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So, the last entry linked to three articles on the car companies and their failure. One argued it was mostly because Americans have stopped buying American cars; one said it was more due to underfunded company pension plans; I want to quote more from New Yorker one. It's message is on the peril of employer vs. universal health and pension plans, yes, but also about dependency ratio and development.
* Around 1950 the auto unions suggested regional or national pension and insurance schemes, where a worker could switch between companies and be followed by his pension, with the companies in an area paying into the pension fund. The companies didn't like that at all, and offered per-employer plans. This tied workers to the company... it also meant that decades later, after aging and after technology that led to having fewer employees, the company got hosed for having done the right thing much earlier, while new plants like Toyota could be more competitive for not having retirees.
This crisis is sometimes portrayed as the result of corporate America’s excessive generosity in making promises to its workers. But when it comes to retirement, health, disability, and unemployment benefits there is nothing exceptional about the United States: it is average among industrialized countries—more generous than Australia, Canada, Ireland, and Italy, just behind Finland and the United Kingdom, and on a par with the Netherlands and Denmark. The difference is that in most countries the government, or large groups of companies, provides pensions and health insurance.
* The article shifts to talking about Ireland, "the Celtic tiger" of the past couple of decades, a success attributed to open markets and an educated workforce, which don't hurt.
But, as the Harvard economists David Bloom and David Canning suggest in their study of the “Celtic Tiger,” of greater importance may have been a singular demographic fact. In 1979, restrictions on contraception that had been in place since Ireland’s founding were lifted, and the birth rate began to fall. In 1970, the average Irishwoman had 3.9 children. By the mid-nineteen-nineties, that number was less than two. As a result, when the Irish children born in the nineteen-sixties hit the workforce, there weren’t a lot of children in the generation just behind them. Ireland was suddenly free of the enormous social cost of supporting and educating and caring for a large dependent population. It was like a family of four in which, all of a sudden, the elder child is old enough to take care of her little brother and the mother can rejoin the workforce. Overnight, that family doubles its number of breadwinners and becomes much better off.
In Ireland during the sixties, when contraception was illegal, there were ten people who were too old or too young to work for every fourteen people in a position to earn a paycheck. That meant that the country was spending a large percentage of its resources on caring for the young and the old. Last year, Ireland’s dependency ratio hit an all-time low: for every ten dependents, it had twenty-two people of working age. That change coincides precisely with the country’s extraordinary economic surge.
Demographers estimate that declines in dependency ratios are responsible for about a third of the East Asian economic miracle of the postwar era; this is a part of the world that, in the course of twenty-five years, saw its dependency ratio decline thirty-five per cent.
People have talked endlessly of Africa’s political and social and economic shortcomings and simultaneously of some magical cultural ingredient possessed by South Korea and Japan and Taiwan that has brought them success. But the truth is that sub-Saharan Africa has been mired in a debilitating 1-to-1 ratio for decades, and that proportion of dependency would frustrate and complicate economic development anywhere. Asia, meanwhile, has seen its demographic load lighten overwhelmingly in the past thirty years. Getting to a 1-to-2.5 ratio doesn’t make economic success inevitable. But, given a reasonably functional economic and political infrastructure, it certainly makes it a lot easier.
* Bethlehem Steel went bankrupt in 2001, with a dependency ratio of 7.5 pensioners per worker. When the assets were bought out and restarted with no dependents, it did just fine -- nothing wrong with American steel per se.
So our system's bad for employees -- what happens when your company goes under? -- and employers -- what happens when a hiring bulge of employees ages, or tech change means you don't need the workers, but still have them in a pay-as-you-go pension plan? But individual health insurance and retirement have problems too, putting all risk on the individual, and causing over-saving: I have to plan for living to 90 or more, if I don't want to be destitute, but an insurance pool can save for just the actuarial age of retirement. Private per-worker pension plans can probably work better than per-person health insurance, but you'll still need government regulation of the pension plan to make sure it's sound, since the government is likely to have to bail it out if it proves weak or corrupt.
* Around 1950 the auto unions suggested regional or national pension and insurance schemes, where a worker could switch between companies and be followed by his pension, with the companies in an area paying into the pension fund. The companies didn't like that at all, and offered per-employer plans. This tied workers to the company... it also meant that decades later, after aging and after technology that led to having fewer employees, the company got hosed for having done the right thing much earlier, while new plants like Toyota could be more competitive for not having retirees.
This crisis is sometimes portrayed as the result of corporate America’s excessive generosity in making promises to its workers. But when it comes to retirement, health, disability, and unemployment benefits there is nothing exceptional about the United States: it is average among industrialized countries—more generous than Australia, Canada, Ireland, and Italy, just behind Finland and the United Kingdom, and on a par with the Netherlands and Denmark. The difference is that in most countries the government, or large groups of companies, provides pensions and health insurance.
* The article shifts to talking about Ireland, "the Celtic tiger" of the past couple of decades, a success attributed to open markets and an educated workforce, which don't hurt.
But, as the Harvard economists David Bloom and David Canning suggest in their study of the “Celtic Tiger,” of greater importance may have been a singular demographic fact. In 1979, restrictions on contraception that had been in place since Ireland’s founding were lifted, and the birth rate began to fall. In 1970, the average Irishwoman had 3.9 children. By the mid-nineteen-nineties, that number was less than two. As a result, when the Irish children born in the nineteen-sixties hit the workforce, there weren’t a lot of children in the generation just behind them. Ireland was suddenly free of the enormous social cost of supporting and educating and caring for a large dependent population. It was like a family of four in which, all of a sudden, the elder child is old enough to take care of her little brother and the mother can rejoin the workforce. Overnight, that family doubles its number of breadwinners and becomes much better off.
In Ireland during the sixties, when contraception was illegal, there were ten people who were too old or too young to work for every fourteen people in a position to earn a paycheck. That meant that the country was spending a large percentage of its resources on caring for the young and the old. Last year, Ireland’s dependency ratio hit an all-time low: for every ten dependents, it had twenty-two people of working age. That change coincides precisely with the country’s extraordinary economic surge.
Demographers estimate that declines in dependency ratios are responsible for about a third of the East Asian economic miracle of the postwar era; this is a part of the world that, in the course of twenty-five years, saw its dependency ratio decline thirty-five per cent.
People have talked endlessly of Africa’s political and social and economic shortcomings and simultaneously of some magical cultural ingredient possessed by South Korea and Japan and Taiwan that has brought them success. But the truth is that sub-Saharan Africa has been mired in a debilitating 1-to-1 ratio for decades, and that proportion of dependency would frustrate and complicate economic development anywhere. Asia, meanwhile, has seen its demographic load lighten overwhelmingly in the past thirty years. Getting to a 1-to-2.5 ratio doesn’t make economic success inevitable. But, given a reasonably functional economic and political infrastructure, it certainly makes it a lot easier.
* Bethlehem Steel went bankrupt in 2001, with a dependency ratio of 7.5 pensioners per worker. When the assets were bought out and restarted with no dependents, it did just fine -- nothing wrong with American steel per se.
So our system's bad for employees -- what happens when your company goes under? -- and employers -- what happens when a hiring bulge of employees ages, or tech change means you don't need the workers, but still have them in a pay-as-you-go pension plan? But individual health insurance and retirement have problems too, putting all risk on the individual, and causing over-saving: I have to plan for living to 90 or more, if I don't want to be destitute, but an insurance pool can save for just the actuarial age of retirement. Private per-worker pension plans can probably work better than per-person health insurance, but you'll still need government regulation of the pension plan to make sure it's sound, since the government is likely to have to bail it out if it proves weak or corrupt.