nep-age New Economics Papers
on Economics of Ageing
Issue of 2007‒06‒23
seven papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Transition from Work to Retirement in EU25 By Michael Fuchs; Mattia Makovec; Asghar Zaidi
  2. Coping with Spain's Aging: Retirement Rules and Incentives By Mario Catalán; Jaime Guajardo; Alexander W. Hoffmaister
  3. Pension Policy in EU25 and its Possible Impact on Elderly Poverty By Michael Fuchs; Aaron George Grech; Asghar Zaidi
  4. Pension Reform in China: The Need for a New Approach By Vivek B. Arora; Steven Vincent Dunaway
  5. The age of reason: financial decisions over the lifecycle By Sumit Agarwal; John C. Driscoll; Xavier Gabaix; David Laibson
  6. Grandparents Caring for Their Grandchildren: Findings from the 2004 Survey of Health, Ageing and Retirement in Europe By Karsten Hank; Isabella Buber
  7. Which Canadian Seniors Are Below the Low-Income Measure? By Michael R. Veall

  1. By: Michael Fuchs; Mattia Makovec; Asghar Zaidi
    Abstract: The policy agenda of extending working lives requires a holistic understanding of factors underlying the decision of older workers to withdraw from work and to retire. This brief paper presents employment patterns and trends of older people across EU Member States and identifies policy initiatives that would encourage more flexible and later retirement. The descriptive empirical evidence (from the EU Labour Force Survey) indicates that there are a broad range of experiences in EU countries with respect to the employment of older workers (those aged 50 and over). Strikingly, in the majority of EU15 countries, close to one-half of those of 50 and over are either unemployed or inactive, with reliance either on early retirement pensions or on social assistance benefits. The recent pension reforms in a number of these countries have increased the retirement age and this is likely to induce older workers to work longer. There is already some evidence that the effective retirement age is on the increase. Results suggest that the increase in older workers' employment is stronger for women than for men, and also for more highly educated. In most instances older workers either tend to be in full-time employment or inactive with very few occupying intermediate positions. Although there is some evidence of a gradual transition towards retirement, there is still a relatively minor proportion of the work force taking advantage of this, as well over 70% of men and around 55% of women in employment in their early 60s worked 35 hours a week or more. The policy aim should therefore be to encourage 'flexible and later retirement'. Additional incentives need to be provided so that people are not only able to move between jobs in later working life but also able to work part-time, without losing their entitlement to benefits (such as early retirement pensions). Such policy incentives will enable workers to avoid the phenomenon of a 'cliff-edge' fall into retirement that many of them often face.
    Keywords: Retirement, Retirement Policies, Labour Force and Employment, Size, and Structure
    JEL: J26 J21
    Date: 2006–10
  2. By: Mario Catalán; Jaime Guajardo; Alexander W. Hoffmaister
    Abstract: This paper evaluates the macroeconomic and welfare effects of extending the averaging period used to calculate pension benefits in a pay-as-you-go system. It also examines the complementarities between reforms extending the averaging period and those increasing the retirement age under alternative tax policies. The analysis is based on a model in the Auerbach-Kotlikoff tradition applied to the Spanish economy. Without reforms, the simulations suggest that aging-related spending as a share of output will increase 16 percentage points by 2050, which are twice as much as in European Commission (2006) projections due to general equilibrium effects. Also, reforms extending the averaging period to the entire work life limit expenditure pressures at the peak of the demographic shock as much as increasing the retirement age in line with life expectancy (4 percentage points of GDP). These reforms and prefunding the demographic shock mitigate the adverse macroeconomic effects of aging and improve welfare.
    Date: 2007–05–24
  3. By: Michael Fuchs; Aaron George Grech; Asghar Zaidi
    Abstract: This paper reviews changes in pension policies in EU countries between 1995 and 2005 and describes how they might affect risk of poverty for future pensioner populations. The pension landscape in Europe has changed considerably in the past decade and the paper highlights commonalities as well as differences in pension reforms across these countries. A common trend is that the retirement incomes drawn from the public pension systems are on the decline, the changes are likely to shift more risks towards individuals, and there are fewer possibilities of redistribution in favour of the lower income individuals. The paper includes exploratory projections of how the risk of elderly poverty might evolve in the future. The countries where the benefit ratio is set to decline significantly, as expected, would see at-risk-poverty rates increase quite substantially, especially during the period 2025-2050, when the bulk of the decline is expected. This analysis points towards the importance of a more comprehensive assessment of the reforms, in particular in their impact on vulnerable groups (such as women and disabled people with disruptive work history) and in the clarity of the signals they give to individuals in extending their working career if they want to avoid greater risks of poverty during retirement.
    Keywords: Social Security and Public Pensions, Retirement, Retirement Policies, Private Pensions
    JEL: H55 J26 J32
    Date: 2006–12
  4. By: Vivek B. Arora; Steven Vincent Dunaway
    Abstract: The rapid aging of China's population over the next few decades makes it important for a new pension system with broad and adequate coverage to be put in place quickly. Pension reforms, first initiated in 1997, have become bogged down in difficulties over dealing with the "legacy costs" associated with the relatively more generous benefits provided under the old system. This paper argues that a way forward is to separate the legacy problem from the problem of setting up a new pension system, and it suggests concrete proposals for setting up such a new system which would cover both urban and rural workers.
    Date: 2007–05–07
  5. By: Sumit Agarwal; John C. Driscoll; Xavier Gabaix; David Laibson
    Abstract: The sophistication of financial decisions varies with age: middle-aged adults borrow at lower interest rates and pay fewer fees compared to both younger and older adults. We document this pattern in ten financial markets. The measured effects cannot be explained by observed risk characteristics. The sophistication of financial choices peaks around age 53 in our cross-sectional data. Our results are consistent with the hypothesis that financial sophistication rises and then falls with age, although the patterns that we observe represent a mix of age effects and cohort effects.
    Date: 2007
  6. By: Karsten Hank; Isabella Buber (Mannheim Research Institute for the Economics of Aging (MEA))
    Abstract: Introducing findings from the 2004 Survey of Health, Ageing and Retirement in Europe (SHARE), this research complements the large number of recent U.S. studies on the role of grandparents in caring for their grandchildren. For 10 continental European countries, we investigate cross-national variations in grandparent provided child care as well as differences in characteristics of the providers and recipients of care. While we find a strong involvement of grandparents in their grandchildren’s care across all countries, we also identify significant variations in the prevalence and intensity of care along the geographic lines of different child care and (maternal/female) employment regimes in Europe. Rooted in long-standing family cultures, the observed patterns suggest a complex interaction between welfare-state provided services and intergenerational family support in shaping the work-family nexus for younger parents. We conclude with a brief discussion of possible consequences of grandmothers’ increasing labor force participation for child care arrangements.
    Date: 2007–06–16
  7. By: Michael R. Veall
    Abstract: About 6% of seniors in Canada have family incomes below the Low-Income Measure. (The Low-Income Measure is 50% of the median family income, adjusted for family size, and is a commonly used, if arbitrary, operational definition of relative poverty.) This is a low rate by international standards, in sharp contrast to the high rate in Canada about 35 years ago. It is lower than the comparable rates for the general Canadian population or for families with children and more Canadians leave below-LIM status during their retirement years than enter it. Canadian income tax data show that the remaining 6% are disproportionately immigrant, female, currently unmarried and supporting dependent children (possibly grandchildren). Age does not appear to be of great importance.
    Date: 2007–05

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