nep-age New Economics Papers
on Economics of Ageing
Issue of 2011‒02‒19
thirteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Disability and Social Security Reforms:The French Case By Luc Behaghel; Didier Blanchet; Thierry Debrand; Muriel Roger
  2. Framing social security reform: Behavioral responses to changes in the full retirement age By Luc Behaghel; David M. Blau
  3. Should Income Transfers be Targeted or Universal? Insights from Public Pension Influences on Elderly Mortality in Canada By Herbert Emery; Jesse Matheson
  4. Behavioral Economics Perspectives on Public Sector Pension Plans By Beshears, John; Choi, James J.; Laibson, David; Madrian, Brigitte C.
  5. Redistribution, Insurance and Incentives to Work in Latin American Pension Programs By Alvaro Forteza; Guzmán Ourens
  6. A Voluntary Default Savings Plan: An Effective Supplement to Social Security By Dean Baker
  7. Extending the Empirical Basis for Wealth Inequality Research Using Statistical Matching of Administrative and Survey Data By Anika Rasner; Joachim R. Frick; Markus M. Grabka
  8. Pension Systems in Latin America: Concepts and Measurements of Coverage By Rafael Rofman; Leonardo Lucchetti; Guzmán Ourens
  9. Generic NDC - Equilibrium, Valuation and Risk Sharing with and without NDC Bonds By Palmer, Edward
  10. A Contribution to Health Capital Theory By Titus Galalma
  11. Mortality, family and lifestyles By Grégory Ponthière
  12. Grandparenting and childbearing in the extended family By Arnstein Aassve, Elena Meroni, Chiara Pronzato; Elena Meroni; Chiara Pronzato
  13. Long term care insurance puzzle By Pierre Pestieau; Grégory Ponthière

  1. By: Luc Behaghel (Paris School of Economics (Inra)); Didier Blanchet (Insee-D3E); Thierry Debrand (IRDES institut for research and information in health economics); Muriel Roger (Paris School of Economics, Inra, Insee-D3E)
    Abstract: The French pattern of early transitions out of employment is basically explained by the low age at “normal” retirement and by the importance of transitions through unemployment insurance and early-retirement schemes before access to normal retirement. These routes have exempted French workers from massively relying on disability motives for early exits, contrarily to the situation that prevails in some other countries where normal ages are high, unemployment benefits low and early-retirement schemes almost non-existent. Yet the role of disability remains interesting to examine in the French case, at least for prospective reasons in a context of decreasing generosity of other programs. The study of the past reforms of the pension system underlines that disability routes have often acted as a substitute to other retirement routes. Changes in the claiming of invalidity benefits seem to match changes in pension schemes or controls more than changes in such health indicators as the mortality rates. However, our results suggest that increases in average health levels over the past two decades have come along with increased disparities. In that context, less generous pensions may induce an increase in the claiming of invalidity benefits partly because of substitution effects, but also because the share of people with poor health increases.
    Keywords: Pensions, Social Security, Disability, Early Retirement, Unemployment, Senior.
    JEL: H55 J26 J14
    Date: 2011–02
  2. By: Luc Behaghel (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique); David M. Blau (OSU - Ohio State University - 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: social security ; framing ; loss aversion ; retirement
    Date: 2010–11
  3. By: Herbert Emery; Jesse Matheson
    Abstract: We investigate the impact of Canada’s means-tested and universal public pension programs on the mortality rates of recipient age groups for the period 1921–1966. We find that only the universal program significantly reduced recipient age group mortality rates. The implied social value of the mortality risk reduction from this program is one-tenth of the value per statistical life associated with contemporary government policy, meaning that Canadians did not need to place a high value on the life of a senior to justify the higher cost of the universal program.
    JEL: I18 I38 J14 J17 N32
    Date: 2011–01–01
  4. By: Beshears, John (Stanford University); Choi, James J. (Yale School of Management); Laibson, David (Harvard University); Madrian, Brigitte C. (Harvard Kennedy School)
    Abstract: We describe the pension plan features of the states and the largest cities and counties in the U.S. Unlike in the private sector, defined benefit (DB) pensions are still the norm in the public sector. However, a few jurisdictions have shifted towards defined contribution (DC) plans as their primary savings plan, and fiscal pressures are likely to generate more movement in this direction. Holding fixed a public employee's work and salary history, we show that DB retirement income replacement ratios vary greatly across jurisdictions. This creates large variation in workers' need to save for retirement in other accounts. There is also substantial heterogeneity across jurisdictions in the savings generated in primary DC plans because of differences in the level of mandatory employer and employee contributions. One notable difference between public and private sector DC plans is that public sector primary DC plans are characterized by required employee or employer contributions (or both), whereas private sector plans largely feature voluntary employee contributions that are supplemented by an employer match. We conclude by applying lessons from savings behavior in private sector savings plans to the design of public sector plans.
