Generational contract (also inter-generational contract) is a concept used in the research of the relations between generations within a society. It refers to an agreement or consensus regarding the roles and mutual responsibilities of different age groups or generations. The contract governs the relationships between overlapping generations and works to produce benefits for all age groups, often serving to tackle intergenerational friction or conflict. In the context of pension systems, it refers to a fictitious "solidarity contract" serving as the theoretical basis for a pay-as-you-go (PAYGO) system, where the working population finances the livelihood of the retired population and children. The term does not define a legal contract, as no enforceable agreement exists between generations. Instead, it is a figurative description of the allocation of consumption possibilities across the three phases of life: childhood, working age, and old age. The concept is often employed as a tool used to study relations between generations, although its specific terms and parties are frequently not clearly defined by researchers.
Definitions Definitions of the contract vary in scope:
Broad definition: Developed by Wilfrid Schreiber, this approach considers the labor income to be a "lifetime income" that can be earned in three phases: acquiring skills (youth), working (adulthood), and consumption (old age). A solidarity community must distribute income earned by the middle generation to support both the elderly and the young. Narrow definition: Often used by state institutions, this defines the contract as an unspoken agreement strictly between the contribution-paying generation and the pension-receiving generation. The young are viewed primarily as future contributors. In this view, the contract is essentially a state-organized maintenance obligation toward the elderly. This aligns with definitions that portray the generational contract as a synonym for macro-level social insurance entitlements and pay-as-you-go financing.
Background and history The concept of the generational contract originates from the conceptual history of social contract theory. In Jean-Jacques Rousseau's 1762 work on the social contract, society is formed to pool individual strengths against strong forces while allowing the individual to remain as free as before. The terms of such a contract do not need to be formally stated, but they must be recognized and apply equally to everyone. Interest in social contract theories increased with the development of welfare states in the 20th century. John Rawls argued that individuals adopt fair principles of social cooperation because they face constraints in choosing principles that would solely advantage themselves. In the context of the welfare state, the concept addresses how legitimate redistribution of resources across generations can be secured.
Implementation in social security systems The concept became particularly prominent in West Germany with the pension reform of 1957 under Chancellor Konrad Adenauer, which shifted the system from a capital-funded model to a PAYGO model. The underlying concept, known as the "Schreiber Plan" (after Wilfrid Schreiber), proposed a "solidarity contract between generations." However, the plan was only partially implemented:
The working generation was obligated to finance pensions for the elderly. The proposed "childhood and youth pension" with the working generation also supporting the youth via contributions was omitted. Consequently, the cost of raising the next generation of contributors remained a private burden for parents, while pension entitlements remained tied strictly to employment income. In Switzerland, the concept was introduced during the establishment of the Old Age and Survivors' Insurance (AHV) in 1947, which is also based on a PAYGO model.
Types Research on the subject typically distinguishes between two forms of generational contracts: formal and informal.
Formal generational contract The formal generational contract is public and operates at the macro level. It is typically explicit, codified in legislation, welfare state structures, and policies. The parties involved are the state (or welfare state) and at least three generations: the young, the working age population, and older persons. In social policy, this involves reciprocal support between generations through intergenerational transfers via taxation and public social expenditure. Its aim is the just distribution of resources to address needs and risks faced across different stages of the life course.
Informal generational contract The informal generational contract is private and operates at the micro level. It is generally implicit, existing in common practices among individuals, families, and kin. The parties involved are family generations, specifically children, parents, and grandparents. Support is based on family relations taking place across these generations. Parents invest in children, and actions such as being partnered and having children are understood as part of the contract to ensure family continuity.
Components A systematic literature review identified nine main components that define the generational contract:
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