nep-age New Economics Papers
on Economics of Ageing
Issue of 2010‒02‒27
ten papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Providing Greater Old-Age Security in China By Richard Herd; Hu-Wei Hu; Vincent Koen
  2. Can adult education delay retirement from the labour market? By de Luna, Xavier; Stenberg, Anders; Westerlund, Olle
  3. Retire Later or Work Harder? By Bell, David N.F.; Hart, Robert A.
  4. Household responses to adverse income shocks: Pensioner out-migration and mortality in South Africa By Vimal Ranchhod
  5. Earnings Determination and Taxes: Evidence from a Cohort Based Payroll Tax Reform in Greece By Saez, Emmanuel; Matsaganis, Manos; Tsakloglou, Panos
  6. The expenditure experience of older households. By Leicester, A.; O'Dea, C.; Oldfield, Z.
  7. Senior activity rate, retirement incentives and labor relations By Hélène Blake; Marc Sangnier
  8. The distribution of wealth in the population aged 50 and over in England. By Banks, J.; Tetlow, G.
  9. Economic growth and stability with public PAYG pensions and private intra-family old-age insurance By Fanti, Luciano; Gori, Luca
  10. Underreported earnings and age-specific income redistribution in post-socialist economies By Andras Simonovits

  1. By: Richard Herd; Hu-Wei Hu; Vincent Koen
    Abstract: China’s population is set to age fast, owing to low fertility and rising life expectancy. With ongoing migration of the younger cohorts to urban areas the increase in the old-age dependency ratio will be even more pronounced in rural than in urban areas. Very different pension arrangements exist across the country, with diverse and segmented systems in urban areas, belated retirement and low replacement ratios in rural areas, and special rules governing public sector pensions. Labour mobility is impeded by some of features of the current pension system, not least limited benefit portability. Various reforms have been initiated or proposed over the past decade. Some add to the existing fragmentation, while others, notably those providing for greater geographical pooling, have only partly been implemented. Also, under current rules, effective replacement rates are fairly low and projected to decline further, both for rural and urban residents, which may be difficult to sustain with the elderly living less and less with their descendants. Furthermore, as the countryside ages, much of the additional burden will be shouldered by local governments with insufficient resources. These challenges can be addressed by gradually consolidating the various regimes, raising retirement ages and shifting more of the cost of rural pensions to the central government. Even if different schemes for different categories of workers were to persist, each should be unified over time, first provincially and then nationally, phasing out the urban-rural distinction.<P>Offrir davantage de sécurité aux personnes âgées en Chine<BR>La population de la Chine devrait vieillir rapidement, en raison d’une faible fécondité et de l’allongement de l’espérance de vie. Dans un contexte de migration des cohortes plus jeunes vers les agglomérations, la hausse du taux de dépendance économique des personnes âgées sera encore plus soutenue en milieu rural que dans les zones urbaines. Des mécanismes de retraite très variés co-existent: systèmes divers et segmentés en ville, retraite tardive et faibles taux de remplacement dans les campagnes, et règles spécifiques régissant les retraites du secteur public. La mobilité de la main d’oeuvre est freinée par certains aspects du système de retraite actuel, notamment une portabilité restreinte des prestations. Des réformes ont été initiées ou proposées au cours de la décennie écoulée. Certaines accentuent la fragmentation existante, alors que d’autres, en particulier celles visant à intensifier le regroupement géographique, n’ont été que partiellement mises en oeuvre. De plus, d’après les règles en vigueur, les taux de remplacement effectifs sont assez bas et devraient poursuivre leur repli, pour les ruraux comme pour les citadins, ce qui pourrait entraîner une situation difficilement tenable puisque les plus âgés vivent de moins en moins souvent avec leurs descendants. De surcroît, en raison du vieillissement de la population rurale, une grande partie du surcoût devra être supporté par des collectivités locales dotées de ressources insuffisantes. Il est possible de remédier à ces difficultés en fusionnant progressivement les différents régimes, en relevant l’âge de la retraite et en reportant une plus grande fraction du coût des retraites en milieu rural sur le gouvernement central. Même si différents régimes devaient subsister pour différentes catégories de travailleurs, il faudra les fusionner au fil du temps, tout d’abord à l’échelon provincial, puis sur le plan national, en supprimant peu à peu la distinction entre les villes et les campagnes.
