

    Consiracy only against JR and Jarrah. Wow. Its a huge conspiracy…not.

    Or perhaps you mean conspiracy against the government of the sort you two are engaged in?

    Isnt that the normal meaning of the words “conspiracy theory”? Perhaps you two should be charged and lose your liberty for your thoughts here? You dont seem to like government after all..and promoting anti government sentiments could be seen as a conspiracy I suppose.

    JR – are you really sure the government wont come knocking on your door?

  16. And Jim R
    Why dont you watch this and decide for yourself whether Friedman was libertarian in the propensity to to tell the truth or not..

    Who amongst us believes Central park would still exist if it was privately owned? Lying till he was 90, the old conservative bastard.

  17. I forgot the link – the dodo thought Central Park would be “cleaner and safe” in private hands.

    Ludicrous. Old and biased and conservative and trapped in his “free to choose” self aggrandisement. Not pretty.

  18. @Alice

    Maybe you shouldn’t feed the desperate duo — ‘Tweedle Dee’ and ‘Tweedle Considerably Dumber’. Question is can you starve a libertarian zombie?

    I see they are up to their usual tricks — making things up. Making up facts, and making up views and claims for phantom debating opponents, who they then give our names.

    I think I will go back on holiday. After all, if anyone is reading this blog it might be considered an insult to assume that the desperate duo’s repeatedly displayed stupidity requires any annotation!

  19. Jim Rose :
    …when I suggested he had said Hong Kong is a libertarian hell-hole.
    This is despite Friedman saying “if you want to see capitalism in action, go to Hong Kong” [Insert maniacal Wilton worship here] … blah, blah, blah….

    Here is a comprehension exercise for you. How about you read what I said, and see how it accords with what you claim I said? Be careful, I have seen Zombie head explode before! Putrid brain matter everywhere!

  20. @gregh

    In education as you say “providers of unpopular sentences will suffer the abjection they deserve”. In the fully market driven Nirvana, Judges will also suffer a similar fate if they too turn out to be ‘providers of unpopular sentences’. They will find criminals no longer patronizing their establishment with concomitant loss of income; in which case they may have to turn to providing other services, perhaps by turning their former courts into taverns, reinforcing the stereotype ‘as drunk as a judge’?

  21. @Alice

    Good to see you have repudiated Freelanders’ accusations of libertarianism infesting Australia, and that the “GFC was the product of an orgy of greed and parasitic fraud perpetrated by army of mindless libertarian zombies followers of Hayek, Friedmanic and Rand”. Armies of conspirators?

    Neoliberalism is yet another sneer designed to set up a straw-man argument.

    It is an intellectually suspect sneer because it associates a particular policy agenda promoting economic freedom with a supposed ideology that serves a corporate elite.

    How can the removal of regulatory barriers to entry serve incumbent businesses? This exposes them to more competition. the increase in australian domestic airlines from two to four and the bankruptcy of ansett did not seem to serve big business well.

    Efficient taxes lead to higher taxes and a larger public sector. How is closing all those tax loopholes in the interests of big business?

    You confuse corporate capitalism with a free market economy. As Friedman noted, “if you want to see capitalism in action, go to Hong Kong”. Regulatory privilege and rent-seeking opportunities are minimal and tariffs are zero.

    Regulation is intended to create monopoly power at the expense of smaller competitors and the consumers. Self-styled progressive intellectuals such as you are vital propagandists in duping the public into thinking that the suppression of competition is in their interests.

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