    JEL: G23 G28 H76
    Date: 2011–02
  5. By: Alvaro Forteza (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Guzmán Ourens (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)
    Abstract: We present a new database of social security indicators for eleven Latin American countries designed to show how much they promise to pay in return to contributions. The indicators are based on micro-simulations according to existing norms. Our results indicate that most programs are progressive. In most programs, retirement ages do not have a sizeable impact on the rates of return, given the length of service. The length of service has a strong impact on the expected returns to contributions, mostly due to vesting period conditions. Because of this, several pension programs in Latin America may be exacerbating income risk.
    Keywords: Latin America, Social Security, Internal Rate of Return.
    JEL: H55 J14 J26
    Date: 2010–10
  6. By: Dean Baker
    Abstract: This paper outlines a proposal for a default savings plan that is intended to provide an important supplement to retirement income for the bottom half of the workforce, most of whom have little other than Social Security to support themselves in retirement at present. Under the proposal, workers would make a default contribution of 3.0 percent on annual wages up to $40,000. They could opt out from this contribution if they choose. The contribution would be automatically turned into an annuity at retirement although workers would have the option to make a lump sum withdrawal after paying a modest penalty. The lowest income workers would get a modest contribution paid into the system by the government based on their earnings. This payment would be modeled along the lines of the Earned Income Tax Credit, with the payment increasing with earnings up to $8,000 and then phasing down to zero with earnings above $20,000. There would also be a match of savings that phases down to zero at $40,000.
    Keywords: social security, retirement
    JEL: H H5 H55
    Date: 2011–02
  7. By: Anika Rasner; Joachim R. Frick; Markus M. Grabka
    Abstract: Social security entitlements are a substantial source of wealth that grows in importance over the individual's lifecycle. Despite its quantitative relevance, social security wealth has been thus far omitted from wealth inequality analyses. In Germany, it is the lack of adequate micro data that accounts for this shortcoming. The two main contributions of this paper are: First, to elaborate a statistical matching approach that complements information on net worth as surveyed in the German Socio-Economic Panel (SOEP), a population representative panel study, with infor-mation on social security wealth from the Sample of Active Pension Accounts (SAPA), a large-scale administrative dataset maintained by the German Statutory Pension Insurance. Second, we show to what extent the inclusion of social security wealth affects the level and the distribution of individual net worth as well as overall inequality. The present value of pension entitlements (including entitlements from the statutory pension system as well as from the separate system for civil servants) amounts to 5.6 trillion Euros, which corresponds to an average of 78,500 Euros per person - thus almost doubling the level of net worth. Compared to results based on net worth only, inequality of our amended wealth measure is about 25 percent less. Moreover, we present significant differences in pension entitlements across occupational groups with civil servants gaining most from the inclusion of public pension wealth in the extended wealth meas-ure and self-employed benefiting the least. Overall, our results provide clear indication for the relevance of including the notional wealth held in pension entitlements providing a less biased picture of the level and the socio-economic structure of wealth in Germany. Above and beyond such within-country variation, our findings may also be most relevant for comparative analyses across welfare-regimes.
    Keywords: Wealth inequality, statistical matching, public pension entitlements, SOEP
    JEL: C49 D31 D63 I39
    Date: 2011
  8. By: Rafael Rofman (Human Development Department, Latin America and the Caribbean Regional Office (LCSHS), the World Bank); Leonardo Lucchetti (Human Development Department, Latin America and the Caribbean Regional Office (LCSHS), the World Bank); Guzmán Ourens (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)
    Abstract: Pension systems’ performance around the world can be usually assessed by considering three dimensions: coverage, adequacy, and sustainability. This paper focuses on the coverage dimension, looking at empirical data in Latin America. It represents a review and expansion of a previous analysis (such as Rofman and Carranza, 2005), as it corrects a few methodological problems and expands the timeframe. Data were available for 18 countries, for a period that starts in the early 1990s to the mid 2000s. Recognizing the difficulties involved in comparing the available information, the paper presents a group of similar indicators that make it possible to measure coverage in the various countries, both among active workers and among the elderly. In addition, several socio-demographic characteristics of the covered population are presented and discussed, identifying relevant differentials. The covariates taken into account in the study are: age, geographical areas, sector of employment, level of education, gender, occupation, firm size, and income quintiles.
