nep-age New Economics Papers
on Economics of Ageing
Issue of 2007‒07‒07
nineteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Early Retirement, Social Security and Well-Being in Germany By Axel Börsch-Supan; Hendrik Jürges
  2. How Did the Elimination of the Earnings Test above the Normal Retirement Age Affect Retirement Expectations? By Pierre-Carl Michaud; Arthur van Soest
  3. The Age of Reason: Financial Decisions Over the Lifecycle By Sumit Agarwal; John C. Driscoll; Xavier Gabaix; David Laibson
  4. The Adequacy of Retirement Savings: Subjective Survey Reports by Retired Canadians By Sule Alan; Kadir Atalay; Thomas F. Crossley
  5. Which Canadian Seniors Are Below the Low-Income Measure? By Michael R. Veall
  6. Does Age Structure Forecast Economic Growth? By David E. Bloom; David Canning; Guenther Fink; Jocelyn E. Finlay
  7. Transitions Out Of and Back To Employment among Older Men and Women in the UK By David Haardt
  8. Older Couples' Labour Market Reactions to Family Disruptions By David Haardt
  9. Pathways to Disability: Predicting Health Trajectories By Florian Heiss; Axel Börsch-Supan; Michael Hurd; David Wise
  10. Rational Pension Reform By Axel Börsch-Supan
  11. European welfare state regimes and their generosity towards the elderly By Axel Börsch-Supan
  12. Older workers motivation to continue to work: five meanings of age: A conceptual review By Kooij, Dorien; Lange, Annet de; Jansen, Paul
  13. Cross-Country Variation in Obesity Patterns among Older Americans and Europeans By Pierre-Carl Michaud; Arthur van Soest; Tatiana Andreyeva
  14. The Integration of Occupational Pension Regulations: Lessons for Canada By Martin Hering; Michael Kpessa
  15. Work Disability, Health, and Incentive Effects By Axel Börsch-Supan
  16. Effects of Intergenerational Transfers on Elderly Coresidence with Adult Children: Evidence from Rural India By Sarmistha Pal
  17. Policy Areas Impinging on Elderly Transportation Mobility: An Explanation with Ontario, Canada as Example By Ruben Mercado; Antonio Páez; K. Bruce Newbold
  18. Wisdom and Creativity in Old Age: Lessons from the Impressionists By David W. Galenson
  19. Aging and Asset Prices By Axel Börsch-Supan; Alexander Ludwig; Mathias Sommer

  1. By: Axel Börsch-Supan; Hendrik Jürges (Mannheim Research Institute for the Economics of Aging (MEA))
    Abstract: Germans retire early. On the one hand, early retirement is very costly and amplifies the burden which the German public pension system has to carry due to population aging. On the other hand, however, early retirement is also seen as a much appreciated social achievement which increases the well-being especially of those workers who suffer from work-related health problems. This paper investigates the relation between early retirement and well-being using the GSOEP panel data. The general picture that emerges from our analysis is that early retirement as such seems to be related to subjective well-being, in fact more so than normal retirement. Early retirement most probably is a reaction to a health shock. Individuals are less happy in the year of early retirement than in the years before and after retirement. After retirement, individuals attain their pre-retirement satisfaction levels after a relatively short while. Hence, the early retirement effect on well-being appears to be negative and short-lived rather than positive and long. Whether this is an effect of retirement itself or a psychological adaptation to an underlying shock cannot be identified in our data and remains an open research issue waiting for a more objective measurement of health.
    Date: 2007–07–03
  2. By: Pierre-Carl Michaud (RAND and IZA); Arthur van Soest (RAND, Tilburg University and IZA)
    Abstract: We look at the effect of the 2000 repeal of the earnings test above the normal retirement age (NRA) on retirement expectations of male workers in the Health and Retirement Study (HRS). Using administrative records on Social Security benefit entitlements linked to the HRS survey data, we can distinguish groups of respondents according to how, before the repeal, the earnings test would have affected their marginal wage rate after the NRA. We use panel data models with fixed and random effects to investigate the effect of the repeal on the subjective probability to work full-time after the NRA as well as after age 62. We find that male workers whose marginal wage rate increased because the earnings test was repealed, had the largest increase in this probability. We find no significant effects of the repeal on the probability to work full-time past age 62. Since the tax introduced by the earnings test was small when accounting for actuarial benefit adjustments, our results suggest that male workers misperceive the complicated rules of the earnings test.
