nep-age New Economics Papers
on Economics of Ageing
Issue of 2008‒12‒07
twelve papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. The Role of Institutions in European Patterns of Work and Retirement By Agar Brugiavini; Axel Börsch-Supan; Enrica Croda
  2. Social Security and Retirement during Transition:Microeconometric Evidence from Slovenia By Aleš Ahcan; Sašo Polanec
  3. Fiscal Implications of Pension Reforms in Italy By Agar Brugiavini; Franco Peracchi
  4. What Explains Fertility? Evidence from Italian Pension Reforms By Francesco C. Billari; Vincenzo Galasso
  5. Age-Dependent Employment Protection By Chéron, Arnaud; Hairault, Jean-Olivier; Langot, François
  6. Does the Growth Process Discriminate against Older Workers? By Langot, François; Moreno-Galbis, Eva
  7. Youth Unemployment and Retirement of the Elderly: the Case of Italy By Agar Brugiavini; Franco Peracchi
  8. The Discount Rate and the Value of Remaining Years of Life By John Hartwick
  9. Union Membership and Age: The Inverted U-Shape Hypothesis under Test By Schnabel, Claus; Wagner, Joachim
  10. Population, Pensions, and Endogenous Economic Growth By Burkhard Heer; Andreas Irmen
  11. Social Security Mechanism(System):Theories, design and Practice By NWAOBI, GODWIN
  12. Last in, first out? Estimating the effect of seniority rules in Sweden By von Below, David; Thoursie, Peter

  1. By: Agar Brugiavini (Department of Economics, University Of Venice Cà Foscari); Axel Börsch-Supan (MEA Mannheim Research Institute for the Economics of Aging, University of Mannheim); Enrica Croda (Department of Economics, University Of Venice Cà Foscari)
    Abstract: This paper uses the Survey of Health, Ageing and Retirement in Europe (SHARE) to investigate the role of pension and social security institutions in shaping the European patterns of work and retirement. We provide evidence on the extent of “unused capacity” in labor force, on pathways to retirement and on the relationship between actual health status and disability take up. We find that institutional differences between countries explain much of the cross-national differences in work and retirement, while differences in health and demographics play only a minor role.
    Keywords: Aging, employment, retirement, health, disability, social security institutions, SHARE
    JEL: J14 J18 J26 J68 I12 C81
    Date: 2008
  2. By: Aleš Ahcan; Sašo Polanec
    Abstract: In this paper we analyse old-age retirement decisions of Slovenian men and women eligible to retire in the period 1997-2003. In comparison to established market economies, we find relatively high hazard rates of retirement that decline with age. This peculiar pattern can be partly attributed to weak incentives to work inherent in the design of Social Security, and is reflected in predominantly negative values of accruals, and to transition-specific increase in wage inequality in the late 1980s and early 1990s. This is reflected in low wages and relativily high pensions of less productive (skilled) workers and vice versa. We also find that the probability of retirement increases with social security wealth and decreases with net wages, although the response to option value to work, when controlling for wage differences, is rather weak. Our results also imply that less educated persons, persons with greater private wealth, and persons entitled to severance payment are more likely to retire.
    Keywords: retirement, option value, social security wealth, transition
    JEL: J26
    Date: 2008
  3. By: Agar Brugiavini (Department of Economics, University Of Venice Ca’ Foscari); Franco Peracchi (Faculty of Economics, Tor Vergata University, Roma)
    Abstract: In this paper, we contribute to the current debate on the Italian pension system by analyzing the impact of social security reforms, in terms of both budgetary implications and distributional effects. This is done by simulating the effects of three hypothetical reforms, plus the effects of the 1995- reform of the Italian pension system (the so-called Dini reform). Our approach relies on the use of a semi-structural econometric model to predict retirement probabilities under different policy scenarios, so as to properly take into account the behavioral effects of the reforms. On the basis of the estimated retirement model, we develop a complete accounting exercise which includes not only changes in gross future benefits due to policy changes, but also changes in social security contributions, income taxes and value added taxes. Thus, our results provide not only estimates of the workers’ gains or losses, but also an exhaustive evaluation of the gains and losses for the government budget. We find that the reforms, particularly the Dini reform (once fully phased in), have a substantial impact on individuals’ retirement decisions and their net social security wealth, as well as substantial gains for the government finances.
