Why did French president, Emmanuel Macron, push through his pension reform raising the retirement age from 62 to 64 despite widespread public opposition and his inability to achieve parliamentary approval? Polls indicate that two-thirds of the French oppose his plan and it risks them turning to far-right leader Marine Le Pen as Macron’s successor.
Birthrates and Longevity
The answer is the so-called “dependency ratio,” the ratio of working people to the number of young and old in their countries who are not working. France has a low birthrate of of 1.83 births per woman, though significantly higher than many comparable countries, including the United States at 1.64 births per woman, the United Kingdom at 1.56, Germany at 1.53, Italy at 1.24, and Spain at 1.23. The birthrate required to maintain a country’s population level, absent immigration or increased longevity is 2.1 births per women.
The French also live longer than the citizens of most other countries with a life expectancy of 83.13 years, 85.82 for women and 80.32 for men. Hong Kong boasts the longest life expectancy in the world at 85.29 years. By comparison, the United States clocks in at just 79.11 years, 81.65 for women and and 76.61 for men, coming in at 46th place among all countries, just behind Estonia and ahead of Panama. France is in 14th place behind Asian countries such as Japan, Singapore and South Korea, and some European countries, including Switzerland, Italy and Spain. Yet, France’s life expectancy at age 65, at 23.4 years for women and 19.3 for men, is higher than all European countries other than Spain. By comparison, life expectancy for Americans at age 65 is just 19.8 years for women and 17 for men.
In fact, there seems to be something of an inverse relationship between birthrate and longevity, with the countries with the lowest birthrates having the longest life expectancies. This means that these countries have fewer working people for every senior. In contrast, they have more working people for every child. However, their overall dependency ratios are increasing.
The Dependency Ratio
The World Bank calculates the number of young and old citizens of each country for every 100 of working age. The number for France is 63, an increase of almost five years since 2014. Most African countries, which have high birthrates, have much higher dependency ratios, but that’s because they have many more children. Japan is the developed nation with the highest current dependency ratio of 71, followed by Israel at 66. France has the highest dependency ratio in Europe, followed by Finland (62), Sweden (61), and the United Kingdom (58). In contrast, the dependency ratio of the United States is a comparatively low 54.
The website, Trading Economics, provides just the old-age dependency ratios for countries in Europe. France’s old-age dependency ratio is 34 as compared with Italy at 37, Sweden at 33, Spain at 31, and the United States at 26. The old-age dependency ratio of the European Union as a whole is 33 and that of the world is just 15.
The Effective Dependency Ratio
Of course, the actual dependency ratio, the ratio of non-workers to workers, is based on more than just age. The World Bank ratios count everyone between the ages of 15 and 64 as working and everyone age 65 or older as dependent. Yet, in developed nations most people don’t start working until later ages, sometimes will into their 20s. This means that their dependency ratios may in fact be significantly higher than the figures cited above. Further, employment participation rates are an important consideration, with countries with higher rates having fewer dependents per actual worker. This means that rates of unemployment and participation in the workforce by women can have a significant impact on actual dependency ratios.
So can the retirement age. To the extent older people stay in the workforce, they reduce a country’s actual dependency ratio. This is Macron’s goal, which he claims is necessary to maintain the financial stability of France’s pension system, more workers and fewer dependents.
So, Why are the French so Upset?
The upset of so many French people at Macron’s reforms seems a bit strange to many Americans, since our full retirement age for Social Security is 67, five years later than France’s currently and still three years older than under Macron’s reform. The retirement age in Germany is 65 years and 7 months and in Italy it is 67, like the United States. As a result, the French spend more time in retirement than their European peers, on average 27 years for women and 22 for men, as compared with 21 and 18, respectively, for German women and men.
So, why are the French so upset about this change? A mixture of French values, a sense of fairness, and a dislike of Macron himself. The French value their leisure. Many unions who represent workers feel that a later retirement age unfairly impacts blue-collar workers who generally begin working at younger ages than do white-collar workers. They argue that the system could be made to balance simply by raising more money through taxes on the wealthy. Finally, Macron, who is just 45 years old, is seen as aloof and out-of-touch with the lives of most of his compatriots. This is only exacerbated by his decision to impose the pension reform without a vote of the national assembly.
What About the United States?
While not as out of balance as France in terms of our dependency ratio — since, fortunately, we have a higher birthrate and, unfortunately, we don’t live as long as the French — the United States is still facing an increase in its dependency ratio and a consequent imbalance in the Social Security system. The Congressional Budget Office predicts that it will run through its reserves in 2033, meaning that if no action is taken to put the system back in balance, retirees will begin to see a 23 percent reduction in their monthly checks. It also calculates that this reduction could be avoided by a 4% increase in the payroll tax.
Other solutions could include raising or eliminating the cap on income subject to the Social Security tax, which is $160,200 in 2023, or simply making up the difference through other taxes, which could include higher income, capital gain, or estate taxes (or Senator Elizabeth Warren’s proposal of a wealth tax).
Whatever the solution we choose, with just 10 years until reductions start, we should seek a solution soon. The last time the Social Security system was reformed in 1983, the change was accomplished through the appointment of a bipartisan commission that worked out a compromise between proposals of conservatives and liberals. Whether or not this could work in our current political climate is open to question. But it’s probably worth a try. Otherwise, what’s happening in France may be a harbinger of what we’ll soon see in the United States.