    Keywords: social security earnings test, expectations, retirement, difference in differences, panel data
    JEL: H55 J22
    Date: 2007–06
  3. 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.
    JEL: D1 D8 G2 J14
    Date: 2007–06
  4. By: Sule Alan; Kadir Atalay; Thomas F. Crossley
    Abstract: We examine retired Canadians’ subjective survey reports of satisfaction with finances,and with life, relative to the period before retirement.
    Keywords: retirement, savings, subjective survey reports
    JEL: D91 I31
    Date: 2007–05
  5. 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.
    Keywords: relative poverty, Canadian income distribution, pension adequacy
    JEL: D31 E24 J14
    Date: 2007–05
  6. By: David E. Bloom; David Canning; Guenther Fink; Jocelyn E. Finlay
    Abstract: Increases in the proportion of the working age population can yield a "demographic dividend" that enhances the rate of economic growth. We estimate the parameters of an economic growth model with a cross section of countries over the period 1960 to 1980 and investigate whether the inclusion of age structure improves the model's forecasts for the period 1980 to 2000. We find that including age structure improves the forecast, although there is evidence of parameter instability between periods with an unexplained growth slowdown in the second period. We use the model to generate growth forecasts for the period 2000 to 2020.
    JEL: C53 J1 O4
    Date: 2007–07
  7. By: David Haardt
    Abstract: This paper analyses the labour market transitions of older men and women using data from the British Household Panel Survey (BHPS). I find large peaks in exit rates out of employment at ages 60 (women) and 65 (both sexes) which occur in the exact birthday month. This suggests that pension schemes have strong incentive effects. Discrete-time hazard regression analysis shows that benefits and health status are the two most important determinants of retirement, with effects that are larger than found in previous studies for British and US men. When modelling unobserved heterogeneity I find that women are twice as likely as men to be `movers' between work and non-work.
    Keywords: labour market transitions, older men and women, BHPS
    JEL: J14 J16 J26
    Date: 2007–05
  8. By: David Haardt
    Abstract: This paper analyses how spouses in older couples react to `shocks' or `surprises' in their partner's labour income using data from the British Household Panel Survey, 1991-2004. Wives' labour supply proves to be much more sensitive to shocks than husbands'. After a divorce or separation, wives reduce their labour supply while the effect on husbands' labour supply is positive or not statistically significant. If a wife becomes unemployed, it does not affect her husband's labour supply while wives whose husband becomes unemployed reduce their labour supply, too. A decline in husband's health causes the wife to reduce her working hours while husbands tend to increase their labour supply when facing a decline in wife's health. Partner's death does not have statistically significant labour supply effects. Negative income shocks due to other reasons (such as choice) tend to reduce partner's labour supply and vice versa, but only slightly.
    Keywords: labour supply, income shocks, older couples, BHPS
    JEL: J12 J14 J16 J26
    Date: 2007–05
  9. By: Florian Heiss; Axel Börsch-Supan; Michael Hurd; David Wise (Mannheim Research Institute for the Economics of Aging (MEA))
    Abstract: The paper considers transitions in the health and disability status of persons as they age. In particular, we explore the relationship between health and disability at younger ages (say 50) and health and disability in future ages. We consider for example, the future health path of persons who are in good health at age 50 compared to the future health path of persons who are in poor health at age 50. To do this, we develop a model that jointly considers health and mortality. The key feature of the model is the assumption of underlying “latent” health that determines both mortality and self-reported responses to categorical health and disability questions. Latent health allows for heterogeneity among individuals and allows for correlation of health status over time, thus allowing for state dependence as well as heterogeneity. The model also allows for classification errors in self-reported response to categorical health and disability questions. All of these are important features of health and disability data, as we show with descriptive data. The model accommodates the strong relationship between self-reported health status and mortality, which is critical to an understanding of the paths of health and disability of the survivors who are observed in panel data files. Our empirical analysis is based on all four cohorts of the Health and Retirement Study (HRS) -- the HRS, AHEAD, CODA and WB cohorts). We find that self-reported health and self-reported disability correspond very closely to one another in the HRS. We find that both self-reported health and disability are strong predictors of mortality. Health and disability at younger ages are strongly related to future health and disability paths of persons as they age. There are important differences in health and disability paths by education level, race, and gender.
