Fertility, dependency and social security

Abstract

A subject of considerable policy concern is the problem presented by declining fertility rates for social security systems in general and Pay-As-You-Go pension schemes in particular. Solutions proposed range from complete privatisation of the pensions system, through supplementary private tax-advantaged savings schemes, to "parametric reform" of the existing schemes, involving increases in contribution rates and retirement ages, and reductions in the real value of benefit levels. This paper argues that the sense of crisis generated by looking only at the Aged Dependency Ratio is exaggerated. Moreover, we should look at what appears to be the root cause of the problem, the apparently inverse relationship between female labour force participation and fertility. A solution to the problem can be found in policies that allow an increase in female labour supply and fertility simultaneously.