nep-age New Economics Papers
on Economics of Ageing
Issue of 2010‒09‒11
eleven papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Retirement and Social Security: A Political Economy Perspective By Ryo Arawatari; Tetsuo Ono
  2. Prediction of the economic cost of individual long-term care in the Spanish population By Catalina Bolancé; Ramon Alemany; Montserrat Guillén
  3. Age Effects and Heuristics in Decision Making By Tibor Besedes; Cary Deck; Sudipta Sarangi; Mikhael Shor
  4. Problems with State-Local Final Pay Plans and Options for Reform By Peter A. Diamond; Alicia H. Munnell; Gregory Leiserson; Jean-Pierre Aubry
  5. Fatal attraction? Access to early retirement and mortality By Andreas Kuhn; Jean-Philippe Wuellrich; Josef Zweimüller
  6. Health Outcomes and Socio-Economic Status among the Elderly in China: Evidence from the CHARLS Pilot By Strauss, John; Lei, Xiaoyan; Park, Albert; Shen, Yan; Smith, James P.; Yang, Zhe; Zhao, Yaohui
  7. Preferences for Redistribution and Pensions: What Can We Learn from Experiments? By Tausch Franziska; Potters Jan; Riedl Arno
  8. Do Men Slow Down Faster than Women? By Wolfgang Maennig; Michael Stobernack
  9. Will Better Access to Health Care Change How Much Older Men Work? By Melissa A. Boyle; Joanna N. Lahey
  10. Attrition and Health in Ageing Studies: Evidence from ELSA and HRS By Banks, James; Muriel, Alastair; Smith, James P.
  11. Demographic Change, Macroecnomic Conditions, and the Murder Rate: The Case of the United States, 1934 to 2006 By John M. Nunley; Richard Alan Seals; Joachim Zietz

  1. By: Ryo Arawatari (Faculty of Economics, Shinshu University); Tetsuo Ono (Graduate School of Economics, Osaka University)
    Abstract: Countries with higher implicit taxes on continued work are associated with lower labor force participation rates of the elderly. This paper constructs a politicoeconomic model that accounts for this feature based on multiple, self-fulfilling expectations of agents. In this model, agents are identical at birth and can become skilled (or remain unskilled) through educational investment. When agents hold expectations of larger social security benefits, it provides a disincentive to engage in educational investment, thereby resulting in an unskilled majority. In turn, this unskilled majority supports larger social security benefits, which induces the retirement of the elderly and thus results in a lower labor force participation rate. The opposite applies when agents have expectations of smaller social security benefits in their old age.
    Keywords: Political equilibrium; Retirement; Self-fulfilling expectations; Social security
    JEL: H55 D72 J26
    Date: 2010–02
  2. By: Catalina Bolancé (Departament d'Econometria, Estadística i Economia Espanyola, RFA-IREA, Universitat de Barcelona); Ramon Alemany (Departament d'Econometria, Estadística i Economia Espanyola, RFA-IREA, Universitat de Barcelona); Montserrat Guillén (Departament d'Econometria, Estadística i Economia Espanyola, RFA-IREA, Universitat de Barcelona)
    Abstract: Pensions together with savings and investments during active life are key elements of retirement planning. Motivation for personal choices about the standard of living, bequest and the replacement ratio of pension with respect to last salary income must be considered. This research contributes to the financial planning by helping to quantify long-term care economic needs.We estimate life expectancy from retirement age onwards. The economic cost of care per unit of service is linked to the expected time of needed care and the intensity of required services. The expected individual cost of long-term care from an onset of dependence is estimated separately for men and women. Assumptions on the mortality of the dependent people compared to the general population are introduced. Parameters defining eligibility for various forms of coverage by the universal public social care of the welfare system are addressed. The impact of the intensity of social services on individual predictions is assessed, and a partial coverage by standard private insurance products is also explored. Data were collected by the Spanish Institute of Statistics in two surveys conducted on the general Spanish population in 1999 and in 2008. Official mortality records and life table trends were used to create realistic scenarios for longevity. We find empirical evidence that the public long-term care system in Spain effectively mitigates the risk of incurring huge lifetime costs. We also find that the most vulnerable categories are citizens with moderate disabilities that do not qualify to obtain public social care support. In the Spanish case, the trends between 1999 and 2008 need to be further explored.
    Date: 2010–09
  3. By: Tibor Besedes; Cary Deck; Sudipta Sarangi; Mikhael Shor
    Abstract: Using controlled experiments, we examine how individuals make choices when faced with multiple options. Choice tasks are designed to mimic the selection of health insurance, prescription drug, or retirement savings plans. In our experiment, available options can be objectively ranked allowing us to examine optimal decision making. First, the probability of a person selecting the optimal option declines as the number of options increases, with the decline being more pronounced for older subjects. Second, heuristics differ by age with older subjects relying more on suboptimal decision rules. In a heuristics validation experiment, older subjects make worse decisions than younger subjects.
