Social Security, demographic change, and intergenerational transfers : the French example : an honors thesis [(HONRS 499)]

Abstract

Social security is a complex instrument of transfer payments in France, consisting of numerous regimes covering different groups of the population. Benefits are extensive and may be classified into three categories: medical, old-age, and family. The system represents a large and increasing part of the national economy and is financed largely through employer and employee contributions.French demography is characterized by slow decreases in mortality at most ages and by a decreasing fertility. Fecundity rates have fallen below the 2.1 level necessary for the replacement of generations. Population projections through 2075 are presented, given various fecundity hypotheses, both constant and fluctuating.Financially, French social security since 1968 has been marked by instability. During the 1970's, certain funds (family benefits, for example) were often in a surplus state, while others (medical benefits) often ran a deficit. This instability was due to numerous factors: demography, political changes in benefits and contributions, and economic recession. The demographic factor in the future will favor continued deficits in the medical and old-age branches which will be only partially offset by surpluses in the family branch.Social security, as a kind of collective intergenerational transfer, is concerned with the ratio of inactives to actives in the population. While actives as a percent of the total population are fairly constant even with a changing fecundity, movements between the groups of young and aged persons can be significant. The cost to the nation of a retiree is only slightly more than that of a young person, so from this perspective, fertility change is not so important. From the perspective of government though, the change is more important, as government spends 2.50 times as much on individual retirees as on children. In any case the effects of fertility change are seen to be less than the potential effects of a change in the retirement age or an increase in feminine activity in the workforce.The life of a pay-as-you-go pension scheme involves three groups: the initial generations, the intervening generations, and the terminal generations. These first receive benefits without having contributed to the system; the second receive benefits which reflect, ideally, contributions made plus increases for demographic and economic growth; and the third contribute without receiving any benefits.A capitalized pension system would establish a fund where contributions would collect interest. Under stable conditions, the individual contributions in a funded system or a pay-as-you-go system would be equal whenever the natural growth rate of the population equaled the interest rate adjusted for inflation. A fully-capitalized system on a national level, however, would probably be impossible due to the capital demands of the fund. A partially-funded scheme, such as exists in Sweden, might be possible, however.