nep-age New Economics Papers
on Economics of Ageing
Issue of 2009‒02‒14
eleven papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Grossman's Health Threshold and Retirement By Titus Galama; Arie Kapteyn; Raquel Fonseca; Pierre-Carl Michaud
  2. Filling the Pension Gap: Coverage and Value of Voluntary Retirement Savings By Pablo Antolín; Edward R. Whitehouse
  3. This Job Is 'Getting Old:' Measuring Changes in Job Opportunities Using Occupational Age Structure By Autor, David; Dorn, David
  4. Fiscal sustainability and policy implications for the euro area By Fabrizio Balassone; Jorge Cunha; Geert Langenus; Bernhard Manzke; Jeanne Pavot; Doris Prammer; Pietro Tommasino
  5. Pension Entitlements and Wealth Accumulation By Hernæs, Erik; Zhu, Weizhen
  6. Basic Living Expenses for the Canadian Elderly By Bonnie-Jeanne MacDonald; Doug Andrews; Robert L. Brown
  7. Longevity, fertility and PAYG pension systems sustainability By Luciano Fanti; Luca Gori
  8. Identifying the Poorest Older Americans By Fisher, Johathan; Johnson, David; Marchand, Joseph; Smeeding, Timothy; Boyle Torrey, B.
  9. Car Driving and Public Transit Use in Canadian Metropolitan Areas: Focus on Elderly and Role of Health and Social Network Factors By Ruben G. Mercado; K. Bruce Newbold
  10. Financial Security of Elders in China By Yang Cheng; Mark Rosenberg
  11. Where Would You Turn For Help? Older Adults’ Knowledge and Awareness of Community Support Services By Margaret Denton; Jenny Ploeg; Joseph Tindale; Brian Hutchison; Kevin Brazil,; Noori Akhtar-Danesh; Monica Quinlan

  1. By: Titus Galama; Arie Kapteyn; Raquel Fonseca; Pierre-Carl Michaud
    Abstract: The authors formulate a stylized structural model of health, wealth accumulation and retirement decisions building on the human capital framework of health provided by Grossman. They explicitly assume a functional form of the utility function and carefully account for initial conditions, which allow them to derive analytic solutions for the time paths of consumption, health, health investment, savings and retirement. They argue that the Grossman literature has been unnecessarily restrictive in assuming that health is always at Grossman's "optimal" health level. Exploring the properties of corner solutions they find that advances in population health (health capital) can explain the paradox that while population health and mortality have continued to improve in the developed world, retirement ages have continued to fall with retirees pointing to deteriorating health as an important reason for early retirement. They find that improvements in population health decrease the retirement age, while at the same time individuals retire when their health has deteriorated. In their model, workers with higher human capital (say white collar workers) invest more in health and because they stay healthier retire later than those with lower human capital (say blue collar workers) whose health deteriorates faster. Plausibly, most individuals are endowed with an initial stock of health that is substantially greater than the level required to be economically productive.
    JEL: I10 I12 J00 J24 J26
    Date: 2008–12
  2. By: Pablo Antolín; Edward R. Whitehouse
    Abstract: The current generation of workers can expect lower pension benefits in retirement than the current generation of pensioners. Private, voluntary pension savings will therefore play a greater role in providing for old age. This paper calculates the size of the “pension gap”: the difference between the benefits from mandatory retirement-income provision and a target pension level. It then computes the amount that people would need to save to achieve the target. Data on coverage of private, voluntary pension schemes in a range of OECD countries are then presented. The paper also shows how coverage varies with age and earnings. The results show significant gaps in coverage, particularly among low earners and younger workers. The effect could be a resurgence of old-age poverty when these generations reach retirement. Data on contributions to private pensions show that these are, on average, at a level likely to fill the pension gap. Expanding coverage rather than raising contribution rates should therefore be the policy priority. Five policy options for increasing coverage are assessed: (i) mandating private pensions; (ii) “soft compulsion”, which is automatic enrolment in private pensions but with an opt-out; (iii) facilitating access to the means for saving for retirement; (iv) preferential tax treatment of retirement savings; and (v), improving financial awareness.