nep-age New Economics Papers
on Economics of Ageing
Issue of 2007‒08‒08
35 papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Will People Be Healthy Enough to Work Longer? By Alicia H. Munnell; Jerilyn Libby; ;
  2. How Economic Security Changes During Retirement By Barbara A. Butrica; ; ;
  3. Why Do Boomers Plan to Work So Long? By Gordon B.T. Mermin; Richard W. Johnson; Dan Murphy;
  4. Annuitized Wealth and Consumption at Older Ages By Barbara A. Butrica; Gordon B.T. Mermin; ;
  5. The Recent Trend Towards Later Retirement By Leora Friedberg; ; ;
  6. Will We Have To Work Forever? By Alicia H. Munnell; Marric Buessing; Mauricio Soto; Steven A. Sass
  7. Do Older Workers Face Greater Risk of Displacement? By Alicia H. Munnell; Steven Sass; Mauricio Soto; Natalia Zhivan
  8. Employer Attitudes towards Older Workers: Survey Results By Alicia H. Munnell; Steven A. Sass; Mauricio Soto;
  9. A New National Retirement Risk Index By Alicia H. Munnell; Anthony Webb; Luke Delorme;
  10. What Happens to Health Benefits after Retirement By Richard W. Johnson; ; ;
  11. Employers Lukewarm About Retaining Older Works By Andrew D. Eschtruth; Steven A. Sass; Jean-Pierre Aubry;
  12. Has the Displacement of Older Workers Increased? By Alicia H. Munnell; Steven Sass; Mauricio Soto; Natalia Zhivan
  13. Labor Supply Effects of the Recent Social Security Benefit Cuts: Empirical Estimates Using Cohort Discontinuities By Giovanni Mastrobuoni
  14. What Moves the National Retirement Risk Index? A Look Back and an Update By Alicia H. Munnell; Francesca Golub-Sass; Anthony Webb;
  15. The Repeal of the Retirement Earnings Test and the Labor Supply of Older Men By Gary V. Engelhardt; Anil Kumar; ;
  16. Job Changes at Older Ages: Effects on Wages, Benefits, and Other Job Attributes By Richard W. Johnson; Janette Kawachi; ;
  17. Older Workers: Lessons From Japan By John B. Williamson; Masa Higo; ;
  18. Phased Retirement: Problems and Prospects By Robert Hutchens; ; ;
  19. Age, Women, and Hiring: An Experimental Study By Joanna Lahey; ; ;
  20. Working Hours Flexibility and Older Workers' Labor Supply By Anne C. Gielen
  21. Firms and Early Retirement: Offers That One Does Not Refuse By Lutz Bellmann; Florian Janik
  22. Persistence in Labor Supply and the Response to the Social Security Earnings Test By Leora Friedberg; Anthony Webb; ;
  23. Socioeconomic and Health Determinants of Health Care Utilization Among Elderly Europeans: A Semiparametric Assessment of Equity, Intensity and Responsiveness for Ten European Countries By Jürgen Maurer
  24. The Timing of Employment Breaks: How Does It Affect Pension Benefits? : Empirical Evidence from Germany By Niklas Potrafke
  25. Cross-National Comparison of Income and Wealth Status in Retirement: First Results From the Luxembourg Wealth Study (LWS) By Eva Sierminska; Andrea Brandolini; Timothy M. Smeeding;
  26. How Do Age Discrimination Laws Affect Older Workers? By Joanna Lahey; ; ;
  27. Volunteer Work, Informal Help, and Care among the 50+ in Europe: Further Evidence for ‘Linked’ Productive Activities at Older Ages By Karsten Hank; Stephanie Stuck
  28. Global Aging and Economic Convergence: A Real Option or Still a Case of Science Fiction? By Hendrik P. van Dalen
  29. Saving and Demographic Change: The Global Dimension By Barry Bosworth; Gabriel Chodorow-Reich; ;
  30. Trends in Worker Displacement Penalties in Japan: 1991-2005 By Michael Bognanno and Ryo Kambayashi
  31. State dependence, duration dependence and unobserved heterogeneity in the employment transitions of the over-50s By Lorenzo Cappellari; Richard Dorsett; Getinet Haile
  32. State Age Protection Laws and the Age Discrimination in Employment Act By Joanna Lahey; ; ;
  33. Why Do Japanese Workers Remain in the Labor Force So Long? By John B. Williamson; Masa Higo; ;
  34. GAMMA, a Simulation Model for Ageing, Pensions and Public Finances By Nick Draper; Alex Armstrong
  35. Medicaid and Long-Term Care: How Will Rising Costs Affect Services for an Aging Population? By Howard Gleckman; ; ;

  1. By: Alicia H. Munnell; Jerilyn Libby (Center for Retirement Research, Boston College); ;
    Abstract: As recently as the mid-1960s, the median retirement age for men — the age at which half of all men are no longer in the labor force — was 66. Today, it is 63. But given the scheduled decline in Social Security replacement rates, increased longevity, and the relatively low balances in 401(k) accounts, Americans risk serious income shortfalls, especially at older ages, if they continue to retire at age 63. A rational response is to move the average retirement age back to 66 or even older. A key consideration is whether people will be healthy enough to work longer. This brief compares the health status of older people today with those forty years ago and explores what happens to people’s health as they age. The bottom line is that the health of older people (those 65 and older), as opposed to older workers (those 50 to 64), showed little improvement in the 1970s, mixed results in the 1980s, and marked improvement since the 1990s. The marked improvement for older workers most likely began earlier, in the 1980s. Today, the health of older workers appears to be at least as good as it was forty years ago. Thus, if half of the male population were then healthy enough to work until age 66, the same percentage should be able to do so today. Two important issues not addressed in this brief are whether the jobs will be there for older workers and the challenge presented by the 15 to 20 percent of the older population for whom work will be impossible.
