Strike!

This post comes to us from Fiona Stewart of the Financial Markets, Insurance and Pensions Division of the OECD’s Directorate for Financial and Enterprise Affairs.


Those of us struggling with our commutes to work in France don’t need to be reminded that pensions are on the top of the agenda again in many OECD countries.  Workers are understandably perturbed when they feel as if their hard earned right to a well deserved retirement is under threat.

Yet, given the ageing of the population across the OECD region, the scale of the challenge of paying for our pensions is rarely understood. Without reforms, spending on pensions will require an extra 5% of GDP by 2050 – posing a much greater challenge to our economies on a long-term basis than the financial and economic crisis of recent years.

We are all living longer – which is a good thing – and we are increasingly healthy at older ages. When pension systems were first introduced, the retirement age was 65 and life expectancy was 65. Now we might work for 30 years and be retired for 30 years.  Lord Turner, who conducted a major review of the pension system in the UK a few years, ago spelt out the choices we have starkly – we can save more, live on less in retirement or work longer.

Some say that corporations making big profits should be taxed more (the banks which were so involved in the financial crisis being singled out) or that governments should cover the rising cost of our pensions rather than individual workers. But this does not solve the problem that the costs of our pensions are ever rising and there are fewer and fewer young workers to pay for them.

One particularly striking (being the operative word) fact in France is that young students are demonstrating against the rise in the retirement age.  No one seems to be trying to explain to them that if these reforms do not happen they are the ones who will be hit hardest and have to pay in the long run – as they will have to pay for the decades of retirement their parents are likely to enjoy, whilst, when it comes to their turn to retire, there may not be enough money to pay for their pensions.  To the great French cry of ‘Liberty, egality, fraternity’ should be added ‘intergenerational solidarity’!

The complexity of the pension debate again means that the students are mixing the issue with other matters – notably arguing that if the older generation work 2 years longer, they will have to wait 2 years more until these jobs are ‘freed up’ and they can start work.  Yet the experiment of the 1980s and 1990s recessions, when early retirement was used as a policy tool to try to fix unemployment, showed that these policies did not free up jobs, but in fact had the opposite effect, as the number of jobs within an economy is not a fixed pie to be shared out.

Fortunately OECD governments have learnt this lesson and are indeed pushing ahead with raising the retirement age – as we saw in the UK this week. Some have also linked the retirement age to longevity increases, making the rise gradual and automatic which should avoid damaging political battles such as these in future.

Sure our pension systems aren’t perfect – and neither are the French reforms. For example, there are still unanswered issues such as how to ensure women, who tend to have broken career paths for child rearing, receive more equal pensions, or how we should treat those in particularly strenuous or dangerous jobs, or the unfairness caused by differences in longevity across social classes. The 40 year contribution period to be introduced into France is fairly long by OECD standards, and arguably hits blue-collar workers more disproportionally  But these issues should not cloud the core fact that working a few extra years in retirement is an essential step to putting our pension systems on a sustainable path and securing them for future generations.

As France demonstrates, much still needs to be done by governments to communicate why pension reforms are needed and how we must not only share the costs of our rising longevity, but hopefully celebrate the fact as well.

Useful links

OECD work on pension systems

OECD work on private pensions

Article by the author on pensions as a policy response to the financial crisis

World statistics day

Today, on 20.10.2010, more than 100 statistical organizations celebrate World Statistics Day at the initiative of the UN.

OECD statisticians and economists will discuss the contribution of statistics to the mission of OECD: “better policies for better lives“, with a focus on green growth, innovation, societydevelopment and progress. The talk is scheduled today at noon Paris time, and it can be seen live  at http://interwebcast.oecd.org/ (and it will be archived there afterwards).

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Investing in Africa

It’s often overlooked, but the past decade saw a very substantial increase in the amount of money foreign companies invested in Africa – what’s known as foreign direct investment (FDI). In 2000, FDI was worth about $9 billion; by 2008 it had risen almost tenfold to $88 billion. To put that in perspective, that was double the $44 billion provided for African countries in official development assistance (ODA) in 2008.

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How smart are you about education?

It’s September again, and in much of the world that means one thing – back to school. So, with that in mind, take a look at these three questions and see how much you know about education (answers below).

1. Generally in OECD countries, which age group is more likely to have a university-level qualification?

a. 25-34 year-olds  b. 55-64 year-olds

2. Around the world, 3.3 million tertiary students study abroad. In which of these OECD countries do foreign and international students make up the biggest slice of the student population?

a. Australia b. Switzerland c. The United States

3. Between primary and tertiary education, how much do OECD countries spend per student each year (in U.S. dollars)?

a. $1,688 b. $5, 644 c. $9,195

All these questions are based on data in OECD Education at a Glance, a compendium of data and statistics on education released every September by the OECD. It covers an enormous amount of ground, including how far young people and adults have studied, the economic benefits of education, who pays for it and conditions in schools and universities, such as teaching hours and student numbers. The point of collecting the data is to give OECD countries a basis on which to make comparisons about their education systems. This is important as there can be big variations in how well students perform in individual countries, even with similar levels of investment. As OECD Secretary-General Angel Gurría said at the launch of Education at a Glance in Paris this morning, “In a global economy, it is no longer improvement by national standards alone. The best performing education systems internationally provide the benchmark for success.”

And the answers to those questions …

1 a: 25-34 year-olds ;  younger people are much more likely to have been through tertiary education in OECD countries, a reflection of the expansion of university-level education in recent decades.

2 a: Australia ; more foreign students go to the United States in absolute terms, but they account for a bigger share of the tertiary student population in Australia, more than one in five.

3 c: $9,195 ; most of the money goes on salaries for teachers and other staff.

Useful Links :  

Education at a Glance 2010

France still No. 1 for tourists

If the beaches seem a little less crowded in the last couple of years, don’t be too surprised. International tourism took a knock during the global recession, as our charts show, with annual growth slipping to just 1.9% in 2008, or 5.2 percentage points lower than the growth rate registered during the previous four years. By the time figures for 2009 are finalised, they may show an actual decline of over 4%. That’s to be expected: International travel tends to respond quite sharply to economic slowdowns, while domestic tourism (people holidaying in their own countries) is more resilient. In OECD countries, about three out of four tourists are domestic. There have been some signs of growth in the first half of 2010, though whether this spells a recovery or reflects a particularly weak 2009 remains to be seen.

Despite any recent declines, tourism remains one of the world’s great growth industries. According to the UN’s World Tourism Organisation, just 25 million people travelled abroad for holidays in 1950. Today, the figure is more than 800 million, representing an annual growth rate of about 6.5%.
Just as it’s been for the past 15 years, France remains the world’s favourite destination, attracting just under 80 million visitors in 2008 (the most recent year for which full data is available). The United States is second, with about 58 million visitors from abroad, while Spain is third, with just over 57 million.
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A converging world

Incomes in more and more developing countries are starting to close the gap with those in OECD countries in the past decade, as we pointed out in our previous posts on economic convergence. In fact, in 65 countries GDP per capita grew at least twice as fast as in the high-income OECD countries, sharply up from just 12 countries in the 1990s. That means more convergence in the global economy. Despite this shift, many countries are still poor or classed as “struggling”. Our map shows which countries have converged and which continue to lag behind.
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