<BR>L’actuelle génération de travailleurs peut s’attendre à toucher des prestations de retraite inférieures à celles que perçoit l’actuelle génération de retraités. Les régimes privés, volontaires, d’épargne-retraite seront donc appelés à jouer un plus grand rôle en tant que source de revenu pour les personnes âgées. Le présent document évalue l’ampleur du déficit d’épargne-retraite : c’est-à-dire de la différence entre les prestations servies par les régimes obligatoires de retraite et l’objectif visé en matière de pension. Il calcule ensuite les sommes que les salariés devraient épargner pour atteindre cet objectif. Le document présente ensuite des données sur la couverture des régimes de retraite volontaires privés dans un certain nombre de pays de l’OCDE. Il montre aussi que cette couverture varie fortement en fonction de l’âge et des gains et qu’elle est particulièrement réduite dans le cas des titulaires de bas salaires et des jeunes travailleurs. La conséquence pourrait être une résurgence de la pauvreté des personnes âgées, lorsque ces générations atteindront l’âge de la retraite. Les données sur les cotisations aux régimes de pensions privés montrent qu’elles se situent, en moyenne, à un niveau qui devrait permettre de combler le déficit d’épargne retraite. L’extension de la couverture plutôt que l’augmentation des taux de cotisation, devrait donc être considérée comme la priorité d’action. Cinq lignes d’action pour étendre cette couverture sont évaluées : (i) l’adhésion obligatoire à des régimes de pension privés ; (ii) la contrainte douce, c’est-à-dire l’inscription automatique à des régimes de pensions privés, avec possibilité de refuser; (iii) un accès facilité aux dispositifs d’épargne-retraite ; (iv) l’application d’un régime fiscal préférentiel aux revenus épargnés en vue de la retraite et (v) le développement de l’éducation financière.
    JEL: D14 G23 H24 H31 J14
    Date: 2009–01–29
  3. By: Autor, David (MIT); Dorn, David (Boston University)
    Abstract: High- and low-wage occupations are expanding rapidly relative to middle-wage occupations in both the U.S. and the E.U. We study the reallocation of workers from middle-skill occupations towards the tails of the occupational skill distribution by analyzing changes in age structure within and across occupations. Because occupations typically expand by hiring young workers and contract by curtailing such hiring, we posit that growing occupations will get younger while shrinking occupations will 'get old.' After verifying this proposition, we apply this observation to local labor markets in the U.S. to test whether markets that were specialized in middle-skilled occupations in 1980 saw a differential movement of both older and younger workers into occupations at the tails of the skill distribution over the subsequent 25 years. Consistent with aggregate trends, employment in initially middle-skill-intensive labor markets hollowed-out between 1980 and 2005. Employment losses among non-college workers in the middle of the occupational skill distribution were almost entirely countered by employment growth in lower-tail occupations. For college workers, employment losses at the middle were offset in roughly equal measures by gains in the upper- and lower-tails of the occupational skill distribution. But gains at the upper-tail were almost entirely limited to young college workers. Consequently, older college workers are increasingly found in lower-skill, lower-paying occupations.
    Keywords: job polarization, occupational structure, age structure, local labor markets, technical change
    JEL: E24 J11 J21 J24
    Date: 2009–01
  4. By: Fabrizio Balassone (Banca d'Italia); Jorge Cunha (Banco de Portugal); Geert Langenus (National Bank of Belgium, Research Department); Bernhard Manzke (Deutsche Bundesbank); Jeanne Pavot (Banque de France); Doris Prammer (Oesterreichische Nationalbank; European Commission); Pietro Tommasino (Banca d'Italia)
    Abstract: In this paper we examine the sustainability of euro area public finances against the backdrop of population ageing. We critically assess the widely used projections of the Working Group on Ageing Populations (AWG) of the EU's Economic Policy Committee and argue that ageing costs may be higher than projected in the AWG reference scenario. Taking into account adjusted headline estimates for ageing costs, largely based upon the sensitivity analysis carried out by the AWG, we consider alternative indicators to quantify sustainability gaps for euro area countries. With respect to the policy implications, we assess the appropriateness of different budgetary strategies to restore fiscal sustainability taking into account intergenerational equity. Our stylised analysis based upon the lifetime contribution to the government's primary balance of different generations suggests that an important degree of pre-funding of the ageing costs is necessary to avoid shifting the burden of adjustment in a disproportionate way to future generations. For many euro area countries this implies that the medium-term targets defined in the context of the revised stability and growth pact would ideally need to be revised upwards to significant surpluses.
