Millennials and the Welfare State: Burden or Blessing?

June 29, 2013

Since Otto von Bismarck’s social insurance programs rolled out in the 1880s, governments across the globe have followed suit, creating state programs to manage or provide retirement, education, medical care, housing, income, and many other benefits. Yet, in recent years, economic turmoil has exacerbated a serious challenge to welfare states: long-term sustainability. Unfunded liabilities are mounting and estimates suggest that benefits of existing programs may evaporate long before today’s youth retire. The headlines from Europe have caused some to question the welfare state’s viability, especially pay-as-you-go retirement and medical care entitlement systems.

Will benefit cuts, tax increases, delaying of retirement age, and similar adjustments be sufficient to salvage the welfare state? The shrinking base of the demographic pyramid suggests that young people are paying taxes for current beneficiaries but will not be able to rely on succeeding generations to support their retirement and medical expenses. Not surprisingly, they are less involved in politics than currently retired seniors. Can the political system deal with such problems justly? Are there ways to sustain existing programs? How can multi-generational interests be balanced? If welfare programs are to be replaced, what happens to those who have paid in and with what will they be replaced?

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