nep-age New Economics Papers
on Economics of Ageing
Issue of 2010‒07‒17
eleven papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Complex equilibrium dynamics in a simple OLG model of neoclassical growth with endogenous retirement age and public pensions By Fanti, Luciano; Gori, Luca
  2. Work and Retirement Patterns for the G.I. Generation, Silent Generation, and Early Boomers: Thirty Years of Change By Richard Johnson; Barbara Butrica; Corina Mommaerts
  3. Retirement Decisions of People with Disabilities: Voluntary or Involuntary By Margaret Denton; Jennifer Plenderleith; James Chowhan
  4. Do European employers support later retirement?. By Dalen, H.P. van; Henkens, C.J.I.M.; Henderikse, W.; Schippers, J.
  5. Income and the use of prescription drugs for near retirement individuals By Søren Leth-Petersen; Niels Skipper
  6. The Wage Elasticity of Informal Care Supply: Evidence from the Health and Retirement Study By Olena Nizalova
  7. Medical Consumption Over the Life Cycle: Facts from a U.S. Medical Expenditure Panel Survey By Juergen Jung; Chung Tran
  8. Public expenditure on health and private old-age insurance in an OLG growth model with endogenous fertility: chaotic cycles under perfect foresight By Fanti, Luciano; Gori, Luca
  9. Creating incentives for voluntary contributions to pension funds by independent workers: an informal evaluation based on the case of Chile By Eduardo Fuentes
  10. Intergenerational Cohabitation in Modern Indonesia: Filial Support and Dependence By Meliyanni Johar; Shiko Maruyama
  11. Older people's participation in disability benefits: targeting, timing and financial wellbeing By Zantomio F

  1. By: Fanti, Luciano; Gori, Luca
    Abstract: We analyse the steady-state equilibrium dynamics of the conventional overlapping generations economy à la Diamond (1965) with pay-as-you-go public pensions and second period of life divided between working and retirement time in a proportion dependent on the individual health status (a rather realistic assumption especially in the current world with high longevity). In contrast to an economy without public health spending – which is always stable with monotonic trajectories –, an economy with tax-financed health care services (which in turn affect the individual health status and hence the length of the retirement time) may experience complex equilibrium dynamics with deterministic chaotic business cycles and, in particular, complicated dynamical phenomena, such as multiple “bubblings” may occur when crucial economic parameters change. Interestingly, it is shown that increasing the size of PAYG pensions, although initially may trigger chaotic cycles, eventually works for stability.
    Keywords: Health; Old-age workers; OLG model; Perfect foresight; Public PAYG pensions
    JEL: H55 O41 I18 C62
    Date: 2010–07–06
  2. By: Richard Johnson; Barbara Butrica; Corina Mommaerts
    Abstract: This study examines how the shifting choices and constraints facing older workers have changed work and retirement patterns over the past 30 years. Health improvements, declines in physical job demands, changes in Social Security rules, and the erosion in traditional defined benefit pension coverage and employer-sponsored retiree health insurance have altered work incentives at older ages. This paper compares labor force exits by older workers born 1913 to 1917 (part of the G.I. Generation), 1933 to 1937 (part of the Silent Generation), and 1943 to 1947 (part of the Baby Boom Generation). The analysis uses 16-year longitudinal panels from the Health and Retirement Study and decades-long administrative earnings records linked to respondents in the Survey of Income and Program Participation. The results show that early boomers worked longer than members of the Silent Generation, and that the pathways older workers follow out of the labor force have become more complex over time. The median retirement age for men was about one-half year higher in the 1943–47 cohort than in the 1933–37 cohort (62 vs. 61.5), but differences were more pronounced at older ages. By age 65, for example, 40 percent of early boomer men had not yet retired, compared with only 20 percent of Silent Generation men. Both male and female workers in the 1933–37 cohort were much less likely than their counterparts in the 1913–17 cohort to follow the traditional retirement path of exiting the labor force from full-time employment and never returning to work.