    Keywords: experiments, decision making, optimal choice, age effects, heuristics
    JEL: C91 I18
    Date: 2010
  4. By: Peter A. Diamond; Alicia H. Munnell; Gregory Leiserson; Jean-Pierre Aubry
    Abstract: As widely publicized, the financial crisis dramatically worsened the funded status of state and local pen­sion plans. In response, public sector sponsors are making a number of changes. Most of these changes involve increasing employer and employee contribu­tions and cutting benefits for new employees primar­ily by increasing the age for full benefits. A couple of states have cut cost-of-living adjustments for current retirees, but they are in the process of being sued. One item not on anyone’s agenda is reconsidering the basic design of public-sector defined benefit plans. Defined benefit pension plans for public em­ployees – both here and abroad – almost universally compute benefits based on final pay. That is, employ­ees’ initial pension benefits are based on their age at retirement, their years of service, and their average earnings in a small number of years. It is unclear whether the motivation for relying on short periods of earnings was record-keeping constraints before the age of computers, an interest in relating pre-retire­ment to post-retirement income in a seemingly trans­parent way, a desire to reward long-service employees, or some other factor. Whatever the initial motivation, final pay plans suffer from serious shortcomings: they (1) severely “backload” benefits; (2) treat very differ­ently workers on different career trajectories; and (3) invite mischief in terms of sudden late-career pro­motions. They are also riskier for workers than they appear. This brief proceeds as follows. The first section de­scribes commonly used pension designs. The second section illustrates the consequences of the final pay formula for retirement incentives, different earnings profiles, and late-career salary increases. The third section presents an option for reform based on use of average compensation over the full career and index­ation of the earnings history. The final section offers some concluding thoughts.
    Date: 2010–08
  5. By: Andreas Kuhn; Jean-Philippe Wuellrich; Josef Zweimüller
    Abstract: We estimate the causal effect of early retirement on mortality for blue-collar workers. To overcome the problem of endogenous selection, we exploit an exogenous change in unemployment insurance rules in Austria that allowed workers in eligible regions to withdraw from the workforce up to 3.5 years earlier than those in non-eligible regions. For males, instrumental-variable estimates show a significant 2.4 percentage points (about 13%) increase in the probability of dying before age 67. We do not find any adverse effect of early retirement on mortality for females. Death causes indicate a significantly higher incidence of cardiovascular disorders among eligible workers, suggesting that changes in health-related behavior explain increased mortality among male early retirees.
    Keywords: Early retirement, mortality, premature death, health behavior, endogeneity, instrumental variable
    JEL: I1 J14 J26
    Date: 2010–08
  6. By: Strauss, John (University of Southern California); Lei, Xiaoyan (Peking University); Park, Albert (University of Oxford); Shen, Yan (Peking University); Smith, James P. (RAND); Yang, Zhe (Peking University); Zhao, Yaohui (Peking University)
    Abstract: We are concerned in this paper with measuring health outcomes among the elderly in Zhejiang and Gansu provinces, China, and examining the relationships between different dimensions of health status and measures of socio-economic status (SES). We use the China Health and Retirement Longitudinal Study (CHARLS) pilot data to document health conditions among the elderly in Gansu and Zhejiang provinces, where the survey was fielded. We use a very rich set of health indicators that include both self-reported measures and biomarkers. We also examine correlations between these health outcomes and two important indicators of socioeconomic status (SES): education and log of per capita expenditure (log pce), our preferred measure of household resources. While there exists a very large literature that examines the relationships between SES and health measures, little has been done on Chinese data to see whether correlations reported in many other countries are replicated in China, particularly so for the aged. In general education tends to be positively correlated with better health outcomes, as it is in other countries. However, unmeasured community influences turn out to be highly important, much more so than one usually finds in other countries. While it is not yet clear which aspects of communities matter and why they matter, we set up an agenda for future research on this topic. We also find a large degree of under-diagnosis of hypertension, a major health problems that afflicts the aged. This implies that the current health system is not well prepared to address the rapid aging of the Chinese population, at least not in Gansu and Zhejiang.
