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on Economics of Ageing |
| By: | K. Bolin (Lund University Centre for Health Economics, Lund, Sweden); B. Lindgren (Lund University Centre for Health Economics, Lund, Sweden); P. Lundborg (Lund University Centre for Health Economics, Lund, Sweden, Vrije Universiteit Amsterdam, and NETSPAR) |
| Abstract: | An increasing demand for both formal and informal care is likely to result from the ongoing demographic transition at the same time as there is a further move away from the traditional domestic division of labour. Public policy-making that aims at increasing the supply of informal care necessitates knowledge about the relative importance of various incentives for individual care providers. This paper takes as a point of departure that the willingness to supply informal care is partly explained by the extent to which it adversely affects labour market outcomes and analyses the effect on labour market outcomes of providing informal care to one’s elderly parent(-s) among the 50+ of Europe. Data from SHARE (Survey of Health, Ageing, and Retirement in Europe) was used to examine the association between, on the one hand, hours of informal care provided and, on the other, (1) the probability of employment, (2) hours worked, and (3) wages, respectively. The results suggest that giving informal care to one’s elderly parents is associated with significant costs in terms of foregone labour market opportunities and that these adverse effects vary between countries. The negative effect on the employment probability and the number of hours worked, respectively, of informal-care provision was found to be stronger in central Europe than in southern Europe, while the wage rate was found to be less negatively affected in the central European countries. |
| Keywords: | Informal care; Labour-market outcomes; Endogeneity; Europe; SHARE |
| Date: | 2007–03–22 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20070032&r=age |
| By: | Casamatta, Georges; De Paoli, Caroline |
| Abstract: | The aim of this paper is to better understand the impact of unemployment on the design of Pay-As-You-Go pension systems, in the context of population aging. We consider a model in which people differ according to age and face in every period a given probability of becoming unemployed. We first determine the optimal pension system, which consists in a payroll tax rate, a pension benefit level and a retirement age and study its comparative statics with respect to a change of the unemployment rate and the length of life. We then characterize the issue-by-issue voting equilibrium and compare it to the optimal pension scheme. It is shown that the median voter in general chooses a retirement age lower than the optimal one as well as a higher payroll tax rate. |
| Keywords: | retirement age; unemployment |
| JEL: | H55 |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6263&r=age |
| By: | Biehl, Kai; Fent, Thomas |
| Abstract: | This paper investigates the future development of the Austrian population for the period from 2005 to 2035. The main focus of our investigation lies on the working age population and its age structure. Our calculations are based on the population projection released by Statistik Austria in 2005. We present three different scenarios with respect to age specific labour force participation rates and discuss their impact on the Austrian labour force. We show that both the main variant and the low migration variant of the population projection allow for an annual increase in the total size of labour force of 0.3% until the end of our observation period by applying labour force participation rates which are already put into practice in the Nordic countries. An increase in labour force participation rates does not only help to maintain an increase in the labour force but also leads to a more homogenous age distribution of the labour force. |
| Keywords: | ageing; age structure; labour force; labour force participation rates |
| JEL: | J26 J11 J22 J24 J18 J21 J14 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:2877&r=age |
| By: | Gugushvili, Alexi |
| Abstract: | The paper examines formation and sustainability of Pay-As-You-Go pension systems within the consequences of the ageing of population. Parametric reforms rather than institutional transformation of Pay-As-You-Go systems into funded pension schemes are advocated. Following the modern theories of family economics and contrary to the mainstream works on the issue, reciprocal causation between pension systems and ageing is stressed. The paper concludes that the World Bank’s first pillar adjustment for maintaining the Pay-As-You-Go schemes achieves its objectives only if it is focused on all elements of the Pay-As-You-Go system. |
| Keywords: | Pensions; Pay-As-You-Go; Ageing |
| JEL: | J26 J11 P11 J18 H55 |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:2869&r=age |
| By: | Pierre-Carl Michaud (RAND); Arthur van Soest (RAND & Tilburg University) |
