nep-age New Economics Papers
on Economics of Ageing
Issue of 2010‒03‒28
twelve papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. The impact of institutions on firms’ rejuvenation policies: Early retirement with severance pay versus simple lay-off. A Cross-European Analysis By Fischer, Justina AV
  2. Does Retirement Affect Cognitive Functioning? By Bonsang Eric; Adam Stéphane; Perelman Sergio
  3. Life expectancy, economic prosperity and retirement preferences By Arnstein Aassve; Cristina Ruggeri; Zsolt Spéder
  4. How powerful is demography ? The Serendipity Theorem revisited By DE LA CROIX, David; PESTIEAU, Pierre; PONTHIERE, Gregory
  5. Retirement as a hedge By PESTIEAU, Pierre; POSSEN, Uri M.
  6. Increasing National Pension Premium Defaulters and Dropouts in Japan By Suzuki, Wataru; Zhou, Yanfei
  7. Public health spending, old-age productivity and economic growth: chaotic cycles under perfect foresight By Fanti, Luciano; Gori, Luca
  8. Voting on pensions : sex and marriage By LEROUX, Marie-Louise; PESTIEAU, Pierre; RACIONERO, Maria
  9. The Global Economic Crisis: An Opportunity for Strengthening Asia’s Social Protection Systems? By Mukul G. Asher
  10. Public Pensions, Changing Employment Patterns, and the Impact of Pension Reforms across Birth Cohorts: A Microsimulation Analysis for Germany By Johannes Geyer; Viktor Steiner
  11. Wives, husbands and wheelchairs : Optimal tax policy under gender-specific health By LEROUX, Marie - Louise; PONTHIERE, GrŽgory
  12. Pension Reform Options for Russia and Ukraine: A Critical Analysis of Available Options and Their Expected Outcomes (with a Focus on Labour Market, Industrial Restructuring and Public Finance) By Marek Góra; Oleksandr Rohozynsky; Oxana Sinyavskaya

  1. By: Fischer, Justina AV
    Abstract: Early retirement of workers is used by firms as means to rejuvenate their workforces. In principle, workers can either simply be laid off or can be offered an early retirement option combined with a financial bonus. However, dismissing masses of older workers may be detrimental to social peace and stability and damage the firm’s reputation, while entry into early retirement with a severance pay at least maintains the semblance of a worker’s voluntary decision. Cross-national analyses of this topic using micro data are, however, widely missing. Using the SHARE (Survey of Health, Aging and Retirement in Europe) data set, this paper fills this gap by investigating to what extent institutional factors such as the generosity of the pension system and strong unions influence firms’ rejuvenation policies. Stronger unions appear to lead to a higher likelihood of receiving a severance pay, as does a more generous pension system. In contrast, a higher decrease in wealth accrual leads to a higher probability of simple lay-off. It is concluded that the current reforms which aim at lowering the replacement rate and employment protection will most probably lead to more dismissals of older workers without severance pay.
    Keywords: early retirement; involuntary early retirement; severance pay; social security; pensions; employment protection; unions
    JEL: J14 J21 J22 J26
    Date: 2010–02–28
  2. By: Bonsang Eric; Adam Stéphane; Perelman Sergio (METEOR)
    Abstract: This paper analyzes the effect of retirement on cognitive functioning using two large scale surveys. On the one hand the HRS, a longitudinal survey among individuals aged 50+ living in the United States, allows us to control for individual heterogeneity and endogeneity of the retirement decision by using the eligibility age for Social Security as an instrument. On the other hand, a comparable international European survey, SHARE, allows us to identify the causal effect of retirement on cognitive functioning by using the cross-country differences in the age-pattern of retirement. The results highlight in both cases a significant negative, and quantitatively comparable, effect of retirement on cognitive functioning. Our results suggest that promoting labor force participation of older workers is not only desirable to insure the viability of retirement schemes, but it could also delay cognitive decline, and thus the occurrence of associated impairments at older age.