    Keywords: Social security budget, early retirement, fiscal effects of pension reforms
    JEL: H55 J21 J26
    Date: 2008
  4. By: Francesco C. Billari (Dondena, Università Bocconi and IGIER); Vincenzo Galasso (IGIER, Università Bocconi, CSEF and CEPR)
    Abstract: Why do people have kids in developed societies? We propose an empirical test of two alternative theories — children as “consumption” vs. “investment” good. We use as a natural experiment the Italian pension reforms of the 90s that introduced a clear discontinuity in the treatment across workers. This policy experiment is particularly well suited, since the “consumption” motive predicts lower future pensions to reduce fertility, while the “old-age security” to increase it. Our empirical analysis identifies a clear and robust positive effect of less generous future pensions on post-reform fertility. These findings are consistent with “old-age security” even for contemporary fertility.
    Keywords: old-age security, public pension systems, fertility, altruism
    JEL: H55 J13 D64
    Date: 2008–11–28
  5. By: Chéron, Arnaud (University of Le Mans); Hairault, Jean-Olivier (University of Paris 1); Langot, François (University of Le Mans)
    Abstract: This paper examines the age-related design of firing taxes by extending the theory of job creation and job destruction to account for a finite working life-time. We first argue that the potential employment gains related to employment protection are high for older workers, but higher firing taxes for these workers increase job destruction rates for the younger generations. On the other hand, age-decreasing firing taxes can lead to lower job destruction rates at all ages. Furthermore, from a normative standpoint, because firings of older (younger) workers exert a negative (positive) externality on the matching process, we find that the first best age-dynamic of firing taxes and hiring subsidies is typically hump-shaped. Taking into account distortions related to unemployment benefits and bargaining power shows the robustness of this result, in contradiction with the existing policies in most OECD countries.
    Keywords: foo
    JEL: J22 J26 H55
    Date: 2008–11
  6. By: Langot, François (University of Le Mans); Moreno-Galbis, Eva (University of Le Mans)
    Abstract: This paper seeks to gain insights on the relationship between growth and unemployment, when considering heterogeneous agents in terms of age. We introduce life cycle features in the endogenous job destruction framework à la Mortensen and Pissarides (1998). We show that, under the assumption of homogeneous productivity among workers, firms tend to fire older workers more often than young ones, when deciding whether to update or not a technology: there is an equilibrium where the creative destruction effect dominates over the capitalization effect for old workers, whereas the capitalization effect dominates for young workers. This discrimination against older workers can be moderated when we introduce heterogeneity (in terms of productivity) among workers. We also provide empirical support for these theoretical findings using OECD panel data and numerical simulations of the model.
    Keywords: TFP growth, unemployment by age, old workers' employment rate, capitalization, creative destruction effect
    JEL: J14 J24 J26 O33
    Date: 2008–11
  7. By: Agar Brugiavini (Department of Economics, University Of Venice Cà Foscari); Franco Peracchi (University of Rome “Tor Vergata”)
    Abstract: This paper shows that the “lump of labor” assumption fails in Italy. The direct relationship between the unemployment rate of the young and the labor force participation of the old is pro-cyclical, i.e. a higher labor force participation of the old is related to a lower unemployment rate of the young. Hence both vary with the business cycle. In order to overcome endogeneity problems in explaining unemployment of the young, we resort to a simulated variable: “the inducement to retire”, which is constructed by simulating the social security benefits. We related the unemployment rate of the young to this incentive measure and find that a higher inducement to retire is associated to a higher unemployment rate – quite the opposite of the “young-in-old-out” story.
    Keywords: lump of labour, youth unemployment, early retirement
    JEL: H3 J2 J6
    Date: 2008
  8. By: John Hartwick (Queen's University)
    Abstract: We back out an estimate of a personal discount rate of between 3 and 4 percent for a person with a life expectancy of 74 years who dies at age 30 (or 40) and has a value of statistical life of $6.3 million. Central to these calculations is the series generated by Murphy and Topel of value of life years (the dollar value of consumption plus the dollar value of leisure, with some smoothing for income in retirement). We employ the Makeham "model" of life expectancy in our calculations.