| Abstract: | This study examines the effect of the 2000 repeal of the earnings test above the normal retirement age on retirement expectations of workers aged 51 to 61 - their probabilities to work past age 62 and 65 as well as the age at which they expect to start claiming old age social security benefits. We use administrative records linked to the HRS to create variables that accurately reflect the change in financial incentives. For men, we find results in line with theoretical predictions on the probability to work after age 65. For example, men whose marginal wage rate increased when the earnings test was repealed, showed the largest increase in the probability to work full-time past normal retirement age. For women, we do not find significant results, possibly due to omitting spouse benefits and their interaction with the earnings test. We also do not find significant evidence of effects of the repeal of the earnings test on the probability to work past age 62 or the expected claiming age. On the other hand, for those reaching the normal retirement age, deviations between the age at which Social Security benefits are actually claimed and the previously reported expected age are more negative in 2000 than in 1998, suggesting that the repeal has increased claiming immediately after reaching normal retirement age. Since our calculations show that the tax introduced by the earnings test was small when accounting for actuarial benefit adjustments and differential mortality, our results suggest that although workers form expectations in a way consistent with forward-looking behavior, they misperceive the complicated rules of the earnings test. |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp135&r=age |
| By: | Mouez Fodha (Centre d'Economie de la Sorbonne); Patricia Le Maitre (Université de Bretagne Sud) |
| Abstract: | Pay as-you-go social security schemes will face increasing difficulties in the next few years due to population aging, which results from both extension of life expectancy and sharp decrease in fertility rates. The purpose of this paper is to evaluate within a computable general equilibrium model the consequences of different reforms within an economy with two types of agents : unqualified ones facing unemployment and qualified ones. We show that a mixed reform with two instruments (introduction of a funded pension system and decreasing of benefits) is Pareto-improving in the long term, while damaging welfare distribution. Morerover, simultations show that the increase of the legal retirement age should be up to seven years. |
| Keywords: | Overlapping generations model, pay as-you-go pension system, ageing population, involuntary unemployment. |
| JEL: | J11 H55 C68 D91 |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:v07011&r=age |
| By: | Gonzalez-Eiras, Martin; Niepelt, Dirk |
| Abstract: | We analyze the effect of the projected demographic transition on the political support for social security, and equilibrium outcomes. Embedding a probabilistic-voting setup of electoral competition in the Diamond (1965) OLG model, we find that intergenerational transfers arise in the absence of altruism, commitment, or trigger strategies. Closed-form solutions predict population ageing to lead to higher social security tax rates, a rising share of pensions in GDP, but eventually lower social security benefits per retiree. The response of equilibrium tax rates to demographic shocks reduces old-age consumption risk. Calibrated to match features of the U.S. economy, the model suggests that, in response to the projected demographic transition, social security tax rates will gradually increase to 16 percent; other policies that distort labour supply will become less important; and in contrast with frequently voiced fears, labour supply therefore will rise. |
| Keywords: | labour supply; Markov perfect equilibrium; probabilistic voting; saving; social security |
| JEL: | E62 H55 |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6245&r=age |
| By: | Lucie Schmidt (Williams College); Purvi Sevak (Hunter College) |
| Abstract: | The aging of the U.S. population, combined with an increasing probability that any given older individual will work, means that the importance of older workers to the labor force is rising. One possible solution to the solvency problems facing the Social Security System is increasing the labor supply of older workers. Understanding how policy levers can affect the labor supply of the elderly therefore has become increasingly important. In this paper we use data from the Health and Retirement Study (HRS), linked to state identifiers, to estimate the responsiveness of the labor supply of older workers to features of the tax code, on both the extensive margin of participation and the intensive margin of hours of work. This unique data set allows us to avoid some of the traditional pitfalls associated with the labor supply literature. We find evidence that the labor supply of older workers is responsive to the tax structure. Our results suggest that government policies could play a role in increasing the labor supply of individuals over the age of 65 by changing the returns to work through the tax code. |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp139&r=age |
| By: | Roberto Leombruni; Matteo Richiardi |
