nep-age New Economics Papers
on Economics of Ageing
Issue of 2009‒02‒22
fourteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Reforming the retirement scheme: Flexible retirement vs. Legal retirement age By Juan A. Lacomba; Francisco M. Lagos
  2. Defined Contribution vs Defined Pension: Reforming the Legal Retirement Age By Juan A. Lacomba; Francisco M. Lagos
  3. Earnings Losses of Displaced Older Workers: Accounting for the Retirement Option By Schirle, Tammy
  4. Population Ageing, Inequality and the Political Economy of Public Education By Francisco Martínez Mora
  5. When and How to Subsidize Tax-Favored Retirement Accounts? By Andras Simonovits
  6. Time to death and health expenditure of the Czech health care system By Kateřina Pavloková
  7. Pension Plans and the Retirement Replacement Rates in the Netherlands By M. van Duijn; M. Lindeboom; P. Lundborg;
  8. Technological Changes and Employment of Older Manufacturing Workers in Early Twentieth Century America By Chulhee Lee
  9. Long-term care: regional disparities in Belgium By Karakaya, Güngör
  10. Experimental tests on consumption, savings and pensions By Enrique Fatás; Juan A. Lacomba; Francisco M. Lagos; Ana I. Moro
  11. CAPP_DYN: A Dynamic Microsimulation Model for the Italian Social Security System By Carlo Mazzaferro; Marcello Morciano
  12. Do only new brooms sweep clean? A review on workforce age and innovation By Katharina Frosch
  13. What decreases the TFP ? The aging labor and ICT imbalance By Tatsuyoshi Miyakoshi; Pekka Ilmakunnas
  14. THE BALASSA-SAMUELSON HYPOTHESIS AND ELDERLY MIGRATION By Hernando Zuleta; Oscar Avila; Mauricio Rodriguez

  1. By: Juan A. Lacomba (Department of Economic Theory and Economic History, University of Granada.); Francisco M. Lagos (Department of Economic Theory and Economic History, University of Granada.)
    Abstract: We compare a Social Security system where people can retire at the age of their own choice with one in which there is a legal retirement age elected through a majority voting process. We analyze how incentives on retirement decisions change depending on the retirement rules. We show that individuals prefer a legal retirement age higher than that they would choose in the flexible scheme since in this scheme they ignore the impact of their decisions on the Social Security budget constraint. In spite of that, we show that when the legal retirement age significantly limits the retirement age of high-wage workers, a flexible scheme would improve the financing of the pension system. Finally, we show that even when pension benefits are higher with a legal retirement age, a flexible system might be implemented since it would be preferred by a majority of the population composed by low- and high-wage workers.
    Keywords: Social security, Flexible retirement, Legal retirement age.
    JEL: H55 J26
    Date: 2009–01–03
  2. By: Juan A. Lacomba (Department of Economic Theory and Economic History, University of Granada.); Francisco M. Lagos (Department of Economic Theory and Economic History, University of Granada.)
    Abstract: In this paper we analyze the effects of changing Social Security parameters on the optimal legal retirement age. Two Social Security Systems are studied, with opposite results. When the pension scheme has a defined contribution, a more redistributive system will delay the preferred legal retirement age. On the other hand, when the pension benefit is the defined parameter, the increase in the redistribution level will lower this preferred age.
    JEL: H55 J26
    Date: 2008–12–22
  3. By: Schirle, Tammy
    Abstract: In this paper I estimate the magnitude of earnings losses faced by workers who are displaced when over the age of 50. This is potentially complicated by the self-selection of older individuals out of the labour force and into activities such as retirement, preventing observation of their potential earnings losses. Using data from the Survey of Labour and Income Dynamics (1993-2004), I use a Heckman selection model that accounts for individuals’ departure from the labour force following displacement. Results indicate that self-selection is an important factor to consider when studying the earnings of older workers but does not bias estimates of earnings losses due to displacement. Further, the results suggest that workers over 50 do not face larger earnings losses upon displacement than 35-49 year olds. Losses are only slightly larger than that experienced by 25-34 year olds. Consistent with the existing literature, those workers displaced over 50 with high tenure on the lost job experience the largest earnings losses.
    Keywords: Layoffs, Wage Level, Wage Structure, Retirement, Retirement Policies
    JEL: J63 J31 J26
    Date: 2009–02–16
  4. 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.
