Intergenerational contract

The generation contract describes a fictitious "" solidarity contract "between two social generations " ( Wilfrid Schreiber ) as the theoretical-institutional basis of a pay-as-you-go- financed dynamic pension. The aim is to introduce allocation rules for the distribution of the labor income of employed persons with the aim of appropriately dividing the individual consumption possibilities over the three life phases of childhood and adolescence, employment phase and old age. The term intergenerational contract is not to be understood legally, but rather figuratively, since no legally enforceable contract can be concluded between the generations.

Different definitions

The term “intergenerational contract” has gained great importance in German social history. Depending on how it is understood, different socio-political conclusions are drawn.

Definition from the Große Bertelsmann Lexikothek (1990):

In the FR of Germany, the idea of the “solidarity agreement between the generations” was developed by W. Schreiber. The starting point is the statement that the income earned through employment is to be understood as lifetime income. It is justified by the phases of life: childhood and youth (a phase in which the skills for employment are acquired) and working age (during which income is earned). But it must also be sufficient for the phase of the evening of life. If one sees society as a community of solidarity, it can (and must to ensure social peace between the generations) find solutions for distributing the income generated by the middle generation, which ensures their livelihood as well as that of the children and the elderly. This task falls to the respective social security system.

In contrast, there is a narrower definition, which can be found, for example, at the Federal Ministry of Finance and the German Pension Insurance:

The generation contract is the unspoken "contract" between the contribution-paying and the pension-receiving generation. The monthly payments made by employees and employers into the state pension fund are intended to finance ongoing pension payments. For their part, the working and therefore paying generation expects their pension to be covered by the contributions of the next generation. In fact, as the basis of the German pension system, the generation contract is a state-organized maintenance obligation towards the elderly in society.

The difference between the definitions is that the middle working generation is seen to have an obligation to both the young and the old generation, while the other concept of the generation contract is limited to a state-organized maintenance obligation of the middle generation towards the older generation and the young generation is only the object of an expectation that it will later enter into the generation contract itself.

history

The concept of the intergenerational contract is historically traced back to the idea of the social contract as it was developed in the 18th and 19th centuries and to the social contract by Alexis de Tocqueville , as well as to the interpretation of social insurance based on the model of private insurance.

The concept of the intergenerational contract was then used in connection with the introduction of the pay-as-you-go system in statutory pension insurance and later also with other redistribution mechanisms in the welfare state (especially with the health insurance of pensioners and children as well as long-term care insurance). In a broader sense, reference is made to the intergenerational contract in political debates in the areas of education , budgetary policy and generally in connection with sustainability .

The original system of statutory pension insurance was based on savings in pension contributions, which had to be paid equally by employers and employees on pension accounts. With the exception of short periods, however, there was never sufficient funding . Inflation and the two world wars also ruined the attempt. That is why the pension system worked in a kind of pay-as-you-go system long before 1957.

The system of capital coverage was converted into a pay-as-you-go system in 1957 in the 1957 pension reform under Konrad Adenauer . The underlying concept by Wilfrid Schreiber - also known as the “ Schreiber Plan ” - initially used the term “solidarity contract between the generations”.

The “Schreiber Plan” was only partially implemented. According to this plan, both children and young people (before they reach the age of 20) and the elderly (after they have reached the age of 65) should be guaranteed a share of the total earned income. In addition to supporting the elderly, the middle generation should also provide for the younger generation with pension contributions from earned income. Accordingly, in addition to the old-age pension, a childhood and youth pension was provided. Unmarried childless people should pay double the contribution (married childless people 1.5 times the contribution) as married people with two children.

With this, Schreiber tried to transform the "solidarity contract" within the family that existed in pre-industrial society, according to which the parents raised the children and thereby acquired the natural right to support in old age, into industrial society.

By implementing only that part of the “Schreiber Plan” that worked in favor of the older generation, the working generation was only obliged to pay dynamic pensions to the no longer working generation. A comparable obligation towards the next generation in the form of a “dynamic childhood and youth pension”, which Schreiber viewed as the “price” for the dynamic old-age pension, was not realized. The maintenance costs of the children, including the upbringing expenses, remained largely with the parents, while the pension entitlement was linked to gainful employment, whereby parents with children acquire fewer entitlements than peers without children.

In Switzerland, the concept of the generation contract was also introduced into the political discussion in 1947 as part of the statutory introduction of old-age and survivors' insurance (AHV) . The AHV is also based on a pay-as-you-go system. With the introduction of further welfare state redistribution mechanisms - for example in the Health Insurance Act of 1996 - the use of the term also expanded to these areas and today stands for a widely accepted principle of the Swiss welfare state.

