The baby boomers are retiring. Experts warn that this will exacerbate the shortage of skilled workers. Peter Haan from the German Institute for Economic Research (DIW) explains why it is important to start discussing the retirement age again.

FOCUS online: Olaf Scholz wants the Germans to work as long as possible. Up to the age of 67 is best. What do you think of the Chancellor’s statement?

Peter Haan: From an economic point of view, it is right and important that people stay in the workforce for as long as possible. Mainly because of demographic change and the shortage of skilled workers. However, one has to ask oneself whether this wish is realistic – and whether all people can work that long.

They allude to the fact that some professions don’t allow that.

Han: Exactly. Jobs are very different, and also have different levels of stress. Some are physically demanding, others mentally. I am thinking, for example, of craftsmen and nurses, but also of people with office jobs who are mentally under great pressure.

So you can’t ask everyone to work until they are 67 or longer. Instead, we need to think about how retirement can be designed individually.

What does that mean specifically?

Haan: When we talk about longer working hours and retirement, it’s usually about financial issues. For example, whether you get your full pension or accept deductions if you leave the labor market early. However, the question of how our workplaces are designed so that we can work long hours is just as important.

It needs to be clarified: What is the workload? Is it possible to reduce working hours at the end of one’s working life, to change activities or even to switch?

We have to deal with that. In this way, the chances of staying in work as long as possible can be increased – even for people with high professional stress.

Peter Haan is Professor of Empirical Economic Research at the Free University of Berlin and Head of the State Department at the German Institute for Economic Research (DIW) Berlin.

His research focuses on the effects of demographic change and the consequences of socio-political reforms – particularly pension reforms.

Do you think it’s a good thing that retirement is now being discussed again?

Haan: Yes, it’s important that people talk about it. Baby boomers are now retiring. This means that around 13 million people will leave the German labor market over the next 15 years.

The topic must be permanently in the focus of the public debate and not just in the short term. It is important that reforms and ideas are pushed through now that go in the right direction.

What does such an idea look like in your eyes? An example: FDP Vice President Johannes Vogel has just called for people to be free to choose how long they want to work.

Haan: You have to be careful whether such proposals keep what they promise. If the retirement age is made completely flexible, it is not clear what will happen. We are already very flexible when it comes to the retirement age.

For example, people in this country can retire much later if they want to, or continue to work flexibly during their retirement. If an earlier retirement is to be made possible, this is associated with high deductions. This is a double-edged sword.

We know from the literature that workers often take the first opportunity to retire. They risk high deductions, i.e. low pensions.

In addition, they are no longer available for the labor market. Flexibility sounds nice, but it can have very negative financial consequences for the labor market and pensioners.

Scholz, of all people, wants the Germans to work as long as possible. “It is important to increase the proportion of those who can really work until retirement age,” he told the newspapers of the Funke media group. It was his party that pushed through the “retirement at 63”.

Haan: “Increasing the proportion of those who can really work until retirement age” – that also implies that some people just can’t do that. Such individuals will likely continue to have the option of early retirement.

I think it makes sense that concepts like those introduced by the SPD at the time are now being reconsidered. Especially given the baby boomers that are missing now.

Many experts fear that this will exacerbate the shortage of skilled workers and that economic growth may even stagnate. What do you think? What will our labor market situation be like when the baby boomers retire?

Haan: It’s not easy to predict. We must strive to encourage immigration in many areas – not just in terms of skilled workers – and to attract new workers. Wages are likely to increase to make work more attractive.

And it may be that production is changing, so that things that are currently still being produced by people are increasingly being taken over by machines.

This development can already be observed, for example in the service area or even in restaurants where robots serve the guests.

Younger generations are expected to work longer hours. They are the ones who have to pay for the many future pensioners. Do you think this is a ticking time bomb?

Haan: No, that expression is too strong. Raising the retirement age to 67 is the right way to slow down this development. Whether we will have to work longer than that also depends on how life expectancy develops.

If it continues to rise as it has so far, I can imagine that the retirement age will continue to rise after 2030. I think the average person will then be able to work longer.

But for people who do not make it to the statutory retirement age, there must be opportunities to draw a pension that protects against poverty in old age and secures the standard of living.

There are studies that show that younger generations in particular are no longer willing to work too much. That free time is more important to them than earning a lot of money. Will this become a problem for future retirees?

Haan: The fact that work-life balance is important to younger generations does not mean that they will work less over the course of their lives. Maybe they just stay longer in the job market. I don’t think the attitude towards more free time will lead to a decrease in work.

This means?

Haan: I don’t assume that people will want to work less, but rather that working life will become more flexible in the future. Therein lies an opportunity.

The added value, i.e. the economic performance, can increase, just in a different way than we were used to. For example, by making men and women equal in terms of hours. This would allow women to work more than before.

How do we prevent generational conflicts arising over pensions?

Haan: I have a hard time with the word “generational conflict”. I don’t think the lines of confrontation run so strongly along the generations.

On the contrary: there is a lot of altruism, children look after their parents and grandparents and vice versa. I think the lines of confrontation are more between people with low incomes and people with high incomes.

What conflicts can arise between such people?

Haan: If we don’t have enough money in the pension system, the question arises as to who will lose what and who will have to pay more. Politicians could set higher social security contributions or taxes.

This can lead to people with higher incomes leaving the country or reducing their productivity, with negative consequences for the economy. It is difficult to say how large this effect is.

With a moderate increase, however, it should be quite small. On the other hand, there could be protests if poorer households are expected to do too much. Poverty in old age is not only a burden for those affected, but also for social cohesion.

Jens Spahn wants to link the retirement age to life expectancy. Do you think this is a good idea?

Haan: In principle, that makes sense. We’re raising the retirement age to 67 by 2031. The question is what happens after that. If life expectancy continues to increase, it may be necessary to think ahead accordingly.

But as already said: It is important that the rules cannot be applied to everyone. Some are mentally or physically unable to work until retirement age. We must open up opportunities for them to retire earlier and not end up in poverty in old age.

It is therefore crucial to design the respective working conditions in such a way that people can practice their profession for as long as possible. Depending on the industry, these are very different.

It is definitely in the interests of companies to design jobs in such a way that people work for them for as long as possible. After all, there is a shortage of skilled workers.

Nevertheless, older people have a hard time on the labor market.

Han: That is correct. When someone becomes unemployed over the age of 55, he or she usually has great problems finding a new job. On the one hand, it is of course about keeping employees in their jobs for as long as possible.

On the other hand, you have to ensure that companies are open to older people when it comes to hiring new staff. Politicians are also in demand here, which can prepare for the labor market with further training offers.

There are many people who have completed an apprenticeship and have been in the labor market for a very long time. Wouldn’t it be fairer to retire based on years of service?

Haan: If you link retirement to years of work, a new problem arises. Many people who are still fit and could work longer are given an incentive to leave the labor market earlier. The “retirement at 63” is a good example of this and, in my opinion, has rightly been criticized.

How will our pension system become fairer?

Haan: No matter how we reform the system, due to demographic change we are heading towards a situation with fewer and fewer contributors and more and more pensioners. So there will be groups that lose.

So you have to ask yourself who can handle what. There are people who are at risk of poverty in old age and there are people with high incomes who also expect high pensions. What is just is a political and normative question.

It is difficult for a society to endure when older people do not have sufficient income to meet their needs. In my opinion, it would therefore be important to introduce elements such as the minimum pension in order to reduce poverty in old age.