    Date: 2010–07
  3. By: Margaret Denton; Jennifer Plenderleith; James Chowhan
    Abstract: While some retirement is welcomed and on-time, other retirements are involuntary or forced due to the loss of a job, an early retirement incentive, a health problem, mandatory retirement, lack of control with too many job strains, or to provide care to a family member. An analysis of the 2002 Canadian General Social Survey reveals that 27% of retirees retired involuntarily. This research focuses on the disabled population in Canada and considers factors that influence voluntary and involuntary retirement. Further, consideration is given to the economic consequences of retiring involuntarily. This research will examine issues surrounding retirement and disability through statistical analysis of the Canadian Participation and Activity Limitations Survey (PALS) 2006 data. Methods include the use of descriptive statistics and logistic regression analysis to determine the characteristics associated with involuntary retirement. This study found that those who retired involuntarily were more likely to have the following socio-demographic and socioeconomic characteristics -- age 55 or less, less than high-school education, live in Quebec, rent their home, and have relatively low income. They were also more likely to be worse off financially after retirement and to be receiving social assistance or a disability benefit. In terms of disability, the likelihood of retiring involuntarily was greater for those with poor health at retirement, the age of onset was over 55, higher level of severity, and multiple types of disability. For the discussion, a social inequalities framework is used, where health selection into involuntary retirement depends on social location defined by age and education. Policy initiatives that reduce the effects of disability, and allow individuals to remain in or return to the labour force such as workplace accommodations are discussed.
    Keywords: Retirement, Disabled, Health, Labour Force
    JEL: J14
    Date: 2010–06
  4. By: Dalen, H.P. van (Tilburg University); Henkens, C.J.I.M. (Tilburg University); Henderikse, W.; Schippers, J.
    Date: 2010
  5. By: Søren Leth-Petersen (Department of Economics, University of Copenhagen); Niels Skipper (School of Economics and Management, Aarhus University, Denmark)
    Abstract: Understanding how demand for prescription drugs responds to changes in income is important for assessing the welfare consequences of reforms affecting income. This becomes more imminent as age progresses, because the use of prescription drugs and the associated budgetary burden increases dramatically from about age 55. In this paper we estimate how demand for prescription drugs varies with income for a sample of near retirement individuals. Estimating the prescription drug demand response to income changes is complicated because an important explanatory variable, the health capital, is unobserved, and because demand is potentially dynamic, for example because some drugs are habitual. The analysis is based on a novel panel data set with information about purchase of prescription drug demand for a very large number of Danish individuals over the period 1995-2003. Our preferred model that takes into account the aforementioned complications performs better in an external validation test than models that can be estimated on cross section data. Results indicate that demand does respond to variations in income and that reforms affecting income therefore will affect the use of prescription drugs.
    Keywords: Prescription drugs demand, income, near retirement
    JEL: I11 I18
    Date: 2010–07–08
  6. By: Olena Nizalova (Kyiv School of Economics, Kyiv Economics Institute)
    Abstract: This paper focuses on the relationship between wages and supply of informal care to elderly parents. Unlike most of the previous research estimating wage elasticities of informal care supply, this study employs instrumental variable technique to account for the fact that the wage rate is likely to be correlated with omitted variables. Based on the data from the 1998 wave of the Health and Retirement Study, the results show that the wage elasticity of informal care supply is negative and larger in magnitude than has been found previously. The lower bound of this elasticity is estimated to be -1.8 for males and -3.6 for females. Additional findings suggest that the wage elasticity of informal care supply differs by the type of care provided to elderly parents, and that it is larger in magnitude among individuals with siblings and those with independently living parents. The analysis also indicates that the reductions in the informal care constitute about 18% of the labor supply response for men and about 56% of the labor supply response for women, which are not compensated by monetary transfers.
    Keywords: wage elasticity, informal care supply, labor supply, elderly care, family obligations
    JEL: J22 J18 J14
    Date: 2010–07
  7. By: Juergen Jung (Department of Economics, Towson University); Chung Tran (School of Economics, University of New South Wales)
    Abstract: In this paper we construct life-cycle profiles of U.S. health care spending using data from the Medical Expenditure Panel Survey (MEPS). We separate pure age effects on health expenditure from time effects (i.e. productivity effects, business cycle effects, etc.) and cohort effects (i.e. initial condition effects) by estimating a seminonparametric partial linear model. After controlling for time and cohort effects, we find that medical expenditure-age profiles follow an upward trend. Time and cohort effects introduce a significant estimation bias into predictions of health expenditures per age group. It is demonstrated that failing to adequately control for time and cohort effects results in an overprediction of the effect of age on health expenditures, especially for agents older than 60. Cohort effect biases dominate time effect biases in estimates of health expenditures that do not adequately control for both effects. Estimation biases introduced by cohort effects increase monotonically with age while time effects are non-monotone.
