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on Economics of Ageing |
| By: | Hugo Benitez-Silva (SUNY-Stony Brook); Frank Heiland (Florida State University) |
| Abstract: | The labor supply and benefit claiming incentives provided by the early retirement rules of the Social Security Old Age benefits program are of growing importance as the Normal Retirement Age (NRA) increases to 67, the labor force participation of Older Americans rises, and a variety of reforms to the Social Security system are considered. Any reform needs to take into account the effects and rationale of the Social Security Earnings Test and the Actuarial Adjustment Factor. We describe these incentives, and analyze benefit withholding patterns using data from the Master Beneficiary Files of the Social Security Administration, and present descriptive and exploratory evidence on the determinants of benefit withholding using data from the Health and Retirement Survey. We then investigate the importance of the Earnings Test limits for work and claiming behavior using a dynamic life-cycle model of labor supply, benefit claiming, and withholding. We use the latter framework to compare the consequences of a number of changes to the Earnings Test provision for the labor supply behavior and earnings of older Americans. |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp183&r=age |
| By: | Xiujian Peng; Dietrich Fausten |
| Abstract: | Increasing life expectancy and rapid fertility decline in China since the 1970s have accelerated the rate of population ageing, fuelling the prospects of an ageing workforce and a significant slowdown in the growth of the working age population. The present paper examines the trend of labour supply in China over the next 45 years under alternative fertility scenarios by taking account of the demographic composition effect and potential trends of the age-and sex-specific labour force participation rates. The main finding is that the labour supply contraction will accelerate from 2020 onwards in response to population ageing and the probable attrition of the LFPR of the young population. Relaxing the current one-child policy may moderate the adverse labour market consequences by increasing the base of the working age population and decelerate the rate of population ageing. |
| Keywords: | population ageing, labour supply and China |
| JEL: | J11 J14 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2006-16&r=age |
| By: | Emma Aguila (RAND); Julie Zissimopoulos (RAND) |
| Abstract: | In this study we analyzed the retirement behavior of Mexicans with migration spells to the United States that returned to Mexico and non-migrants. Our analysis is based on rich panel data from the Mexican Health and Aging Study (MHAS). Approximately 9 percent of MHAS respondents aged 50 and older reported having lived or worked in the United States. These return migrants were more likely to be working at older ages than non-migrants. Consistent with much of the prior research on retirement in the United States and other developed countries, Mexican non-migrants and return migrants were responsive to institutional incentives. Both groups were more likely to retire if they had publicly provided health insurance and pensions. In addition, receipt of U.S. Social Security benefits increased retirement rates among return migrants. Return migrants were more likely to report being in poor health and this also increased the likelihood of retiring. The 2004 draft of an Agreement on Social Security would coordinate benefits across United States and Mexico boundaries to protect the benefits of persons who have worked in foreign countries. The agreement would likely increase the number of authorized and unauthorized Mexican workers and family member eligible for Social Security benefits. The responsiveness of current, older Mexican return migrants to pension benefits, suggests that an Agreement would affect the retirement behavior of Mexican migrants. |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp192&r=age |
| By: | Lachowska, Marta (SOFI, Stockholm University); Sundén, Annika (SOFI, Stockholm University); Wadensjö, Eskil (Stockholm University) |
| Abstract: | Phased retirement has been discussed as a means for increasing labour supply for people of older active age. The idea is that instead of leaving a full-time job early for full-time retirement, an employee should reduce the working time either in the same job or by changing jobs, and stay on in the labour market. In this paper we analyze the factors that influence the decision to take up a part-time pension and continue working at the same work place at reduced hours. We do this by using a unique data set from one employer in the governmental sector in Sweden, Stockholm University. The pension scheme is a special part-time pension scheme introduced for state employees in 2003. Employees 61 years and older can apply for a part-time pension up to the age of 65. The employers decide if they will accept or reject the application. They may also encourage employees to apply or discourage them from doing so. We have a data set covering all employees of the age groups who are eligible and a rich data set with information on the employees and also on the units (departments) who in practice decide if an application should be accepted or not. We find that both the effects on pension wealth of taking a part-time pension, and the economic situation of the department are important for the propensity for becoming a part-time pensioner. Also individual characteristics such as gender, age, earnings and occupation are important. |
