Hostname: page-component-cd9895bd7-gxg78 Total loading time: 0 Render date: 2024-12-24T13:53:25.207Z Has data issue: false hasContentIssue false
  • English
  • Français

Pensions: the impact of migrations and cross-border workers in a small open economy

Published online by Cambridge University Press:  18 January 2018

MARION LABOURÉ
MARION LABOURÉ*
Affiliation:
Netspar Research Fellow, Economics Department, Harvard University, Littauer Center 216, Cambridge, MA 02138, USA (e-mail: [email protected])
Get access Rights & Permissions [Opens in a new window]

Abstract

The pension system brings challenges in many high-income countries. While the system was set up at the time of economic growth, policymakers are facing both economic slowdown and aging population. Moreover, there is an incentive mis-match between short to medium term popularity and re-election versus taking necessary decisions to affect long-term sustainability of the system. In a small open economy, the situation is further accentuated by high volatility driven by migrations and cross-borders workers. This paper aims to address the policymakers’ challenges and develops an innovative model, whose main contribution is the way it reflects the cross-border workers’ contribution and impact. Therefore, it allows to not only assess the state liabilities, but also the evolution of the age pyramid with a significant portion of new migrants and cross-border workers, considering the high volatility of workers. It also provides an approach to analyze issues at stake and remove decision biases faced by politicians through policy options and their impact under various economic scenarios. With the model in hand, we analyze three different scenarios for the future evolution of Luxembourg's pension system. In all three scenarios, the results reflect a significant imbalance of the pension system over time (to 2060), going from 1.6% of gross domestic product (GDP) surplus in the best scenario to 14.2% of GDP deficit in the worst scenario. The probability of this worst scenario is related with a worsening of the economic situation, with job destruction and a drop in economic growth impacting cross-border commuters and net migrations.

Keywords

H55J11I18I2Pensionsageingpopulationsmall open economiesforecastingdecision planninggovernment strategyoptimism biasplanning fallacyreference class problem
Type
Policy Paper/Brief
Information
Journal of Pension Economics & Finance , Volume 18 , Issue 2 , April 2019 , pp. 247 - 270
Copyright
Copyright © Cambridge University Press 2018 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Alesina, A., and Drazen, A. (1991) Why are stabilizations delayed? American Economic Review, 81(5): 1170–1188.Google Scholar
Buehler, R., Dale, G., and Ross, M. (1995) It's about time: optimistic predictions in work and love. European Review of Social Psychology, 6(1): 1–32.Google Scholar
Buehler, R., Griffin, D., and Ross, M. (1994) Exploring the ‘planning fallacy’: why people underestimate their task completion times. Journal of Personality and Social Psychology, 67(3): 366–381.Google Scholar
Buehler, R., Griffin, D., and Ross, M. (2002) Inside the planning fallacy: the causes and consequences of optimistic time predictions. In Gilovich, T. D., Griffin, D. W. and Kahneman, D. (eds), Heuristics and Biases: The Psychology of Intuitive Judgment. New York: Cambridge University Press, pp. 250–270.Google Scholar
Directorate-General for Economic and Financial Affairs (2012) The 2012 ageing report: economic and budgetary projections for the 27 EU member states (2010–2060).Google Scholar
Directorate-General for Economic and Financial Affairs (2015a) The 2015 ageing report: economic and budgetary projections for the 28 EU member states (2013–2060), technical report, European Commission.Google Scholar
Directorate-General for Economic and Financial Affairs (2015b) The 2015 ageing report: underlying assumptions and projection methodologies, technical report, European Commission. Joint Report prepared by the European Commission (DG ECFIN) and the Economic Policy Committee (Ageing Working Group).Google Scholar
International Monetary Fund (2011) Luxembourg: Financial System Stability Assessment – Update, IMF Country Report, 11/148. Washington, DC: International Monetary Fund Publication Services.Google Scholar
International Monetary Fund (2016) World Economic Outlook: Too Slow for Too Long. , Washington, DC: International Monetary Fund Publication ServicesGoogle Scholar
Kahneman, D., and Tversky, A. (1979) Intuitive prediction: biases and corrective procedures. TIMS Studies in Management Science, 12, 313–327.Google Scholar
Kahneman, D., and Tversky, A. (1982) Intuitive prediction: biases and corrective procedures. In Kahneman, D., Slovic, P., and Tversky, A. (eds), Judgment Under Uncertainty: Heuristics and Biases. Cambridge University Press, pp. 414–421. Decision Research Technical Report PTR-1042-77-6, available at https://people.hss.caltech.edu/~camerer/Ec101/JudgementUncertainty.pdf.Google Scholar
Koole, S., and van't Spijker, M. (2000) Overcoming the planning fallacy through willpower: effects of implementation intentions on actual and predicted task-completion times. European Journal of Social Psychology, 30(6): 873–888.Google Scholar
Laboure, M. (2017) Modelling pensions balance under macro economic scenarios. Journal of Insurance, Nr 25(2): 22–47. Financial Markets and Consumer Protection No. 25(2/2017)Google Scholar
Le Gouvernement du Grand-Duché de Luxembourg, Ministère de la Sécurité sociale (2015) Rapport général sur la sécurité sociale au Grand-Duché de Luxembourg, technical report. Ministère de la Sécurité Sociale.Google Scholar
Les Portail des Statistiques (2010) Projections socio-économiques 2010–2060, technical report, Institut national de la statistique et des etudes économiques, Bulletin du STATEC, 5-2010, Luxembourg.Google Scholar
Les Portail des Statistiques (2014a) Comptes Nationaux. Comptabilité Nationale du Luxembourg – SEC2010, technical report, STATEC, Luxembourg.Google Scholar
Les Portail des Statistiques (2014b) La situation économique au Luxembourg – Evolution récente et perspectives, note de conjuncture, 2, technical report, STATEC, Luxembourg.Google Scholar
Les Portail des Statistiques (2014c) Luxembourg in figures, technical report, STATEC, Luxembourg.Google Scholar
Lovallo, D., and Kahneman, D. (2003) Delusions of success: how optimism undermines executives’ decisions. Harvard Business Review, 81(7): 56–63.Google Scholar
Tornell, A. (1998) Reform From Within. NBER Working Paper, 6497, National Bureau of Economic Research, Inc.Google Scholar
Velasco, A. (2000) Debts and deficits with fragmented fiscal policymaking. Journal of Public Economics, 76(1): 105–125.Google Scholar