nep-age New Economics Papers
on Economics of Ageing
Issue of 2010‒01‒10
twelve papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Early retirement and employment of the young By Adriaan Kalwij; Arie Kapteyn; Klaas de Vos
  2. Future Population Trends in China: 2005-2050 By Chen Wei; Liu Jinju
  3. Grossman’s Health Threshold and Retirement By Titus J. Galama; Arie Kapteyn; Raquel Fonseca; Pierre-Carl Michaud
  4. On The Rise of Health Spending and Longevity By Fonseca, Raquel; Michaud, Pierre-Carl; Galama, Titus; Kapteyn, Arie
  5. How Powerful is Demography? The Serendipity Theorem Revisited By David de la Croix; Pierre Pestieau; Grégory Ponthière
  6. Building Up, Spending Down: Financial Literacy, Retirement Savings Management, and Decumulation By Angela A. Hung; Erik Meijer; Kata Mihaly; Joanne Yoong
  7. Financial Literacy and Retirement Planning in the Netherlands By Maarten van Rooij; Annamaria Lusardi; Rob Alessie
  8. Patent Productivity of German Professors over the Life Cycle By Sidonia von Ledebur
  9. Senescence vs. sustenance: evolutionary-demographic models of aging By Annette Baudisch; James W. Vaupel
  10. Social Insurance in the Philippines: Responding to the Global Financial Crisis and Beyond By Manasan, Rosario G.
  11. Life Cycle Wages of Doctors - An Empirical Analysis of the Earnings of Norwegian Physicians By Fjeldvig, Knut
  12. On the relationship between mobility, population growth, and capital spending in the United States By Marco Bassetto; Leslie McGranahan

  1. By: Adriaan Kalwij (Utrecht School of Economics, Utrecht University and Networks for Studies on Pensions, Aging and Retirement, Tilburg University); Arie Kapteyn (RAND); Klaas de Vos (CentERdata, Tilburg University)
    Abstract: Policy makers have often argued that an additional benefit of facilitating early retirement is that it creates employment for the young. This may happen if older and younger workers are substitutes. Nowadays policy makers’ goals are to discourage early retirement to counter the economic consequences of an aging population and, interestingly, the consequences for youth employment appear to play no role in this. This paper studies the nexus between employment of older and younger workers in more depth, if only to put any concerns for adverse effects of later retirement to rest. To empirically investigate this issue we estimate a dynamic model of employment of the young, prime age and old people using panel data of 22 OECD countries over the time period 1960-2004. Our empirical analysis does not support the hypothesis that employment of the young and old are substitutes and finds some minor complementarities. This suggests that discouraging early retirement will have no adverse effect on youth employment.
    Date: 2009–12–16
  2. By: Chen Wei; Liu Jinju
    Abstract: Using China's 2000 census data, this paper conducts population projection under different fertility scenarios to gauge the likely trends in China's future population change. The range of fertility assumptions captures the uncertainty of current fertility estimates as well as the likely trends under the family planning policy and economic development. Only one mortality scenario is applied and net international migration is assumed to be null in the population projection. Future life tables are generated by Brass logit techniques with initial 2000 life tables and assumed annual life expectancy at birth following the United Nations medium improvement model. China is experiencing unprecedented demographic transition together with the radical social and economic transformation. Demographically speaking China is now a developed country. However, China's future population growth is substantial, a solely result of the population momentum built into the age structure by past fertility and mortality. 10 percent or 135 million increase is expected in the next 25 years under the medium fertility scenario. China would reach a maximum population of 1443 million in 2030, followed by a long-term population decline. Two major changes of the future population age structure of China are continuing demographic dividend and rapid population ageing. China's demographic window of opportunity opened at 1990 and will close at 2033. Having a work force of around one billion has many advantages if we consider only the dependency ratio in the population or the labour supply for the development. However, China will be also experiencing a rapid population ageing after 2015. One fifth to one quarter of the Chinese population would be older people at age 65 or over after 2035. The year of 2029 would be a turning point in China's age structure transition, when for the first time in Chinese history the elderly population would exceed the child population.
    Keywords: population projection, Brass logit transformation, life table, China
    JEL: J11
    Date: 2009–09
  3. By: Titus J. Galama (RAND Corporation); Arie Kapteyn (RAND Corporation); Raquel Fonseca (RAND Corporation); Pierre-Carl Michaud (RAND Corporation)
    Abstract: We formulate a stylized structural model of health, wealth accumulation and retirement decisions building on the human capital framework of health provided by Grossman. We explicitly assume a functional form of the utility function and carefully account for initial conditions, which allow us to derive analytic solutions for the time paths of consumption, health, health investment, savings and retirement. We 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 we 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. We find that improvements in population health decrease the retirement age, while at the same time individuals retire when their health has deteriorated. In our 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.