| Abstract: | Most Oecd Countries are experiencing a rapid population ageing. Italy adds to this picture a very low labour market participation of the elders, so that most projections of the impact of ageing on the labour market are rather pessimistic. However, there are other long run modifications currently underway that will presumably have a sizeable impact on the labour market, above all changes in the retirement legislation, in educational choices and participation behaviour. In this paper we present LABORsim, an agent based microsimulation model of labour supply, which offers new insights on the likely evolution of the labour force in the next decades in Italy. LABORsim integrates the current demographic projections with simulation modules modelling retirement rules, retirement behaviours, migrations, education and participation choices, plus a consolle to implement various policy scenario analyses. When all these factors are taken into account, projections for next decades are not that pessimistic. In most scenarios, the overall participation rate is expected to increase steadily for the next two decades, while shortages in the labour force supply and an unfavourable dynamics for the economic dependency rate are expected to show up only after 2020, when the baby boom generations will arrive at their retirement ages. This is not enough, however, to allow Italy to meet the EU Stockolm and Lisbon targets for male and female employment rates for many decades to come. The sharp increase in the participation rates for the elderly (aged 55-64), mainly driven by the recent changes in the retirement eligibility criteria, will make it possible to meet the Stockholm target of 50% employment rate in this age group by 2015, i.e. with only 5 years of delay. |
| Keywords: | microsimulation, participation, employment, retirement, education, policy evaluation. |
| JEL: | E24 H3 H55 I2 J1 J2 J6 N4 O52 C63 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:cca:wplabo:46&r=age |
| By: | Alan L. Gustman (Dartmouth College and NBER); Thomas L. Steinmeier (Texas Tech University) |
| Abstract: | For married men, we find the conventional view of retirement trends -- that the long term trend to early retirement has been reversed -- is partially contradicted by recent data. Specifically, descriptive data collected from both the Census and the Health and Retirement Study (HRS) suggest that for those in their fifties, over the periods 1992 to 1998 and 1998 to 2004, the trend to early retirement reasserted itself and labor force participation fell. In contrast, for those in their sixties, there was an increase in work. Similarly, for those 65 and over, the amount of work increased. Simulations with a structural retirement model suggest that the recent acceleration of the trend to early retirement for those in their fifties is not the result of the change in Social Security rules. According to our model, changes in Social Security rules are expected to reduce the number of those in their early sixties who are working. This suggests that forces other than changing Social Security rules account for the observed increase in work by those in their early sixties, and that the effects of these forces are stronger than those suggested by the trends in descriptive data. Lastly, the analysis suggests that changing Social Security rules do help to explain the increase in work by those age 65 and older. The effects of these rule changes encourage workers to remain in their long term jobs for a longer time, encourage some to return from retirement to full time work, and encourage more partial retirement. Nevertheless, the changes in retirement induced by Social Security changes have been modest. Due to Social Security changes, the number of 65 year old married men at work increases by about two percentage points at ages 65 and 66, with slightly smaller changes at 67 to 69. Given the low basic labor force participation at 65 and 66, with 20 to 25 percent at full time work, and another 17 percent at part time work, the percentage increases in work due to Social Security changes are three or four times higher. |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp127&r=age |
| By: | Nicole Maestas (RAND); Xiaoyan Li (RAND) |
| Abstract: | Many have suggested we adopt policies that explicitly encourage the elderly to work. Behind this suggestion is the assumption that if an older person desires a job, one will be found; however, little is known about the extent to which this is true, and in the Health and Retirement Study, many more respondents say they expect to work after retirement than actually undertake work. This raises an important question: To what extent can the elderly readily find suitable jobs? In the context of a theoretical job search model, we examine the decision to search for a job and the probability of transitioning to employment using a large sample of non-workers from the Health and Retirement Study. The effects of both supply-side factors (individual characteristics) and demand-side factors (local labor market conditions) are estimated. We find employment transition rates are relatively low for older searchers: only half of older searchers successfully attain jobs. We examine various explanations for this result, including variation in search intensity, reservation wages, and the possibility of intervening health shocks. We conclude that about 13% of older job searchers becomes a discouraged worker in the sense of being willing to work at the prevailing wage, but unable to find a job. |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp133&r=age |
