As China’s economy slows down, creating enough jobs to keep the unemployment level from rising has become a serious challenge. But the country has to fight another battle at the same time –coming up with sufficient financial resources to take care of a swelling population of retirees.
National People’s Congress delegates from the northeastern Heilongjiang province told Premier Li Keqiang that in a year or two the provincial government may be unable to pay the growing bill for pensions and medical insurance.
Pushing back retirement has been mentioned as a solution. I think otherwise.
It’s true that the retirement age in China is early when compared with the global standard. Normally, female employees may retire at the age of 50 and males 60. The current pension regime is financed on a pay-as-you-go basis and is thus particularly vulnerable to sustained deficits in the face of an aging population and when the retirees begin to outnumber those who are working.
It’s also true that studies by top economists show that asking old employees to work longer can ultimately lead to additional job opportunities for young people and fresh graduates since, to a certain extent, experienced workers and youngsters are complementary. A similar study by the Central University of Finance and Economics using data in China has also drawn a similar conclusion.
Nonetheless, there are two major drawbacks if retirement is delayed in China.
It will let old folks, especially those in senior positions, take advantage of available resources and the whole society may become more conservative, inefficient and resistant to changes.
Another problem is that when a society values experience and set ways and norms of doing things, innovation and social vitality may suffer. To some extent, innovation can be harmful to the elderly as the value of their experience and knowledge will depreciate. It is also a universal truth in business and politics.
The adverse impact of retiring late can be worse in China, where there are already lots of cases of eminent communist leaders, who have “nominally” retired, still clinging to supreme powers as “behind-the-scene rulers”.
This article appeared in the Hong Kong Economic Journal on March 12.
Translation by Frank Chen
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