nep-age New Economics Papers
on Economics of Ageing
Issue of 2010‒11‒27
six papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Exploring Older Male Worker Labour Force Participation Across OECD Countries in the Context of Ageing Populations: A Reserve Army of Labour? By O'Brien, Martin
  2. Framing Social Security Reform: Behavioral Responses to Changes in the Full Retirement Age By Behaghel, Luc; Blau, David M.
  3. Retirement incentives, individual heterogeneity and labour transitions of employed and unemployed workers By Jose Ignacio García Pérez; Sergi Jiménez Martín; Alfonso R. Sánchez Martín
  4. Social Security and the job search behavior of workers approaching retirement By Jose Ignacio García Pérez; Alfonso R. Sánchez Martín
  5. Is the Age Gradient in Self-Reported Material Hardship Explained by Resources, Needs, Behaviours or Reporting Bias? By Siminski, Peter; Yerokhin, Oleg
  6. More Jobs? A Panel Analysis of the Lisbon Strategy By Sergio Destefanis; Giuseppe Mastromatteo

  1. By: O'Brien, Martin (University of Wollongong)
    Abstract: The governments of many developed economies are confronting a number of policy issues associated with ageing populations. For example, pension reforms, increasing the labour force participation of older workers and increasing the standard retirement age are various policy reforms suggested by the OECD to cope with the fiscal strain associated with ageing populations. However, many of the same governments now embracing these reforms had until recent times allowed the early exit of older workers from the labour force by various means in periods of excess labour supply, leading to the allegation that these governments had treated older workers as a ‘reserve army of labour’. In this paper panel models for the labour force participation of males aged 55-59 and 60-64 years in 12 OECD countries are estimated as a function of social security and labour market variables covering the time period 1967 to 2007. In contrast to previous OECD modelling, allowances are made for both country specific intercept and slope terms in various specifications, thereby allowing the incorporation of unique aspects of each country’s social security system or labour market. In addition, both long run models and also short run models incorporating error correction terms are estimated. The findings suggest that the ‘one size fits all’ policy advocated by the OECD is inadequate to address country specific factors affecting older worker labour force participation. The recent pension reforms are now out of character with the reserve army of labour explanation and results also imply that governments in many OECD countries will struggle to increase older male labour force participation through pension policy reform alone, without addressing the important role of the aggregate labour market.
    Keywords: Labour force participation, older workers, ageing society, reserve army of labour
    JEL: J21 J26
    Date: 2010
  2. By: Behaghel, Luc (CREST-INSEE); Blau, David M. (Ohio State University)
    Abstract: We use a US Social Security reform as a quasi-experiment to provide evidence on framing effects in retirement behavior. The reform increased the full retirement age (FRA) from 65 to 66 in two month increments per year of birth for cohorts born from 1938 to 1943. We find strong evidence that the spike in the benefit claiming hazard at 65 moved in lockstep along with the FRA. Results on self-reported retirement and exit from employment are less clear-cut, but go in the same direction. The responsiveness to the new FRA is stronger for people with higher cognitive skills. We interpret the findings as evidence of reference dependence with loss aversion. We develop a simple labor supply model with reference dependence that can explain the results. The model has potentially important implications for framing of future Social Security reforms.
    Keywords: retirement, social security, loss aversion
    JEL: J26
    Date: 2010–11
  3. By: Jose Ignacio García Pérez; Sergi Jiménez Martín; Alfonso R. Sánchez Martín
    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.
    Date: 2010–10
  4. By: Jose Ignacio García Pérez; Alfonso R. Sánchez Martín
    Abstract: This paper explores the links between unemployment, retirement and their associated public insurance programs. The analysis combines the development of a life-cycle model of search and retirement with a detailed exploration of the empirical regularities using a Spanish administrative data-set based on employment histories. Our ultimate goal is to uncover the relative contribution of bad institutional incentives versus poor labor demand to the observed low reemployment rates of Spanish workers aged 55 or over. We find that the low labor supply of the unemployed younger than 60 (the minimum retirement age) is, according to our model, largely the product of the poor conditions in the Spanish labor market. The disincentives in the regulations would not stop these workers from searching if presented with higher job offer rates. In sharp contrast, improvements in incentives will make a real difference for workers over 60. In particular, we explore the effects of changing the pension rules to link early retirement penalties to the age when the individual stops paying contributions. This reform removes the incentive to stay unemployed without searching, encouraging individuals to either retire or actively engage in a search process. As a result, the implicit fnancial liabilities of the pension system are reduced, to the extent that it would be possible to compensate all the workers that suffer direct welfare losses through the reform.
    Date: 2010–10
  5. By: Siminski, Peter (University of Wollongong); Yerokhin, Oleg (University of Wollongong)
    Abstract: Older people report much less hardship than younger people in a range of contexts, despite lower incomes. Hardship indicators are increasingly influential, so the source of the gradient has considerable policy implications. We propose a theoretical and empirical strategy to decompose the sources of this relationship. We exploit a unique feature of the Household, Income & Labour Dynamics Australia (HILDA) survey, which collects reports of hardship from all adult household members, facilitating within-couple estimates. The majority of the relationship is explained by observed resources, particularly wealth and home ownership. One third of the relationship is explained by unobserved differences between households, which we interpret as age-related behavioural choices. Reporting error does not appear to contribute to the age gradient.
    Keywords: Hardship, age
    JEL: I32 J14 D63 D39
    Date: 2010
  6. By: Sergio Destefanis (Università di Salerno, CELPE and CSEF); Giuseppe Mastromatteo (Università Cattolica di Milano.)
    Abstract: We assess the impact on employment growth of the Lisbon Strategy, examining long-run trends in total, female and old-age employment rates from 1994 to 2009. We find that the Strategy had some favourable (but weak) impact, especially for old-age workers. However, no improvement ensued from its mid-term reassessment.
    Keywords: European Employment Strategy, difference-in-difference, employment policies
    JEL: E24 J08 E65
    Date: 2010–11–18

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