The Welfare of Nations by James Bartholomew

Author:James Bartholomew
Language: eng
Format: epub
Tags: ebook
Publisher: Cato Institute
Published: 2016-11-01T00:00:00+00:00

At this point, some readers may be thinking, “This does sound shoddy, but is it really so bad? Does anyone suffer as a result?” Let’s look at the consequences of the generous early pensions granted in the past and the exceptionally generous pensions of certain government employees.

Money has to be found to pay for these pensions, and it comes from social insurance. Let’s look at someone who pays for them. Take someone employed at a cost to his employer of £11,800 (about $16,760) a year.3 That figure is after including his employer’s social insurance. After the social insurance is removed, the pay of the employee comes down to £10,000 ($14,200) a year, which is a little above the national average.4 From this amount, the employee’s social insurance contributions must be taken, bringing his income down to £8,250 ($11,715). Then there is taxation, which further reduces the take-home pay to £6,750 ($9,585). There is clearly a big drop from the £11,800 cost to the employer down to the £6,750 in the worker’s pocket. It is a major wedge (see Chapter 2).

Imagine the frustration in, say, a small town where the boss of a carpentry workshop employs a teenager he has known all his young life. The worker would obviously like more cash in his pocket and the boss is tired of paying a fortune to what probably looks like the bottomless pit of social insurance. Would it not be tempting for him to say, “Well, Dominik, how about I pay you half the money officially and then put the rest directly in your pocket? That way we both gain”? If you think that might be the case, you will not be surprised that the World Bank estimates that the underground economy in Poland amounts to 26 percent of all economic activity.5

Of course, not everyone has the opportunity to work for cash on the side. A major company can’t do this. But major companies are affected too. A Polish business’s rival in Hong Kong, say, can pay lower wages yet still have better-paid employees. Therefore, the company is able to offer products at better prices than the Polish business can, and so it grows, benefiting the Hong Kong economy and all who live there. Such growth passes Poland by.

The Polish situation is unfair too. Money earned by the worker is going to someone else’s pension. The current worker will certainly not get anything like a reasonable return on his pension contributions. He could even make a loss. Why? Because the pensionable age is bound to be pushed up. The amounts paid in pensions will have to be subtly reduced compared with national income. Only in such ways will the vast burden of pensions be managed, especially given the fact that people in Poland, as everywhere, are living longer. It all amounts to a kind of theft perpetrated by those who are now retirees against current workers.

To put it bluntly, the postwar generation voted for itself big and early pensions, sometimes with outrageous

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