    Keywords: working longer, median retirement age, social security replacement rates, longevity
    Date: 2007–03
  2. By: Barbara A. Butrica; (Urban Institute); ;
    Abstract: Most studies of retirement well-being have focused on outcomes for relatively young retirees. Few studies have considered how retirement security changes as older Americans age. Following older adults from age 67 (when most have stopped working) to age 80, this study uses projections of wealth and income to assess how their economic security changes during retirement. Results indicate that typical older adults experience a decline in retirement wealth and income between ages 67 and 80. More than two-fifths of retirees will have significantly less income at age 80 than they did at age 67, with the median decline in income being $16,000 for current retirees and $23,000 for boomers. Some older adults, however, will be better off later in retirement. Approximately two-fifths of retirees will have significantly more income at age 80 than they did at age 67, with the median increase in income being $14,000 for current retirees and $17,000 for boomers. At least some of the change in economic well-being during retirement is related to changes in marital status, health status, living arrangements, and work status.
    Keywords: retirement security, change, decline, increase, loss, gain, economic well-being, younger, older, retirees
    Date: 2007–02
  3. By: Gordon B.T. Mermin; Richard W. Johnson (Urban Institute); Dan Murphy (Urban Institute);
    Abstract: Recent changes in retirement trends and patterns have raised questions about the likely retirement behavior of baby boomers, the large cohort born between 1946 and 1964. This study compares the retirement expectations of workers ages 51 to 56 in 2004 (who were born between 1948 and 1953, the leading edge of the baby boom) and 1992 (born between 1936 and 1941). Data come from the Health and Retirement Study. Work expectations increased significantly over the period. Between 1992 and 2004, the mean expected probability of working full-time past age 62 among workers ages 51 to 56 increased from 47 percent to 51 percent. The increase was even more rapid for the expected mean probability of full-time work after age 65, which grew from 27 percent to about 33 percent over the period. Controlling for other factors, self employment, education, and earnings increased work expectations at older ages, while defined benefit pension coverage, employer-sponsored retiree health benefits, and household wealth reduced expectations. Lower rates of retiree health insurance offers from employers, higher levels of educational attainment, and lower rates of defined benefit pension coverage accounted for most of the increase between 1992 and 2004 in expected work probabilities after ages 62 and 65. These trends suggest that the boomers will remain at work longer than the previous generation. The recent uptick in average retirement ages appears to be the leading edge of a new long-term trend. Lengthier careers will likely promote economic growth, increase government revenue, and improve individual financial security at older ages.
    Keywords: baby boomers, retirement trends, defined benefit, pension coverage, retiree health benefits, household wealth, education
    Date: 2006–11
  4. By: Barbara A. Butrica; Gordon B.T. Mermin (Urban Institute); ;
    Abstract: The growing popularity of Individual Retirement Accounts (IRAs) and defined contribution (DC) pension plans, which generally provide benefits in the form of lump sum payments instead of annuities, is likely to affect spending patterns at older ages. People who enter retirement with little of their wealth annuitized run the risk of spending too quickly and depleting their assets before they die. Or they might spend too slowly, out of fear of running out of money, and not enjoy as comfortable a retirement as they could afford. This study uses data from the Health and Retirement Study (HRS), including a recent supplemental expenditure survey, to examine how household expenditures among adults ages 65 and older vary by the degree of annuitization—where annuities include Social Security benefits, pensions and private annuity contracts, and Supplemental Security Income (SSI) benefits. Results indicate that typical older married adults hold 55 percent of their retirement wealth in annuitized assets, and unmarried adults have 59 percent of their wealth annuitized. Older adults with little annuitized wealth spend more, even controlling for demographics, income, and wealth. If all defined benefit pensions (DB) were converted into unannuitized DC retirement accounts, discretionary spending could increase by as much as 3 percent for married adults and 11 percent for unmarried adults. By comparison, if Social Security was completely privatized, and retirees did not annuitize, discretionary spending could increase by as much as 22 percent for married adults and 38 percent for unmarried adults.
    Keywords: annuitized wealth, consumption, older age, IRAs, DCs
    Date: 2006–12
  5. By: Leora Friedberg; (University of Virginia); ;
    Abstract: A dramatic decline in work at older ages persisted over most of the twentieth century. Recently, however, retirement ages stabilized, prompting debate as to whether the early retirement trend had stopped or simply paused. This brief shows that the trend towards earlier retirement has not just leveled off but has apparently reversed, with especially large increases in labor supply of women in late middle age. It then offers some explanations for this apparent reversal. Many of the likely causes of delayed retirement could potentially have greater effects on successive birth cohorts nearing retirement, making it possible that the trend towards delayed retirement will continue.
