Intergenerational divide & future crunch

Intergenerational divide & future crunch Luciano Monti

Adjunct professor of European Economic Policy, Political Sciences Dep., LUISS University, Rome

Aises Young policy week Roma 0ct.28, 2014

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The starting point

The urgency to predispose instruments for intergenerational solidarity is dictated not only by reasons of horizontal equity and global distributive justice, but also by social and economic reasons.

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The main questions

• What about the future? Towards a new concept of wellbeing?

• Generational divide and gap: how can we fight them?

• The emerging of generational divide: a generation’s responsability?

• Exit strategies and european tools: how to reinforce sustainibility? The challenge of the Youth Guarantee, The Generation Gap Tax (GGT) and Education 2.0

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What about the future

“Technically and ideologically we are still a long way from bottled babies (….) Meanwhile the other characteristic features of that happier and more stable world (…) are probably not more than three or four generation away” (Aldous Huxley, Brave New World, 1946)

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“Assuming no important wars and no important increase in population, the economic problem may be solved, or be at least within the sight of solution, within a hundred year” (John Maynard Keynes, Economic Possibilities for our Grandchildren, 1930)

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“We can now see how financial innovation has eroded the commitment devices to save and invest for the future. Imagine an island where there is a goose that lays a golden egg every month. By selling the golf every month and investing some of the proceeds they gradually become more prosperous. Then some innovative bankers sail into harbour and every thing changes….” (David Willetts, The Pinch, 2010)

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Generational divide and intergenerational gap

generation across the crisis

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Silent generation

(born before 1945)

Baby boomers

(born between 1946 and 1960)

Lost (X) generation or Post Boomers

(born between 1961-1980)

Y generation (Millennials)

(born after 1981)

homeland generation (born after 2000)


The centrality of the intergenerational dynamics

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Silent generation

(born before 1945)

Baby boomers

(born between 1946 and 1960)

Lost (X) generation or post boomers

(born between 1961-1980)

Y generation (Millennials)

(born after 1981)

homeland generation (born after 2000)

Generational divide and gap

About the gap

between those who profited from income and consumption growth and the high standards of social security (Baby Boomers) and those who are now facing new labor market constraints and civil society

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0,6

0,7

0,8

0,9

1

1,1

1,2

1,3

1,4

1,5

1,6

Italian Household welthness between 1987-2008. Under 34 years (blu line). Over 64 years (red Line). (1=1987 data). My elaboration on D’ALESSIO G., Ricchezza e disuguaglianza in Italia 2012, Bank of Italy paper)


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Household welthness durring 1987-2008. Under 34 years (blu line). Over 64 years (red Line). (100=household average). My elaboration on D’ALESSIO G. cit.

60

65

70

75

80

85

90

95

100

105


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About divide: the generation divide caused by efforts of mitigation and adaptation to climate change and massive young unemployment and the financial constraints for the maintenance of European welfare systems.


About the divide:

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0

5

10

15

20

25

30

35

employed unemployed

economically inactive

Serie1 18,8 5,6 33

mill

ion

EU-28 young population aged 15-24

(Eurostat 2012)

Structure Youth Population Education Labour Market EU, 2012


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About intergenerational equity: The climate change, reduction of ecological footprint and natural resourches


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About intergenerational equity:

By Global Footprint Network, 2014

Generational divide and integenerational gap

Main indicators of intergenerational unfairness

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Economic and welfare

•The rise in levels of government debt

•Housing becoming less affordablke for younger people

•Raising of interest rates fand credit crunch for start-up

• Increase of disparity of income between the young and national average

• Increase of the ratio of youth unemployment

2 education and democracy

•Government spending in education

•Raising of costs of high education

•Declining of partecipation in democracy on younger people

3 Environment

•Raising of green house gases emission

• Impact of the disaster economy


• The UK experience: the Intergenerational Unfairness INDEX (IF) by the Intergenerational Foundation (www.if.org.uk)

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Younger generation

Future generation


• IF indicators (UK monitoring)

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• IF applied to UK

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• IF applied to UK (2000-2014)

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• A proposal for new indicators

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Interest rate

competitivity Credit crunch

Informal education and new credits

education

wealthness Well-being

The origin of generational divide

unsustainability of policies adopted until the early years of 2000’s These policies were adopted to ensure development of western countries welfare systems

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It is not easy to estimate the impact and calculate the intensity of unsustainable growth on future generations, since the current recession is the product of many contributing factors, many of which are certainly exogenous

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Some key factors

• the gravity center displacement of the big flows of global economy to other geographic areas, (such as China and other Asian countries)

• the incompleteness of the European project, which started with the creation of a single market first, and the European monetary union after.

