nep-age New Economics Papers
on Economics of Ageing
Issue of 2009‒12‒05
five papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Urban Public Pension, Replacement Rates and Population Growth Rate in China By Yang, Zaigui
  2. A two-sector OLG economy: economic growth and demographic behaviour By Fanti, Luciano; Gori, Luca
  3. Demography and Growth: A Unified Treatment of Overlapping Generations By Neil Bruce; Stephen J. Turnovsky
  4. Altruism, Lifetime Uncertainty and Optimal Public Pension Contribution Rate By Yang, Zaigui
  5. An essay on the generational effect of employment protection By Yu-Fu Chen; Gylfi Zoega

  1. By: Yang, Zaigui
    Abstract: This paper uses an overlapping generations model to investigate the urban public pension in China. It examines the effects of the replacement rates and population growth rate on the capital-labor ratio, pension benefits, consumption and utility, and finds the optimal replacement rate. It is shown that raising the individual account benefit replacement rate only induces the increase in the individual account benefits. Raising the social pool benefit replacement rate induces the increase in the social pool benefits and retirement-period consumption, while the decrease in the capital-labor ratio, individual account benefits, working-period consumption and utility. The fall in the population growth rate leads to the increase in the capital-labor ratio, social pool benefits, individual account benefits, working-period consumption and utility, and leads to a decrease in the retirement-period consumption. The optimal social pool benefit replacement rate depends on the individual discount factor, social discount factor, capital share of income and population growth rate, and it decreases in the case of falling population growth rates. It will do more good than harm to raise the individual account benefit replacement rate, reduce the social pool benefit replacement rate and strictly implement China's population policy.
    Keywords: Urban public pension; Replacement rate; Population growth rate
    JEL: H55
    Date: 2009–10
  2. By: Fanti, Luciano; Gori, Luca
    Abstract: We analyse an overlapping generations economy with two sectors of production: a capital-intensive commodity sector and a labour-intensive services sector. First, we consider an economy with exogenous population and study the effects of a change in the individual preference for old-aged services that causes a reallocation of labour between sectors on per capita income. Then, we compare the results with the standard Diamond (1965) style one-sector economy. Second, we endogenise fertility founding that a reallocation of labour in favour of the services sector causes an additional beneficial effect on per capita income with respect to the model with exogenous population. Third, we further introduce endogenous lifetime through public health investments, showing that multiple regimes of development may exist. In this context, the a rise in the preference for old-aged services may help escaping from poverty.
    Keywords: Fertility; Life expectancy; OLG model; Public health expenditure; Services market
    JEL: O41 I18
    Date: 2009–11–26
  3. By: Neil Bruce; Stephen J. Turnovsky
    Abstract: We construct a unified overlapping-generations (OLG) framework of equilibrium growth that includes the Blanchard “perpetual youth” model, the Samuelson model, and the infinitely-lived representative agent growth model as limit specifications of a “realistic”, two-parameter survivorship function. We analyze how demographic conditions affect the equilibrium growth and savings rates in an economy by computing equilibrium rates under different specifications of the survivorship function. Differences in population growth rates, life-expectancies, retirement durations, and the degree of concavity of the survivorship function are found to have significant impacts on equilibrium growth rates. The observed effects are consistent with some cross-country correlations between demographic conditions and growth rates. We also identify a potential “Malthusian growth trap” in economies where life expectancy is short, fertility rates are high, and households work most of their lives—conditions often found in less developed economies.
    Date: 2009–04
  4. By: Yang, Zaigui
    Abstract: Assuming that individuals are altruistic, this paper employs an overlapping generations model with lifetime uncertainty to study the partially funded public pension in China. By comparing the market economy equilibrium with the social optimum allocation, we find the optimal firm contribution rate. Our simulation results show that this rate increases when the life expectancy rises, while decreases when the population growth rate falls. It decreases in the joint case of risen life expectancy and fallen population growth rate because it is much more sensitive to the latter than to the former. The result has some policy implications.
    Keywords: altruism; lifetime uncertainty; pension contribution rat
    JEL: H55
    Date: 2009–05
  5. By: Yu-Fu Chen; Gylfi Zoega (Department of Economics, Mathematics & Statistics, Birkbeck)
    Abstract: This paper provides an explanation for the observed positive relationship between youth unemployment and the cost of firing workers. When the cost of firing workers is high, firms only fire when the present discounted value of future losses is high, in which case they gain little by postponing the firing decision in the hope that productivity will recover. The young workers are then the first to go due to their longer remaining tenure. In contrast, when the cost of firing workers is low, the present discounted value of future losses is small at the firing margin and firms may choose to wait in the hope of a recovery. In this case they may choose to fire the older workers first since the younger ones are more likely to be around when productivity recovers.
    Date: 2009–11

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