nep-age New Economics Papers
on Economics of Ageing
Issue of 2010‒01‒23
six papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Strengthening Fairness and Funding in the Canada Pension Plan: Is Raising the Retirement Age an Option? By Martin Hering; Thomas R. Klassen
  2. Dynamics of work disability reporting in Europe By Viola Angelini; Danilo CAVAPOZZI; Luca CORAZZINI; Omar PACCAGNELLA
  3. Wealth Distribution and Social Security Reform in an Economy with Entrepreneurs By Okan Eren
  4. PAYG pensions and economic cycles By Fanti, Luciano; Gori, Luca
  5. Policies to Create and Destroy Human Capital in Europe By Heckman, James J.; Jacobs, Bas
  6. Income Support Systems, Labor Market Policies and Labor Supply: The German Experience By Caliendo, Marco

  1. By: Martin Hering; Thomas R. Klassen
    Abstract: This paper seeks to contribute to a forward-looking debate on possible reform options for the Canada Pension Plan (CPP) and the Quebec Pension Plan (QPP). Even though it focuses on the CPP, most of its analysis applies to the QPP as well since the two programs are largely identical. This paper does not provide a broad survey of all possible reform options, but rather analyzes one vital option that has received insufficient attention in previous debates: raising the normal retirement age from 65 to 67 years. A discussion of this option is warranted not only because it could prevent future financing problems in Canada’s public pension insurance programs, but also because it could improve fairness across generations. The significant increase in life expectancy raises the question of whether the current retirement ages of 60 years, for earliest CPP and QPP benefits, and 65 years, for full benefits, are too low. Should future generations pay for the longevity increases of the current generation of workers, or should current workers share the costs by retiring at a later age? We conclude that raising the normal age from 65 to 67 years—and the earliest age from 60 to 62 years—is a financially effective, intergenerationally fair, and politically acceptable option for improving the CPP and for addressing the QPP’s problems. We suggest that the option of raising the retirement age needs to be discussed well before longevity increases or funding problems occur and that a broad consultation with stakeholders and citizens would be an essential part of a debate on raising the retirement age in Canada.
    Keywords: pension systems, pensions, retirement, retirement age, life expectancy, Canada
    JEL: H53 H55 J20 J26 J32 L38
    Date: 2010–01
  2. By: Viola Angelini (University of Padua); Danilo CAVAPOZZI (University of Padua); Luca CORAZZINI; Omar PACCAGNELLA (University of Padua)
    Abstract: In this paper we investigate the role of response styles in the dynamics of work disability reporting. Using the 2004 and 2006 waves of the Survey of Health, Ageing and Retirement in Europe (SHARE), we document that in Europe surprisingly large fractions of individuals change their self-reported disability status within two years. We find that this dynamics can be largely explained by the fact that respondents change the way they evaluate the severity of work disability problems over time.
    Keywords: Work disability, vignettes, reporting heterogeneity.
    JEL: I10 J14 C33
    Date: 2010–01
  3. By: Okan Eren
    Date: 2009
  4. By: Fanti, Luciano; Gori, Luca
    Abstract: This article analyses the dynamics of an overlapping generations economy (Diamond, 1965) with pay-as-you-go financed public pensions and myopic expectations. It is shown that large PAYG pensions triggers economic fluctuations depending on the mutual relationship between technology and preference parameters. Our findings constitute a policy warning about the size of social security and provide another explanation of the occurrence of persistent cycles.
    Keywords: Myopic foresight; PAYG pensions; Stability; OLG model
    JEL: H55 J26 C62
    Date: 2010–01–12
  5. By: Heckman, James J. (University of Chicago); Jacobs, Bas (Erasmus University Rotterdam)
    Abstract: Trends in skill bias and greater turbulence in modern labor markets put wages and employment prospects of unskilled workers under pressure. Weak incentives to utilize and maintain skills over the life-cycle become manifest with the ageing of the population. Reinvention of human capital policies is required to avoid increasing welfare state dependency among the unskilled and to reduce inefficiencies in human capital formation. Policy makers should acknowledge strong dynamic complementarities in skill formation. Investments in the human capital of children should expand relative to investment in older workers. There is no trade-off between equity and efficiency at early ages of human development but there is a substantial trade-off at later ages. Later remediation of skill deficits acquired in early years is often ineffective. Active labor market and training policies should therefore be reformulated. Skill formation is impaired when the returns to skill formation are low due to low skill use and insufficient skill maintenance later on in life. High marginal tax rates and generous benefit systems reduce labor force participation rates and hours worked and thereby lower the utilization rate of human capital. Tax-benefit systems should be reconsidered as they increasingly redistribute resources from outsiders to insiders in labor markets which is both distortionary and inequitable. Early retirement and pension schemes should be made actuarially fairer as they entail strong incentives to retire early and human capital is thus written off too quickly.
    Keywords: family policy, (non)cognitive skills, returns to education, inequality, dynamic complementarity, training, retirement, labor supply, human capital, skill formation, training policy, active labor market policy, tax, pension, benefit systems, welfare state
    JEL: H2 H5 I2 I3 J2 J3
    Date: 2009–12
  6. By: Caliendo, Marco (IZA)
    Abstract: In view of the demographic trends, most EU countries face the problem of a declining work force in the future. Understanding the interaction between income support systems (such as unemployment benefits, social assistance, early retirement and pension systems) and total labor supply is of crucial importance to combat problems and ensure economic growth in the future. The German labor market has been plagued by high and persistent unemployment in the last two decades in combination with a relatively low labor force participation of women. This created a situation where labor market reforms were unavoidable. The speed and depth of the reforms are remarkable, mainly aimed at activating people by increasing their incentives to take up work. The aim of this paper is to give a brief overview of the German income support systems and labor market polices, their recent reforms and – where already possible – effects of these reforms. Overall, Germany seems to be on the right track. The recent reforms helped to tackle some labor market problems but also created high political unrest. It remains to be seen how future governments react to worsened economic conditions in light of these experiences.
    Keywords: unemployment, labor force participation, labor supply, benefit systems, public policy
    JEL: J26 J38 J68
    Date: 2009–12

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