    Keywords: older workers, decline in work, early retirement, delayed retirement, trend
    Date: 2007–03
  6. By: Alicia H. Munnell; Marric Buessing (Center for Retirement Research, Boston College); Mauricio Soto (Center for Retirement Research, Boston College); Steven A. Sass
    Abstract: Today, the average retirement age is 63. If people continue to retire at 63, they are going to face a severe decline in living standards at retirement for a number of reasons. First, at any given retirement age, Social Security benefits will replace less of pre-retirement earnings as the Normal Retirement Age rises from 65 to 67. Second, Medicare premiums, which are deducted before the Social Security check goes in the mail, are slated to rise dramatically. Third, taxes on Social Security benefits will also rise. In addition, pension coverage in the private sector has shifted from defined benefit plans, where workers receive a life annuity based on years of service and final salary, to 401(k) plans, where individuals are responsible for their own saving and the median balance for individuals approaching retirement is only $60,000. One powerful antidote to reductions in retirement income is to work longer. Working directly increases people’s current income; it avoids the actuarial reduction in Social Security benefits; it allows their 401(k) plans to grow; and it postpones the day when they start drawing down their pension accumulations or other retirement saving. The question is how much longer people will need to work. This brief examines the effect of working longer on replacement rates and finds that delaying retirement by about two years can have a major impact on retirement security for those with significant 401(k) assets; households that depend solely on Social Security, however, would have to extend their work lives by more than three and a half years to achieve similar gains.
    Keywords: retirement age, average, pension coverage, defined benefit plans, 401(k) plans, retirement income, working longer, actuarial reductions, social security benefits
    Date: 2006–07
  7. By: Alicia H. Munnell; Steven Sass (Center for Retirement Research, Boston College); Mauricio Soto (Center for Retirement Research, Boston College); Natalia Zhivan
    Abstract: The employment of older workers into their mid-60s will be critical to ensuring that they enjoy a secure retirement. Continued employment provides current income while working, avoids the actuarial reduction in Social Security benefits, allows 401(k) accumulations to increase, and shortens the period of retirement those assets must support. One of the risks threatening the ability to work to older ages is being “displaced,” with displacement defined as the elimination of the worker’s job due to a shift in the demand for labor. Displacement can easily throw 50-year-old workers off course, disrupt their retirement saving plans, and possibly lead to premature retirement. This brief explores the displacement of older workers over the period 1984-2004 using the biennial Displaced Worker Supplement to the Current Population Survey. The first section summarizes why continued employment is important. The second section introduces key factors that could affect displacement trends. The third section describes the Displaced Worker Survey and reports the raw data. The fourth section reports regression results aimed at isolating the impact of age, tenure, and other variables on the probability of being displaced. The fifth section reports the results from a similar analysis using the Health and Retirement Study. The bottom line is good news and bad news. The good news is that the data from the Displaced Worker Surveys show that older workers have a lower risk of displacement than younger workers, with no trend toward increasing displacement or worsening outcomes. The bad news is that the lower probability of displacement for older workers is based on the correlation between job tenure and age. Controlling for tenure, age does not protect workers from being displaced. And tenure appears to be declining, which may suggest a greater risk of displacement in the future.
    Keywords: older workers, displacement, secure retirement, actuarial reductions, social security benefits, working longer, at older ages, displacement trends, tenure, protection
    Date: 2006–09
  8. By: Alicia H. Munnell; Steven A. Sass (Center for Retirement Research, Boston College); Mauricio Soto (Center for Retirement Research, Boston College);
    Abstract: Today men on average retire at 63 and women at 62, and they can expect to spend 20 years in retirement. But if Americans continue to retire as early as they do today, many will not have adequate income once they stop working. Social Security will provide less relative to pre-retirement earnings as the normal retirement age rises from 65 to 67 and those lucky enough to have a 401(k) plan are likely to find their balances inadequate. One solution to the retirement security challenge is for people to work longer. Working longer directly increases a person’s current income; it avoids the actuarial reduction in Social Security benefits; it allows people to contribute more to their 401(k) plans; it allows their assets more time to accumulate investment earnings; and it shortens the period over which people have to support themselves with their retirement assets. So it stands to reason that workers would choose to extend their careers. But will they find employment? Some evidence suggests that employers have not been especially fond of older workers. For example, older workers who lose a job have had a much harder time finding another. And many employers actually use sweetened early retirement incentives to get older workers to leave. On the other hand, today’s older workers are far better educated than older workers just a decade ago; they are more physically fit; and the shift from goods-producing to services-producing jobs has reduced the physical demands of work, which should enhance the employment prospects of older workers. To get a better understanding of the employment prospects of older workers, the Center for Retirement Research at Boston College (CRR) conducted a survey of 400 private sector employers. These employers were asked to evaluate the relative productivity and cost of white-collar and rank-and-file workers age 55 and older and whether, on balance, older employees or job candidates were more or less attractive than their younger counterparts.