    Date: 2009–01
  5. By: Andras Simonovits (Institute of Economics - Hungarian Academy of Sciences, Department of Economics - CEU, Mathematical Institute - Budapest University of Technology)
    Abstract: When and how to subsidize tax-favored pension accounts? To defend myopic workers against themselves, the government introduces a mandatory system but to help savers, it adds taxfavored retirement accounts. If the mandatory system is progressive, then a proportional voluntary system can beneficially dampen the redistribution. If the mandatory system is proportional, then a progressive voluntary system may raise the old-age consumption of the lower-paid. But if both the mandatory and the voluntary systems are proportional and the ceiling is high (as is the case in Hungary), then the latter does not diminish the tension of the mandatory system.
    Keywords: mandatory pensions, tax-favored retirement accounts, voluntary contributions, subsidies
    JEL: H55 D91
    Date: 2009–01
  6. By: Kateřina Pavloková (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: Growing concern about future sustainability of public budgets in the context of population ageing has given rise to a large debate on the role of age in the context of health care expenditure. Growing evidence on the so called death related costs hypothesis arguing that the positive relationship between age of the cohort and related health care expenditure is the result of growing probability of death changes in an important manner the results of the projections. The aim of this paper is to explore the importance of the death related costs hypothesis in the Czech health expenditure data and the impact of the hypothesis on the projection of the financial sustainability of the Czech health care system.
    Keywords: health care, last year of life, financial sustainability
    JEL: H51
    Date: 2009–02
  7. By: M. van Duijn; M. Lindeboom; P. Lundborg;
    Abstract: This study examines the expected retirement replacement rates of several cohorts of Dutch employees at the time of their planned retirement. It also imputes the actual replacement rates based on available pension records. We find that using reasonable indexation rates, the expected replacement rate is higher than the one we compute. Larger discrepancies are found for younger cohorts. We decompose the difference between the two replacement rates and find that the mismatch is related to poor institutional knowledge for the whole sample. We also show the role of assumptions on institutions and wage profiles in determining our results.
    Keywords: Replacement rate; expected retirement; Oaxaca decomposition
    JEL: J2 D84 D83
    Date: 2009–01
  8. By: Chulhee Lee
    Abstract: This study explores how technological, organizational, and managerial changes affected the labor-market status of older male manufacturing workers in early twentieth century America. Industrial characteristics that were favorably related to the labor-market status of older industrial workers include: higher labor productivity, less capital- and material-intensive production, a shorter workday, lower intensity of work, greater job flexibility, and more formalized employment relationship. Technical innovations that improved productivity often negatively affected the quality of the work environment of older workers. These results suggest that the technological transformations in the Industrial Era brought mixed consequences to the labor-market status of older workers. On one hand, technical and organizational modifications improved the elderly workers’ employment prospect by raising labor productivity, diminishing hours of work, and formalizing employment relations. On the other hand, some types of technical innovations, which are characterized by additional requirements for physical strength, mental agility, and ability to acquire new skills, forced older workers out of their jobs. Since the pace and nature of technical change considerably differed across industries, and possibly across firms within the same industry, the labor-market experiences of individual older workers should have been highly heterogeneous.
    JEL: J26 J64 J81 N31
    Date: 2009–02
  9. By: Karakaya, Güngör
    Abstract: In this paper we analyze the problem of population ageing in terms of non-medical care needs of persons who are dependent or have lost their autonomy, in order to provide the various public and private administrations active in these fields with some food for thought. The anticipated increase in dependency poses significant challenges in terms of needs evolution and financing. Using administrative data on the Belgian population to build indicators on the prevalence of dependency at home in the three regions in 2001, we find that the likelihood of a sustained increase in the Flemish prevalence rates ultimately amplifies the magnitude of the financing problems that the Flemish dependency insurance scheme has experienced since its first years of operation. Results also show that the smaller increases or the decreases (according to the scenario selected) expected in Wallonia and Brussels are likely to mitigate concern about the sustainability of any long-term care insurance in Wallonia and therefore to facilitate its eventual introduction.
    Keywords: Long-term care; Old age assistance; Demographic changes; Regional inequalities; Projection
    JEL: J14 I12 I18 J11
    Date: 2009
  10. By: Enrique Fatás (LINEX, University of Valencia.); Juan A. Lacomba (Department of Economic Theory and Economic History, University of Granada.); Francisco M. Lagos (Department of Economic Theory and Economic History, University of Granada.); Ana I. Moro (Department of Economic Theory and Economic History, University of Granada.)
