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

  1. Age of Pension Eligibility, Gains in Life Expectancy, and Social Policy By Frank T. Denton; Byron G. Spencer
  2. The Impact of Income Distribution on the Length of Retirement By Dean Baker; David Rosnick
  3. Retirement incentives, individual heterogeneity and labour transitions of employed and unemployed workers By J. Ignacio García Pérez; Sergi Jiménez Martín; Alfonso R. Sánchez Martín
  4. Intertemporal Substitution in Labor Force Participation: Evidence from Policy Discontinuities By Manoli, Dayanand; Weber, Andrea
  5. Involuntary Retirement and the Resolution of the Retirement-Consumption Puzzle: Evidence from Australia By Garry F. Barrett; Matthew Brzozowski
  6. Aging and Pensions in General Equilibrium: Labor Market Imperfections Matter By David de la Croix; Olivier Pierrard; Henri Sneessens
  7. What explains fertilit? Evidence from Italian Pension reforms By Francesco Billari; Vincenzo Galasso
  8. Demographic Changes and Pension Reform in the Republic of Korea By Hyungpyo Moon
  9. Grandparents and women's participation in the labor market By Paula Albuquerque; José Passos
  10. Technical Study on Retirements and Pension Projections of the Central Government By Pronab Sen; Sibani Swain
  11. What Do Unions Do to Pension Performance? By Even, William E.; Macpherson, David A.
  12. The Welfare Fund Model of Social Security for Informal Sector Workers: The Kerala Experience By K. P. Kannan