    Keywords: older workers, employer attitudes, normal retirement age, working longer, actuarial reductions, social security benefits, 401(k) plans, survey, private sector employers, relative productivity, white collar, preference, attractive
    Date: 2006–07
  9. By: Alicia H. Munnell; Anthony Webb (Center for Retirement Research, Boston College); Luke Delorme (Center for Retirement Research, Boston College);
    Abstract: Americans weaned on post-war affluence have come to expect an extended period of leisure at the end of their work life. And, indeed, the majority of today’s retirees are able to afford a decent retirement. However, this group is living in a “golden age” that will fade as Baby Boomers and Generation Xers reach traditional retirement ages in the coming decades. This gloomy prediction reflects the trend towards longer retirements and likely declines in retirement incomes relative to pre-retirement earnings — known as replacement rates. Because many Americans appear unaware of these disquieting trends, the Center for Retirement Research at Boston College has developed the National Retirement Risk Index. The Index measures the share of working-age households who are at risk of being unable to maintain their pre-retirement standard of living in retirement. The Index shows that, even if people retire at age 65 and households annuitize all their wealth including the receipts from reverse mortgages on their homes, 43 percent will be at risk. But the situation is not hopeless — if people choose to work longer — even just two years — and save 3 percent more, they can substantially improve the outlook for their retirement security.
    Keywords: baby boomers, generation x, retirement age, replacement rates, pre-retirement earnings, national retirement risk index
    Date: 2006–06
  10. By: Richard W. Johnson; (Urban Institute); ;
    Abstract: Because most workers receive health benefits from their employers, retirement often disrupts health insurance coverage. Some employers offer health insurance to retirees, but many firms are cutting retiree health benefits by passing more costs to retirees or eliminating benefits altogether. Few alternatives exist. Private nongroup coverage is generally quite expensive, and few people in their 50s and early 60s qualify for publicly financed benefits. Many workers who cannot obtain retiree benefits from their own employers or their spouses’ employers delay retirement to age 65, when Medicare coverage begins. This brief examines the availability and cost of health insurance coverage at ages 55 to 64 and changes in coverage after retirement. Today most workers with employer health benefits retain their coverage when they retire early, although their required premium contributions have increased sharply over the past ten years. In the future, however, steady declines in the share of younger workers with access to retiree health benefits may jeopardize income security for the next generations of retirees.
    Keywords: retirement, health benefits, disrupt, cutting benefits, health insurance coverage
    Date: 2007–02
  11. By: Andrew D. Eschtruth; Steven A. Sass (Center for Retirement Research, Boston College); Jean-Pierre Aubry (Center for Retirement Research, Boston College);
    Abstract: Working longer has emerged as a major response to the coming retirement income challenge. Going forward, Social Security will replace a smaller portion of household earnings for retirement at any given age. Employer plans, now primarily 401(k)s, generally have modest balances, and the income they provide will be much less secure. And individuals save virtually nothing outside of 401(k)s. But workers can offset much of the projected decline and increased risk in their retirement income by remaining in the labor force two to four years longer. For this shift to occur, workers must be willing to extend their careers and employers must be willing to employ them. To gain perspective on the market for older workers, the Center for Retirement Research at Boston College conducted two surveys of 400 nationally representative employers. The first survey found that employers generally considered older workers at least as attractive as younger workers. The second survey found that employers expect that 1) half their employees over age 50 will lack the resources needed to retire at their organization’s traditional retirement age; and 2) half of those who lack resources will want to work at least two years longer than similar workers have in the past. In terms of retirement income security, the intention for many to work longer is clearly good news. This brief reports additional results from the second survey on whether employers will create opportunities for employees to work longer. The policy community generally thinks they will. Many observers say employers will face labor shortages and a loss of “institutional intelligence” when the Boomers exit the labor force, and these developments will push them to seek out older workers. However, our survey results raise a cautionary flag.
    Keywords: working longer, social security, employer plans, 401(k) plans, employer attitudes, survey of employers
    Date: 2007–05
  12. By: Alicia H. Munnell; Steven Sass (Center for Retirement Research, Boston College); Mauricio Soto (Center for Retirement Research, Boston College); Natalia Zhivan
    Abstract: The employment of older workers into their mid-60s will be critical to their ability to ensure a secure retirement. One of the risks threatening the ability to work to older ages is being “displaced,” with displacement defined as the elimination of the worker’s job due to a shift in the demand for labor. Displacement can easily throw 50-year-old workers off course, disrupt their retirement saving plans, and lead to premature retirement. This paper explores the relationship between job loss and age over the period 1984-2004 using the biennial Displaced Worker Supplement to the Current Population Survey. It finds that no major trends in the displacement of older workers have occurred over the 11 Displaced Worker Surveys conducted during the period. Re-employment rates for older workers appear to have improved. And the earnings loss associated with the displacement of older workers has not changed significantly. Two other significant findings relate to tenure and education. First, the historical protection that older workers appeared to have against displacement was due to tenure not to age per se. Controlling for tenure, the probability of displacement increases with age. Second, college education is no longer a source of significant protection in the world of displacement, and its importance has declined sharply for re-employment.
    Keywords: older workers, displacement, retirement, saving plans, job loss, tenure, education, re-employment, earnings loss
    Date: 2006–09
  13. By: Giovanni Mastrobuoni (Princeton University)
    Abstract: In response to a crisis in Social Security financing two decades ago Congress implemented an increase in the Normal Retirement Age (NRA) of two months per year for cohorts born in 1938 and after. These cohorts began reaching retirement age in 2000. This paper studies the effects of these benefit cuts on recent retirement behavior. The evidence strongly suggests that the mean retirement age of the affected cohorts has increased by about half as much as the increase in the NRA. If older workers continue to increase their labor supply in the same way, there will be important implications for the estimates of Social Security trust fund exhaustion that have played such a major role in recent discussions of Social Security reform.