| By: | Alan L. Gustman (Dartmouth College and NBER); Thomas L. Steinmeier (Texas Tech University) |
| Abstract: | This paper examines retirement and related behavioral responses to policies that on average are actuarially neutral. Many conventional models predict that actuarially neutral policies will not affect retirement behavior. In contrast, our model allows those with high time preference rates to find that the promise of an actuarially fair increase in future rewards does not balance the loss from foregone current benefits. Using data from the Health and Retirement Study, we find that from age 62 through full retirement age, the earnings test reduces full-time work by married men by about four percentage points, or by about ten percent of married men at full-time work. Abolishing the requirements on many jobs that an individual work full-time or not at all, what we term a minimum hours constraint on employment, would induce more than twice as many people to enter partial retirement as would leave full-time work, so that total full-time equivalent (FTE) employment would increase, although by a modest amount. If all benefits from personal accounts could be taken as a lump sum, the fraction not retired at age 62 would fall by about 5 percentage points compared to a system where there is mandatory annuitization of benefits. |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp153&r=age |
| By: | Adeline Delavande (RAND Corporation and Universidade Nova de Lisboa and CEPR); Michael Perry (University of Michigan); Robert J. Willis (University of Michigan) |
| Abstract: | This study analyzes the extent to which an individual’s survival expectations influence his or her decision to claim social security benefits at an early age. We find that subjective survival probabilities capture meaningful behavioral responses to incentives for early Social Security claiming when they are purged of measurement error using risk factors as instruments. Among people who are still working at age 62, those who expect to live longer are likely to delay claiming of Social Security benefits to a degree that is both statistically and economically significant. For example, an increase of 5 percentage points in the subjective probability of survival to age 75 of each person leads to a 1.9 percentage point decline in the proportion who claim before age 64, from 29.6 percent to 27.7 percent. |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp129&r=age |
| By: | Jody Schimmel (Mathematica Policy Research, Inc.) |
| Abstract: | Health insurance coverage in the years prior to retirement is particularly important because it protects the household from the financial risks of uninsurance as well as the health consequences of delaying care while uninsured. While results from the retirement "job lock" literature show that those who would lack coverage after retirement continue to work to maintain benefits, little work has explored the types of health insurance choices made by couples after retirement. It may be difficult for a married man to coordinate continuous coverage for a younger wife whose primary source of coverage has been from the husband, and thus households may pay more for non-group coverage or be exposed to the risks of uninsurance. This paper studies a panel of married couples from the 1992-2004 waves of the Health and Retirement Study (HRS) to study the types of health insurance decisions households make around the time of retirement. Results indicate that households seem to do well at avoiding uninsurance at the time of retirement, but may make high cost choices in order to insure the wife. Men switch into Medicare or coverage from their wife at retirement if they lose their own coverage, but a large fraction of women take-up privately purchased coverage. In fact, the transition from husband’s coverage to privately purchased coverage is twice as large in periods when the husband retires than otherwise. Transitions to uninsurance are lower in periods of retirement than at other times, suggesting that men continue to work if either spouse would lose coverage. Though less risky, insurance purchased in the non-group market is expensive relative to employer-sponsored coverage. Thus, married households may need to increase savings to pay for health insurance that bridges the gap until the wife can claim Medicare at age 65. |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp131&r=age |
| By: | Susann Rohwedder (RAND) |