Controversy

Inclusion of the next generation who are not yet able to work

It is demanded that in pension law not only - as is currently the case - the model of the two-generation contract, but the three-generation contract should be implemented. Economic reason dictates that income be transferred back from working age to childhood. This cannot be achieved individually, but only through solidarity aid between two generations, i.e. within society through a generation contract.

From the beginning, Oswald von Nell-Breuning has opposed the incomplete implementation of the generation contract defined by Schreiber: If the childless and the poor build their existence, especially their care in old age, on other people’s children, then family burden balancing and pension provision form a unit; a meaningful regulation is only possible if you touch both together. When the pension reform came into force in 1957, the legislature completely overlooked and disregarded this connection between equalization of family burdens and pension provision. Those who pay contributions do not get their contributions back when they get old. With the contributions they did not earn the pension, but with them they reimbursed what the generation before gave them. With that they are even. The pension that they want to receive themselves is earned by raising their offspring. Anyone who does not contribute to this is in a huge deficit.

Zeppernick complains that in Germany, due to the one-sided interpretation of the generation contract, the connection between age and child burden equalization is not seen, which has correspondingly detrimental consequences for the family.

Wilfried Burkhardt pointed out that in the intergenerational contract, bringing up children is the actual contribution to your own old age, and not the social security contributions that serve to secure your own parents' old age.

The sociologist Franz-Xaver Kaufmann gives a more up-to-date overview of the effects of the one-sidedly understood generation contract . Like Nell-Breuning, he criticizes the fact that Adenauer introduced the dynamic pension, but omitted the dynamic children's fund provided by Wilfrid Schreiber in return. He describes this as the central design flaw of our current system of social redistribution (p. 78) and continues: "Our society is polarizing into families (with mostly two or more children) and childless ways of life - a new serious form of social injustice is emerging" (P. 80).

The entire German pension system is condemned: by raising the future workers, who will also have to finance the pensions of the childless through their contributions, they indirectly finance the pensions of the childless through their contribution to the formation of human capital, who on average can also acquire comparatively higher pension entitlements . The so-called “transfer exploitation of families” can also be demonstrated in a less blatant form in the other transfer systems (p. 170). In a comprehensive monograph, Martin Werding analyzes the nature and political reinterpretation of the generation contract and calls for a full generation contract .

Impact on National Income

Based on the Barro-Feldstein controversy in the 1970s, there is still a controversial discussion today as to whether a pension insurance based on the funded system leads to higher overall economic savings compared to a pension insurance based on the intergenerational contract and, as a consequence, can lead to higher economic growth and thus a higher national income to be distributed.

With the pension reform in Chile , a change was made for the first time from the pay-as-you-go system to the funded system, and the results were carefully analyzed. Other South American countries followed the example of Chile. In the countries in which the pension system was switched from the pay-as-you-go system to the funded system, it was found that in many cases the savings rate did not increase, and in some cases even decreased. A connection between the way the pension system is organized and the level of the savings rate could therefore not be established. Orszag and Stiglitz come to the conclusion that the introduction of a funded system does not in itself have any macroeconomic effects. The fact of the introduction of a funded system does not in itself lead to an increase in the overall economic savings rate; it depends on the further behavior of citizens and the state. The introduction of a funded system does not, for example, lead to an increase in the economy-wide savings rate if, without this pension reform, citizens would have saved a similar amount in another way (i.e. if the pension savings merely replace other forms of capital investment). The same is the case when citizens or the state take on debt as part of the pension changeover to the same extent as a capital stock is built up in the savings phase. In Chile, the changeover to the funded system led to a net reduction in the savings rate as the conversion costs were very high. At the same time, however, the introduction of the funded pension led to the maturation of the previously underdeveloped Chilean capital market, which had a positive effect on the additional voluntary saving behavior of the Chileans and the overall economic saving rate.

Problem of demography

It is criticized that the intergenerational contract cannot work at all because of the demographic imbalance between the generations. The social systems working with intergenerational contracts are facing increasing financing problems due to future demographic effects. While the generation contract ought to work excellently from a demographic point of view, due to the baby boom and, especially in the case of male pensioners, the war-related gaps, changes on the contributor and benefit recipient side have already led to problems. A lack of premium income meant that the federal grant in Germany, for example, had to be increased almost annually since 1990 to more than 80 billion euros today. The main causes are often high unemployment and the drop in the wage share in the national income , as well as the inclusion of the GDR with its very extensive employment histories. The service catalog and scope of the statutory pension insurers were expanded significantly, especially in the 1970s, to the limits of what was then possible. In the case of problems on the labor market that grew later on, it was then omitted to take them back accordingly.