    Date: 2006–12
  14. By: Alicia H. Munnell; Francesca Golub-Sass (Center for Retirement Research, Boston College); Anthony Webb (Center for Retirement Research, Boston College);
    Abstract: In June 2006, the Center for Retirement Research released the National Retirement Risk Index (NRRI). The results showed that even if households work to age 65 and annuitize all their financial assets, including the receipts from reverse mortgages on their homes, 43 percent will be at risk of being unable to maintain their standard of living in retirement. Households are more likely to be ‘at risk’ if they are young, have low incomes, or lack pension coverage. This brief looks at the three major factors that have caused the Index to increase since the early 1980s. These factors are: 1) a decline in Social Security replacement rates due to the decline in one-earner couples and the increase in Social Security’s Normal Retirement Age; 2) lower pension replacement rates as a result of the shift from defined benefit to defined contribution plans; and 3) lower annuity payments due to the dramatic decline in real interest rates. These negative factors have been only partially offset by a modest increase in financial assets, and an increase in the retirement income that homeowners could potentially obtain through reverse mortgages. Having identified the key movers, this brief also updates the Index from 2004 to 2006. During this period, the run-up in housing prices was cancelled out by a corresponding surge in mortgage debt, which resulted in no change in the ‘at risk’ status of any of the Index’s age cohorts. However, compared to the 2004 Index, the 2006 Index has more Generation Xers and fewer Baby Boomers. Since Generation Xers are more likely to be ‘at risk,’ this change increased the Index slightly to 44 percent.
    Keywords: national retirement risk index, social security, replacement rates, decline, defined benefit plans, defined contribution plans, lower annuity payments, reverse mortgages
    Date: 2007–01
  15. By: Gary V. Engelhardt; Anil Kumar (Federal Reserve Bank of Dallas); ;
    Abstract: This paper examines the impact of the Senior Citizens Freedom to Work Act of 2000, which abolished the Social Security retirement earnings test for those aged 65-69, on the labor supply of older men using data from the 1996-2004 waves of the Health and Retirement Study (HRS). Based on reduced-form specifications, we find that the repeal of the earnings test increased labor supply on the intensive margin by 12-17%, the bulk of which was concentrated among men with a high-school degree, whose labor supply rose by 19-26%. We formulate a unique test for endogenous reporting of health status by examining how reported health changes with the repeal of the earnings test. We find some evidence of endogenous self-reported health status. In particular, older men were substantially less likely to have reported that health limits their ability to work after, relative to before the earnings test repeal, with the bulk of the effect concentrated among men with high-school degrees, who had the largest labor-supply response to the repeal.
    Keywords: retirement earnings test, labor supply, older men, aging
    Date: 2007–05
  16. By: Richard W. Johnson; Janette Kawachi (Urban Institute); ;
    Abstract: One potential way to manage the rapidly growing costs of supporting older Americans is to increase labor supply at older ages. However, questions persist about the quality of available jobs. This study examines older Americans’ employment opportunities by studying job changes at older ages. Using data from the Health and Retirement Study, it compares wages, benefits, and other job attributes on new and former jobs for adults ages 45 to 75 who changed employers between 1986 and 2004. Because older people who choose to work after retiring voluntarily from long-term jobs may face different employment prospects than displaced older workers, the analysis considers how employment changes vary by the reasons workers give for job separations. Most people who switched employers at older ages moved to jobs that differed substantially from their previous jobs. The vast majority of older job changers moved into different occupations and industries. They were more likely to be self-employed, work part-time, and keep flexible hours at their new jobs than their old jobs. The new jobs generally involved less stress, less physical effort, and fewer managerial responsibilities. More older job changers enjoyed their new jobs than their old jobs. However, most older workers experienced sharp hourly wage reductions when they switched employers. They were also less likely to receive pension coverage or health benefits after they moved to new jobs. Although the findings do not raise concerns about the quality of post-retirement jobs, they suggest that older displaced workers face special challenges in the labor market.
    Keywords: labor supply, older ages, increase, employment, opportunities, wages, benefits, employer change, job changers
    Date: 2007–02
  17. By: John B. Williamson; Masa Higo (Center for Retirement Research, Boston College); ;
    Abstract: Working longer is one way to improve the retirement security of today’s older workers. It increases retirement resources while shrinking the period over which these resources will be needed. Working longer would also contribute to economic growth, allowing the nation to benefit from the knowledge and skills of older Americans. And it could potentially reduce spending on federal programs such as Medicare and Medicaid. As U.S. policymakers consider ways to encourage people to extend their work lives, one place to look is Japan, the only major industrial nation with higher labor force participation rates among older workers than the United States. This brief presents five reasons why the Japanese work so long.
    Keywords: working longer, policies, Japan, Japanese workers
    Date: 2007–06
  18. By: Robert Hutchens; (ILR School, Cornell University); ;
    Abstract: As baby boomers near traditional retirement ages, many express an intent to work longer. But older workers often look for greater flexibility that would allow them more time for non-work activities. Not surprisingly then, the notion of phased retirement — where an older full-time worker remains with the same employer and gradually reduces work hours — has considerable appeal for employees. Phased retirement may help employers as well by allowing them to keep experienced and productive workers. This brief begins by exploring the potential benefits of phased retirement. The next section documents the extent of phased retirement in today’s workplace and describes the types of people who take it. The following section discusses the problems that employers face when arranging phased retirements. The brief concludes that, while rare today, phased retirement may become more popular in the future.