| Abstract: | There is increasing interest among policy makers in measuring well-being in ways that go beyond purely economic indicators, also with special focus on older individuals who constitute an increasing fraction of the population. However there is little consensus on which other indicators should be included. An alternative approach is to use individuals’ own assessments and relate these to a rich set of covariates to find what factors influence individuals’ own perceptions. This is the approach adopted in this paper, using data from the Health and Retirement Study (HRS). Retired respondents are asked how satisfying their retirement has turned out to be, how retirement years compare to pre-retirement years and whether they are worried about not having enough income to get by in retirement. I relate these self-assessed measures to a rich set of covariates to investigate which aspects weigh in individuals’ perceptions. I use the longitudinal nature of the HRS to study the pathways that lead up to the observed retirement outcomes, and to examine the persistence of the outcomes over time. Bad health, changes towards worse health, social isolation and increase in social isolation lead most significantly to lower satisfaction in retirement and a greater sense of financial insecurity in retirement. A short financial planning horizon and past shocks, like unexpected large expenses or divorce, also have a noticeable negative impact. |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp141&r=age |
| By: | Annamaria Lusardi (Dartmouth College and NBER); Olivia S. Mitchell (Wharton School) |
| Abstract: | Economists are beginning to investigate the causes and consequences of financial illiteracy to better understand why retirement planning is lacking and why so many households arrive close to retirement with little or no wealth. Our review reveals that many households are unfamiliar with even the most basic economic concepts needed to make saving and investment decisions. Such financial illiteracy is widespread: the young and older people in the United States and other countries appear woefully under-informed about basic financial computations, with serious implications for saving, retirement planning, mortgages, and other decisions. In response, governments and several nonprofit organizations have undertaken initiatives to enhance financial literacy. The experience of other countries, including a saving campaign in Japan as well as the Swedish pension privatization program, offers insights into possible roles for financial literacy and saving programs. |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp144&r=age |
| By: | John P. Laitner (University of Michigan); Daniel Silverman (University of Michigan) |
| Abstract: | This paper analyzes the effect of a potential reform to the Social Security system on individuals’ retirement and consumption choices. We first estimate the coefficients for a life-cycle model. We assume intratemporally nonseparable preference orderings and endogenous retirement. Our framework allows the possibility of disability. The specification predicts a change in consumption at retirement; we use the empirical magnitude of the change, together with desired retirement age, to identify key parameters such as the curvature of the utility function. We then qualitatively and quantitatively study the possible long-run effect of a Social Security reform in which individuals no longer face the OASI payroll tax after some specified age, and their subsequent earnings have no bearing on their Social Security benefits. Simulations indicate that retirement ages would rise by as much as one year, equivalent variations could average $5000 (1984 dollars) per household or more, and reform could generate $2500 or more additional income tax revenue per household. |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp142&r=age |
| By: | Hugo A. Benítez-Silva (SUNY-Stony Brook); Debra Sabatini Dwyer (SUNY-Stony Brook); Warren C. Sanderson (SUNY-Stony Brook) |
| Abstract: | The need for Social Security Reform in the next years is hardly a matter of debate. Therefore, the widespread believe among Americans that Social Security will not be able to pay benefits in the long run at the level that was anticipated, does not come as a surprise. The government acknowledges the situation, and predicts that substantial benefits cuts will be necessary, yet no legislation has been passed to tackle the problem. Researchers, however, have rarely modeled the uncertainty over Social Security reform and benefit levels, and how they affect claiming behavior and retirement. The purpose of this paper is to assess the extent to which these perceptions of future cuts might explain the puzzle of earlier take-up despite bigger penalties to doing so in the presence of increasing longevity. By introducing a small amount of uncertainty (based on self-reported responses to questions regarding expectations over future cuts) of a relatively small cut (compared with what the government reports as necessary to solve the crisis) in a dynamic life-cycle model of retirement, we are able to match the claiming behavior observed in the data, without relying on heterogeneous preferences. Our results support the hypothesis that expectations over future benefits are affecting current behavior. We find that a mis-specified dynamic retirement model would erroneously predict that an increase in the NRA would delay claiming behavior and increase labor supply at older ages. Once the appropriate earnings test incentives are modeled, and we account for the probability of reforms to the system, an increase in the NRA has little effect on claiming behavior, and it can even increase the proportion of individuals claiming before the NRA. |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp134&r=age |