    Keywords: health, China
    JEL: I10
    Date: 2010–08
  7. By: Tausch Franziska; Potters Jan; Riedl Arno (METEOR)
    Abstract: Redistribution is an inevitable feature of collective pension schemes and economic experiments have revealed that most people have a preference for redistribution that is not merely inspired by self-interest. Interestingly, little is known on how these preferences interact with preferences for different pension schemes. In this paper we review the experimental evidence on preferences for redistribution and suggest some links to redistribution through pensions. For that purpose we distinguish between three types of situations. The first deals with distributional preferences behind a veil of ignorance. In the second type of situation, individuals make choices in front of the veil of ignorance and know their position. Finally, we discuss situations in which income is determined by interdependent rather than individual choices. In the closing parts of the paper we discuss whether and how these experimental results speak to the redistribution issues of pensions. For example, do they argue for or against mandatory participation? Should we have less redistribution and more actuarial fairness? How does this depend on the type of redistribution involved?Keywords: redistribution, fairness, pension, insurance, experiment
    Keywords: public economics ;
    Date: 2010
  8. By: Wolfgang Maennig (Chair for Economic Policy, University of Hamburg); Michael Stobernack (Brandenburg University of Applied Sciences, Fachhochschule Brandenburg, Department of Business Administration)
    Abstract: This paper is the first test of differences between age-related reductions in the performance of men and women. The assumption that men age faster is obvious, because men's life expectancy is generally lower. In addition to other studies on age-related reduction in human performance, this paper examines the data taken from competitions on rowing machines, which have been standardized worldwide and which are hardly affected by weather or temperature. A third innovation is that this study looks for any potential ageing processes specific to gender and physique. Fourth, fractional polynomials have been added to the testing methodology. Contrary to intuition, we find evidence that women are affected by faster age-related reductions in performance
    Keywords: Labor productivity, ageing economics, economics of gender
    JEL: J16 J24
    Date: 2010–09–01
  9. By: Melissa A. Boyle; Joanna N. Lahey
    Abstract: The move toward universal health coverage in the United States is likely to impact the labor force decisions of older workers, but the size and direction of the effect is unclear. On the one hand, access to affordable insurance that is not tied to an employer may reduce work by encouraging workers to leave a current job, perhaps shifting to self-employment or retiring earlier than previously planned. On the other hand, such access could increase work among vulnerable groups, such as those with low incomes, by improving either their health or the work incentives that they face. This brief provides some insights on how workers might respond by assessing the impact of a health care expansion by the U.S. Department of Veterans Affairs (VA). The first section describes the VA expansion and the possible impact of public health care insurance on labor force decisions. The second section explains the study’s methodology, while the third summarizes the results. The final section offers a conclusion. The main finding is that, for the average recipient, the VA reform decreases full-time work both by reducing the “job lock” associated with employer-based insurance and by boosting income through offering free coverage. More-educated workers take advantage of this health care to move to self-employment, while less-educated workers are more likely to leave the labor force completely. However, those in groups who typically have worse health than average actually increase their work upon provision of coverage. With respect to implications for the new federal health care reform act, the income boost in the VA example does not apply for most individuals because health insurance under the new act will not be free. Thus, for the average worker, the finding on job lock is most relevant. However, for some workers, the new act may also have an income effect by subsidizing coverage or reducing the price of non-group market insurance.1 Finally, our finding of increased employment rates for groups likely to be in worse health may also apply as states design programs to improve their access to health care.
    Keywords: savings and consumption, health
    Date: 2010–08
  10. By: Banks, James (Institute for Fiscal Studies, London); Muriel, Alastair (Institute for Fiscal Studies, London); Smith, James P. (RAND)
    Abstract: In this paper we present results of an investigation into observable characteristics associated with attrition in ELSA and the HRS, with a particular focus on whether attrition is systematically related to health outcomes and socioeconomic status (SES). Investigating the links between health and SES is one of the primary goals of the ELSA and HRS, so attrition correlated with these outcomes is a critical concern. We explored some possible reasons for these differences. Survey maturity, mobility, respondent burden, interviewer quality, and differing sampling methods all fail to account for the gap. Differential respondent incentives may play some role, but the impact of respondent incentive is difficult to test. Apparently, cultural differences between the US and Europe population in agreeing to participate and remain in scientific surveys are a more likely explanation.
    Keywords: health, attrition
    JEL: I0
    Date: 2010–08
  11. By: John M. Nunley; Richard Alan Seals; Joachim Zietz
    Abstract: Fluctuations in aggregate crime rates contrary to recent shifts in the age distribution of the U.S. population have cast doubt on the predictive power of the age-crime hypothesis. By examining a longer time horizon, back to the early 1930s,, we show that the percentage of the young population is a robust predictor of the observed large swings in the U.S. murder rate over time. However, changes in the misery index—the sum of the inflation and unemployment rates—significantly contribute to explaining changes in the murder rate. This applies, in particular, to those changes that are at odds with the long-run trend of the U.S. age distribution, such as the decline in the murder rate in the latter part of the 1970s or its increase starting around the middle of the 1980s.
    Keywords: Murder Rate, Demographic Change, Age Composition, Crime, Misery Index
    JEL: J10 J11
    Date: 2010–09

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