Career Interruptions: How Do They Impact Pension Rights?

The Geneva Papers, 2011, 36, (440–457) r 2011 The International Association for the Study of Insurance Economics 1018-5895/11 www.genevaassociation.org Career Interruptions: How Do They Impact Pension Rights? Najat El Mekkaoui de Freitasa, Cindy Ducb, Karine Briardc, Sabine Maged and Bérangère Legendree a University Paris-Dauphine, Place du marechal de lattre de tassigny, Paris 75016, France. LEDa, UMR225-DIAL. b University Paris-Dauphine, Paris. c CNAV, Paris. d University Paris-Dauphine, Paris, LEDa, IRD, UMR225-DIAL. e University Paris-Dauphine, Paris and University d’Orléans, LEO, UMR6221. The aim of this article is to analyse the question of career interruptions and to evaluate their impact on pension retirement for French private sector workers. Using the last French survey on households’ wealth (2003–2004), we first study the career set-backs for individuals born between 1937 and 1949. We highlight the new trends in professional paths. The risk of unemployment and job flexibility has sharply risen. As a consequence, some cohorts appear to be more exposed to career interruptions. Second, we determine how pension rights for French employees are affected by different career accidents. We consider unemployment, part-time employment and inactivity periods. Our results show how, by compensating for some career accidents, the French legislation allows individuals to receive, in some cases, the same level of social security pension that they would have received with a smooth professional path. The Geneva Papers (2011) 36, 440–457. doi:10.1057/gpp.2011.12 Keywords: career interruption; pensions; social security Introduction The retirement age and the standard of living of pensioners depend on a variety of individual and familial life routes: age of employment entry, children, life expectancy, unemployment, inactivity, etc. These deviations from a continuous career are more frequent than in the past in most OECD countries and could induce a strong impact on the age of retirement and on pension benefits.1 The aim of this article is to evaluate the effects of several cases of career breaks on the retirement pension for French workers. The literature dealing with this subject highlights the specific situation of women. A lot of studies provide an analysis of women’s career interruptions due to childbirth. Arun et al.2 and Malo and Munoz-Bullon3 conduct this type of study respectively in the Australian and British cases. According to Arun et al.,2 1 COR (2007). Arun et al. (2004). 3 Malo and Munoz-Bullon (2008). 2 Najat El Mekkaoui de Freitas et al Career Interruptions 441 women face income penalties because of their child-related career breaks. Malo and Munoz-Bullon3 show that women tend to choose lower-prestige occupations in anticipation of their career interruptions. Nakamura and Ueda4 investigate the determinants of career interruption following childbirth for married women in Japan. Their results show the difficulty for an educated woman to find an equivalent position when she quits her job due to childbirth. From Danish data, Gupta and Smith5 assess the negative impact of children on mothers’ human capital accumulation. In most cases, the number of children has a negative effect on women’s wages and consequently on women’s pensions. While children affect particularly women’s careers, others career break determinants could be identified. The literature on the French case6–10 shows that many individuals are now affected by several breaks during their professional trajectory due to unemployment, early retirement, part-time work or inactivity. Little research has been done to estimate the impact of these interruptions on pension benefits. We provide an analysis of the consequences of career accidents on pension retirement in the case of French employees. Their situations are quite relevant because, firstly, the last pension reforms (2003–2010) have introduced new rules on pension rights. Secondly, in France, workers acquire pension rights in some cases of career interruptions. Indeed, French legislation allows compensation for unemployment, illness or invalidity periods in terms of duration, but the amount of pension wages is often calculated from a smaller reference wage. Inactivity could be also compensated by allowing insurance periods but only in the case of children’s education. This article distinguishes two sets of analysis. On the one hand, this paper investigates the recent evolution of career accidents from microdata provided by a French survey. Our results indicate that workers and pensioners are experiencing very different economic situations. These disparities are strengthened by taking into account the generation, the gender or the socio-economic group. On the other hand, this paper investigates the impact of different career accidents (unemployment, parttime work, etc.) on pensions. The plan of the article is as follows. The next section provides a survey of the recent literature on the evolution of the French professional trajectories. The subsequent section describes the methodology of career reconstruction and presents career path analysis. The penultimate section assesses the impact of career accidents on pensions. The final section concludes. 4 Nakamura and Ueda (1999). Gupta and Smith (2002). 6 Caussat (1996). 7 Cloarec (2000). 8 Colin et al. (2000). 9 Briard (2007). 10 El Mekkaoui de Freitas et al. (2008). 5 The Geneva Papers on Risk and Insurance—Issues and Practice 442 A brief literature review The recent literature on career interruptions indicates that smooth careers are not frequent. This phenomenon is particularly observed in France over the last years. Many French studies have devoted their attention to these increasing career breaks.7,8,11,12 Cloarec7 focuses on the transition time between the last working period and retirement. The author shows that today the breaks are more frequent at the end of career than in the past. Precisely, the results indicate that the time between the end of working life and the beginning of retirement increased from less than one year for people born before 1912, to 2.5 years for people born between 1932 and 1936. By using the same survey, Burricand and Roth11 pointed towards the crucial role of French legislation, namely the possibility for workers in the private sector to retire earlier.13 However Bommier et al.12 indicate that the activity rate14 remains stable for years. According to these authors, part-time work has developed over the last years for men and women. From data provided by the French Employment survey, they indicate that this phenomenon is observed more frequently for men aged from 55 to 59: between 1984 and 1997, the proportion of individuals concerned by part-time employment has tripled. Magnac et al.15 carry out a study on the end of careers. They examine the impact of an unemployment period, at the end of professional life, on retirement age. They take into account the eff (...truncated)