nep-age New Economics Papers
on Economics of Ageing
Issue of 2010‒10‒09
fifteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. The Standard Deviation of Life-Length, Retirement Incentives, and Optimal Pension Design By Aronsson, Thomas; Blomquist, Sören
  2. Private Pensions, Retirement Wealth and Lifetime Earnings By James MacGee; Jie Zhou
  3. Health, disability and pathways into retirement in Spain By Pilar García Gómez; Sergi Jiménez Martín; Judit Vall Castello
  4. Do employers support later retirement? A view from European employers. By Dalen, H.P. van; Henkens, K.
  5. Individuals' Uncertainty about Future Social Security Benefits and Portfolio Choice By Adeline Delavande; Susann Rohwedder
  6. Prediction of the economic cost of individual long-term care in the Spanish population By Catalina Bolancé; Ramon Alemany; Montserrat Guillén
  7. The Impact of Health Changes on Labor Supply: Evidence from Merged Data on Individual Objective Medical Diagnosis Codes and Early Retirement Behavior By Bent Jesper Christensen; Malene Kallestrup Lamb
  8. The Wage Elasticity of Informal Care Supply: Evidence from the Health and Retirement Study By Nizalova, Olena Y.
  9. A reinvenção da transição demográfica: envelhecer antes de enriquecer? By Fausto Brito
  10. Fatal Attraction? Access to Early Retirement and Mortality By Kuhn, Andreas; Wuellrich, Jean-Philippe; Zweimüller, Josef
  11. Beyond Population: Everyone Counts in Development By Joel E. Cohen
  12. Why Did Poverty Drop for the Elderly? By Alicia H. Munnell; April Wu; Joshua Hurwitz
  13. Attrition and Health in Ageing Studies: Evidence from ELSA and HRS By James Banks; Alastair Muriel; James P. Smith
  14. How do Japanese and French firms in steel industry address the institutional change and the globalization? Employment adjustment and age management in a downsizing context By Emilie Lanciano; Michio Nitta
  15. Why a positive link between age and income-related health inequality? By Nordin , Martin; Gerdtham , Ulf-G

  1. By: Aronsson, Thomas (Umeå University); Blomquist, Sören (Uppsala Center for Fiscal Studies)
    Abstract: In this paper, we consider how the retirement age as well as a tax financed pension system ought to respond to a change in the standard deviation of the length of life. In a first best framework, where a benevolent government exercises perfect control over the individuals’ labor supply and retirement-decisions, the results show that a decrease in the standard deviation of life-length leads to an increase in the optimal retirement age and vice versa, if the preferences for “the number of years spent in retirement” are characterized by constant or decreasing absolute risk aversion. A similar result follows in a second best setting, where the government raises revenue via a proportional tax (or pension fee) to finance a lump-sum benefit per year spent in retirement. We consider two versions of this model, one with a mandatory retirement age decided upon by the government and the other where the retirement age is a private decision-variable.
    Keywords: Uncertain lifetime; retirement; pension system
    JEL: D61 D80 H21 H55
    Date: 2010–09–30
  2. By: James MacGee (University of Western Ontario); Jie Zhou (Nanyang Technological University)
    Abstract: This paper investigates the effect of private pensions on the retirement wealth distribution. The model incorporates stochastic private pension coverage into a life- cycle model with stochastic earnings. The predictions of the calibrated model are compared to the distribution of retirement net worth and private pension wealth in the PSID. While private pensions lead to higher wealth inequality and reduces the lifetime earnings - retirement wealth correlation, the model still generates too little wealth inequality. However, when we extend the model to include heterogeneous life-cycle earnings profiles and permanent return differences across households, we find that the model largely accounts for the sizeable variation in retirement wealth.
    Keywords: private pensions; Wealth inequality; retirement
    JEL: D31 E21 J32
    Date: 2010
  3. By: Pilar García Gómez; Sergi Jiménez Martín; Judit Vall Castello
    Abstract: In this paper we analyze the trends in labor force participation and transitions to benefit programs of older workers in relation to health trends as well as recent Social Security reforms. Our preliminary conclusions are pessimistic regarding the effect of health improvements on the labor market attachment of older workers since we show that despite the large improvements in the mortality rates among older individuals in Spain, the employment rates of individuals older than fifty-five remain lower than the ones observed in the late 1970s. Some caution should remain in our conclusions as the evidence on health trends is inconclusive. Regarding the effect of Social Security reforms, we find that both the 1997 and the 2002 reform decreased the stock into old-age benefits at the cost of an increased share of the participation into disability. Finally, we find that there was a significant increase in the outflow from employment into disability after the 2002 reform.