| Keywords: | part-time work, part-time pension, older workers, labour supply |
| JEL: | H55 J22 J26 J14 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4284&r=age |
| By: | Roman Rabb (ICSG - Irish Centre for Social Gerontology, Department of Economics, National University of Ireland Galway) |
| Abstract: | The scope of this paper is to investigate the impact of financial incentives on the retirement decision of private sector workers in Austria. How do financial incentives embedded in the Austrian pension system impact individual retirement behavior? We are using a unique data set of individual social insurance spells. Micro-estimating the impact of financial incentives on the probability of retirement shows that the behavioral response to financial incentives in Austria is relatively large in international comparison. Also, there are striking behavioral differences between men and women. Using the estimates to simulate the response to reform shows that actual retirement ages could be most successfully brought up by a 6 percentage point deduction in pension benefits per year of early retirement. |
| Keywords: | Models with Panel Data, Discrete Regression and Qualitative Choice Models, Social Security and Public Pensions, Time Allocation and Labor Supply, Retirement; Retirement Policies. |
| Date: | 2009–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper0902&r=age |
| By: | Xiaoyan Li (RAND); Nicole Maestas (RAND) |
| Abstract: | As the Social Security full retirement age rises, the relative generosity of Social Security retirement benefits compared to disability benefits is declining, raising the incentive for insured people to apply for disability benefits. After controlling for other differences in observable characteristics, such as life-time earnings, we find that an average four month increase in the FRA slightly increases the two-year DI application rate by 0.04-0.30 percentage points. The effect is greater among those with a work limiting health problem (0.22-0.89 percentage points). |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp198&r=age |
| By: | Raquel Tsukada (International Policy Centre for Inclusive Growth); Elydia Silva (International Poverty Centre) |
| Abstract: | This One Pager discusses how age and gender affect workloads during the lifecycle of women and men in rural Ghana. We argue that the division of labour seems to sustain gender-income differences and intergenerational poverty. The workload is disproportionately carried by women, while children enter the labour force prematurely and the elderly work beyond retirement. |
| Keywords: | Age and Gender Bias in Workloads During the Lifecycle: Evidence from Rural Ghana |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:ipc:opager:88&r=age |
| By: | Nicole Maestas (RAND); Na Yin (Baruch College-CUNY) |
| Abstract: | The Social Security Disability Insurance (DI) program imposes strong work restrictions on beneficiaries; however, the causal effect of the work disincentives on labor supply has been difficult to estimate. We take a new look at this question by exploiting the fact that DI benefits are payable only until full retirement age (FRA), at which point they are converted to retired worker benefits, and the program’s implicit high marginal tax rate on earnings is abruptly relaxed. Using a quasiexperimental research design, we examine whether the DI work disincentives are binding by comparing changes in labor force participation rates before and after the FRA for DI beneficiaries and non-beneficiaries. We find a relative increase in labor force participation at FRA for DI beneficiaries of 10.4 percentage points, and argue that this is likely a lower bound estimate on the labor supply disincentive effects of the DI program. |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp194&r=age |
| By: | Camila Gripp |
| Abstract: | The debate around retrenchment of pension systems became really popular in the 1990’s after the pioneering experience of Chile in 1981.The disastrous outcomes of the Chilean reform were widely known by the 2000’s although no relevant steps backwards were taken. This paper analyses the consequences how the current international crisis has been making matters worse. |
| Keywords: | Welfare state; pension; universalism; decommodification; privatized retirement; pensions system; pensions funds; financial crisis; employee contributions; employer contributions; Latin America; Chile; risk; individual risk; pension privatization; |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ess:wpaper:id:2112&r=age |
| By: | Michael D. Hurd (RAND and NBER); Susann Rohwedder (RAND) |
