nep-age New Economics Papers
on Economics of Ageing
Issue of 2009‒01‒31
sixteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Dynamic Programming Model of Health and Retirement By Iskhakov, Fedor
  2. Does Retirement Kill You? Evidence from Early Retirement Windows By Coe, N.B.; Lindeboom, M.
  3. Pension Reforms in Norway: Evidence from a Structural Dynamic Model By Iskhakov, Fedor
  4. Retirement Income Security and Well-Being in Canada By Michael Baker; Jonathan Gruber; Kevin S. Milligan
  5. What is an Adequate Standard of Living During Retirement? By Binswanger, J.; Schunk, D.
  6. Fertility and pension systems By Rizzo, Giuseppe
  7. Effects of Public Policies on the Disposition of Pre-retirement Lump-Sum Distributions: Rational and Behavioral Influences By Burman, L.E.; Coe, N.B.; Dworsky, M.; Gale, W.G.
  8. Population ageing, inequality and the political economy of public education By Francisco Martínez-Mora
  9. Unraveling the Age-Productivity Nexus: Confronting Perceptions of Employers and Employees By Dalen, H.P. van; Henkens, K.; Schippers, J.
  10. Pension Incentives, Labor Supply and Heterogeneous Pension Systems By Holen, Dag S.
  11. Pension Coverage and Informal Sector Workers: International Experiences By Yu-Wei Hu; Fiona Stewart
  12. Are Demographic Diversity Effects Spurious? By Stephan Nüesch
  14. Caring for Mom and Neglecting Yourself? The Health Effects of Caring for an Elderly Parent By Coe, N.B.; Houtven, C.H. van
  15. Pensions in Africa By Fiona Stewart; Juan Yermo
  16. Rising Mortality and Life Expectancy Differentials by Lifetime Earnings in the United States By Julian Cristia

  1. By: Iskhakov, Fedor (Dept. of Economics, University of Oslo)
    Abstract: A structural dynamic programming model is applied for modeling labour market transitions among older age workers in Norway in 1992-2003. Special attention is given to early retirement pensiion and disability pension as two major exit routes from the labour force. Health status is represented by a latent variable reflecting the eligibility for participating in disability programs. Incomplete information maximum likelihood method is used in several stages to facilitate the estimation. The model is used to investigate the degree of potential substitution of the early retirement and retirement through the disability insurance scheme. Estimates of the structural parameters of the concealed health process allow for forecasting the individual "eligibility" for the disability and thus facilitate the assessment of the potential substitution between the two exit routes from the labour force. Performed policy simulation of the complete elimination of the early retirement program indicates nearly complete return of th otherwise early pensioners back to the labour market.
    Keywords: Retirement; health; early retirement; disability; labour market transitions; structural dynamic model; dynamic programming
    JEL: C61 I10 J22 J26
    Date: 2008–02–01
  2. By: Coe, N.B.; Lindeboom, M. (Tilburg University, Center for Economic Research)
    Abstract: The effect that health has on the retirement decision has long been studied. We examine the reverse relationship, whether retirement has a direct impact on later-life health. To identify the causal relationship, we use early retirement window offers to instrument for retirement. We find no negative effects of early retirement on men’s health, and if anything, a temporary increase in self-reported health and improvements in health of highly educated workers. While this is consistent with previous literature using Social Security ages as instruments, we also find that anticipation of retirement might be important, and bias the previous estimates downwards.
    Keywords: retirement;depression;self-reported health;heart attack;cancer;diabetes;instrumental variables
    JEL: J26 I10
    Date: 2008
  3. By: Iskhakov, Fedor (Ragnar Frisch Centre for Economic Research)
    Abstract: This paper simulates a set of proposed policies from the Norwegian pension reform within a structural dynamic model of health and retirement estimated on the Norwegian labour market data. The paper focuses on the two main elements of the reform, namely the new pension entitlement accrual rules linking benefits more closely to earnings and the new pension benefit drawing rules designed to eliminate the incentives distortions with respect to the time of retirement. The effects of these proposals are investigated in terms of labour market outcomes, social welfare and income distribution. It is shown that while the proposed pension reform succeeds in urging the older workers to postpone their retirement and induces an increase in total social welfare, individuals in good health who retire early experience a negative change in their discounted utility. In addition, an increase in social welfare is accompanied with an increase in income inequality.