    Keywords: labour economics ;
    Date: 2010
  3. By: Arnstein Aassve; Cristina Ruggeri; Zsolt Spéder
    Abstract: Increasing life expectancy coupled with declining birth rates is prompting European countries to revise their current pension schemes. The key elements of pension reforms are 1) introducing funded schemes as a means to supplement the current pay-as-you-go system, and 2) a lengthening of the working careers of European citizens. The policy reforms needed constitutes perhaps the biggest challenge facing European policy makers since the introduction of the welfare state after the Second World War. The urgency of the policy reforms are reflected by the European Council Summits of Stockholm (2001) and Barcelona (2002), where the attending policy makers agreed to both increase the labour force participation among older workers and to delay the retirement period. Notwithstanding the efforts, recent changes in the employment rates and the retirement age indicate that the great majority of countries are way off the targets set for 2010. On the backdrop of the policy challenges lying ahead, we consider in this paper individuals' preferences for work and retirement in 23 European countries. A deeper understanding of these preferences helps policy makers, not only informing them about the potential success of the planned pension reforms, but also to make adjustments to its design that may lead to efficiency gains in welfare provision. We find that on average individuals prefer to retire at a younger age than the current mean retirement age. However, there is huge variation in these preferences both at the individual and country levels. We find rather robust evidence to suggest that individuals are willing to work longer as the average life expectancy is increasing.
    Keywords: life expectancy, GDP, retirement preferences, pension reforms, European Social Survey, multilevel models
    Date: 2009–12
  4. By: DE LA CROIX, David (UniversitŽ catholique de Louvain, CORE and IRES, B-1348 Louvain-la-Neuve, Belgium); PESTIEAU, Pierre (UniversitŽ catholique de Louvain, CORE and IRES, B-1348 Louvain-la-Neuve, Belgium); PONTHIERE, Gregory (Paris School of Economics and Ecole Normale SupŽrieure, Paris, France)
    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
    Keywords: Serendipity Theorem, fertility, mortality, overlapping generations, retirement
    JEL: E13 E21 I18 J10
    Date: 2009–12–01
  5. By: PESTIEAU, Pierre (UniversitŽ de Lige, Belgium); POSSEN, Uri M. (Cornell University, Ithaca, NY, USA)
    Keywords: retirement decision, defined benefit defined contribution
    JEL: H55 J26
    Date: 2009–07–01
  6. By: Suzuki, Wataru; Zhou, Yanfei
    Abstract: This paper investigates why so many people are premium payment defaulters or dropouts from the national pension system using household-level data from a Japanese Government Survey. The major results can be summarized as follows: (1) the dropout probability of younger cohorts does not differ significantly from that of older cohorts; (2) the unemployed or jobless, individuals with few financial assets, and people who do not own their homes, i.e., borrowing-constrained individuals, are more likely to drop out from the national pension; and, (3) the probability of dropping out from the national pension system declines abruptly at around the age of 36.
    Keywords: Intergenerational inequality, Liquidity constraint, National pension
    JEL: H55 D12 D52
    Date: 2010–01
  7. By: Fanti, Luciano; Gori, Luca
    Abstract: This paper analyses the dynamics of a double Cobb-Douglas economy with overlapping generations and public health investments that affect the supply of efficient labour of the old-aged. It is shown that the positive steady state of the economy is unique. Moreover, we provide necessary and sufficient conditions for the emergence of endogenous deterministic complex cycles when individuals are perfect foresighted. Interestingly, the equilibrium dynamics shows rather complicated phenomena such as a multiplicity of period-bubbling.
    Keywords: OLG model; Productivity; Perfect foresight; Public health expenditure
    JEL: O41 I18 C62
    Date: 2010–03–11
  8. By: LEROUX, Marie-Louise (UniversitŽ catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE)); PESTIEAU, Pierre (University of Liege, CREPP, CORE, PSE and CEPR); RACIONERO, Maria (School of Economics, Australian National University)
    Abstract: Existing political economy models of pensions focus on age and productivity. In this paper we incorporate two additional individual characteristics: sex and marital status. We ignore the role of age, by assuming that people vote at the start of their life, and characterize the preferred rate of taxation that finances a Beveridgean pension scheme when individuals differ in wage, sex and marital status. We allow for two types of couples: one-breadwinner and two-breadwinner couples. Marriage pools both wage and longevity differences between men and women. Hence singles tend to have more extreme preferred tax rates than couples. We show that the majority voting outcome depends on the relative number of one-breadwinner couples and on the size of derived pension rights.