    Keywords: life-cycle profiles; time and cohort effects; partial linear seminonparametric models; pseudo panels; medical expenditure panel survey (MEPS)
    JEL: I10 I11 C14 C23 D12 D91 J10
    Date: 2010–08
  8. By: Fanti, Luciano; Gori, Luca
    Abstract: This paper analyses the dynamics of a simple overlapping generations economy with endogenous longevity, endogenous fertility and private transfers from children to parents. In this context, it is shown that both the public provision of health care services, which determines the individual length of life, and the size of the intra-family transfer may be a source of chaotic cycles when individuals are perfect foresighted. However, such economic factors also have the potential to ultimately suppress undesirable chaotic fluctuations. This suggests that the equilibrium dynamics of an OLG growth model may endogenously reconcile the existence of both irregular business cycles and the global stability of the economic system.
    Keywords: Endogenous fertility; OLG model; Perfect foresight; Private old-age support; Public health care services
    JEL: J14 H55 I18 J18 C62
    Date: 2010–07–06
  9. By: Eduardo Fuentes
    Abstract: This study aims to establish the statistical probability that workers who are not contributing to pension funds might do so, provided with the right incentives to. Chile was used as a case study for this purpose. First, voluntary savings schemes were reviewed and compared with similar systems in the region. Based on this information, an analysis has been carried out on a number of surveys, focusing particularly on social protection, so as to examine the relationship the groups of non-contributing workers have to the systems, thereby determining what conditions might give them an incentive to save. A probit binary choice model has been used for this, as it obtains the probabilities of the different saving cohorts. With the results it is possible to conclude that workers will have grater incentive to save if it gives them access to education (in a broad sense), health services and housing. These results therefore present a challenge for the main actors in the industry (governments and pension fund managers) to explore the design of new retirement savings products associated with the benefits that the workers prefer, and thereby extending the coverage provided by the pension systems.
    Date: 2010–05
  10. By: Meliyanni Johar (University of Technology Sydney); Shiko Maruyama (School of Economics, The University of New South Wales)
    Abstract: Intergenerational cohabitation is becoming less common in modern societies. The opportunity costs of caring for parents are increasing, and the notion of filial piety is weakening. Meanwhile, in most developing Asian countries, a public old-age support system has yet to be developed. This paper delineates the positions of parents and children in the family decision of living arrangements, which have important policy implications on the reliability of filial support as a form of old-age security. We use panel data from Indonesia to study factors that initiate cohabitation by elderly parents and their adult children. Transition analysis provides a clearer interpretation of causality than cross-sectional analysis. We find that while cohabitation is motivated by parental needs, especially those of mothers, the family decision is influenced to a larger extent by the private gains and costs of the children. Cohabitation tends to occur when the child is unmarried or has a low level of education. However, parents who cohabitate tend to be healthy and wealthy, and they also generally live with a spouse. We also find that elderly parents who are poor and recent migrants are most at risk of not receiving filial support. The development of public support programs would result in potential welfare gains, particularly for those vulnerable to not receiving filial support.
    Keywords: informal care; living arrangements; intergenerational transfer; cohabitation; Indonesia; finite mixture logit
    JEL: C25 D1
    Date: 2010–04
  11. By: Zantomio F (Research Institute for the Evaluation of Public Policies)
    Abstract: This paper evaluates the effectiveness of disability benefits for the elderly. Using seventeen waves of panel data, it first analyses the extent to which receipt is responsive to changes in disability status. Second, it investigates the extent of delays in first receipt. Third, it compares later outcomes of recipients and non recipients, accounting for selection into the program. Results indicate that entry is highly responsive to previous changes in disability, and that the program enhances persistently recipients' financial wellbeing. However, considerable delays in receipt are also found. Beside, the evidence of characteristics unrelated to eligibility influencing the assignment mechanism raises horizontal equity concerns.
    Date: 2010–07–06

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