nep-age New Economics Papers
on Economics of Ageing
Issue of 2008‒07‒14
seven papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Optimal Health and Retirement Policies amid Population Aging By Gisela Hostenkamp; Michael Stolpe
  2. Training Background and Early Retirement By Montizaan, Raymond; Cörvers, Frank; de Grip, Andries
  3. Reforming Retirement-Income Systems: Lessons from the Recent Experiences of OECD Countries By Martin, John P.; Whitehouse, Edward
  4. A new approach to raising Social Security’s earliest eligibility age By Kelly Haverstick; Margarita Sapozhnikov; Robert K. Triest; Natalia Zhivan
  5. The impact of demographic uncertainty on public finances in the Netherlands By Alex Armstrong; Nick Draper; Ed Westerhout
  6. Are Pension Savings sufficient? Perceptions and Expectations of American and Dutch Workers By Dalen, H.P. van; Henkens, K.; Hershey, D.A.
  7. Coping with labour shortages: How to bring outsiders back to the labour market By Ekkehard Ernst

  1. By: Gisela Hostenkamp; Michael Stolpe
    Abstract: This paper develops a simple analytical framework in which optimal health and retirement policies amid population aging can be discussed. To be efficient, these policies must recognize and exploit the dynamic complementarities between the timing of retirement, the size of lifecycle labour income and pension payments and investments in health that individuals make, for example, by purchasing medical care and that society makes by advancing medical technology. We aim to show how the traditionally separate areas of health and retirement policy can be coordinated to achieve dynamic efficiency. Under fairly general assumptions, postponing the age of retirement and greater health spending are shown to be complements in the maximization of lifecycle utility. Mandatory retirement and pension policies that change the constraints workers face can be used to induce voluntary health investments by individuals and improve society’s incentives to adopt new medical technology. Leaving a hitherto optimal mandatory retirement age unchanged as new medical technologies improve the efficacy of healthcare would be inefficient. The aggregate ability and willingness to pay for medi¬cal care and technology will be greater, the higher an economy’s per capita income, suggesting large welfare gains from postponing the average age of retirement if investments in new medical technology target the quality of life and raise the produc¬tivity of people working past a long-established mandatory retirement age
    Keywords: Medical technology, Longevity, Health policy, Retirement age
    JEL: I12 I18 J26
    Date: 2008–06
  2. By: Montizaan, Raymond (ROA, Maastricht University); Cörvers, Frank (ROA, Maastricht University); de Grip, Andries (ROA, Maastricht University)
    Abstract: Several studies show that employees with firm-specific skills are more likely to be covered by employer-sponsored pension schemes than workers with general skills. Therefore it can be expected that workers with firm-specific skills retire earlier. This paper tests this prediction using US data from the National Longitudinal Survey of Older Men. We find that workers who participated in firm-specific training in their early careers retire earlier than workers with a general training background. This indicates that shared investments in firm-specific training are embedded in implicit contracts that induce early retirement. The results remain robust when controlling for technological change and work commitment.
    Keywords: retirement, training, deferred compensation
    JEL: J14 J26 J31
    Date: 2008–05
  3. By: Martin, John P. (OECD); Whitehouse, Edward (OECD)
    Abstract: Reforming pensions looms large over the policy agenda of OECD countries. This is hardly surprising since public spending on pensions accounted on average for 7 per cent of OECD GDP in 2005; and this pension spending effort is set to increase significantly over the coming decades in response to population ageing. Pension policy is indeed challenging and controversial because it involves long-term decisions in the face of numerous short-term political pressures. However, the status quo does not always win out so far as pension reform in concerned: public finance crises and the looming threat of ageing populations have proved effective spurs for reform. As a result, much has been done since the early 1990s to make pension systems fit for the future. Nearly all the 30 OECD countries have made at least some changes to their pension systems in that period. In 16 of them, there have been major reforms that will significantly affect future benefits. The purpose of this paper is to summarise these reforms and highlight the main lessons. Section 1 looks at which countries reformed their pensions systems and which did not. It also examines the fiscal challenges posed by public pensions. Section 2 describes the measures in the reforms themselves. These include, among other things, increases in pension age, changes in the way benefits are calculated and smaller pension increases in retirement than in the past. Section 3 explores the impact of these reforms on future pension entitlements of today’s retirees, showing a clear trend to a lower pension promise for today’s workers than for past generations. This means that people will need to save more for their own retirement via private pension schemes, an issue examined in Section 4. This is followed in Section 5 by a review of the main outstanding challenges facing pension systems in OECD countries. The final section presents some concluding remarks.
    Keywords: reform of public and private pensions, replacement rates, pension wealth, mandatory and voluntary pensions, OECD pension reform challenges
    JEL: H55 I38
    Date: 2008–05
  4. By: Kelly Haverstick; Margarita Sapozhnikov; Robert K. Triest; Natalia Zhivan
    Abstract: While Social Security’s Normal Retirement Age (NRA) is increasing to 67, the Earliest Eligibility Age (EEA) remains at 62. Similar plans to increase the EEA raise concerns that they would create excessive hardship on workers who are worn-out or in bad health. One simple rule to increase the EEA is to tie an increase to the number of quarters of covered earnings. Such a provision would allow those with long work lives—presumably the less educated and lower paid—to quit earlier. We provide evidence that this simple rule would not satisfy the goal of preventing undue hardship on certain workers. Therefore, this paper considers an alternative policy that ties an increase in the EEA to individuals’ Average Indexed Monthly Earnings (AIME). We show that allowing workers with low AIME to continue to be eligible to receive benefits at age 62 has promise as a policy to protect workers who have low earnings and are in poor health from hardship associated with an increase in the EEA.
