Today's Young Interns Will Be Tomorrow's Needy Elderly

Younger generations are plagued by precarious jobs. Out of every 10 people that enter the Italian labor market before thirty years of age, only three get a long-term contract, while the remainder works with some form of short-term labor contract (there are more than 40 to choose from). Moving from short- to long-term is not easy. Only 10% make it. So young people are trapped in this limbo for a long time, with an average wage that is 25% less than that of a normal job, and are not entitled to unemployment benefits. If they become unemployed, they often have to go back and live with their parents. This is well-known. What is not well-known is that today's precarious jobs are also sealing the future of young generations after retirement. At the end of their working lives, today's youth will find out they once more have to foot the bill left to them by their parents. Their pensions will be a lot more meager than their parents' and today's youngsters are likely to be forced to retire later (due to the laws of the economy, rather than those passed by parliament), in order to have sufficient social security income. To get an idea of the impact of today's precarious jobs on tomorrow's pensions, let's consider the job careers of two hypothetical young males: Lorenzo and Pierpaolo.For women, the calculation would yield even more adverse results, because they tend to have, at least in Italy, more discontinuous careers and thus typically lower pensions than men. Lorenzo is a lucky guy: he started working when he is 25 years old and is hired long term with a monthly salary of 1,000 euros. At the end of his working career, his real wage is more than 2,000 euros. If he decides to retire at sixty, he'll get a real monthly benefit comprised between 1,023 and 1,112 euros, with a substitution rate (the ratio between the pension benefit and the pre-retirement wage) of around 55%. But, by delaying retirement to 67, his real monthly benefit would hover around 1,600 euros, a substitution rate of 80%. With 42 years worth of social security contributions, Lorenzo get the same coverage of his father (80% substitution rate), who had worked for 40 years. Pierpaolo is less lucky: he entered the labor market with a short-term contract, which he was able to keep until 28 years of age. For a year he remained unemployed, then obtained a short-term job he kept until he was 32, when he fell unemployed again. When he was 33, he gets the last short-term contract, which two years later was upgraded to a long-term contract. Pierpaolo thus earned the low wage of 800 euros, which stayed constant in real terms until he was 33, when he was hired full-term. At the end of his career, his real monthly wage is a bit more than 1,300 euros. Precarization has negatively affected his wage progression. His final real wage is only 62.5% higher than its initial wage. Lorenzo's salary, however, has doubled.
In a social security system with defined contributions, like the one introduced in Italy by the Dini reform in 1995, a discontinuous job career and limited wage growth have strong repercussions on benefits. If he retired at 60 like his dad, Pierpaolo would get a monthly check worth between 638 and 690 euros in real terms. It's only by working until 67 years of age that Pierpaolo can get a monthly pension worth 1,000 euros in real terms