In a few years' time, the real problems of the intergenerational contract will also become noticeable as a result of population growth. Since the beginning of the 1970s ( Pillenknick ) Germany has had an extremely low birth rate , so-called cohort fertility has been falling steadily and is stable around 1.35 for women born in 1955 or later. 1000 adults will thus father just under 700 children in the course of their lives. With the entry of these cohorts into working life since the beginning of the 1990s, the base of contributors began to narrow, even if this was also macroeconomic, u. a. because of the lower expenses for the maintenance of the children and the still low income of the young professionals, still has little effect. Population scientists expect a dramatic change in the ratio of contributors and recipients from around 2015, when baby boomers reach retirement age and retire from working life and those years that are poorly represented because of the pill break should actually bear the brunt of the contribution payment. The peak of the problems is expected around 2030; If the previous birth behavior remains unchanged (which is what all the signs suggest), it will not decrease again afterwards, but will solidify for decades.

How severe the impact on the social systems will be depends - in addition to the pure cohort size - on several factors that are in turn related to one another and to population development, in particular the employment rate , the wage share and productivity development. However, it is not to be expected that the number of births, the participation rate and productivity will improve so dramatically in a few years that the predictable problems will be substantially reduced.

The financing of the pension insurance of the intergenerational contract is based on the wage share derived from the national income . The national income of the Federal Republic of Germany doubled between 1970 and 2000. Assuming that national income will double again in the next thirty years, while the population will decrease by 20%, then the national income per capita will more than double. From a macroeconomic point of view, the generation contract will also be possible in the future.

Criticism of euphemism

The term “generation contract” is seen by critics as a political slogan and euphemism that suggests that the entitlement to pension entitlements is justified by an agreement between the generations. However, at the time of the justification of the entitlement, the future employed were either not yet born or at least not yet able to participate in the political decision-making processes, i.e. to perceive their own interests in this balance between generations. The generation of pension recipients then to be provided has conceded to themselves an expansion of their entitlements, which is out of proportion to their own contribution to the generation that then has to meet this entitlement. In particular, the assets of the pension insurers were also wasted in a relatively healthy time from a demographic point of view for reasons of political opportunity by increasing benefits instead of expanding them further for provision.

However, this criticism is only understandable if the above-mentioned second definition is used as a basis, which merely describes an agreement between two partners (the employed and the pensioner) at the expense of a third party (the next generation), while a contract is characterized by mutual self-commitment . Based on the first definition, which goes back to Wilfrid Schreiber and which is the original definition, the term “contract” corresponds to the mutual self-commitment between parents and children, as it has always been within the family.

Controversy over favoring childless people

Other critics see the intergenerational contract as mere fiction, as Schreiber's plans were not fully implemented. In reality it is an "insurance against childlessness": Those who do not invest in children can only afford to forego massive reserves for their old age because other people's children would later be forced to look after them. Not only the children, but above all their parents, whose share of the “pension pot” is correspondingly lower, would be disadvantaged and deprived of the fruits of their investment (in the children), while the childless would not only be saved from having to raise children Money, but in particular his (both genders added together) because of the lack of a double time burden, higher earned income remains at his sole disposal. Either childless (with full contribution payment, which benefits their own parents and grandparents) would have to be excluded from any pension insurance benefits and make private provision, or they would have to use the money saved due to the lack of child rearing to support families in raising children.

In this sense, the former judge at the Federal Constitutional Court Paul Kirchhof formulated : As long as the childless do not participate in the financial support of the child at all, the old-age insurance provided under the intergenerational contract belongs exclusively to the parents; the rest of the population would have to take other precautions for their age, e.g. B. a life insurance plan.

The former President of the Federal Constitutional Court and Federal President Roman Herzog criticized: It cannot be that a married couple - with only one pocketed a lifelong salary or wage - raise children and only get a pension in the end. On the other hand, two spouses earn two pensions. And the children of the couple who only receive one pension also earn both of these pensions. This is an outright violation of the constitution.

Individual evidence

↑ http://wirtschaftslexikon.gabler.de/Definition/generationenvertrag.html Keyword from the Gabler Wirtschaftslexikon.

↑ Gunther Tichy: "The hyped-up generation conflict - a game with fire" In: Future Forum Austria: "Generation conflict - generation harmony: social cohesion to secure the future" Verlag des ÖGB, Vienna 2004, p. 311.

↑ Archive link ( Memento of the original dated August 7, 2009 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. from the glossary of the Federal Ministry of Finance, accessed on August 20, 2011.

↑ http://www.deutsche-rentenversicherung.de/SharedDocs/de/Inhalt/Servicbereich2/Lexikon/Functions/Lexikon.html?nn=28144&lv2=49834&lv3=88282 ( page no longer available , search in web archives ) Info: The link was automatically marked as defective. Please check the link according to the instructions and then remove this notice. Lexicon of the German Pension Insurance@1@ 2

↑ Our social security. Federal Insurance Agency for Salaried Employees, 1975, p. 60.