• the inability of the major member States to face the crisis with timely and effective action, especially in common monetary and foreign policy

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• we find that the sectors with the highest presence of young workers are those affected the most by the economic downturn)

Percentage variation of youth employment by sector from 2008to 2001 (Eurostat data july 2012)

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Exit strategies and European tools

The main pillars of an exit strategy

These pillars belong to

education processes aimed to help new generations to adapt to multiculturalism and the aging of population, to climate change and energy and environment policies and the mitigation of their consequences,

fiscal policy capable of overcoming those inequalities generated among generations, and effective in distributing taxation in a sustainable way

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Is there an ethical system that could justify a redistribution of wealth for the benefit of the younger generations and the economic impact?

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From an ethical point of view, the question is whether it is appropriate or not to consider baby boomers as responsible of the present situation. They have in fact profited from the pre-existing high levels of wealth

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the idea of direct responsibility, which would lead to justify an action in redistributive logic as “who is wrong must pay”, is not acceptable

Because

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a) it is not possible to establish a univocal causal link between policies implemented during the last three decades of the Twentieth Century and the beneficial effects on generations who have profited from previous growth

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B) to penalize baby boomer generation we must assume that they have violated some principle or rule. Consequentially, it would be necessary to establish an authority able to formulate such a judgment

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Time for an International court for intergenerational equity?


The Youth Guarantee

“the Youth Guarantee will help to ensure that all young people aged less than 25 years will receive an offer of employment, continuation of studies, apprenticeship or internship of good quality within a period of unemployment four months long or soon after the exit from the formal education system. This agreement should be quickly implemented, thanks to the support for the youth employment initiative” (conclusions EUCO 14-15 of March 2013)

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6 billion euro (assured by EU Structural Funds through a reserve of 3 billion euro under the European Social Fund and other 3 billion euro under a new budget line specifically created to finance measures in support of young people, including precisely the new youth guarantee)

were allocated to support these policies).

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Guarantee structure and lifetime

instruments

beneficiaries costs


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Guarantee structure and lifetime

the specific target is to intervene in support of those young people in

greaetest need


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Instruments

i) orientation, CV formulation, career planning and search support for job

opportunities

ii) internship and /or training iii) apprenticeship

iv) an offer of quality employment, v) funding for

self-employment.


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Beneficiaries young unemployed

never previously employed people

THE NEET (not in employment, education

or training)


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Costs

International Labour Organization (ILO) estimated the cost of the youth guarantee in the Eurozone to amount

to roughly 21 billion euro, equal to 0.45% of the cumulated GDP

Using the Eurofound formula, the cost of youth guarantee for a country like Italy, limited to NEETs, should be

around 7 billion euro per year


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The Generation Gap Tax: The Ratios

It is not simply a withdrawal for solidarity (to help the needy) but a withdrawal of an equalizing distributive nature, with the purpose of relieving whom is unjustly bearing excessive costs to reduce the divide


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• The withdrawal must be progressive, not only according to the retirement system contribution but also depending on the year of entry into the retirement period and effective contribution period


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We face three problems:

• (Constitutional) in countries where a constitutional recognition of acquired right exists, there is little space for action to reduce the impact of previous welfare system


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• (Economic) the expected benefits should be proportional to the strength needed to take on the challenge and not be counterbalanced by a significant decrease of internal demand

• (Governance) the money obtained by GGT should be managed within a sort of a governamental/european Young Generation Fund


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An example of GGT with two components A)Equal distribution coefficient


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B) Environmental sustainibility coefficient


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B)The young generaion fund

Young generation fund


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Education 2.0

New intergenerational

pillars

Education Energy and

climate change adaptation

Fiscal politics

Adaptation to

new

paradigms

Education

2.0


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Education 2.0

European

intergenerational pillars

Education Energy and

climate change adaptation

Fiscal politics

Adaptation to

new

paradigms

and key

competence

Education

2.0

Active democracy and social/civic competences

Better social recognition of non

formal learning


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Social and civic

digital

Foreign language

Math.& scient.

Learning to learn

Sense of initiative

Cultural awarenes

s

expressions


“The current use of Learning 2.0. Social computing applications are currently not deployed on a large scale in formal Education and Training in Europe. However, there is a vast number and variety of locally-embedded Learning 2.0 initiatives all over Europe, which illustrates the variety and scope of Learning 2.0 approaches in formal E&T. Looking at the 250 cases that have been gathered as part of this project, the following general approaches towards using social computing in formal educational settings can be discerned” (IPTS, Learning 2.0: The Impact of Web 2.0 Innovations on Education and Training in Europe Final Report, 2009)

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IPTS, Learning 2.0 cit


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Formal vs informal ed.


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0

5

10

15

20

25

30

35

businessmen professionals managers qualified empl. Total

% attending top ten italian universities by social origin

LUISS-Fondirigenti, Generare classe dirigente, VII report 2014


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Education 1.0

Education 2.0

Education 3.0


Contact

You can find these slides and other research papers in:

https://www.researchgate.net/profile/Luciano_Monti

Visit also

http://lucianomonti.wordpress.com/

or

http://docenti.luiss.it/monti/

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https://www.researchgate.net/profile/Luciano_Monti

http://lucianomonti.wordpress.com/

http://docenti.luiss.it/monti/

Intergenerational divide & future crunch

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