    Keywords: Coverage, Pension Systems, Latin America.
    JEL: I38 J14 J26
    Date: 2010–04
  9. By: Palmer, Edward (Department of Economics)
    Abstract: The Non-financial (Notional) Defined Contribution (NDC) PAYGO pension scheme is a recent innovation and its generic dimensions have not previously been explored in a coherent context. This paper does this. It derives and analyzes the demographic, economic and distributional properties of NDC. The residual (systematic) longevity risk creates a special problem, solved with an NDC bond, the asset that closes the system financially, transferring residual risk to the government (taxpayers). This guarantees a fixed NDC contribution rate and, thus, intergenerational commitment, with transparent distributional policy pursued through targeted transfers from general tax revenues and taxation of overall personal income.
    Keywords: NDC; Notional Defined Contribution; Non-financial Defined Contribution; NDC Bond; Risk sharing; Pension Policy; Pay-as-you-go; PAYG
    JEL: H55 I38 J14 O23 P16
    Date: 2011–02–04
  10. By: Titus Galalma
    Abstract: This paper presents a theory of the demand for health, health investment and longevity, building on the human capital framework for health and addressing limitations of existing models. It predicts a negative correlation between health investment and health, that the health of wealthy and educated individuals declines more slowly and that they live longer, that current health status is a function of the initial level of health and the histories of prior health investments made, that health investment rapidly increases near the end of life and that length of life is finite as a result of limited life-time resources (the budget constraint). It derives a structural relation between health and health investment (e.g., medical care) that is suitable for empirical testing.
    Keywords: socioeconomic status, education, health, demand for health, health capital, medical care, life cycle, age, labor, mortality
    JEL: D91 I10 I12 J00 J24
    Date: 2011–01
  11. By: Grégory Ponthière (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: While there is a large empirical literature on the intergenerational transmission of health and survival outcomes in relation to lifestyles, little theoretical work exists on the long-run prevalence of (un)healthy lifestyles induced by mortality patterns. To examine that issue, this paper develops an overlapping generations model where a healthy lifestyle and an unhealthy lifestyle are transmitted vertically or obliquely across generations. It is shown that there must exist a locally stable heterogeneous equilibrium involving a majority of healthy agents, as a result of the larger parental gains from socialization efforts under a higher life expectancy. Wealso examine the robustness of our results to the introduction of parental altruistic concerns for children's health and of asymmetric socialization costs.
    Keywords: altruism ; family ; lifestyle ; longevity ; socialization
    Date: 2010–09
  12. By: Arnstein Aassve, Elena Meroni, Chiara Pronzato; Elena Meroni; Chiara Pronzato
    Abstract: The paper analyses the impact of grandparenting on individuals’ fertility behaviour using longitudinal data from eleven European countries. In particular, we focus on how siblings may share and compete for grandparents’ time in terms of childcare. By considering different family scenarios, we show that availability of grandparenting play an important role in individuals’ decision making for having children. Grandparenting is particularly important in the South of Europe where public childcare is limited and here we see a large impact of grandparenting on fertility.
    Keywords: fertility, grandparents, SHARE, extended family
    Date: 2011–02
  13. By: Pierre Pestieau (CREPP - Center of Research in Public Economics and Population Economics - Université de Liège, CORE - Center for Operations Research and Econometrics - Université Catholique de Louvain, CEPR - Center for Economic Policy Research - CEPR, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Grégory Ponthière (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: The purpose of this paper is to examine the alternative explanatory factors of the so-called long term care insurance puzzle, namely the fact that so few people purchase a long term care insurance whereas this would seem to be a rational conduct given the high probability of dependence and the high costs of long term care. For that purpose, we survey various theoretical and empirical studies of the demand and supply of long term care insurance. We discuss the vicious circle in which the long term care insurance market is stuck: that market is thin because most people find the existing insurance products too expensive, and, at the same time, the products supplied by insurance companies are too expensive because of the thinness of the market. Moreover, we also show that, whereas some explanations of the puzzle involve a perfect rationality of agents on the LTC insurance market, others rely, on the contrary, on various behavioral imperfections.
    Keywords: long term care insurance ; dependence ; annuity puzzle
    Date: 2010–06

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