nep-age New Economics Papers
on Economics of Ageing
Issue of 2008‒02‒23
six papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Health Insurance and the Labor Supply Decisions of Older Workers: Evidence from the U.S. Department of Veterans Affairs By Melissa Boyle; Joanna N. Lahey
  2. Health and Income across the Life Cycle and Generations in Europe By Hans van Kippersluis; Tom Van Ourti; Owen O'Donnell; Eddy van Doorslaer
  3. The Private Value of Public Pensions By Konstantin Petrichev; Susan Thorp
  4. Ageing and the Relative Price of Nontradeables By Leon Bettendorf; Hans Dewachter
  5. Returns to Tenure or Seniority? By Sebastian Buhai; Miguel Portela; Coen Teulings; Aico van Vuuren
  6. Competition and demographics By Amin, Mohammad

  1. By: Melissa Boyle (Department of Economics, College of the Holy Cross); Joanna N. Lahey (Texas A&M University)
    Abstract: This paper exploits a major mid-1990s expansion in the U.S. Department of Veterans Affairs health care system to provide evidence on the labor market effects of expanding health insurance availability. Using data from the Current Population Survey, we compare the labor market behavior of older veterans and non-veterans before and after the VA health benefits expansion to test the impact of public health insurance on labor supply. We find that older workers are significantly more likely to decrease work both on the extensive and intensive margins after receiving access to non-employer based insurance. Older workers are also more likely to leave self-employment, a result inconsistent with "job-lock" effects of employer-based insurance, but consistent with a positive income effect from new access to public insurance. Some relatively disadvantaged subpopulations, however, may increase their labor supply after gaining greater access to public insurance, consistent with complementary positive health effects of health care access for these groups. We conclude that this reform has affected employment and retirement decisions, and suggest that future moves toward universal coverage or expansions of Medicare are likely to have significant labor market effects. To illustrate, we calculate that as much as 10% of the difference in retirement rates in the US and Canada may be due to Canada's provision of universal health care.
    Keywords: labor supply, job-lock, retirement, older workers, health insurance, VA, Medicare, veteran
    JEL: J2 I18
    Date: 2008–01
  2. By: Hans van Kippersluis (Erasmus University Rotterdam); Tom Van Ourti (Erasmus Universiteit Rotterdam); Owen O'Donnell (University of Macedonia, Thessaloniki, Greece); Eddy van Doorslaer (Erasmus University Rotterdam)
    Abstract: An age-cohort decomposition applied to panel data identifies how the mean, overall inequality and income-related inequality of self-assessed health evolve over the life cycle and differ across generations in 11 EU countries. There is a moderate and steady decline in mean health until the age of 70 or so and a steep acceleration in the rate of health deterioration beyond that age. In southern European countries and in Ireland, which have experienced the greatest changes in economic and social development, the average health of younger generations is significantly better than that of older generations. This is not observed in the northern European countries. In almost all countries, health is more dispersed among older generations indicating that Europe has experienced a reduction in overall health inequality over time. Although there is no consistent evidence that health inequality increases as a given cohort ages, this is true in the three largest countries – Britain, France and Germany. In the former two countries and the Netherlands, at least for males, the income gradient in health peaks around retirement age, as has been found for the US, but this pattern is not observed in the other countries. In most European countries, unlike the US, there is no evidence that income-related health inequality is greater among younger than older generations.
    Keywords: Health; Health inequality; Life cycle; Cohort
    JEL: D30 D31 I10 I12
    Date: 2008–01–18
  3. By: Konstantin Petrichev (School of Finance and Economics, University of Technology, Sydney); Susan Thorp (School of Finance and Economics, University of Technology, Sydney)
    Abstract: Individual retirement savings accounts are replacing or supplementing public basic pensions. However at decumulation, replacing the public pension with an equivalent private sector income stream may be costly. We value the Australian basic pension by calculating the wealth needed to generate an equivalent payment stream using commercial annuities or phased withdrawals, but still accounting for investment and longevity risks. At age 65, a retiree needs an accumulation of about 8.5 years earnings to match the public pension in real value and insurance features. Increasing management fees by 1% raises required wealth by about one year's earnings. Delaying retirement by 5 years lowers required wealth by about one half year's earnings. Phased withdrawals have money's worth ratios close to 0.5 suggesting that private replacement costs are high.
    Keywords: social security; longevity risk; phased withdrawal; stochastic present value
    JEL: H55 J14 G11
    Date: 2007–12–01
  4. By: Leon Bettendorf (Erasmus University Rotterdam); Hans Dewachter (Cath. University of Leuven)
    Abstract: In this paper we identify the effects of ageing on the relative price of nontradeables versus tradeables. We consider two cases. In a first specification, age effects only account for short-run dynamics. An alternative case allows for permanent age effects. Estimating the respective cases by means of an ECM on a panel of OECD countries we find significant effects of demographic composition on the relative prices, even after correcting for the standard explanatory variables. Simulations based on population projections of the UN show that ageing might substantially contribute to inflationary pressures in the near future.
    Keywords: relative price of nontradeables; age-specific effects; productivity differentials
    JEL: F41 E31 J11
    Date: 2007–08–24
  5. By: Sebastian Buhai (Aarhus School of Business, University of Aarhus, Denmark, and Erasmus University Rotterdam); Miguel Portela (University of Minho, Portugal); Coen Teulings (CPB Netherlands Bureau for Economic Policy Analysis, The Hague, and University of Amsterdam); Aico van Vuuren (VU University Amsterdam)
    Abstract: This study documents two empirical regularities, using data for Denmark and Portugal. First, workers who are hired last, are the first to leave the firm (Last In, First Out; LIFO). Second, workers’ wages rise with seniority (= a worker’s tenure relative to the tenure of her colleagues). We seek to explain these regularities by developing a dynamic model of the firm with stochastic product demand and hiring cost (= irreversible specific investments). There is wage bargaining between a worker and its firm. Separations (quits or layoffs) obey the LIFO rule and bargaining is efficient (a zero surplus at the moment of separation). The LIFO rule provides a stronger bargaining position for senior workers, leading to a return to seniority in wages. Efficiency in hiring requires the workers’ bargaining power to be in line with their share in the cost of specific investment. Then, the LIFO rule is a way to protect their property right on the specific investment. We consider the effects of Employment Protection Legislation and risk aversion.
    Keywords: irreversible investment; efficient bargaining; seniority; LIFO; matched employer-employee data; EPL
    JEL: J31 J41 J63
    Date: 2008–01–22
  6. By: Amin, Mohammad
    Abstract: Mainstream economics views demographic changes in the structure of households as of little relevance for the behavior of firms or the functioning of markets. The present paper dispels this view by arguing that changes in the number of non-workers could affect the intensity with which consumers search for best prices and therefore the level of competition. The author also analyzes the relationship between income and competition, which some studies suggest is negative. The author argues that the negative relationship is most likely due to the demographic factors discussed.
    Keywords: Markets and Market Access,Education for Development (superceded),Economic Theory & Research,Labor Policies,Emerging Markets
    Date: 2008–02–01

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