| By: | Richard V. Burkhauser (Cornell University); John H. Cawley (Cornell University) |
| Abstract: | Theoretical models argue that poor health will contribute to early exit from the labor market and the decision to take early Social Security retirement benefits (Old-Age or OA benefits). However, most empirical estimates of the causal importance of health on the decision to take early OA benefits have been forced to rely on global measures such as self-rated work limitations or self-rated health. We contribute to the empirical literature by using a more objective measure of health, fatness, to predict early receipt of OA benefits. We do so by estimating the causal impact of fatness within an empirical model using the method of instrumental variables, and testing the robustness of our findings using the most common measure of fatness in the social science literature - body mass index - with what is a more theoretically appropriate measure of fatness - total body fat and percent body fat. Overall, our conclusion is that fatness and obesity are strong predictors of early receipt of OA benefits. |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp148&r=age |
| By: | Arie Kapteyn (RAND); James P. Smith (RAND); Arthur van Soest (RAND); James Banks (University College London) |
| Abstract: | Many western industrialized countries face strong budgetary pressures due to the aging of the baby boom generations and the general trends toward earlier ages of retirement. The commonality of these problems has the advantage of offering an empirical laboratory for the testing of programmatic incentives on labor force participation and retirement decisions that would not be possible in a single country where programs typically only change very slowly. One can gauge the effect of policies by analyzing the differences in the prevalence of unemployment, early retirement or work disability across countries. We use the American PSID and the European Community Household Panel (ECHP) to explain differences in prevalence and dynamics of self-reported work disability and labor force status. To that end we specify a two-equations dynamic panel data model describing the dynamics of labor force status and self-reported work disability. We find that transitions between work and non-work are more frequent in the US than in the 13 European countries we analyze. For self-reported work disability we don’t observe similar differences in transition rates between disability states, although overall Americans are less likely to report work disabilities. The difference in outflow out of work between the US and Europe appears to be smaller than the difference in inflow into work. When we apply the US parameters of the flow from non-work to work , the net result is that Europeans tend to work more. |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp149&r=age |
| By: | Joshua Congdon-Hohman (University of Michigan) |
| Abstract: | This paper uses the longitudinal aspect of the Health and Retirement Survey to explore the characteristics associated with reversals in retirement (referred to here as "unretirement"). Through the use of survival time analysis, this paper show that health insurance plays a significant role in unretirement decisions. This role is underestimated when a static probit analysis is used alone. The results hold up for a number of different retirement identifiers that are based both on self-reports of retirement and actual work levels. The results are also robust to various definitions of retirement prompted by the difficult question of how to classify partial retirements. The importance of health insurance provision in a retiree’s decision also remains significant when other "shocks" and the prospect of planned unretirement are introduced. |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp137&r=age |
| By: | Michael Hurd (RAND); Susann Rohwedder (RAND) |
| Abstract: | This study finds that on average those just past the usual retirement age are adequately prepared for retirement in that they will be able to follow a path of consumption that begins at their current level of consumption and then follows an age-pattern similar to that of current retirees. That pattern is similar to what would be found from a theoretically derived and estimated life-cycle model. Thus we do not find inadequate preparation for retirement on average or even at the median. This is not true, however, for all groups in the population. In particular, singles lacking a high school education are likely to be forced to reduce consumption: some 62% would have died with negative wealth had they followed the consumption path given by our data. Future research will show the extent to which this percentage is over-estimated because we did not account for differential mortality. |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp132&r=age |