The pension dilemma in Italy, Germany and Sweden : a common challenge, different outcomes

Abstract

This dissertation is about public pension systems, intergenerational redistribution and welfare state change. The aim is to enhance our understanding of how national pension systems have evolved and how welfare states react to the challenges of population ageing and fiscal stress, a problem which I refer to as the pension dilemma. I take a combined look at policymaking and policy performance. On-the-ground outputs are assessed with a particular attention to redistribution across age groups and generations. The working hypothesis is that the burden of adjustment falls disproportionately on the young. While current and soon-to-be retirees have seen their pension rights largely unaffected, current labour market entrants will receive less in return for contributions paid, are more likely to experience career interruptions, and will, consequently, have more difficulties in obtaining full pension rights. Apart from being important in its own right, the hypothesis serves to tease out similarities and differences between countries. A look at demographic trends, the composition of social spending, and the socio-economic status of the aged across the OECD, reveals that diversity dominates among advanced welfare states. Studying the evolution of pension policy in three countries with Bismarckian pension systems, Italy, Germany and Sweden, we see, furthermore, that despite some similar policy responses, there is a surprising continued diversity with regard to how reforms are carried out and how these systems actually function. Advanced political economies have followed distinct paths in the past, and I submit that trajectories continue to be separate even though, on the face of it, reforms are in the process of making institutional architectures more alike. Going beyond the Bismarckian label, I characterise the Italian pension system as incoherent, the German as a classical and, finally, the Swedish as an egalitarian Bismarckian system. I submit that even in the context of significant reforms, they continue to be distinct from each other, and the dissertation offers an explanation of why we see a pattern of continued diversity. Most importantly, I submit that we need to situate the pension systems in their proper context taking account of their different socio-economic and institutional starting points. By studying the development of three modern pension systems over time, it becomes evident that previous policies form the most fundamental roadmap to new policies. Positive and negative policy feedbacks coexist. In some instances the cost of deviating from old principles renders certain policy options unfeasible (positive feedback). At other times they facilitate change through problems associated with old policy (negative feedback). Hence, actual policy output is more likely to be dictated by existing policies than exogenous shocks. If you begin with a more uniform and egalitarian system, the odds of reforming the system into a continued uniform and egalitarian system are rather good. By the same token, it is a difficult task to turn an incoherent and fragmented system into a coherent and uniform one. The effects of changes made to an incoherent system are much more difficult to predict. A classical system will be somewhere in-between these two extremes.