    Keywords: baby boomers, traditional retirement ages, older workers, phased retirement, potential benefits
    Date: 2007–02
  19. By: Joanna Lahey; (National Bureau of Economic Research); ;
    Abstract: As the baby boom cohort reaches retirement age, demographic pressures on public programs such as Social Security may cause policy makers to cut benefits and encourage employment at later ages. This prospect raises the question of how much employer demand exists for older workers. This paper reports on a labor market experiment to determine the hiring conditions for older women in entry-level jobs in Boston, MA and St. Petersburg, FL. Differential interviewing by age is found for these jobs. A younger worker is more than 40 percent more likely to be offered an interview than is an older worker. No evidence is found to support taste-based discrimination as a reason for this differential, and some suggestive evidence is found to support statistical discrimination.
    Keywords: baby boomers, older workers, women, hiring, entry-level jobs, discrimination, taste-based, statistical
    Date: 2006–11
  20. By: Anne C. Gielen (Tilburg University, CentER, Institute for Labor Studies (OSA) and IZA)
    Abstract: This paper studies the presence of hours constraints on the UK labor market and its effect on older workers labor supply, both at the extensive and the intensive margin. Using panel data for the period 1991-2004, the results from a competing risks model show that over-employed male workers can freely reduce working hours with their current employer before retiring completely. However, some over-employed women are observed to leave the labor market early due to hours constraints. Despite the fact that more flexibility in hours may increase labor market participation of older women, this paper presents some explorative results which illustrate that increasing working hours flexibility does not seem to increase older workers total labor supply as has often been suggested.
    Keywords: labor supply, hours constraint, mobility, retirement
    JEL: J22 J26 J63
    Date: 2007–07
  21. By: Lutz Bellmann (Institute for Employment Research (IAB), University of Hannover and IZA); Florian Janik (Institute for Employment Research (IAB))
    Abstract: According to the Hutchens (1999) model, early retirement is not explained as a result of maximizing expected individual utility but rather as a demand-side phenomenon arising from a firm’s profit-maximizing behaviour. Firms enter into contracts with their employees that include clauses about early retirement. In response to demand or technological shocks, workers receive retirement offers from their employers which cannot be rejected by rational actors. Using the IAB Establishment Panel 2003-2006, the relationship between indicators of demand and technological shocks and the incidence and amount of early retirement is analysed. The results provide general support to the Hutchens model.
    Keywords: (involuntary) early retirement, labour demand, panel data
    JEL: J14 J21 J23 J26
    Date: 2007–07
  22. By: Leora Friedberg; Anthony Webb (Center for Retirement Research, Boston College); ;
    Abstract: This paper investigates the impact on labor supply of changes in the Social Security earnings test in 1996 and 2000. We highlight how the persistence of labor supply choices influences both responses to policy changes and the estimation of such responses. We do this in two ways. First, we use data from the Health and Retirement Study and the Current Population Survey that allows us to compare employment transitions across cohorts that are differentially affected by changes in the earnings test rules. We show that conditioning on last year’s employment status is important in identifying responses to current earnings test changes. Second, we test the effect of not only current but also anticipated as well as past earnings test parameters which cohorts faced at earlier ages. We find that past and anticipated future rules influence current employment and earnings. Our results help to identify an effect of earnings test changes affecting ages 65-69 on employment at younger and older ages, which suggests caution about the use of neighboring age groups as control groups in analyzing responses to the earnings test. We also show that earnings test changes that were initiated in 1996 had an important effect, in addition to the changes in 2000 that have been extensively studied.
    Keywords: labor supply, social security, earnings test, employment
    Date: 2006–12
  23. By: Jürgen Maurer (Mannheim Research Institute for the Economics of Aging (MEA))
    Abstract: This paper investigates the interplay of socioeconomic and medical determinants of health care utilization among elderly Europeans from ten countries. Using novel strictly comparable cross-national data from the Survey of Health, Ageing and Retirement in Europe (SHARE), the study exploits recent semi- and nonparametric estimation methods to illustrate how individual socioeconomic status and health determine health care utilization in different institutional settings. Our flexible estimation method allows for the use of multiple health measures to adjust for individual differences in health care need without sacrificing cross-national comparability of the resulting estimates. Within countries, we find only a small, if any, socioeconomic gradient. Moreover, all health systems appear to be reasonably responsive to differences in care need. At the same time, we find considerable variation in treatment intensity across countries, which we cannot fully explain by differences in health care need.
    Date: 2007–07–17
  24. By: Niklas Potrafke
    Abstract: This paper provides empirical evidence how the timing of employment breaks affects pension benefits in Germany. Analysing the biographical data set from the German Pension Insurance (SUF VVL 2004) the employment histories of individuals aged 21 to 60 can be mirrored in detail. We relate differences in pension benefits to employment breaks due to unemployment and parental leave in the individual life cycle, distinguishing by gender. Three different career phases (early, middle and late) are distinguished and respective social policy phases are considered. As predicted by human capital theory, the losses due to career interruptions in the early and middle employment period differ. However, the negative effects due to unemployment in the late employment period are only weak. This finding detects special characteristics of the covered age-groups in the data set.