    Keywords: Pension reform; incentive neutral retirement; pension entitlement accrual rules; labour market outcomes; social welfare; income inequality; structural dynamic model; health; retirement
    JEL: C61 H55 J26
    Date: 2008–07–01
  4. By: Michael Baker; Jonathan Gruber; Kevin S. Milligan
    Abstract: A large international literature has documented the labor market distortions associated with social security benefits for near-retirees. In this paper, we investigate the 'other side' of social security programs, seeking to document improvements in wellbeing arising from the provision of public pensions. To the extent households adjust their savings and employment behavior to account for enhanced retirement benefits, the positive impact of the benefits may be crowded out. We proceed by using the large variation across birth cohorts in income security entitlements in Canada that arise from reforms to the programs over the past 35 years. This variation allows us to explore the effects of benefits on elderly well-being while controlling for other factors that affect well-being over time and by age. We examine measures of income, consumption, poverty, and happiness. For income, we find large increases in income corresponding to retirement benefit increases, suggesting little crowd out. Consumption also shows increases, although smaller in magnitude than for income. We find larger retirement benefits diminish income poverty rates, but have no discernable impact on consumption poverty measures. This could indicate smoothing of consumption through savings or other mechanisms. Finally, our limited happiness measures show no definitive effect.
    JEL: H55 J14 J26
    Date: 2009–01
  5. By: Binswanger, J.; Schunk, D. (Tilburg University, Center for Economic Research)
    Abstract: Many economists and policy-makers argue that households do not save enough to maintain an adequate standard of living during retirement. However, there is no consensus on the answer to the underlying question what this standard should be, despite the fact that it is crucial for the design of saving incentives and pension reforms. We address this question with a survey, individually tailored to each respondent’s financial situation, conducted both in the U.S. and the Netherlands. Key findings are that adequate levels of retirement spending exceed 70 percent of working life spending, and minimum acceptable replacement rates depend strongly on income.
    Keywords: Life cycle preferences;pension reform;replacement rates;retirement saving.
    JEL: D91 H55
    Date: 2008
  6. By: Rizzo, Giuseppe
    Abstract: In the last century, state pension systems have been introduced in most countries, and since then their size has been significantly increasing. A broad literature has studied this phenomenon, developing models that explain why pension systems exist and have been continuously expanding. At the same time, many authors have suggested that pension systems may substitute children as old-age economic security, discouraging fertility. In particular, this fact may explain the contemporaneity of the expansion of pension systems with the urbanization and industrialization processes. These two processes, in fact, have contributed to the weakening of family ties, which in turn results in the need for additional old-age economic security. In the political economy research these effects have been ignored, as the fertility choice is usually considered exogenous. This paper suggests a model that takes into account this endogenous effect and tries to analyze the net effect of the breakdown of family ties on the dimension of pension systems. The last section presents some empirical results supporting the theoretical model. The main result is that the transition toward the weak family does not necessarily imply an increase in the size of pension systems, because as the family structure becomes weaker the fertility decreases, thus reducing the profitability of the scheme: as the weak families start to increase, there could be an increase in the size of the pension system, but as they become the majority, the fertility rate may become too low, and the political support for the pension system may decrease.
    Keywords: Family economics; Fertility; Political sustainability; Social security; Voting
    JEL: J13 J14 H55 O15 D72
    Date: 2009–01–20
  7. By: Burman, L.E.; Coe, N.B.; Dworsky, M.; Gale, W.G. (Tilburg University, Center for Economic Research)
    Abstract: A variety of public policies aim to influence workers’ disposition of preretirement lump-sum distributions (LSDs) from pensions. We use the implementation of several policy changes as natural experiments to test for rational and behavioral motives for saving behavior. Using data from the HRS and the CPS in the 1980s and 1990s, we find that higher tax rates on cash-outs increase rollovers. Controlling for the overall effective tax rate, structuring the tax as a “penalty†or adding withholding taxes on cashouts significantly increases rollovers. Allowing employers to unilaterally cash out balances for departing employees who do not make their own choice significantly reduces the effects of higher tax rates but boosts the impact of withholding taxes. These results suggest that both behavioral and rational factors influence workers’ choices, that policies relating to pre-retirement cash outs can interact in important ways, and that the government has several levers at its disposal to influence behavior beyond tax penalties.