    Date: 2010–09
  4. By: Dalen, H.P. van (Tilburg University); Henkens, K. (Tilburg University)
    Date: 2010
  5. By: Adeline Delavande; Susann Rohwedder
    Abstract: Little is known about the degree to which individuals are uncertain about their future Social Security benefits, how this varies within the U.S. population, and whether this uncertainty influences financial decisions related to retirement planning. To illuminate these issues, the authors present empirical evidence from the Health and Retirement Study Internet Survey and document systematic variation in respondents' uncertainty about their future Social Security benefits by individual characteristics. They find that respondents with higher levels of uncertainty about future benefits hold a smaller share of their wealth in stocks.
    Keywords: expectations, portfolio choice, subjective probabilities, uncertatinty, Health and Retirement Study
    JEL: G11 D14 D81 D01
    Date: 2010–09
  6. By: Catalina Bolancé (Faculty of Economics, University of Barcelona); Ramon Alemany; Montserrat Guillén (Faculty of Economics, University of 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 pen- sion 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 mor- tality 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 Statis- tics 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 cate- gories 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.
    Keywords: JEL classification:
    Date: 2010–09
  7. By: Bent Jesper Christensen (School of Economics, Aarhus University and CREATES); Malene Kallestrup Lamb (School of Economics, Aarhus University)
    Abstract: People quit the labor force for many different reasons, voluntarily or not, through various arrangements such as unemployment benefits, disability benefits or specially designed early retirement schemes. This paper complements the existing literature by considering a large, register-based sample including objective medical diagnosis codes. We estimate detailed hazard models of duration until retirement, controlling for unobserved heterogeneity and nonparametric baseline hazards, as well as observed heterogeneity through time-varying explanatory variables. These include diagnosis codes, along with a host of demographic, labor market and financial regressors. The panel structure of the data allows following individuals year by year from the age of 50 and precisely measure changes in objectively measured health and other regressors, as well as labor market status. We consider 12 broad, mutually exclusive and exhaustive categories of health diagnoses defined by aggregation across ICD codes. The use of objective medical diagnosis codes should eliminate the justification bias due to self-reports of health, and the large sample size obtained by using register rather than survey data should mitigate the e¤ect of any remaining mismeasurement of true work incapacity. Together, these improvements should help distinguish empirically important effects of health and economic variables on retirement. We distinguish a number of alternative exit routes, in particular, disability, early retirement, unemployment, and others (including out of the labor force and welfare). We estimate both single risk models, lumping all retirement states, and competing risk specifications, including all separate exit routes. Throughout, females are included in the estimations, and we present separate results by gender. We find sizeable differences in retirement behavior across marital status, gender, labor market attachment, occupation, income, and in particular health. We find that the disability retirement exit route that requires specific medical criteria to be met is different from the early retirement route. The latter shares similarities with private pension schemes in a number of countries, including the U.S., where benefits are tied to previous wages, and employers also contribute to this retirement scheme. These differences are pronounced within labor market attachment, income, and in particular health. Furthermore, unemployment followed by early retirement is different from unemployment followed by other programs regarding marital status, gender, income, and health. These comparisons hinge on the competing risk framework. Finally, even when using objective medical diagnosis measures we still find significant effects from health on retirement. Thus, not all health impact on retirement reported in earlier literature was due to justification bias.
    Keywords: Competing risks, Duration analysis, Grouped data, Justification bias, Objective medical diagnosis codes, Retirement, Unobserved heterogeneity.
    JEL: I18 J26 C41
    Date: 2010–09–01
  8. By: Nizalova, Olena Y. (Kyiv School of Economics)
    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: 2010–09
  9. By: Fausto Brito (Cedeplar-UFMG)
    Abstract: The aim of this paper is to analyze the acceleration of demographic transition in Brazil between 2000 and 2050. To do so, projections carried out by the Brazilian Bureau of Geography and Statistics (IBGE) in 2004 and 2008 will be compared. In order to show that the country could grow old before reaching higher levels of income, indicators of population ageing are compared with those from developed countries.
    Keywords: Demographic transition, population projection, fertility decline.
