Revising the generational contract

The generational contract is understood as a set of tacit agreements between people belonging to different generations. Part of these agreements takes the form of welfare state devices, which constitute the generational welfare contract.

Factsheet

 

  • Geographical scope: OECD countries.
  • Source: BIRNBAUM, S., t. FERRARINI y K. NELSON (2017): The Generational Welfare Contract: Justice, Institutions and Outcomes, Cheltenham, Edward Elgar Publishing.

1. Context

According to Birnbaum et al. (2017), there are several ways of organising the welfare state from an intergenerational perspective. Generational welfare contracts that are favourable to workers (which could be called pro-work) attend primarily to the social risks of people who are economically active and of working age. Those that are favourable to the elderly (pro-old) are focused mainly on social risks related to old age. Those that are favourable to children (pro-child) would basically benefit this age group. Lastly, balanced contracts attend equally to social risks related to each of the age groups that make up society. Thus, for example, Germany would have a pro- work generational contract; the UK, a pro-old one; and France, a balanced one. The pro-child type, however, is not found with any degree of temporal continuity in any of the countries analysed by the authors.

2. Debate

The greater the intergenerational uniformity of social protection systems in OECD countries, the higher the level of income replacement of social benefits. This is the case for both social security benefits and welfare benefits. Consequently, countries with balanced generational welfare contracts perform better in the following terms:

  • Lower incidence of poverty. In addition to lower average poverty rates, differences in the incidence of poverty between each age group are less pronounced.

  • Higher levels of labour participation. The extension of social protection to all age groups would be related to higher levels of labour participation without generating higher unemployment rates.

The distribution of welfare among generations is not a “zero-sum game”. Strengthening the instruments protecting against social risks related to a particular generation does not necessarily involve weakening those devices that are geared towards preventing the social vulnerabilities of people belonging to other generations.

3. Conclusions

A balanced generational welfare contract, in the sense of one that offers equivalent levels of social protection for the various generations (children, people of working age and the elderly), on the whole guarantees better
levels of protection against the vulnerabilities inherent in each age. Furthermore, a balanced structure generates a series of positive externalities in such diverse areas as poverty and female labour participation. Thus, mechanisms intended to protect one particular generation are not necessarily strengthened at the expense of the rest.