↑ Cf. Manfred Prisching: "Pictures des Wohlfahrtsstates", Marburg 1996, p. 92.

^ Nancy Z. Henkin, Donna M. Butts: Advancing an Intergenerational Agenda in the United States. In: Matthew S. Kaplan, Nancy Z. Henkin, Atsuko T. Kusano (Eds.): Linking Lifetime - A Global View of Intergenerational Exchange. University Press of America, Landham, New York, Oxford 2002, p. 67.

↑ Christian Christen: Political Economy of Old Age Security - Critique of the reform debate about intergenerational equity, demography and funded financing. Marburg 2011, p. 156.

^ Hermann Ribhegge: The influence of alternative concepts of old-age security systems on the security level, old-age poverty and income distribution: A comparison between Germany and the USA. In: Richard Hauser: Alternative Concepts of Social Security. Duncker & Humblot, 1999, ISBN 3-428-09784-X , p. 172.

↑ ^a ^b "Schreiber plan" (PDF; 122 kB)

↑ Wilfrid Schreiber: Exixstenzsicherheit in industrial society. Reprint of the Federation of Catholic Entrepreneurs, Cologne 2004, p. 33.

^ Oswald von Nell-Breuning, 1957; from social security? Herder, 1979, p. 35.

^ Oswald von Nell-Breuning, 1978; from social security? Herder, 1979, p. 76.

^ Oswald von Nell-Breuning, 1980 at the CDU Seniors' Congress

↑ Ralf Zeppernick: Critical remarks on the connection between age burden compensation and child burden compensation. In: Financial Archives. 1979, volume 37/2, p. 293 ff.

^ Wilfried Burkhardt: Three-generation solidarity in the statutory pension insurance as an imperative. Duncker & Humblot, 1985, ISBN 3-428-05876-3 , p. 23.

^ ^A ^b ^c Franz-Xaver Kaufmann: Challenges of the welfare state. edition Suhrkamp 2053, 1997.

↑ Martin Werding: On the reconstruction of the generation contract; Economic connections between bringing up children, social old-age security and family benefits equalization. 1998, ISBN 3-16-146889-9 .

^ Heinz Rothgang: Theory and Empirical Care Insurance. 1st edition. Lit Verlag, 2010, ISBN 978-3-8258-1342-0 , p. 75.

↑ Ebert Foundation: Old-age security policy: broader compulsory insurance, withdrawals of benefits, supplementary private provision, guaranteed minimum income

↑ Peter R. Orszag, Joseph E. Stiglitz: Rethinking Pension Reform: Ten Myths About Social Security Systems. [1] presented at the World Bank's "New Ideas About Old Age Security" conference , Washington, DC, September 14-15, 1999.

^ C. Mesa-Lago: Changing social security in Latin America: toward alleviating the social costs of economic reform. Boulder, London 1994, p. 132.

↑ OECD: Latin American Economic Outlook 2008. 2007, ISBN 978-92-64-03826-4 , p. 74.

↑ Why the intergenerational contract has to fail.

↑ Spiridon Paraskewopoulos: Is an additional private old-age provision necessary in Germany? Micro-versus macro-economic aspects. In: Karl Farmer, Reinhard Haupt, Werner Lachmann: Live long and poor? LIT Verlag, Münster / Hamburg / London 2002, p. 97.

↑ Peter Bürfent: pension reform in Latin America. In: Economic policy research at the University of Cologne. Volume 34, Tectum, Marburg 2000, ISBN 3-8288-9038-5 , p. 46. (online)

^ Gerd Habermann: Correction - A polemical social lexicon. Olzog, Munich 2006, ISBN 3-7892-8182-4 . (on-line)

↑ "The generation of parents and grandparents is negligent in safeguarding property rights at the expense of their children and grandchildren." ( Generation manifest. Warnings ( Memento of the original from June 11, 2013 in the Internet Archive ) Info: The archive link has been inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this note. From June 6, 2013) @1@ 2

^ Paul Kirchhof, from marriage and family in state and church tax law. In: Essen Conversations. 21, 1986, p. 14.

^ Roman Herzog in: Gesichertes Leben. Journal of the LVA Baden, 4/1996, p. 4.

literature

Wolfgang Gründinger : uprising of the young. How we can avoid the war of generations. CH Beck Verlag, Munich 2009.
Jacques Véron, Sophie Pennec, Jacques Légaré (Eds.): Ages, Generations and the Social Contract: The Demographic Challenges Facing the Welfare State. 1st edition. Springer Netherlands, Berlin 2007, ISBN 978-1-4020-5972-8 .

Web links

Wiktionary: Generational contract - explanations of meanings, word origins, synonyms, translations