    Abstract: As part of the current debate on the reform of pension systems, this article examines the potential effects on consumption behaviour of implementing a lump-sum payment in a public pension system. This work explores an experimental investigation into retirement consumption behaviour with two central features: first, there exists a decreasing probability of surviving; second, there are two sequences of income, one when individual works and another when she is retired. The results show how subjects seem to plan their consumption and saving choices conditionated by both the long horizon with no incomes and the lump-sum payment. This yields, in the majority of periods, a surprising over-saving behaviour.
    Keywords: Experimental test, consumption, savings, lump-sum payment.
    JEL: C91 H55 J26
    Date: 2008–12–23
  11. By: Carlo Mazzaferro; Marcello Morciano
    Abstract: We present the technical structure of CAPP_DYN, a population based dynamic microsimulation model for the analysis of long term redistributive effects of social policies, developed at CAPP (Centro di Analisi delle Politiche Pubbliche) to study the intergenerational and the intragenerational redistributive effects of reforms in the social security system. The model simulates probabilistically the socio-demographic and economic evolution of a representative sample of the Italian population for the period 2005-2050. After a short review of the existing similar models for the Italian economy, a rather detailed analysis and discussion of the functioning of the model as well as a description of estimation procedures employed in each single module of the models is offered.
    Keywords: Dynamic microsimulation; lifetime and intragenerational redistribution; social security systems
    JEL: C51 C52 H55
    Date: 2008–10
  12. By: Katharina Frosch (Max Planck Institute for Demographic Research, Rostock, Germany)
    Abstract: The relationship between age and creative performance has been found to follow a hump-shaped profile in the arts and sciences, and in great technological achievement. Accordingly, accelerating workforce aging raises concern about whether future capacity to innovate is endangered. This paper provides a review of existing studies exploring age effects on innovative performance, both at the individual and the macro levels. Empirical evidence confirms the hump-shaped relationship between workers’ ages and innovative performance, with the highest levels of performance seen between ages 30 and 50, depending on the domain. Industrial invention in knowledge-intensive fields, and great invention in general, seem to be a young man’s game. Yet in more experience-based fields, innovative performance peaks later, and remains stable until late in the career. Moreover, the quality of invention remains rather stable at older ages. However, individual-level evidence has to be interpreted with caution due to the presence of selectivity biases and unobserved heterogeneity. Studies at the levels of firms, regions, and countries address some of these issues. Results of these studies have indicated that young professionals drive knowledge absorption, innovation, and technological progress, whereas more experienced workers are more relevant in mature technological regimes. Apart from integrating the existing empirical evidence on different levels of aggregation, a strong focus is on methodological issues and conceptual challenges. This review therefore provides a sound basis for further studies on the impact of workforce aging on innovative performance. In addition, promising directions for future research are proposed.
    JEL: J1 Z0
    Date: 2009–02
  13. By: Tatsuyoshi Miyakoshi (Osaka School of International Public Policy, Osaka University); Pekka Ilmakunnas (Helsinki School of Economics)
    Abstract: The purpose of this paper is to investigate what decreases TFP, why TFP has decreased in some countries and how large the decreases of TFP are. We focus on the quality of labor and capital inputs and use cross country data for the manufacturing industries of some OECD countries. We provide a comprehensive empirical investigation based on two hypotheses, substitutability and complementarity of labor input age and skill categories. Further, we provide an aging index, which tells how much the share of ICT capital should be increased to counterbalance decreases of TFP caused by the aging of the labor input.
    Keywords: TFP; quality of labor and capital, substitutability and complementarity of age and skill groups, aging index
    JEL: O11 J00 J80 O40
    Date: 2009–02
  14. By: Hernando Zuleta; Oscar Avila; Mauricio Rodriguez
    Abstract: We present an Overlapping Generations Model with two final goods: tradable goods are produced with a standard Cobb-Douglas production function and non-tradable goods are produced with linear production function where the only factor is labor. We maintain the fundamental assumption of factor mobility between sectors so model is consistent with the Balassa-Samuelson hypothesis. Given the general equilibrium structure of our model we can examine the effect of the saving rate on migration and non-tradable relative prices. Under this setting, we find that the elderly have incentives to migrate from economies where productivity is high to economies with low productivity because of the lower cost of living. In more general terms the elderly migration is likely to go from rich to poor countries. We also find that, for poor countries, the elderly migration has a positive effect in wages and capital accumulation.
    Date: 2009–02–06

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