    Keywords: health, demand for health, health capital, medical care, labor, retirement
    JEL: I10 I12 J00 J24 J26
    Date: 2009–12–16
  4. By: Fonseca, Raquel (RAND); Michaud, Pierre-Carl (RAND); Galama, Titus (RAND); Kapteyn, Arie (RAND)
    Abstract: We use a calibrated stochastic life-cycle model of endogenous health spending, asset accumulation and retirement to investigate the causes behind the increase in health spending and life expectancy over the period 1965-2005. We estimate that technological change along with the increase in the generosity of health insurance may explain independently 53% of the rise in health spending (insurance 29% and technology 24%) while income less than 10%. By simultaneously occurring over this period, these changes may have lead to a "synergy" or interaction effect which helps explain an additional 37% increase in health spending. We estimate that technological change, taking the form of increased productivity at an annual rate of 1.8%, explains 59% of the rise in life expectancy at age 50 over this period while insurance and income explain less than 10%.
    Keywords: demand for health, health spending, insurance, technological change, longevity
    JEL: I10 I38 J26
    Date: 2009–12
  5. By: David de la Croix; Pierre Pestieau; Grégory Ponthière
    Abstract: Introduced by Samuelson (1975), the Serendipity Theorem states that the competitive economy will converge towards the optimum steady-state provided the optimum population growth rate is imposed. This paper aims at exploring whether the Serendipity Theorem still holds in an economy with risky lifetime. We show that, under general conditions, including a perfect annuity market with actuarially fair return, imposing the optimum fertility rate and the optimum survival rate leads the competitive economy to the optimum steady-state. That Extended Serendipity Theorem is also shown to hold in economies where old adults work some fraction of the old-age, whatever the retirement age is fixed or chosen by the agents.
    Date: 2009
  6. By: Angela A. Hung; Erik Meijer; Kata Mihaly; Joanne Yoong
    Abstract: As employer-provided pension plans have largely shifted from defined benefit (DB) to defined contribution (DC) pension plans, responsibility for plan investments and the accompanying risks have also shifted from the provider to the employee. Employees have to decide how much to contribute to their plans, how to allocate their retirement accounts between various investment options, and how they will spend down or decumulate their retirement funds during retirement. This raises the question of whether most employees are well-equipped to make such decisions. Empirical research suggests that large segments of the United States population do not feel financially well-prepared for retirement, and suboptimal financial decisions have been attributed to lack of financial literacy. The authors investigate this hypothesis by constructing multidimensional financial literacy indices using modern psychometric methods. They assess the relationships between a wide array of DC contribution, investment and (planned) decumulation behaviors on the one hand and these financial literacy indices on the other hand, controlling for other socio-economic and demographic determinants. Their indices measure financial literacy well, but the dimensions that they represent (objective and self-assessed financial literacy, broken down by topics) are very highly correlated, so that the multidimensional nature does not offer much additional explanatory power over a simpler one-dimensional index. Consistent with earlier empirical findings, they find large fractions of "investment mistakes". Surprisingly, however, the relationships between investment behavior and financial literacy are often weak and nonsignificant. They do find that financial literacy is related to retirement planning, but not to retirement preparedness.
    Date: 2009–09
  7. By: Maarten van Rooij; Annamaria Lusardi; Rob Alessie
    Abstract: The complexity of financial decisions households are faced with has increased tounprecedented levels. At the same time, recent research documents large differences ineconomic knowledge among households and indicates that household financial skills may beinadequate to cope with the increasing responsibility for making retirement decisions. In thispaper, we examine the relationship between financial knowledge and retirement planning inthe Netherlands. For this purpose, we have designed a customized module for the DNB (DeNederlandsche Bank) Household Survey. We identify a strong and positive associationbetween financial knowledge and retirement planning. Using information on economicseducation when young, we show that the nexus of causality goes from literacy to planningrather than the other way around. 
    Keywords: Thinking about Retirement; Knowledge of Finance and Economics; FinancialSophistication; Economics Schooling.
    JEL: J26 D12
    Date: 2009–12
  8. By: Sidonia von Ledebur (Department of Geography, Philipps University Marburg)
    Abstract: The paper studies the patent productivity of scientists over their life cycle. The incentives for patenting and for publishing are compared and how they shape life cycle productivity. In most empirical studies, publication productivity decreases at the end of the scientific career. In contrast, the analytical model given here suggests an increase of patent productivity over the life time. In the empirical part the patents of nearly 1000 German patent active professors are analyzed. The empirical findings support the theoretical prediction that patent productivity does not decline for older scientists.
