Pensions and skills
Pensions don’t grab everyone. When I was a youngish researcher, about 35 years ago, I did a study of employee trustees of pension schemes, and how much influence they had on the way the schemes were managed. I got quite into this, since it seemed (and seems) to me really interesting that there were employees formally involved in the management of huge sums of capital (even then, in the early 1980s, the funds were worth many billions). “Pension fund socialism’ was a prospect raised by the management guru of the time, Peter Drucker. In fact I got so into the topic that my friends used to make ‘switch-it-off’ gestures; years later I used to get phone calls from some of them saying “Tom, you know about pensions….”
Anyway, October’s Prospect magazine has a supplement on pensions, with a very interesting piece by Norma Cohen. She brings together demographic trends, most obviously increased longevity, with analysis of the investment challenges, e.g. bond yields. She has pertinent things to say about how people underestimate their pension needs, and the doubtful merits of increased ‘choice’ in respect of pension products.
When it comes to the problems of matching investment returns to the reality of longer lives, Cohen says “the solution to what looks like a pensions crisis may be to simply re-think what is meant by retirement.” Working longer is, obviously, a major part of this. It is already happening, to some extent: between the 2001 and 2011 censuses the percentage of those at work aged 65-75 roughly doubled, to 16%. But she also brings into the picture the opportunity costs of women choosing to have babies. These costs are, as readers of this blog will know, increasing steadily because of women’s increased skills and qualifications. Reducing these costs is necessary if we are to improve the fertility rate, and to boost economic performance sufficiently to cope with the pensions crisis.
This links nicely with the puzzle which the impressive Resolution Foundation is currently grappling with: what is happening to our labour market: why is employment holding up, whilst wages are dropping, Matthew Whitaker showed us at an event today how this is happening in a way that is historically almost without precedent. Investment too has fallen away drastically; and productivity has completed failed to grow. This is all rather weird.
Now here’s the specific link to Paula. Matthew showed amongst other things that over the period 2007-13 women’s wages have held up better than men’s, with women losing on average only 0.4% compared to men’s drop of 1%. That may seem to go against my general theme of women being under-rewarded for their competence. But my hypothesis is a) this difference is quite small relative to the way women’s skill levels have been growing faster than men’s; and b) the fact that wages overall are so depressed may be in some measure the direct result of women now having a greater share of our overall human capital. Apart from anything else (discrimination etc) we know that, individually and collectively, women negotiate less hard, on salaries as well as bonuses.
In other words, an important factor in the productivity puzzle is the following cluster of facts: a) women represent a greater share of our national stock of skills ; b) women tend to claim less in the way of wages, so c) employers get labour cheaper, and d) make lower capital investment, so that e) productivity is lower. Can anyone do the necessary calculations on this?