    Keywords: population ageing, fiscal sustainability, generational accounting, medium-term objectives for fiscal policy
    JEL: H55 H60
    Date: 2009–01
  5. By: Hernæs, Erik (Ragnar Frisch Centre of Economic Research); Zhu, Weizhen (Ragnar Frisch Centre of Economic Research)
    Abstract: Variation in non-pension wealth accumulation with the level of expected pensions is investigated with a register based, linked employer-employee dataset. This includes wealth components, earnings history and demographic information, supplemented with detailed calculations of public and occupational pension entitlements, allowing construction of full life time income trajectories. Regressions are run on the half of the population with some wealth and therefore the option of consumption smoothing. The results imply substantial offsets of pension wealth against other private wealth, mostly financial. Although pension benefits are related to earnings, the regressive structure of the public pension and incomplete coverage of occupational pensions provide independent variation in pensions. Panel estimation provides support for the cross section results. Heterogeneity and selection bias are investigated with estimation on a variety of sub-samples.
    Keywords: Wealth accumulation; Pensions
    JEL: D14 D91
    Date: 2009–02–02
  6. By: Bonnie-Jeanne MacDonald; Doug Andrews; Robert L. Brown
    Abstract: Our research undertakes to determine the basic living expenses required by Canadian seniors living in different circumstances in terms of age, gender, city of residence, household size, homeowner or renter, means of transportation and health status. The paper develops required expenses for food, shelter, health care, transportation and miscellaneous. The research identifies the typical expenses of seniors in each of these categories. Using 2001 as our base year, we follow the US Elder Standard to build an elderly threshold for Halifax, Montreal, Toronto, Calgary and Vancouver. The research is unique because it is the first Canadian study of absolute basic living expenses tailored to seniors, rather than simply to adults in general. This information is important to seniors, prospective retirees, financial planners, policy makers and actuaries in assessing the minimum level of income required in retirement and the adequacy of savings and income security programs. Our conclusions suggest that individual circumstances, rather than age, are the primary drivers in determining the cost of these basic expenses. Seniors are a diverse group, particularly with respect to health, so it is important that seniors and financial planners do not blindly rely on a fixed replacement ratio or universal level of income when projecting the level of finances needed to retire. This research enables the reader to determine the threshold that is suited to a senior’s general circumstances.
    Keywords: Retirement Income Adequacy; Absolute Measure; Elder Standard; Canadian Data
    JEL: I32
    Date: 2009–01
  7. By: Luciano Fanti; Luca Gori
    Abstract: Recently Fanti and Gori (2008) showed – in the basic overlapping generations (OLG) model of neoclassical growth with exogenous fertility (Diamond, 1965) – that a positive relationship between longevity and pay-as-you-go (PAYG) pensions may exist independently of the size of the contribution rate burdening on the currently active generation (the young workers). We extend such a model to analyse how the balanced PAYG pension budget is affected by an increasing longevity in a fairly standard Diamond-style OLG model with endogenous fertility. It is shown that the positive relationship between longevity and pensions may be thought to be a robust feature of OLG economies. In particular, (1) the demand for children may either increase or decrease along with an increased longevity, though the latter is not very likely, and (2) the endogeneisation of fertility rates may strengthen or weaken the beneficial effects that the reduction in adult mortality plays on PAYG pensions, and this result depends exclusively on the size of the households’ preference for raising children. Therefore, even in a context in which agents choose endogenously the number of children raised, there would be room for an increase, rather than the often threatened reduction, in future pensions by keeping unaltered the contribution rate to the PAYG scheme paid by current workers, and this holds especially in the case in which parents have a strong preference for having children.