    Keywords: social security, differential longevity, majority voting, individualization of pension rights
    JEL: D72 D78 H55
    Date: 2009–09–01
  9. By: Mukul G. Asher (Asian Development Bank Institute)
    Abstract: The current global economic crisis has led to greater prominence for the issue of strengthening social protection systems in Asia. This paper analyzes the key factors determining and the possible avenues for strengthening social protection systems in Asia. The choice of an appropriate combination of avenues depends on the initial starting point, public policy objectives, institutional, fiscal, and other capabilities. Following introductory remarks, Section 2 discusses demographic and labor market trends in Asia. It stresses that rapid ageing and large, informal labor markets pose challenges for Asian social protection systems, while making the role of the state even more essential. This is followed in Section 3 by an overview of social security systems in Asia. The key point is that while there are fairly elaborate social security programs in Asia, primarily for formal sector employees, this does not necessarily imply that the schemes are well designed, have wide coverage, or are financially sustainable. Section 4 discusses four general avenues to strengthening social protection systems. These emphasize greater professionalism, parametric and systemic reforms, social assistance, and social pensions, as well as others such as microfinance institution-initiated pensions. The final section provides concluding observations. The global economic crisis provides a potential opportunity for strengthening social protection systems. However, the construction of multitiered social protection systems will require much greater professionalism, experimentation, political and organizational leadership, and vision.
    Keywords: Economic Crisis, Social Protection, Asia
    JEL: H55 H87 J11 J18 J21 J26
    Date: 2010
  10. By: Johannes Geyer; Viktor Steiner
    Abstract: We analyze the impact of changing employment patterns and pension reforms on the future level of public pensions across birth cohorts in Germany. The analysis is based on a rich dataset that combines household survey data from the German Socio-Economic Panel Study (SOEP) and process-produced microdata from the German pension insurance. A microsimulation model is developed which accounts for cohort effects in individual employment and unemployment and earnings over the lifecycle as well as the differential impact of recent pension reforms. Cohort effects for individuals born between 1937 and 1971 vary greatly by region, gender and education and strongly affect lifecycle wage profiles. The largest effects can be observed for younger cohorts in East Germany and for the low educated. Using simulated life cycle employment and income profiles, we project gross future pensions across cohorts taking into account changing demographics and recent pension reforms. Simulations show that pension levels for East German men and women will fall dramatically among younger birth cohorts, not only because of policy reforms but due to higher cumulated unemployment. For West German men, the small reduction of average pension levels among younger birth cohorts is mainly driven by the impact of pension reforms, while future pension levels of West German women are increasing or stable due to rising labor market participation of younger birth cohorts.
    Keywords: Public pensions, cohort effects, microsimulation
    JEL: H55 J26 J11
    Date: 2010
  11. By: LEROUX, Marie - Louise (UniversitŽ catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium); PONTHIERE, GrŽgory (Paris School of Economics and Ecole Normale SupŽrieure, Paris)
    Abstract: We study the optimal taxation problem in an economy composed of two-person households (men and women), where agents influence their own old-age dependency prospects through health spending. It is shown that the utilitarian social optimum can be decentralized by means of lump sum transfers from men to women, because women exhibit a higher disability-free life expectancy than men for a given level of health spending. Once self-oriented concerns for coexistence are introduced, the decentralization of the first-best requires also gender-specific subsidies on health spending aimed at internalizing the effect of each agent's health on the spouse's welfare. In the presence of singles in the population, the optimal policy requires also a differentiated subsidization of health spending for singles and couples. Finally, under imperfect observability of couples, the incentive compatibility constraints reinforce the need for subsidization of health spendings
    Keywords: long term care, optimal taxation, preventive health spending, gender differentials, old age dependency
    JEL: H51 I12 I18 J14 J16
    Date: 2009–11–01
  12. By: Marek Góra; Oleksandr Rohozynsky; Oxana Sinyavskaya
    Abstract: Russia and Ukraine are in the process of many changes stemming from economic transition, restructuring, demographic change and other various ongoing challenges. In terms of the ongoing challenges in each country, there are specific problems related to historical developments, such as large scale heavy industry, but also potential opportunities that rarely occur in other countries such as the significant additional income from the countries' abundant natural resources. Both countries have good prospects for the future despite the many challenges. Among the challenges is industrial restructuring taking into account the social dimension, which includes adjusting the current arrangements of pension systems. In the best scenario this could mean a pension reform. The term 'pension reform' can be understood in various ways. In this paper we analyse a wide variety of possible pension system designs. The designs vary by target as well as the various ways to reach those targets. In all cases there may be costs and/or savings problems (as well as liquidity problems, which are not a "cost" from the economic viewpoint as liquidity is accounted as if additional cost were created) and various positive and/or negative economic, financial, and social externalities associated with the pension system designs.
    JEL: H53 H55 H69 J11 J18 J32 J P36
    Date: 2010

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