    Keywords: employment histories, career interruptions, pension benefits
    JEL: J26 J24
    Date: 2007
  25. By: Eva Sierminska; Andrea Brandolini (Bank of Italy); Timothy M. Smeeding (Center for Policy Research, Syracuse University);
    Abstract: This paper provides a first glance at the role of income and wealth in comparing economic security of older persons in the United States in cross-national perspective. We compare our elders to those in six other rich OECD countries (Canada, Finland, Germany, Italy, Sweden, and the United Kingdom). These countries have diverse social policy systems, with respect to both social insurance and public assistance; and they have very different patterns of private wealth holding. The paper is based on a new source of wealth micro data, known as the Luxembourg Wealth Study (LWS). In this paper, we first develop a comparable definition of wealth and net worth across nations and then focus our efforts on the inter-country variation in the composition of income and asset packages for those 65 and over, with respect to the main sources in each package. We examine the structure of income and wealth holdings and their joint distribution; income and asset poverty of the elderly; the importance of home ownership in providing security for the elderly; differences in wealth by education; and we provide an initial glimpse at wealth and income inequality in a comparative perspective. We conclude by comparing the risks associated with private assets to those associated with under-funded public pension systems.
    Keywords: wealth, cross-national, private holdings, Luxembourg Wealth Study, home ownership, asset poverty, elderly, education, differences in wealth, public pension systems
    Date: 2007–02
  26. By: Joanna Lahey; (Bush School of Government and Public Service); ;
    Abstract: The federal Age Discrimination in Employment Act (ADEA) prohibits age-based discrimination against older workers through hiring, firing, layoffs, compensation and other conditions of employment. The law covers most workers age 40 and older in firms with 20 or more employees. The question is whether the ADEA and similar state laws have helped or hurt older workers. On the one hand, the legislation may have prevented companies from unfairly dismissing older workers. On the other hand, the fear of lawsuits may have dissuaded employers from hiring older workers. If so, the law would benefit "insiders" who already have jobs but harm "outsiders" seeking employment. This brief discusses the history, mechanics, and impact of age protection laws in the United States. It summarized previous research and presents new findings using data from the Current Population Survey.
    Keywords: age discrimination laws, older workers, insiders, outsiders, hurt, helped, history, mechanics
    Date: 2006–10
  27. By: Karsten Hank; Stephanie Stuck (Mannheim Research Institute for the Economics of Aging (MEA))
    Abstract: Taking a cross-national perspective, we investigate linkages between volunteer work, informal help, and care among Europeans aged 50 or older. Based on 27,305 personal interviews from the 2004 Survey of Health, Ageing and Retirement in Europe, we estimate univariate and multivariate probit models, which allow us to analyze the interrelationship between different productive activities. There is substantial variation in the participation in volunteering, helping, and caring between countries and regions. Independent of the general level of activity in a country, we find evidence for a complementary and interdependent relationship between all three activities. Our findings not only suggest an important role of societal opportunity structures in elders‟ productive engagement, but also support notions of the existence of a general motivation for engagement in productive activities.
    Date: 2007–07–17
  28. By: Hendrik P. van Dalen (Erasmus Universiteit Rotterdam)
    Abstract: How does global aging affect the convergence in global economic development? Both the developing and developed world will be characterized for the coming decades by aging populations. Changes in the age distribution of a population are an important determinant of economic performance as they affect wealth accumulation and dependency burdens, yielding a demographic dividend of extra growth. During the twenty years from 1975 to 2005 Europe and the US have benefited from a strong demographic dividend. However, in the decades to come this effect will be reversed and the driving force behind the wealth of nations has to be sought elsewhere. Africa and, to some extent, India might benefit from the demographic dividend. However, this potential growth phase may well disappear if supporting conditions for growth are absent. Large-scale migration is not expected to be a sustainable solution to unbalanced global economic developments. Remittances, Foreign Direct Investment (FDI) and Official Development Assistance (ODA) will remain necessary capital flows for the developing world in the near future. Remittances offer no structural solution to reduction of poverty as these funds flow to a selective group of families and are allocated generally to consumption rather than to investment purposes. Migration of a temporary nature in conjunction with offshore outsourcing of services and production may offer a solution for the dilemmas of population and development, which OECD donors face in offering development assistance and designing immigration policy.
    Keywords: aging; convergence; migration; remittances; population growth
    JEL: E2 F22 F35 J11 N30
    Date: 2007–07–16
  29. By: Barry Bosworth; Gabriel Chodorow-Reich (Brookings Institution); ;
    Abstract: This paper uses a panel data set of 85 countries covering 1960-2005 to investigate the macroeconomic linkages between national rates of saving and investment and population aging. The issue takes on added significance because of the recent suggestion that the decline in global interest rates has been driven by demographic changes in the industrial economies. We do find a significant correlation between the age composition of the population and nations’ rates of saving and investment, but the effects vary substantially by region. They are very strong for the non-industrial economies of Asia, but weak in the high-income countries. We also find evidence of demographic effects on both the public and private components of national saving. Furthermore, we conclude that the demographic effects on saving will be less disruptive than sometimes believed because of offsetting declines in investment. However, the effects on saving are stronger than those for investment, implying that most aging economies will ultimately be pushed in the direction of current account deficits. In contrast to some of the recent discussion, we find that demographic change is already exerting a downward pressure on saving in the high-income economies and that the current evidence of a global saving glut is related more to the weakness of investment – particularly in Asia – and the high short-run saving of the oil-producing countries. We conclude with a discussion of why the effects appear to be so strong in Asia.
