Saturday, 16 May 2009

Is working longer the answer?

Conventional answers to the crisis brought on in the public finances by the recession are some mixture of increasing taxes and cutting public spending, generally more of the latter.

Now in a paper written for the National Institute of Economic and Social Research by Ray Barrell, Ian Husrt and Simon Kirby, it is suggested that each year of additional working life would cut the budget deficit by 1 per cent of GDP after 10 years and in time reduce government debt by 20 per cent of GDP.

Boosting average working lives by three years would pare back the budget deficit by 3 per cent of GDP and cut government debt by 60 per cent of GDP, which the institute estimates is the cost of the current crisis.

Interestingly, compared with earlier recessions, employment among older workers is holding up better than for other age groups. Of course, it may be that the depth of the recession and the impact on their pension pots incentivises them to work longer.

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