    Keywords: Pensions; Fertility; OLG model
    JEL: J26 O41
    Date: 2009–01–01
  8. By: Fisher, Johathan (Litigation Analytics); Johnson, David (Census Bureau); Marchand, Joseph (University of Alberta, Department of Economics); Smeeding, Timothy (University of Wisconsin); Boyle Torrey, B. (Population Reference Bureau)
    Abstract: Objectives: Public policies generally target a subset of the population defined as poor or needy, but rarely are people poor or needy in the same way. This is particularly true among older adults, as they have fewer options to compensate for financial decisions made earlier in life. This study investigates poverty among this group in order to identify who among them is financially worst off. <p> Methods: We use 20 years of data from the Consumer Expenditure Survey to examine the income and consumption of older Americans. <p> Results: The poverty rate is cut in fourth if both income and consumption are used to define poverty. Those most likely to be poor using a combined measure over both income and consumption are women, widows, blacks, and renters. The income poor alone display sufficient assets to raise consumption above poverty thresholds, while the consumption poor are shown to have income just above the poverty threshold and have few assets. <p> Discussion: The poorest among the older population are those who are income and consumption poor. Understanding the nature of this double poverty population is important in measuring the success of future public policies to reduce poverty among this group.
    Keywords: poverty; consumption; income
    JEL: I32 J14
    Date: 2009–01–20
  9. By: Ruben G. Mercado; K. Bruce Newbold
    Abstract: Most studies analyzed the impact of decreased mobility on health and social network status, but only a few have provided evidence to understand how these latter factors could affect travel decisions or outcomes. This paper examined the linkage between people’s car driving and public transit use in Canada and their personal, health and social network characteristics, with a focus on the elderly population. The study exploits Statistics Canada’s General Social Survey (GSS-19), a unique survey with a nationally representative sample that contains questions on health, social network and transportation situation. Multilevel binary logistic regression models were estimated for the two travel modes. Results showed that regardless of age, poor health discourages both car driving and public transit use. Physical limitations that constrain mobility were found to decrease the likelihood of using public transit, a finding that was expected. However, a very interesting finding of this study is that even in the presence of physical or mental situations, mobility is still made possible through car driving. Relatedly, the study showed how important license possession and car ownership are to personal mobility and to be less dependent on other modes of transport including public transit. <p>Findings from this study have also underlined that family network could play an important role in influencing both mobility decisions and provision. Car driving was found to be more likely when a person lives alone versus with one or more people in the household, a tendency that is stronger among the elderly than the non-elderly group. However, in the event of voluntary driving cessation, suspension of driving license, or when other means of transport would not be a convenient or feasible option, support from family members or caregivers could be critical given that, and as this study finding showed, elderly people are likely to continue to strive to maintain their driving skills even with a health condition, rather than prepare to stop driving. The size of close family networks did not show a considerable influence, but the quality of these ties (i.e. being close to family) was found relevant in public transit use. Results underlined implications to road safety, the development of alternative transport strategies and strengthening social support to help maintain mobility necessary for health and quality of life in later years.
    Keywords: elderly, transport, mode choice, Canada, health, social network
    JEL: I19 J14 O20 R42 R48
    Date: 2009–01
  10. By: Yang Cheng; Mark Rosenberg
    Abstract: China is one of the largest countries in the world in terms of both geography and population size, with lower economic levels compared to the developed countries, and great regional differences. This paper introduces the rapid demographic changes of the Chinese population and the current financial security of elders in China. The World Bank’s multi-pillar model is used to explain the financial security of elders in China, which includes the current pension and health care systems in urban and rural areas in China respectively. The important issues of financial security of elders which the Chinese government should address in the near future are also discussed. The paper concludes with a consideration of the results of social welfare system reforms by the Chinese government and future research interests from a geographer’s perspective.
    Keywords: Financial security, elders, social welfare system, China
    JEL: I31
    Date: 2009–01
  11. By: Margaret Denton; Jenny Ploeg; Joseph Tindale; Brian Hutchison; Kevin Brazil,; Noori Akhtar-Danesh; Monica Quinlan
    Abstract: Community support services (CSSs) enable persons coping with health or social problems to maintain the highest possible level of social functioning and quality of life. Access to these services is challenging because of the multiplicity of small agencies providing these services and the lack of a central access point. A review of the literature revealed that most service awareness studies are marred by acquiescence bias. To address this issue, service providers developed a series of 12 vignettes to describe common situations faced by older adults for which CSSs might be appropriate. In a telephone interview, 1152 older adults were presented with a series of vignettes and asked what they would do in that situation. They were also asked about their most important sources of information about CSSs. Findings show awareness of CSSs varied by the situation described and ranged from a low of 1% to 41%. The most important sources of information about CSSs included informational and referral sources, the telephone book, doctor’s offices, and through word of mouth.
    Keywords: I18
    Date: 2009–02

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