    Keywords: national saving rates, populating aging, global interest rates, investment, demographic change
    Date: 2007–02
  30. By: Michael Bognanno and Ryo Kambayashi
    Abstract: We examine the period from 1991 to 2005 to document the effects of a changing Japanese labor market on trends in the cost of job change. During this period, job change penalties and the extent to which they were age-related grew. Evidence is also found of a diminishing specificity in human capital (in industry, occupation and firm size) for job changers in the Japanese labor market. As might be expected, older workers and workers leaving the largest firms suffered the largest wage losses from job change. Older workers were also harmed more by involuntary job separations. In percentage terms, young females have larger wage losses than young males but older females have smaller losses than older males. This pattern is masked in considering only the overall effect of gender on the cost of job change.
    Keywords: Displacement
    JEL: J31 J41 J63 J6
    Date: 2007–07
  31. By: Lorenzo Cappellari (DISCE, Università Cattolica); Richard Dorsett (Policy Studies Institute, London); Getinet Haile (Policy Studies Institute, London)
    Abstract: This paper examines employment transitions among men and women in the UK aged between 50 and the state pension age. We begin by examining the issue of duration dependence, using standard duration models. We then use a fourth order Markov model to estimate quarterly transitions while allowing for potential endogeneity of initial conditions. The results reject exogeneity of initial conditions and show the importance of both duration dependence and state dependence. This implies there is the potential for any individual to become trapped in non-employment and, ideally, policy should intervene as soon as an individual begins a period of non-employment.
    Keywords: Labour market participation, Transitions, Over-50s.
    JEL: J14 J21 J64
    Date: 2007–07
  32. By: Joanna Lahey; (National Bureau of Economic Research); ;
    Abstract: Some anti-discrimination laws have the perverse effect of harming the very class they were meant to protect. This paper provides evidence that age discrimination laws belong to this perverse class. It exploits an unusual aspect of the policy for enforcement of the federal 1968 Age Discrimination in Employment Act (ADEA), which made filing an age discrimination claim less burdensome in some states than in others. After the enforcement of the federal law, white male workers over age 50 in states where the federal government allowed 300 days to file a discrimination complaint worked between 1 and 1.5 fewer weeks per year than did workers in states without laws. These men were also .3 percentage points more likely to be retired and .2 percentage points less likely to be hired. These findings suggest that in an anti-age discrimination environment, firms seek to avoid litigation through means not intended by the legislation — by not employing older workers in the first place.
    Keywords: age discrimination, litigation, age protection laws
    Date: 2006–11
  33. By: John B. Williamson; Masa Higo (Center for Retirement Research, Boston College); ;
    Abstract: As part of the search for answers to questions about what could be done to increase labor force participation rates among older workers in the United States, it makes sense to take a close look at evidence from Japan, one of the few industrial countries with a higher labor force participation rate among older workers than the United States. The gap is particularly large for male workers. The focus of this study is on six factors which help explain why Japanese workers remain in the labor force as long as they do: (1) perceived economic necessity; (2) the large fraction of workers who are self-employed; (3) a culture that puts a high value on being a productive member of the paid labor force, particularly for men; (4) the government’s role in facilitating the labor force participation of older workers; (5) the long healthy life expectancy; and (6) the distinctive corporate culture’s effects on marital dynamics among older generations. Based on the evidence from Japan, three policy suggestions are outlined for those seeking to increase labor force participation rates among older U.S. workers: (1) increase the financial incentive to workers who remain in the labor force; (2) increase the extent of government efforts to link older workers to prospective employers; and (3) improve public programs designed to foster efforts by older workers to become self-employed.
    Keywords: Japanese works, Japan, labor force, longevity, older workers
    Date: 2007–05
  34. By: Nick Draper; Alex Armstrong
    Abstract: To answer policy questions that have intergenerational implications, a computable simulation model should obey four conditions: it should incorporate long-term demographic developments, it should include a detailed modelling of the public sector, it should decompose the population into several generations and it should account for the behaviour of the various economic agents. This document describes and illustrates a model that meets all these conditions. It is an applied general equilibrium model that is based on generational accounting principles named GAMMA (Generational Accounting Model with Maximizing Agents).
    Keywords: Computable general equilibrium model; Ageing; Pensions and Public Finances
    JEL: E62 H55
    Date: 2007–06
  35. By: Howard Gleckman; (Business Week, Washington D.C. Bureau); ;
    Abstract: By mid-century, the nation will be spending more on Medicaid, the joint state/federal health program for the poor, than it currently spends on national defense. Much of this projected growth will be generated by the rapidly expanding demand for long-term care due to an aging population. Therefore, both states and the federal government are exploring ways to restrain the program’s growth, but no initiatives to date have significantly slowed the trend. This brief explores trends in Medicaid spending on long-term care and the implications of its rapid growth for taxpayers and for the needs of an aging population. The first section defines long-term care. The second section describes Medicaid’s role in financing it. The third section describes the impact of Medicaid on state budgets. The final section assesses efforts to rein in Medicaid spending.
    Keywords: medicaid, long-term care, aging population
    Date: 2007–04

This nep-age issue is ©2007 by Claudia Villosio. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.