Harsh occupations, life expectancy and social security

Abstract

Should pension provisions differ by occupation? We study the optimality of allowing the pension policies to differ by occupation when individuals differ in longevity and occupation, longevity is private information but occupation is observable. There is a case for differentiating the pension policy by occupation when longevity is (imperfectly) correlated with occupation. The short-lived workers in the safe occupation are however made worse-off, more so when the social objective includes a higher social weight on short-lived individuals to redress the implicit bias towards long-lived that the unweighted utilitarian objective entails. The maximin criterion ensures equal utility for short-lived workers regardless of occupation but those in the safe occupation consume the most when young, the least when old and retire the earliest. This is achieved by taxing – often quite heavily – their savings and their earnings from prolonged activity. Show more