Around the world nowadays, persistent unemployment, skill mismatches, and retirement frameworks have become central to fiscal policy – and to the often-fierce political debates that surround it. The advanced countries are facing an immediate “aging” problem, but most of the emerging economies are also in the midst of a demographic transition that will result in an age structure similar to that of the advanced economies – that is, an inverted pyramid – in just two or three decades. Indeed, China will get there much sooner.
Multiple problems affect employment. Weak demand in the aftermath of the global financial crisis that began in 2008 remains a key factor in Europe, the United States, and Japan. But longer-term structural issues are weighing down labor markets as well.
Most important, globalization results in a continuous shift of comparative advantage, creating serious adjustment problems as employment created in new activities does not necessarily compensate for the loss of jobs in old ones. In any case, most new jobs require different skills, implying that workers losing their jobs in dying industries have little hope of finding another one.
Moreover, technological progress is becoming ever more “labor-saving,” with computers and robots replacing human workers in settings ranging from supermarkets to automobile assembly lines. Given the volatile macroeconomic outlook, many firms are reluctant to hire new workers, leading to high youth unemployment throughout the world.
At the same time, aging – and the associated cost of health care for the elderly – constitutes the main fiscal challenge in maturing societies. By the middle of this century, life expectancy at age 60 will have risen by about ten years relative to the post-World War II period, when current retirement ages were fixed.
Marginal changes to existing arrangements are unlikely to be sufficient to respond to technological forces, reduce social tensions and young people’s fears, or address growing fiscal burdens. A radical reassessment of work, skill formation, retirement, and leisure is needed, with several principles forming the core of any comprehensive reform.