    Keywords: ageing, labour mobility, pension system, replacement ratios, demographic projections, China, poverty, benefit portability, retirement age, vieillissement, taux de remplacement, système de retraite, pauvreté, Chine, projections démographiques, âge du départ en retraite, mobilité de la main d’oeuvre
    JEL: H55 J11 J13 J14 J32 J61 N35 O15 O53 P21 P25 P26 P36
    Date: 2010–02–01
  2. By: de Luna, Xavier (Umeå University); Stenberg, Anders (Stockholm University); Westerlund, Olle (Umeå University)
    Abstract: In this paper, we examine whether adult education delays retirement and increases labour force participation among the elderly, a mechanism suggested in the OECD strategy for “active ageing” and the “Lisbon strategy” of the EU. Using register data from Sweden, we analyse transcripts from adult education for the period 1979–2004 and annual earnings 1982–2004. We match samples of treated individuals, in adult education 1986–1989, and untreated on the propensity score. The timing of exit from the workforce is assessed by non-parametric estimation of survival rates in the labour force. The results indicate no effects of adult education on the timing of retirement.
    Keywords: Adult education; Retirement; Human capital; Labour supply; Pensions
    JEL: H52 H55 H75 I28 J14 J26
    Date: 2010–01–29
  3. By: Bell, David N.F.; Hart, Robert A.
    Abstract: We compare two policies of increasing British state pension provision: (a) increase the pensionable age of men and women, (b) maintain the existing retirement age but require older workers to work longer per-period hours. There are reasons for policy makers to give serious consideration to the under-researched alternative (b). First, from wage - hours contract theory we know that there are potential gains to both workers and firms of allowing hours to rise in work experience. Second, there is strong evidence that job satisfaction rises in age. Third, there has in any case been a significant overall increase in the hours supplied by older workers in the last two decades. We review the relevant theory, model the trade-off between later retirement versus increased work intensity, produce relevant background facts, and provide estimates of the policy trade-offs.
    Keywords: hours of work; statutory retirement age; Older workers
    Date: 2010–01
  4. By: Vimal Ranchhod
    Abstract: How do poor households respond to the cessation of cash transfers in developing countries? South Africa's generous social pension system results in most of the poor elderly being the primary 'breadwinner' in the household. I estimate the magnitude of the changes in household composition and labour force activity amongst the resident members of the household, that correlate with a pensioner leaving the household. I use nationally representative matched panel data from several waves of the South African Labour Force Surveys. Compositional changes include the out-migration of school-aged children, and in-migration of middle aged females and older adults of either gender. More than 1 in 4 losing households get an additional older adult. For people who maintain their residency status across waves, I nd large and statistically signi cant increases in employment rates for middle aged females and males (9.3 and 8.1 percentage points in each case), as well as for older adult females and males (10.3 percentage points in each case). For middle aged adults, this is not accompanied by a corresponding increase in labour supply.
    Date: 2009–07
  5. By: Saez, Emmanuel (University of California, Berkeley); Matsaganis, Manos (Athens University of Economics and Business); Tsakloglou, Panos (Athens University of Economics and Business)
    Abstract: This paper analyzes the response of earnings to payroll tax rates using a cohort-based reform in Greece. All individuals who started working on or after 1993 face permanently a much higher earnings cap for payroll taxes, creating a large and permanent discontinuity in marginal payroll tax rates by date of entry in the labor force for upper earnings workers. Using full population administrative Social Security data and a Regression Discontinuity Design, we estimate the long-term incidence and effects of marginal payroll tax rates on earnings. Standard theory predicts that, in the long run, new regime workers should bear the entire burden of the payroll tax increase (relative to old regime workers). In contrast, we find that employers compensate new regime workers for the extra employer payroll taxes but not for the extra employee payroll taxes. We do not find any evidence of labor supply responses around the discontinuity, suggesting low efficiency costs of payroll taxes. The non-standard incidence results are the same across firms of different sizes. Tax incidence, however, is standard for older workers in the new regime as they bear both the employee and employer tax. Those results, combined with a direct small survey of employers, can be explained by social norms regarding pay seniority which create a growing wedge between pay and productivity as workers age.