| Abstract: | The most common metric for assessing the adequacy of economic preparation for retirement is the income replacement rate, the ratio of income after retirement to income before retirement. However both economic theory and common sense say that someone is adequately prepared if she is able to maintain her level of economic well-being, which is not the same as maintaining her level of income or some fixed proportion of income. Economic well-being is typically measured by consumption, which is the measure we use. We define and estimate measures of economic preparation for retirement based on a complete inventory of economic resources, particularly wealth, which we compare with optimal consumption paths. We find that a substantial majority of those just past the usual retirement age are adequately prepared for retirement in that they will be able to finance a path of consumption that begins at their current level of consumption and then follows an age-pattern similar to that of current retirees. This is not true, however, for all groups in the population. In particular, almost half of singles who lack a high school education are likely to be forced to reduce consumption. Couples are much better prepared than singles. But because of taxes a substantial number of married college graduates will have to reduce consumption. |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp184&r=age |
| By: | Wojciech Kopczuk (Columbia University); Jae Song (Social Security Administration) |
| Abstract: | We rely on the Master Beneficiary File to document a number of facts regarding claiming of Social Security benefits and quality of date of birth data in administrative files. We then assess the impact of changes in retirement incentives that have taken place since 2000 on claiming. We find evidence of non-trivial misreporting or clerical errors in the dates of births that give rise to systematic patterns but nevertheless appear to be fairly random. We also confirm significant tendency to claim in January or on birthdays, but we find that these patterns are still sensitive to incentive effects. Relying on the discontinuity in the Early Entitlement Age that occurs for people born on the second day of any month, we find evidence that people do not have singlepeaked preferences over claiming age: relaxing the early retirement constraint leads to acceleration of retirement by some people for whom the constraint would not be otherwise binding. One possible explanation for this pattern is a preference for retiring at one's birthday. We take advantage of a change in the full retirement age and find that there remains unusually large (relative to other birthdays) number of people who claim around their 65th birthday, supporting the idea that Medicare eligibility has an impact on claiming retirement benefits. Finally, we confirm that elimination of the earnings test in 2000 for those above full retirement age accelerated retirements and find that it also led to a significant weakening of the January effect in that group, bolstering the idea that the January effect is sensitive to economic incentives. |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp200&r=age |
| By: | Ann Huff Stevens (University of California, Davis) |
| Abstract: | Changes in labor markets over the past 30 years suggest upcoming changes in the distribution of wealth at retirement. Baby boom cohorts have spent the majority of their prime earnings years in a labor market with increased earnings inequality. This paper investigates how changes in lifetime earnings distributions affect the distribution of retirement wealth among cohorts retiring over the next decade. I use data from the Health and Retirement Study from 1992 to 2004 to estimate the relationship between lifetime earnings, pre-retirement private wealth and Social Security wealth. I show that changes in the lower half of the male earnings distribution explain a substantial portion of changes in the distribution of pre-retirement wealth. Growth in women’s earnings across the cohorts do not offset these declines in wealth associated with male earnings. When pensions are added to the measure of wealth, the role of earnings is even larger, reflecting a strong correlation between changes in earnings across these cohorts and changes in the values of their employer-provided pensions. These pension changes do not appear to operate via changes in pension structures (defined benefit versus defined contribution). The present value of wealth from future Social Security benefits, in contrast, grows in real terms throughout most of the distribution. At the bottom of the male distribution of Social Security wealth, reductions in lifetime earnings limit this growth in real benefits, while at the top of the distribution earnings growth amplifies expected growth in Social Security wealth. |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp186&r=age |
| By: | Helen Levy (University of Michigan); Kristin Seefeldt (University of Michigan) |
| Abstract: | How do low-income households think about retirement? Do they think about retirement? If so, when do they think they will retire, and what is it they plan to live on? In this paper, we present evidence on these questions based on 51 qualitative interviews with low-income families in the Detroit area. We find that the great majority of low-income households think about retirement, although this does not necessarily mean they are able to plan and/or save actively for retirement. Most respondents plan to retire as soon as they become eligible for Social Security or, in a few cases, private pensions. |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp195&r=age |