    Keywords: : university patenting, patent productivity, scientific productivity, age and productivity, Germany
    JEL: O33 O34 J24
    Date: 2009
  9. By: Annette Baudisch (Max Planck Institute for Demographic Research, Rostock, Germany); James W. Vaupel (Max Planck Institute for Demographic Research, Rostock, Germany)
    Abstract: Humans, and many other species, suffer senescence: mortality increases and fertility declines with adult age. Some species, however, enjoy sustenance: mortality and fertility remain constant. Here we develop simple but general evolutionary-demographic models to explain the conditions that favor senescence vs. sustenance. The models illustrate how mathematical demography can deepen understanding of the evolution of aging.
    JEL: J1 Z0
    Date: 2009–12
  10. By: Manasan, Rosario G.
    Abstract: <p>This paper aims to review and assess protection afforded by the Social Security System and the Government Service Insurance System, two out of the three agencies tasked with administering social insurance in the country. Like social security systems in other countries, the GSIS and SSS provide income support to government/private sector employees and their families in times of contingencies like death, old age, sickness, and disability arising from work, and are financed out of the contribution of members and their employers. The GSIS and SSS are both mandatory, publicly managed, benefit-defined social insurance schemes with funding coming from members and their employers and investment income from reserves. Government guarantees the solvency of both systems and the levels of benefits prescribed.</p> <p>The global economic downturn will tend to reduce the stream of contributions to the social security system as a result of the increase in unemployment and the reduction in the level of earnings on which contributions are based. At the same time, there will be a temptation on the part of policymakers to use the pension funds to partially finance the fiscal stimulus package that has been drawn in response to the crisis. However, using the pension funds for the purpose of pump priming the domestic economy will likely not match the primary objective of the fund to protect old-age income of members.</p> <p>Even without the global financial crisis, reforms aimed at improving the financial viability of and corporate governance in both the GSIS and the SSS have already been started. Some gains have already been achieved in various areas of concern but sustained effort is still needed. The needed reforms have already been articulated by various experts (e.g., Holzmann et al. 2000, Navarro 2004, OECD 2009, Asher 2008) and includes: (i) the broadening of coverage and enhancement of compliance; (ii) greater emphasis on fiduciary responsibility of social security institutions and improve the management of their investment portfolio; and (iii) reduction in administrative cost; and (iv) institution of additional parametric measures to improve sustainability of the social security institutions and reduce the national government’s contingent liability. Prospectively, there is a need to explore the feasibility of a noncontributory social pension for aged poor given the low coverage of the informal sector in the SSS.</p>
    Keywords: defined-benefit social insurance scheme, replacement rate and required contribution rate of social security system
    Date: 2009
  11. By: Fjeldvig, Knut (Department of Economics, University of Oslo)
    Abstract: We use individual panel data to estimate ageearnings profiles for Norwegian physicians. Based on data covering the 19932006 period we find that the ageearning profiles of physicians share many of the attributes of the classical Mincer function. Physician`s earnings rise, but a decreasing rate, for the first 20 years after medical training; they peak between the ages of 55 and 59; and they decline slightly toward the end of the career. We observe that there will be complications when using the regular crosssectional methods because of cohort and period effects on income. Using fixedeffects method therefore provides a more accurate picture of the profiles. When looking at profiles by gender we find that there are large differences between the earnings of male and female physicians, some of which can be attributed to reduced labor supply during childrearing years and some to lower investments in specialization among female doctors. We also discover differences in the profiles of physicians educated in Norway and abroad and discuss alternative explanations for this pattern. <p>
    Keywords: Physicians; age-earnings; income; mincer function; gender; empirical analysis; Norway
    JEL: J31 J44
    Date: 2009–12–14
  12. By: Marco Bassetto; Leslie McGranahan
    Abstract: In this paper, we assess the empirical relationship between population growth, mobility, and state-level capital spending in the United States. To evaluate the magnitude of the coefficients, we introduce an explicit, quantitative political-economy model of government spending determination, where mobility and population growth generate departures from Ricardian equivalence. Our estimates find strong responses in the level of capital provision per capita to these demographic movements; in fact, the resulting coefficients are stronger than the model delivers. Regression coefficients on population growth and mobility also yield opposite implications for the direction to which spending is distorted by the political-economy friction, posing a further challenge.
    Date: 2009

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