    Date: 2007–07–03
  10. By: Axel Börsch-Supan (Mannheim Research Institute for the Economics of Aging (MEA))
    Abstract: This paper is motivated by the idea to create, wherever possible, rational mechanisms that adapt pension systems automatically to a changed economic and demographic environment, rather than to leave such adaptations to discretionary high-profile pension reforms which all too often stir political opposition. The paper delineates the theory behind such rational mechanisms, shows the advantages and limits of „self-stabilizing“ pension systems, and compares the Swedish and the German approaches to rule-bound pension policy.
    Date: 2007–07–03
  11. By: Axel Börsch-Supan (Mannheim Research Institute for the Economics of Aging (MEA))
    Abstract: The paper examines the generosity of the European welfare state towards the elderly. It shows how various dimensions of the welfare regimes have changed during the recent 10-15 years and how this evolution was related to the process of economic integration. Dimensions include general generosity towards the elderly and more specifically generosity towards early retirement and generosity towards the poor. Using aggregate data (EUROSTAT, OECD) as well as individual data (SHARE, the new Survey of Health, Ageing and Retirement in Europe), the paper looks at the statistical correlations among those types of system generosity and actual policy outcomes, such as unemployment and poverty rates among the young and the elderly, and the inequality in wealth, income and consumption. While the paper is largely descriptive, we also try to understand which economic and political forces drive social expenditures for the elderly in the European Union and whether spending for the elderly crowds out spending for the young.
    Date: 2007–07–03
  12. By: Kooij, Dorien (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics); Lange, Annet de; Jansen, Paul
    Abstract: Purpose: Little is known about the motivation for older workers to work and to remain active in the labor market. Research on age and motivation is limited and, moreover, conceptually diverse. In this study, we address age-related factors that influence the work motivation of older workers. More specifically, we examine how various conceptualizations of the age factor affect the direction and termination of the motivation to continue to work of older workers. Methodology: A literature review of age-related factors and motivation to continue to work. Findings: Results from 24 empirical and 9 conceptual studies indicate that most age-related factors can have a negative impact on the motivation to continue to work of older people. These findings suggest that age-related factors are important in understanding older workers’ motivation to continue to work and that further research is needed to more fully understand the underlying processes that govern how these age-related factors influence the motivation to continue to work. Research limitations / implications: Based on the aforementioned findings, we were able to formulate a research agenda for future research, namely: 1) a need for a meta-analysis on age and motivation to determine the actual effect sizes, 2) additional theoretical attention to the underlying age-related processes, 3) more psychometric studies examining the operationalization and measurement of the age- related variables, and 4) additional empirical research on age-related variables and motivation. Practical implications: Age-related factors identified in this study, such as declining health and career plateaus, should be addressed by HRM policies. HRM practices that could motivate older workers to continue to work include ergonomic adjustments and continuous career development. Originality / value of paper: Research on age and motivation is limited and conceptually diverse. This paper is one of the first studies to explore the relations between different conceptualizations of age and motivation.
    Keywords: Aging; Age-related factors; Motivation to continue to work; HRM
    Date: 2007
  13. By: Pierre-Carl Michaud; Arthur van Soest; Tatiana Andreyeva
    Abstract: While the fraction of obese people is not as large in Europe as in the United States, obesity is becoming an important issue in Europe as well. Using comparable data from the Survey of Health, Aging and Retirement in Europe (SHARE) and the Health and Retirement Study in the U.S. (HRS), we analyze the correlates of obesity in the population ages 50 and above, focusing on measures of energy intake and expenditure as well as socio-economic status. Our main results are as follows: 1) Obesity rates differ substantially on both sides of the Atlantic and across European countries, with most of the difference coming from the right tail of the weight distribution. 2) Part of the difference in obesity prevalence between the U.S. and Europe is explained by a higher fraction of food eaten away from home and notably lower time devoted to cooking in the U.S. 3) Sedentary lifestyle or a lack of vigorous and moderate physical activity may also explain a substantial share of the cross-country differences. 4) Differential SES patterns of energy intake and expenditure across countries cannot fully account for the observed cross-country variation in the SES gradient in obesity.
    Keywords: Body Mass Index, International Comparison, SHARE
    JEL: I12
    Date: 2007–05
  14. By: Martin Hering; Michael Kpessa
    Abstract: Is the integration of occupational pension regulations across the Canadian provinces feasible? In this paper, we assess the proposal for harmonization made by the Canadian Association of Pension Supervisory Authorities (CAPSA) by comparing it to the EU’s successful integration of member states’ pension regulations. We argue that CAPSA’s initiative failed both because regulatory diversity was defined as a fundamental problem and because the regulations that serve social policy goals were not protected from integration. We suggest that occupational pension integration in Canada would be feasible if provincial governments largely excluded rules on benefits and relied primarily on the mutual recognition of regulations.