    JEL: J10 J11
    Date: 2010–09
  10. By: Kuhn, Andreas; Wuellrich, Jean-Philippe; Zweimüller, Josef
    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%) increasein the probability of dying before age 67. We do not find any adverse effect early retirement onmortality 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; endogeneity; health behavior; instrumental variable; mortality; premature death
    JEL: I1 J14 J26
    Date: 2010–09
  11. By: Joel E. Cohen
    Abstract: This essay reviews important demographic trends expected to occur between 2010 and 2050, indicates some of their implications for economic and global development, and suggests some possible policies to respond to these trends and implications. The century from 1950 to 2050 will have witnessed the highest global population growth rate ever, the largest voluntary fall in the global population growth rate ever, and the most enormous demographic shift ever between the more developed and less developed regions. In the coming half century, according to most demographers, the world’s population will grow older, larger (albeit more slowly), and more urban than in the 20th century, but with much variance within and across regions. No one knows what population and demographic characteristics of humans are sustainable, but it is clear that having a billion or people chronically hungry today results from collective human choices, not biophysical necessities. Concrete policy options to respond to demographic trends include providing universal primary and secondary education, eliminating unmet needs for contraception and reproductive health, and implementing demographically sensitive urban planning, particularly construction for greater energy efficiency and for an aging population. [WP 220]
    Keywords: demography, urbanization, ageing, population growth, universal education, contraception, reproductive health, urban planning, sustainability, hunger, fertility decline, technology,
    Date: 2010
  12. By: Alicia H. Munnell; April Wu; Joshua Hurwitz
    Abstract: The Census Bureau just reported a large increase in poverty in the United States. Driven by job loss and long-term unemployment, the poverty rate rose from 13.2 percent to 14.3 percent, as 3.7 million more Americans found themselves with incomes below the poverty threshold.1 Individuals aged 55-64 followed the national trend as they shared in job losses. Those 65 and over, however, saw a decline in their poverty rate. This outcome was the result of the timing of two different adjustments to reflect changes in consumer prices – an extraordinarily large cost-of-living adjust­ment (COLA) awarded to Social Security beneficiaries in 2009 and a decline in the index used to adjust the poverty threshold for 2009. This pattern is likely to be reversed in the future as Social Security beneficiaries receive no COLAs in 2010 and 2011 and the poverty threshold increases. The discussion proceeds as follows. The first sec­tion describes the poverty thresholds and how they are adjusted over time. The second section discusses the importance of Social Security for low-income elderly and how Social Security benefits are adjusted for inflation. The third section speculates about how the indexing procedures are likely to affect the poverty rate of older Americans in 2010 and 2011.
    Keywords: savings and consumption
    Date: 2010–09
  13. By: James Banks; Alastair Muriel; James P. Smith
    Abstract: In this paper the authors 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. They 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.
    Date: 2010–09
  14. By: Emilie Lanciano (COACTIS - Université Lumière - Lyon II : EA4161 - Université Jean Monnet - Saint-Etienne); Michio Nitta (Shaken - Social Science Departement - University of Tokyo)
    Abstract: Steel industry has been engaged for a very long time in a downsizing process which has deeply transformed social and industrial relations, work and employment management. Once, these industry was owned and managed by big national groups (sometimes public) and employed a lot of workers at different levels of qualification. Now, a large movement of concentration leads to the emergence of transnational leader. Steel industry has become more and more a footloose industry, with high technological level. After several downsizing operations, firms must adopt now more flexible strategies which integrate the aging of workforce (with the retirement of baby- boom generation), and the question of transmission of skills. The age management represents now the main way – and the cheapest one in the short term– to reduce and optimize the firm workforce, but also a crucial issue for the preservation of knowledge and skills, required by the activity. In these conditions, how do firms manage the new context of financial and economic crisis? What are the consequences on labour and industrial relations, and work organisation in two important plants belonging to two international leaders? We intend to discuss the hypothesis of the convergence of firms strategy and employment system. We will wonder if, and how, historical background and the nature of labour market in which firms are embedded, influence the downsizing strategy and the age management of firms. We will focus our comparative analysis on two steel plants, localised in France and in Japan. We will examine changes that have occurred in labour and industrial relations and human resource development in two steel industry plants after the 1980s, in Japan and in France. The paper presents the intermediate results of a comparative research on new dynamics of labour markets in France and in Japan . It has been led both by Japanese and French researchers which used statistical databases on Japanese and French Steel industry and qualitative methodology (semi-directive interviews).
    Keywords: downsizing, steelmaking industry, labour markets, age management, comparison, France, Japan
    Date: 2010–09–13
  15. By: Nordin , Martin (Department of Economics, Lund University); Gerdtham , Ulf-G (Department of Economics, Lund University)
    Abstract: This study uses Swedish data to analyze why the SES-health gradient increases with ageing. Since different measures of SES and health capture different aspects, we use this information to explore the age increase in health inequality and to discriminate between three types of explanations, namely: i) age increase in the causal SES effect; ii) reversed health effect on SES, and iii) lifecycle variation in the measurement errors in SES and health. <p>Thus, our analysis points in the direction that the age increase in health inequality is primarily caused by a reversed causality going from health to annual income, and the probable mechanism is health affecting the labour supply of the individual. In addition the study report that the age variation in health inequality seem to have increased over time, and during the 1980th the age variation was rather limited. The evidence in our study is not conclusive, but all evidence documented agrees and supports this conclusion.
    Keywords: health inequality; socioeconomic status; income; education
    JEL: D30 D31 I10 I12
    Date: 2010–09–29

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