The role of old­age pension systems as labour market institutions: the Czech Republic and Poland compared

Introduction

During the last three decades CEE countries not only underwent a deep economic restructuring, but they also experienced multiple social transformations of various kinds. A rapid demographic change, including an ongoing ‘ageing of society’, is one of them (Chawla, Betchermau, & Banerji, 2007). In general, CEE countries experienced a shift towards longer-living, lower-fertility and higher- educated societies (Lutz et al„ 2019). However, it should be noted that the postcommunism transformation brought about ‘an intergenerational rift', according to which new market possibilities for older cohorts were much more limited than the possibilities of younger and middle-aged people living in CEE (Botev, 2012).

Against this backdrop, particular labour market institutions that facilitate an early withdrawal from the labour market or prolong careers can be considered as a crucial determinant of labour utilisation of older workers in this region. In this chapter we focus on one particular labour market institution, namely the pension system.1 Indeed, analysing a statutory retirement age as a labour market institution has become a common endeavour in labour economics, especially the strand accentuating the inherent imperfection of labour markets (Boeri & Van Ours, 2013). The comprehensive review of studies, based on experiences of Western countries, showed that, after a statutory retirement age is raised, people delay their retirement often to an exceptionally large extent (Blundell, French, & Tetlow, 2016). Therefore, we formulate the general hypothesis that a similar effect might be observed in the CEE region: an increase of a statutory retirement age brings about an immediate increase in labour market participation of older workers in the region.

In order to examine this hypothesis, we narrow down the number of cases to two countries: the Czech Republic and Poland. We selected those countries due to substantial heterogeneity of institutional arrangements concerning pension systems, as they represent two divergent policy paths concerning pension reforms that were taken in CEE during the transition period (Muller, 2002). At the same time, those two countries are comparable in demographics and socio-economic development. Even though the Czech Republic and Poland adopted qualitatively different pension systems, they share a legacy of low retirement ages. This is why both countries have been increasing them lately, albeit at a different pace, because the timing of the reforms varied between countries. What is more, the increase in the retirement age was reversed by the Polish parliament in 2016, which makes the comparison of these countries even more meaningful.

The general aim of this chapter is to assess whether old-age pension systems in both countries facilitate keeping labour utilisation of older people at a high level. In other words, we want to explore to what extent pensions systems promote early or late retirement of older workers. In line with the book's profile, this chapter focuses on current differences in the labour market institutional framework. Therefore, the time scope of this study covers the period from the end of the 1990s, due to the fact that the aforementioned reconfigurations of the pension system took place at that time.

The chapter shows that in both countries there were many piecemeal reforms that aimed at curbing the extent of early retirement and prolonging the careers of older people. However, in the short term such reforms were moderately successful, as they were accompanied by a ‘retirement run’ of those who were eligible and could lose their early retirement right. The comparison of our cases also shows some surprising results, given the hypothesis. For example, despite similar, low minimum retirement ages for women, we documented different gains in the employment rates for this group in both countries. We put an interpretation on such results by arguing that the role of pension system reforms, and in particular legislation concerning a retirement age, should not be considered as a panacea with regard to increasing labour utilisation of older workers in CEE. Thus, we conclude that successful policies that aim at increasing the contribution of older workers' human capital to GDP in the region should also focus on other formal institutions that in practice play a role of functional equivalents to the pension system such as disability pensions or unemployment benefits. Those policies should also concentrate on the issue of improving labour market conditions of those older people who express the greatest willingness to withdraw from labour markets as early as possible.

The chapter is structured as follows. The following section identifies how different elements of a pension system need to be constructed to keep labour utilisation of older workers at a high level. Then we provide a brief description of the older people’s situation in the labour market in CEE and, in the next section, we look at labour utilisation of older workers in the analysed countries. Next, we discuss in detail the pension reforms with reference to the retirement age changes in the Czech Republic and Poland. The last section concludes and provides recommendations that also go beyond our two cases.

 
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