    Keywords: Discount rate, Value of life
    JEL: J12 J12
    Date: 2008–11
  9. By: Schnabel, Claus (University of Erlangen-Nuremberg); Wagner, Joachim (University of Lüneburg)
    Abstract: In this note we cast some doubt on the claim put forward by David Blanchflower (2007) that the probability of being unionized follows an inverted U-shaped pattern in age with a maximum in the mid- to late 40s. By using a special test for an inverted U-shaped pattern that has not been applied to the age-membership nexus before, and by constructing exact confidence intervals for the maximum value, we demonstrate that at least for West Germany Blanchflower's hypothesis does not hold. Our findings suggest that more definitive evidence is needed before the existence of international unionization-age patterns can be taken for granted.
    Keywords: unionization, age, inverted U-shape, Germany
    JEL: J51
    Date: 2008–11
  10. By: Burkhard Heer (Free University of Bolzano-Bozen, School of Economics and Management,); Andreas Irmen (University of Heidelberg, Department of Economics)
    Abstract: We study the effect of a declining labor force on the incentives to engage in labor-saving technical change and ask how this effect is influenced by institutional characteristics of the pension scheme. When labor is scarcer it becomes more expensive and innovation investments that increase labor productivity are more profitable. We incorporate this channel in a new dynamic general equilibrium model with endogenous economic growth and heterogeneous overlapping generations. We calibrate the model for the US economy. First, we establish that the net effect of a decline in population growth on the growth rate of per-capita magnitudes is positive and quantitatively significant. Second, we find that the pension system matters both for the growth performance and for individual welfare. Third, we show that the assessment of pension reform proposals may be different in an endogenous growth framework as opposed to the standard framework with exogenous growth.
    Keywords: Growth, Demographic Transition, Capital Accumulation, Pension Reform
    JEL: O41 C68 O11 D91 D31
    Date: 2008–11
    Abstract: Living through hunger and physical hardship from infancy to premature old age; living through economic shifts that close factories and strip currency of its value in an instant; living through social turmoil, political upheaval, and war; through it all, poor men and women in communities around the world keep coming back to their deep longing for a better future for their children. And despite an age of unprecedented global prosperity and the existence of a worldwide network of poverty-reduction institutions, poverty persists and is intensifying among certain groups and in certain regions around the world. Again, while the 2008 financial crisis is global in nature, it is likely to have heterogeneous welfare impacts within the developing world, with some countries and some people more vulnerable than others. It also threatens to have lasting impacts for some of those affected, notably through the nutrition and schooling of children in poor families. These features point to the need for a differentiated social policy response, aiming to provide rapid income support to those in most need, while preserving the key physical and human assets of poor people and their communities. This paper therefore argued that attempts should be made in developing countries to establish institutions and financing mechanisms to assure permanent measures to insure against normal life-cycle contingencies. And for those countries considering alternative social protection measures, the choice should depend on the nature of contingencies experienced and on their administrative and financing capacities. Perhaps, prayer to Almighty God remains the key solution given the spiritual dimension of the social problem under consideration (and since righteousness exalts a nation but sin is a reproach to any nation of the world).
    Keywords: social security; world economy ; social protection pension social insurance; policy reform; insecurity; vulnerability
    JEL: Z1 H55 J60 I3
    Date: 2008–12–02
  12. By: von Below, David (Institute for International Economic Studies); Thoursie, Peter (Department of Economics, Stockholm University)
    Abstract: In this paper we investigate whether a relaxation in seniority rules (the ‘last-in-first-out’ principle) had any effect on firms’ employment behaviour. Seniority rules exist in several countries and, like Sweden, most European countries have a more lenient employment protection for firms below a certain size. Despite the fact that small firms represent a large share of all firms and stand for a substantial share of total employment, there is limited knowledge of how such exemption rules affect firms’ employment behaviour — the consequences of seniority rules on firms’ employment behaviour have not been examined at all. Using data including the population of firms matched with the population of workers for the period 1999–2002, we do not find any general effects on worker flows or on hires and separations. The only exception is a tendency of an increase in the share of separations for older workers and workers with longer seniority. The result points to the importance of considering in detail how legislation is formulated and how it works in practice.
    Keywords: Employment protection; employment change; hires; separations; regression discontinuity
    JEL: E24 J63 J65
    Date: 2008–11–12

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