    Keywords: Social security ; Retirement income
    Date: 2008
  5. By: Alex Armstrong; Nick Draper; Ed Westerhout
    Abstract: The expected increase in the ratio of retirees to workers that is due to population ageing is sure to increase pressure on public finances and the Dutch economy in the coming decades. However, because of the uncertainty regarding future demographic developments, the exact extent of the problem is unknown. This paper presents stochastic simulations, i.e. simulations that combine the CGE model of the Dutch economy GAMMA with stochastic population projections.
    Keywords: Demographic Uncertainty; Public Finance; Stochastic Simulations
    JEL: C68 H68 J11
    Date: 2008–04
  6. By: Dalen, H.P. van; Henkens, K.; Hershey, D.A. (Tilburg University, Center for Economic Research)
    Abstract: Are retirement savings sufficient to finance a good pension income? This highly uncertain and subjective dimension of life cycle decision making is assessed among married working individuals using an identical survey distributed to Dutch and American workers in 2007. Despite marked differences in expected and needed pension replacement rates - where the Dutch replacement rates are systematically higher than the American rates - the perceived savings adequacy is more or less the same across Dutch and American workers. Moreover, individuals? perceived savings adequacy was found to be influenced by the three groups of factors: institutional forces, social forces and psychological dispositions. This study shows that differences in the mind set of American workers plays a far larger role in explaining differences in perceptions of savings adequacy than it does in the Netherlands.
    Keywords: retirement;savings;planning;pension funds
    JEL: D14 D91 G23 J26
    Date: 2008
  7. By: Ekkehard Ernst
    Abstract: The Dutch labour market is functioning well, with employment and labour participation rates above OECD averages. Nevertheless, there are sizable pockets of under-activity, including social benefit recipients representing 17% of the working-age population, which could be mobilised in order to address short-run labour shortages and the long-run ageing-related reductions in the labour supply. Reintegrating these benefit recipients would also help to reduce spending on labour market programmes, which is among the highest in the OECD. The paper argues that policies should continue to tackle the high inactivity of these groups. For people on social assistance and older workers, job search requirements should be strengthened and the authorities should continue making the tax-benefit system more work-friendly. For women with low-earning capacities, existing work disincentives should be eliminated. For (partially) disabled people, it is important to envisage labour market re-integration at an early stage. For the long-term unemployed, policies should be further strengthened by adjusting the unemployment benefit and the employment protection systems, as well as further improving current profiling and training measures. This Working Paper relates to the 2008 Economic Survey of the Netherlands ( <P>Remédier aux pénuries de main-d'oeuvre : comment réintégrer les travailleurs exclus <BR>Le marché du travail fonctionne de façon satisfaisante aux Pays-Bas, où les taux d'emploi et d'activité sont supérieurs aux moyennes de l'OCDE. Néanmoins, il existe d'importantes poches de sous-activité, notamment parmi les bénéficiaires de prestations sociales, qui représentent 17 % de la population d'âge actif ; ce groupe pourrait être mobilisé pour remédier aux pénuries de main-d'oeuvre à court terme et à la contraction à long terme de l'offre de travail liée au vieillissement démographique. Réinsérer ces titulaires de prestations contribuerait aussi à réduire les dépenses au titre des programmes du marché du travail, qui figurent parmi les plus élevées de la zone OCDE. Nous faisons valoir dans le présent document que les pouvoirs publics devraient poursuivre les efforts déployés pour réduire la forte inactivité de ces groupes. Pour les bénéficiaires de l'aide sociale et les travailleurs âgés, les obligations de recherche d'emploi devraient être renforcées, et les autorités devraient continuer à rendre le système de prélèvements et de prestations plus propice à l'activité. S'agissant des femmes à faible capacité de gain, les désincitations au travail qui influent actuellement sur leurs choix devraient être éliminées. En ce qui concerne les personnes (partiellement) handicapées, il importe d'envisager leur réinsertion rapide sur le marché du travail. Pour les chômeurs de longue durée, il convient de renforcer les politiques en place, en ajustant les systèmes d'indemnisation du chômage et de protection de l'emploi, ainsi qu'en améliorant encore les dispositifs actuels de profilage et de formation. Ce document de travail est lié à l'Étude économique de 2008 consacrée aux Pays-Bas (
    Keywords: employment protection legislation, législation sur la protection de l'emploi, Netherlands, Pays-Bas, social assistance, aide sociale, unemployment benefits, allocations chômages, labour shortages, inactivity, disability benefit reforms, activation policies, tax-benefit reforms, poverty traps, pénuries de main-d'oeuvre , inactivité, réformes des prestations d'invalidité, politiques d'activation, réformes des systèmes de prélèvements et de prestations, pièges de la pauvreté
    JEL: E24 J21 J26 J65
    Date: 2008–07

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