    Keywords: payroll taxes, Greece
    JEL: J31 J22 H22
    Date: 2010–02
  6. By: Leicester, A.; O'Dea, C.; Oldfield, Z.
    Abstract: This commentary examines detailed trends in expenditure patterns between 1995 and 2007, with a particular focus on the pensioner population. Pensioners are not a homogeneous group, but differ widely in both their levels and patterns of spending, and so we look not just at pensioners as a whole but also at pensioners according to age, income, household composition and so on. Spending may tell us something about household welfare that other, often-used measures like incomes do not. In particular, it may be that spending is informative about long-run well-being whereas income is more about current, short-run living standards. Using data from the Family Expenditure Survey/Expenditure and Food Survey, an annual, cross-sectional study of the spending patterns of 6,000-7,000 households, we look in depth at changes in the level of real expenditures and how spending patterns have changed over time. Then, using data from two waves of the English Longitudinal Study of Ageing, we examine household fuel expenditures in detail. Fuel is clearly of great current policy concern given recent large increases in the price of domestic fuel that may impact particularly severely on poorer and older households.
    Date: 2009–08
  7. By: Hélène Blake; Marc Sangnier
    Abstract: How is it that populations react so differently to policy incentives among developed countries? We noticed that senior employment rates not only differ in level strikingly from one country to another, they also differ in their reaction to retirement incentives set by governments. We show the importance of trust given to the employer in wage negotiations by a simple trade-off model. According to this model, reaction of the senior activity rate to policy changes depends on the properties of the distribution of trust to employers at the country level. We then identify these properties by an empirical study based on panel data for nineteen OECD countries from 1980 to 2004. We show that the elasticity of senior males labor force participation rate to retirement incentives is stronger in countries with better and more homogeneously distributed working conditions. This results also applies to countries with higher generalized trust.
    Date: 2010
  8. By: Banks, J.; Tetlow, G.
    Abstract: The tables in this paper present a description of the distribution of wealth amongst those aged 50 and over in England in 2002/3, with the analysis split by a series of different factors. These include: age, education, income, social, with the analysis split by a series of different factors. These include: age, education, income, social class, housing tenure, self-reported health and self-reported disability.
    Date: 2009–06
  9. By: Fanti, Luciano; Gori, Luca
    Abstract: This paper investigates the steady state and dynamical effects of two historical alternatives as a means of old-age insurance – i.e., voluntary intra-family transfers from young to old members versus pay-as-you-go public pensions –, in a general equilibrium overlapping generations model with children as a desirable good. It is shown that the shift from a private system of old-age insurance to a public system of social security increases GDP per worker. Moreover, although in both cases the dynamics of capital, under myopic expectations, may be globally unstable depending on the size of the (private as well as public) inter-generational transfer, we show that such a shift significantly reduces, for plausible economies, the risk of cyclical instability which otherwise would be dramatically high, especially in countries with high degree of parsimony and low preference for children.
    Keywords: Endogenous fertility; Myopic foresight; OLG model; Private old-age support; Public PAYG pensions
    JEL: H55 J14 J18 J26 C62
    Date: 2010–02–16
  10. By: Andras Simonovits (Institute of Economics - Hungarian Academy of Sciences)
    Abstract: We analyze underreported earnings and age-specific income redistribution in postsocialist economies. Pensions, other transfers and public expenditures are financed from contributions and wage taxes, respectively. We derive the reported earnings and savings from individual utility maximization, when workers overly discount the future, obtain partial satisfaction from reporting earnings, cannot be excluded from the use of public services. The government maximizes a utilitarian social welfare function, corrected for discounting and taking into account the utility of public services. An optimal proportional pension system - complemented by appropriate means-testing - provides higher welfare than any system containing a significant flat component.
    Keywords: reporting earnings, proportional (contributional) pension, flat pension, progressive wage tax, redistribution
    JEL: H55 D91
    Date: 2009–12

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