    Keywords: occupational pensions, regulation, agenda-setting, problem definition, Canada, European Union
    JEL: D70 G23 G28 H10 J26 J38 J58 L38
    Date: 2007–05
  15. By: Axel Börsch-Supan (Mannheim Research Institute for the Economics of Aging (MEA))
    Abstract: Disability insurance – the insurance against the loss of the ability to work – is a substantial part of social security expenditures in many countries. The enrolment rates in disability insurance vary strikingly across European countries and the US. This paper investigates the extent of, and the causes for, this variation, using data from SHARE, ELSA and HRS. We show that even after controlling for differences in the demographic structure and health status these differences remain. In turn, indicators of disability insurance generosity explain 75% of the cross-national variation. We conclude that country-specific disability insurance rules are a prime candidate to explain the observed cross-country variation in disability insurance enrolment.
    Date: 2007–07–03
  16. By: Sarmistha Pal (Brunel University and IZA)
    Abstract: The present paper argues that intergenerational transfers between elderly parents and adult children are important determinants of any coresidency arrangement though generally overlooked in the existing literature. In this respect the paper distinguishes between exchange of both financial and other kinds of transfers between elderly parents and adult children and then examines the effects of these transfers on coresidency taking account of the inherent endogeneity of these transfers to coresidency decision. There is evidence that the effects of transfers on coresidency arrangements could be biased if one does not correct for the endogeneity bias. The corrected estimates derived from a system of correlated and recursive system of transfers and coresidency equations suggest that the probability of coresidence is generally lower among the better off elderly; the likelihood is also lower for the older and female elderly without a spouse and also those with poor health, thus necessitating social protection for these disadvantaged elderly.
    Keywords: co-residence with children, intergenerational transfers, elderly health and wealth effects, simultaneity bias, correlated recursive model
    JEL: H55 I31 J14
    Date: 2007–06
  17. By: Ruben Mercado; Antonio Páez; K. Bruce Newbold
    Abstract: As countries face the challenges posed by rising numbers of older persons, the need to reassess their respective policies to address transport needs in aging societies is increasingly recognized in relation to health and sustainability goals. This paper proposes the examination of six interrelated policy areas affecting elderly mobility in a country or administrative region. A general survey of policy developments in each of these areas could improve current strategies and existing processes in the planning and implementation of mobility services that will be responsive to both elderly and the general population now and in the future. These include: 1) general transport policy framework; 2) travel mode preference; 3) alternative transport infrastructure stock and investments; 4) housing-land-use-transportation linkage; 5) research and technology applications that improve travel mode and environment; and 6) institutional and legal reforms. These policy areas are discussed and given concrete elucidation in the case of Ontario, Canada. Reflections and recommendations for further research and policy action deemed critical in the case region are highlighted.
    Keywords: transportation, aging, regional policy, Canada
    JEL: R42 R58
    Date: 2007–05
  18. By: David W. Galenson
    Abstract: Psychologists have not considered wisdom and creativity to be closely associated. This reflects their failure to recognize that creativity is not exclusively the result of bold discoveries by young conceptual innovators. Important advances can equally be made by older, experimental innovators. Yet we have had no examination of why some experimental artists have remained creative much later in their lives than others. Considering the major artists who worked together during the first decade of Impressionism, this paper compares the attitudes and practices of two important experimental innovators who made significant contributions after the age of 50 with two of their colleagues whose creativity failed to persist past 50. Unlike Pissarro and Renoir, who reacted to adversity in mid-career by attempting to emulate the methods of conceptual artists, Cézanne and Monet adopted elements of other artists' approaches while maintaining their own experimental methods and goals. For both Cézanne and Monet, recognizing how they themselves learned was a key to turning experience into wisdom. Their greatness in old age appears to have been a product of their understanding that although the improvement in their art might be painstaking and slow, over long periods its cumulative effect could be very great.
    JEL: J01
    Date: 2007–06
  19. By: Axel Börsch-Supan; Alexander Ludwig; Mathias Sommer (Mannheim Research Institute for the Economics of Aging (MEA))
    Date: 2007–07–03

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