    Keywords: retirement;savings;behavioral;penalties;taxes
    JEL: H2 H3 D1
    Date: 2008
  8. By: Francisco Martínez-Mora
    Abstract: Population ageing has triggered concerns about the sustainability of public systems of education. The empirical evidence is still inconclusive, whereas some theoretical results present a somewhat optimistic view (Gradstein and Kaganovich, 2004; Levy, 2005). The present note re-examines the political economy of public education in an ageing society, using the classical median voter model. The normative analysis shows that elderly households introduce distortions that render political outcomes inefficient except in rare circumstances. It is then explained that the interplay among the political and financial consequences of ageing gives rise to a non-linear, and possibly non-monotonic (inverted-U shaped) relationship between spending per pupil and the share of childless households in the population. Income inequality is shown to play a crucial role of in the process, revealing that ageing has a stronger tendency towards underprovision in economies with high inequality. The implications for the empirical literature are discussed.
    Keywords: population ageing; income inequality; median voter model; public education
    JEL: I20 J10
    Date: 2009–01
  9. By: Dalen, H.P. van; Henkens, K.; Schippers, J. (Tilburg University, Center for Economic Research)
    Abstract: What determines the perceived productivity of young and older workers? In this study we present evidence for (Dutch) employers and employees. By confronting the perceptions of employers and employees some remarkable similarities and differences are revealed. It turns out that productivity perceptions are biased by the age group to which one belongs and the position in the hierarchy in the organization. The young favor the young, the old favor the old and employers discount productivity compared to employees. However, there are also remarkable similarities across employer and employees. By distinguishing the various underlying dimensions of productivity of young and older workers we tested whether ‘soft’ skills and abilities within the organization are just as important as the ‘hard’ dimensions - cognitive and physically based skills - in the eye of employers and employees. It appears that employers and employees weight the soft and the hard dimensions of skills in a uniform way: hard skills are far more important than soft skills no matter whether the worker is old or young. By sharing the stereotypical images the problem of age discrimination may therefore not only be due to employers’ behaviors and attitudes, but also due to those of employees.
    Keywords: aging;stereotypes;productivity;employers
    JEL: D21 J24 J71 M51
    Date: 2009
  10. By: Holen, Dag S. (Ragnar Frisch Centre for Economic Research)
    Abstract: People with an uncertain health condition might face a double worry. They fear to get disabled, and if they are disabled, that they will receive a low pension. To keep their health they should work less. To improve their disability pension they should work more. This paper demonstrates that the latter effect is the strongest empirically. Thus to protect one self against the income loss of a bad event, the bad event is more likely to happen. Comparing register data from disabled and non-disabled individuals shows that being disabled increases income in the last year before the time of disablement. Further, more generous pension systems increase pre-disablement income even more.
    Keywords: Disability pension; pension; pension systems
    JEL: A10
    Date: 2007–03–27
  11. By: Yu-Wei Hu; Fiona Stewart
    Abstract: Pension reform around the world in recent decades has focused mainly on the formal sector. Consequently, many of those working in the informal sector have been left out of structured pension arrangements, particularly in developing countries – a serious problem given this group are often low income earners, vulnerable to economic volatility and change. However, since the turn of the millennium, efforts in a range of countries have increasingly highlighted improving pension coverage for informal sector workers. This paper provides an overview of selected country experience in this regard, and provides some suggestions for governments in developing countries considering implementing their own pension reform to ensure that informal sector workers receive the retirement income they need.<P>La couverture des travailleurs du secteur informel par les systèmes de retraite : expériences au niveau international<BR>Les réformes des systèmes de retraite mises en oeuvre dans le monde au cours des dernières décennies étaient surtout centrées sur le secteur formel. Beaucoup de travailleurs du secteur informel sont donc restés à l'écart des régimes de retraite institutionnalisés, en particulier dans les pays en développement, ce qui constitue un problème grave étant donné que ce groupe est souvent composé de travailleurs à faibles revenus, vulnérables face à l'instabilité et au changement économiques. Cela étant, depuis le passage au nouveau millénaire, un certain nombre de pays se sont de plus en plus attachés à améliorer la couverture des travailleurs du secteur informel par les systèmes de retraite. Le présent document donne un aperçu de l'expérience de quelques pays à cet égard et formule, à l'intention des gouvernements de pays en développement qui envisagent la mise en place d'une réforme des retraites, des suggestions visant à ce que les travailleurs du secteur informel bénéficient d'un revenu suffisant au moment de la retraite.
    Keywords: social assistance, aide sociale, secteur informel, informal sector, compulsion, financial education, incentives, micro finance, non-contributory, pension coverage, couverture des systèmes de retraite, éducation financière, incitations, micro-finance, non contributif
    JEL: G15 G18 G23 G28 J26
    Date: 2009–01
  12. By: Stephan Nüesch (Institute for Strategy and Business Economics, University of Zurich)
    Abstract: The substantial literature on the relationship between demographic diversity and team performance yields weak and/or inconsistent results. Using match-level data of all games played in the German soccer league Bundesliga over six seasons, this paper analyzes age, race and tenure diversity of the fielded team under different model specifications to test the robustness of demographic diversity effects. The empirical results reveal that the correlations between demographic diversity and the outcome of the game are confounded by mean values of the demographic attributes and contextual covariates.
