nep-age New Economics Papers
on Economics of Ageing
Issue of 2010‒06‒11
six papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Effects of Sharing Parental Leave on Pensioners' Poverty and Gender Inequality in Old Age. A Simulation in IFSIM By Baroni, Elisa
  2. Economic Impacts of Ageing: An Interindustry Approach By Paula C. Albuquerque; João C. Lopes
  3. A summary and update of developing annuities markets : the experience of Chile By Rocha, Roberto; Rudolph, Heinz P.
  4. A New Social Security 'Notch'? Bad News for People Born in 1947 By Andrew G. Biggs
  5. Intergenerational risk sharing and labour supply in collective funded pension schemes with defined benefits By Jan Bonenkamp; Ed Westerhout
  6. On the long-run evolution of inheritance: France 1820-2050 By Thomas Piketty

  1. By: Baroni, Elisa (Institute for Futures Studies)
    Abstract: <p> The poverty outcome in old age is affected by labour market reforms. Using our in house agent based simulation model IFSIM we show that sharing equally the parental leave can increase or reduce poverty among the elderly depending on the macro and behavioural responses that the Reform off-sets. In general, it can be good for (elderly) women provided that (i) it spurs them to work more, particularly in older ages (ii) it does not slow down economic growth (hence pension income growth) below a level when working more does not pay. Our simulations show that the effect of this Reform on poverty and gender inequality is time dependent: different outcomes might be expected for different generations depending on whether the balancing mechanism (in the state income pension) is present or not. In general, the Reform might not lead to positive outcomes if it occurs in conjunction with the striking of the automatic balancing, unless a behavioural response to work more among older workers (in response to the balancing) is also unleashed.<p>
    Keywords: Poverty; Pensioners; Parental leave; Simulation model; IFSIM; Gender inequality
    JEL: C15 J13 J14 J16
    Date: 2010–06–03
  2. By: Paula C. Albuquerque; João C. Lopes
    Abstract: Purpose – The purpose of this paper is to quantify the impact of the evolution of consumption patterns associated with ageing on the relative importance of industries in Portugal. Design/Methodology/Approach – This paper uses data from the Family Spending Survey to disaggregate the Household column of the Portuguese Input-Output Table in different age groups, projecting their consumption, using the latest demographic projections made by Statistics Portugal (INE). Findings – The study identifies the industries that are likely to be stimulated by the ageing of the Portuguese populations, as well as the industries that will most likely become disadvantaged by the process. Social implications – The task of identification of growing and declining industries due to ageing is important to help the design of employment, environmental, and social policies. Original/Value – The contemporary demographic trends in western societies have added to the importance of studying the economic and social consequences of ageing. Previously, the main issues have been the labour market effects, the sustainability of social security systems, and long-term care. In this paper, we address a different research topic, quantifying the sectoral impact of the evolution of consumption patterns associated with ageing.
    Keywords: Ageing; Input-output; Consumption behaviour.
    Date: 2010–01
  3. By: Rocha, Roberto; Rudolph, Heinz P.
    Abstract: The rapid growth of the market for retirement products in Chile has its origins in the pension reform that was implemented in 1981. But the successful development of an active annuity market also reflects many other factors. This paper summarizes and updates an earlier longer study on the development of the Chilean annuity market. The update focuses on the numerous changes that were introduced in 2008. The most striking aspect of the Chilean experience is the very high rate of annuitization. This has been linked to the restrictions that have been applied to lump-sum withdrawals, the offer of inflation-protected annuities, and the robust prudential regulation of providers. But the level of annuitization has also been supported by the annuitization incentives provided to early retirees and the influence of brokers and sales agents. The recent regulatory changes have weakened the impact of the last two factors, while strengthening the demand for annuities at normal retirement.
    Keywords: Debt Markets,Pensions&Retirement Systems,Insurance&Risk Mitigation,Emerging Markets,Non Bank Financial Institutions
    Date: 2010–06–01
  4. By: Andrew G. Biggs
    Abstract: This year, Social Security benefits received no Cost-of-Living Adjustment (COLA) for the first time since automatic adjustments were adopted in 1975. While current beneficiaries perceive themselves to be harmed, they were compensated by receiving a higher-than-normal 5.8-percent COLA payment in 2009. However, a quirk in Social Security’s benefit formula will produce lower benefits for new retirees, presenting a stronger case for help. Social Security’s formula for granting COLAs, interacting with a spike in inflation during 2008, could reduce benefits for individuals born in 1947 by around 2.6 percent relative to the average benefits received by the 1930-1946 birth cohorts, costing a typical couple over $12,000 over the course of their retirement. Policymakers should consider adjusting benefits for these individuals and implementing longer-term reforms to reduce the likelihood of future “notches.” This brief proceeds as follows. The first section describes the Social Security notch of the 1970s. The second section explains how Social Security’s benefit formula works. The third section looks at how the experience of 2008 has created a new type of notch. The fourth section considers how replacement rates vary for different birth cohorts, and the fifth section offers potential solutions. The final section concludes that some adjustment for the 1947 cohort is both popular and sensible.
    Keywords: social security
    Date: 2010–05
  5. By: Jan Bonenkamp; Ed Westerhout
    Abstract: In many countries, collective funded pension schemes with defined benefits (DB) are being replaced by individual schemes with defined contributions. Collective funded DB pensions may indeed reduce social welfare. This will be the case when the schemes feature income-related contributions that distort the labour-leisure decision. However, these schemes also share risks between generations. This adds to welfare if these risks cannot be traded on capital markets. This paper compares the welfare gains from intergenerational risk sharing with the welfare losses that are due to labour market distortions. We adopt a two-period overlapping-generations model for a small open economy with risky returns to equity holdings. We derive analytically that the gains dominate the losses for the case of Cobb-Douglas preferences between labour and leisure. Numerical simulations for the more general CES case confirm these findings which also withstand a number of other model modifications, like the introduction of a short-sale constraint for households and the inclusion of a labour income tax. These results suggest that collective funded schemes with well-organized risk sharing are preferable over individual schemes, even if labour market distortions are taken into account.
    Keywords: risk sharing; labour market distortion; funded pensions; defined benefits
    JEL: E21 G11 H55
    Date: 2010–06
  6. By: Thomas Piketty
    Abstract: This paper attempts to document and account for the long run evolution of inheritance. We find that in a country like France the annual flow of inheritance was about 20%-25% of national income between 1820 and 1910, down to less than 5% in 1950, and back up to about 15% by 2010. A simple theoretical model of wealth accumulation, growth and inheritance can fully account for the observed U-shaped pattern and levels. Using this model, we find that under plausible assumptions the annual bequest flow might reach about 20%-25% of national income by 2050. This corresponds to a capitalized bequest share in total wealth accumulation well above 100%. Our findings illustrate the fact that when the growth rate g is small, and when the rate of return to private wealth r is permanently and substantially larger than the growth rate (say, r=4%-5% vs g=1%-2%), which was the case in the 19<sup>th</sup> century and early 20th century and is likely to happen again in the 21st century, then past wealth and inheritance are bound to play a key role for aggregate wealth accumulation and the structure of lifetime inequality. Contrarily to a widely spread view, modern economic growth did not kill inheritance.
    Date: 2010

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