| By: | John Karl Scholz (University of Wisconsin–Madison and NBER); Ananth Seshadri (University of Wisconsin–Madison) |
| Abstract: | Many people fear that Americans are preparing poorly for retirement. But developing rigorous evidence on this issue is difficult. In this paper we briefly discuss evidence on the adequacy of retirement wealth accumulation. We conclude that existing descriptive evidence does not seem consistent with dire assessments of poor financial preparation. We then extend the straightforward, but computationally complex dynamic programming approach used in our earlier work to assess the adequacy of retirement wealth preparation of Americans born before 1954. We find only 4 percent of HRS households have net worth below their optimal targets in 2004, though this percentage is somewhat higher for more recent HRS cohorts. While our work is preliminary, we find little evidence that Americans born before 1954 have prepared poorly for retirement. |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp189&r=age |
| By: | Frank T. Denton; Christine H. Feaver; Byron G. Spencer |
| Keywords: | cohort working life tables |
| JEL: | J10 J26 A |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:mcm:sedapp:247&r=age |
| By: | Shinichi Nishiyama (Georgia State University); Kent Smetters (The Wharton School) |
| Abstract: | The United States Social Security system is fairly unique in that it explicitly allows for a progressive formulation of retirement benefits by assigning a larger replacement rate to workers with small pre-retirement wages. In contrast, the public pension systems in other countries often replace a constant fraction of pre-retirement wages, although the length of the “averaging period" is typically shorter relative to the U.S. This paper examines the ex-ante optimal U.S. Social Security benefit structure using the model developed in Nishiyama and Smetters (2007). On one hand, progressivity in the benefit structure provides risk sharing against shocks that are difficult to insure privately. On the other hand, progressivity introduces various marginal tax rates that distort labor supply. Rather surprisingly, we find that the ex-ante best U.S. Social Security replacement rate structure is fairly “flat.” Intuitively, the relatively long averaging period used in the U.S. system formulation already provides some insurance against negative idiosyncratic shocks, but in a manner that is more efficient than explicit redistribution. |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp197&r=age |
| By: | Kopecky, Karen A.; Koreshkova, Tatyana |
| Abstract: | We consider a life-cycle model with idiosyncratic risk in labor earnings, out-of-pocket medical and nursing home expenses, and survival. Partial insurance is available through welfare, Medicaid, and social security. Calibrating the model to the U.S., we find that nursing home expenses play an important role in the savings of the wealthy. In our policy analysis, we find that elimination of out-of-pocket expenses through public health care would reduce the capital stock by 12 percent, Medicaid and old-age welfare programs crowd out 44 percent of savings and greatly increase wealth inequality, and social security effects are influenced by out-of-pocket health expenses. |
| Keywords: | social insurance; medical expenses; nursing home expenses; wealth inequality; savings |
| JEL: | I18 E21 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:16197&r=age |
| By: | Petra Todd (University of Pennsylvania); Viviana Vélez-Grajales (University of Pennsylvania) |
| Abstract: | Chile has been at the forefront of pension reform, having switched in 1980 from a pay-as-you-go system to a fully funded privatized accounts system. The Chilean system served as a model for reform in many other Latin American countries and has also been considered by U.S. policy makers as a possible prototype for social security reform. Some of the criticisms of the Chilean system are low coverage rates and contributions rates among certain segments of the population. In 2006, the Chilean government proposed some reforms aimed at increasing coverage and contribution rates and expanding the safety net provided by the system to poor households. This study evaluates how changes in pension system rules affect working behavior and pension contribution patterns using data from a new Chilean household survey administered in 2002 and 2004 linked with administrative data from the pension regulatory agency. It develops and estimates a dynamic model of decision-making about working in the covered or uncovered sectors of the economy and studies implications for pension accumulations. The estimated model is used to simulate behavior under different pension system rules, such as a change in the number of years of contributions required for the minimum pension or a change in pension plan fees. |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp193&r=age |