    Keywords: demographic diversity; spurious correlation; soccer
    Date: 2009
  13. By: Satoshi Shimizutani (Institute for International Policy Studies); Takashi Oshio (Graduate School of Economics, Kobe University)
    Abstract: Evidence on the effect of the social security earnings test on the labor supply of the elderly continues to be mixed. We utilize microlevel data compiled by the Japanese government in order to examine the labor supply effect for those aged 6569 before and after two majo reforms of the social security earnings test in Japan: its elimination in 1985 and its revival in 2002. We provide little evidence that the changes in the earnings test affected the wage distribution of the elderly after controlling for changes in the attributes of workers and firms. At the same time, the direct survey responses to the effect of the revival in 2002 reveals a large effect on the labor supply of the elderly. These empirical findings indicate the risk that a traditional bunch analysis underestimates the labor supply effect when it is obscured by measurement errors or labor market rigidities.
    Date: 2008–11
  14. By: Coe, N.B.; Houtven, C.H. van (Tilburg University, Center for Economic Research)
    Abstract: We examine the physical and mental health effects of providing care to an elderly mother on the adult child caregiver. We address the endogeneity of the selection in and out of caregiving using an instrumental variable approach, and carefully control for baseline health and work status of the adult child using fixed effects and Arellano-Bond estimation techniques. Continued caregiving over time increases depressive symptoms for married women and married men. In addition, the increase in depressive symptoms is persistent for married men. Depressive symptoms for single men and women are not affected by continued caregiving. There is a small protective effect on the likelihood (10%) of having any heart conditions among married women who continue caregiving. Robustness checks confirm that the increase in depressive symptoms and decrease in likelihood of heart conditions can be directly attributable to caregiving behavior, and not due to a direct effect of the death of the mother. The initial onset of caregiving, by contrast, has no immediate effects on physical or mental health for any subgroup of caregivers.
    Keywords: CES-D;depressive symptoms;heart conditions;elderly parents;informal care
    JEL: I10 J14 D10
    Date: 2008
  15. By: Fiona Stewart; Juan Yermo
    Abstract: This paper discusses why the development of pension systems is important for the African region. It also looks at the current pension arrangements in selected African countries. The paper was designed as an overview/background document to provide context and assist discussion at the OECD/IOPS Global Forum on Private Pensions, which was held in Mombasa, Kenya on the 30th/31st October, 2008. The OECD and IOPS acknowledge the leadership of other organizations in terms of development and African specific issues – notably the World Bank, International Labor Organistaion (ILO) and IMF.<P>Les retraites en Afrique<BR>Le présent document examine les raisons pour lesquelles le développement des systèmes de retraite est important pour la région de l'Afrique. Il décrit également les dispositifs de retraite en vigueur dans un certain nombre de pays africains. Il s'agit d'un document de synthèse/d'information destiné à situer et à faciliter les débats du Forum mondial OCDE/OICP sur les pensions privées qui s'est tenu à Mombasa (Kenya) les 30 et 31 octobre 2008. L'OCDE et l'OICP tiennent à souligner le rôle prépondérant d'autres organisations dans le domaine du développement et en ce qui concerne les questions liées à l‘Afrique – notamment la Banque mondiale, l'Organisation internationale du travail (OIT) et le FMI.
    Keywords: pensions, retraites, demographic trends and forecasts, financement, funding, Africa, Afrique, politique sociale et du travail, poverty alleviation, réduction de la pauvreté
    JEL: G15 G18 G23 J26
    Date: 2009–01
  16. By: Julian Cristia
    Abstract: Are mortality and life expectancy differences by socioeconomic groups increasing in the United States? Using a unique data set matching high-quality administrative records with survey data, this study explores trends in these differentials by lifetime earnings for the 1983 to 2003 period. The results indicate a consistent increase in mortality differentials across sex and age groups. The study also finds a substantial increase in life expectancy differentials: the top-to-bottom quintile premium increased around 30 percent for men and almost doubled for women. These results complement recent research to point to almost five decades of increasing differential mortality in the United States.
    Keywords: Differential mortality, Life expectancy, Lifetime earnings, Trends
    JEL: I12 J11
    Date: 2009–01

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