  1. By: Frank T. Denton; Byron G. Spencer
    Abstract: Canadians are living longer and retiring younger. When combined with the aging of the baby boom generation, that means that the “inactive” portion of the population is increasing and there are concerns about possibly large increases in the burden of support on those who are younger. We model the impact of continued future gains in life expectancy on the size of the population that receives public pension benefits. We pay special attention to possible increases in the age of eligibility and the pension contribution rate that would maintain the publicly financed component of the retirement income security system.
    Date: 2010–10
  2. By: Dean Baker; David Rosnick
    Abstract: Social Security has made it possible for the vast majority of workers to enjoy a period of retirement in at least modest comfort without relying on their children for support. The average length of retirement has increased consistently since the program was started in 1937. However, the increase in the normal retirement age from 65 to 67 that is being phased in over the years 2003 to 2022 largely offsets the increase in life expectancy. As a result, workers who work long enough to collect their full benefits will see little gain in the expected length of their retirement over this period. These gains have gone overwhelmingly to workers in the top half of the income distribution. Consequently, the increase in retirement age will offset the gains in retirement lengths for the bottom half — even if there is no further inequality in improvements in life expectancy. If such inequality in improvements persist, then the bottom half of workers born in 1973 will have retirements no longer than those born in 1937.
    Keywords: social security, retirement, retirement age, life expectancy
    JEL: H H6 H62 H63 H68 J J1 J14 J18 J3 J32 J38
    Date: 2010–10
  3. By: J. Ignacio García Pérez (Department of Economics, Universidad Pablo Olavide, FCEA y FEDEA); Sergi Jiménez Martín (Universitat Pompeu Fabra, Barcelona GSE and FEDEA.); Alfonso R. Sánchez Martín (Department of Economics, Universidad Pablo Olavide)
    Abstract: In this paper we analyze the sensitivity of the labour market decisions of workers close to retirement with respect to the incentives created by public regulations. We improve upon the extensive prior literature on the effect of pension incentives on retirement in two ways. First, by modeling the transitions between employment, unemployment and retirement in a simultaneous manner, paying special attention to the transition from unemployment to retirement (which is particularly important in Spain). Second, by considering the influence of unobserved heterogeneity in the estimation of the effect of our (carefully constructed) incentive variables. Using administrative data, we find that, when properly defined, economic incentives have a strong impact on labour market decisions in Spain. Unemployment regulations are shown to be particularly influential for retirement behaviour, along with the more traditional determinants linked to the pension system. Pension variables also have a major bearing on both workers’ reemployment decisions and on the strategic actions of employers. The quantitative impact of the incentives, however, is greatly affected by the existence of unobserved heterogeneity among workers. Its omission leads to sizable biases in the assessment of the sensitivity to economic incentives, a finding that has clear consequences for the credibility of any model-based policy analysis. We confirm the importance of this potential problem in one especially interesting instance: the reform of early retirement provisions undertaken in Spain in 2002. We use a difference-in-difference approach to measure the behavioural reaction to this change, finding a large overestimation when unobserved heterogeneity is not taken into account.
    Keywords: Retirement, unemployment, incentives, Pension system, Unobserved heterogeneity, Spain.
    JEL: H55 J14 J26 J64
    Date: 2010–10
  4. By: Manoli, Dayanand (University of California, Los Angeles); Weber, Andrea (University of Mannheim)
    Abstract: This paper presents new empirical evidence on intertemporal labor supply elasticities. We use administrative data on the census of private sector employees in Austria and variation from mandated discontinuous changes in retirement benefits from the Austrian pension system. We first present graphical evidence documenting delays in retirement in response to the policy discontinuities. Next, based on the empirical evidence, we develop a model of career length decisions. Using an estimator that exploits the graphical evidence, we estimate an intertemporal labor supply elasticity of 0.30; this relatively low estimate reflects that the disutility of labor supply rises relatively quickly with additional years of work.
    Keywords: life-cycle labor supply, retirement decisions, intertemporal labor supply elasticity, policy discontinuities
    JEL: J22 J26 E24
    Date: 2010–10
  5. By: Garry F. Barrett; Matthew Brzozowski
    Abstract: A substantial body of international research has shown that household expenditure on food and non-durables significantly decreases at the time of retirement -- a finding that is inconsistent with the standard life-cycle model of consumption if retirement is an anticipated event. This fall in expenditure has become known as the `retirement- consumption puzzle.' We analyze rich Australian panel data to assess the Australian evidence on the puzzle. We find strong evidence of a fall in expenditures on groceries, food consumed at home and outside meals with retirement. The observed decline in expenditure is explained by a subset of households experiencing an unanticipated wealth shock, such as a major health event or long-term job loss, at the time of retirement. This finding is corroborated by an analysis of alternative measures of household well-being, including indicators of financial hardship, and self-reported financial and life satisfaction. For the majority of households retirement is anticipated and there is no decline in economic welfare at retirement. However, for an important minority, retirement is `involuntary' and these households experience a marked decline across all indicators of economic well-being.
    Keywords: Consumption Smoothing, Household Expenditure, Retirement
    JEL: D91 I31 J26
    Date: 2010–10
  6. By: David de la Croix (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) and CORE); Olivier Pierrard (Banque centrale du Luxembourg and IRES, UCL); Henri Sneessens (Université du Luxembourg, CREA and IRES (UCL))
    Abstract: This paper re-examines the effects of population aging and pension reforms in an OLG model with labor market frictions. The most important feature brought about by labor market frictions is the connection between the interest rate and the unemployment rate. Exogenous shocks (such as aging) leading to lower interest rates also imply lower equilibrium unemployment rates, because lower capital costs stimulate labor demand and induce firms to advertize more vacancies. These effects may be reinforced by increases in the participation rate of older workers, induced by the higher wage rates and the larger probability of finding a job. These results imply that neglecting labor market frictions and employment rate changes may seriously bias the evaluation of pension reforms when they have an impact on the equilibrium interest rate.
    Keywords: Overlapping Generations, Search Unemployment, Labor Force Participation, aging, Pensions, Labor Market
    JEL: E24 H55 J26 J64
    Date: 2010–09–31
  7. By: Francesco Billari; Vincenzo Galasso
    Abstract: Why do people have kids in developed societies? We propose an empirical test of two economic theories of fertility — children as “consumption” or “investment” good. We use as a natural experiment the Italian pension reforms of the 90s, which by decreasing expected pension benefits generated a large negative income effect, with a sharp discontinuity across workers. This policy experiment is particularly well suited, since lower future pensions are expected to have differential effects on fertility under the “consumption” and "investment" theories. Empirical analyses identify a causal, robust positive effect of less generous future pensions on postreform fertility. These findings are consistent with an “old-age security” motive also for contemporary fertility in advanced societies or with the original Becker- Lewis (1973) version of the “consumption” theory, based on the interaction between quantity and quality of children.
    Date: 2010
  8. By: Hyungpyo Moon
    Abstract: This paper conducted a quantitative assessment based on a simulation analysis of what impact the reformed Korean National Pension Act on July 2007 could bring on its sustainability, equity, and adequacy, and then it inquires into policy implications for further development of the system. [ADBI Working Paper 135]
    Keywords: quantitative, Korean National Pension Act, sustainability, equity, adequacy, development
    Date: 2010
  9. By: Paula Albuquerque; José Passos
    Abstract: The conciliation of work and family life is a challenge to most women. In some countries, although not in southern Europe, women make significant use of part-time schedules as a way of balancing work and family life. Informal care, typically care by grandparents, is an alternative. It is cheap, trustworthy, and possibly compatible with non-standard labor schedules. In this paper we investigate how childcare by grandparents affects the probability of working of mothers in southern European countries. We empirically evaluate the verification and the significance of such an effect, accounting for a potentially endogenous grandparent-caring status.
    Keywords: labor market, women, childcare, grandparents, ageing.
    Date: 2010–10
  10. By: Pronab Sen; Sibani Swain
    Abstract: The general concern over the salary and pension liabilities of the government and the concomitant government announcements in the recent past to contain them at a sustainable level need to be contingent upon realistic assessment of future growth in such manpower related cost of the government. The prevailing state of information and analysis on these issues seem to be highly unsatisfactory and conclusions have mostly been drawn on the basis of assumptions, which are neither founded on reality nor backed by rigorous theory. The purpose of this study is to provide rational estimates of the future behaviour of government employment and pension liabilities by applying theoretically justifiable methods on available data so that informed decisions can be taken regarding manpower planning in government. The study also seeks to highlight the weaknesses of the pension administration, which can lead to gross misuse. [Working Paper Series Paper No. 1/2002-PC]
    Keywords: salary, pension liabilities, sustainable, planning, theoretically
    Date: 2010
  11. By: Even, William E. (Miami University); Macpherson, David A. (Trinity University)
    Abstract: This study argues that the promotion of union goals could have positive, negative, or neutral effects on risk adjusted return performance. Moreover, the union's ability and incentive to use pension assets to promote union goals will vary with the design of the pension. Using panel data on over 36,000 pension plans drawn from IRS Form 5500 filings, we empirically estimate the effects of unions on risk adjusted returns and find that the union effect on performance varies in ways that are consistent with our priors. In particular, unions have the largest negative effect among multi-employer defined contribution plans and the negative effect of unions can be eliminated by a switch to participant direction. Also, we find that unions improve performance for single employer defined contribution plans.
    Keywords: unions, rate of return, pension, defined benefit, defined contribution
    JEL: J32 J51
    Date: 2010–10
  12. By: K. P. Kannan
    Abstract: This paper examines the evolution of the institution of ‘Welfare Funds’ for informal sector workers in the State of Kerala in India. The Kerala experience, which is now thirty years old, reflects what the workers in the informal sector could achieve in countries like India given the contemporary political context and the democratic political framework of the State. [Working Paper No. 332]
    Keywords: collective care, informal sector workers, Kerala, social security, welfare funds.
    Date: 2010

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