nep-age New Economics Papers
on Economics of Ageing
Issue of 2011‒04‒09
nine papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Flexible Retirement By Daniel van Vuuren
  2. The unavoidable role of private pensions in retirement income systems By Juan Yermo
  3. Financial Literacy, Retirement Preparation and Pension Expectations in the Netherlands By Rob Alessie; Maarten van Rooij; Annamaria Lusardi
  4. Intergenerational Risk Sharing in Time-Consistent Funded Pension Schemes By Ed Westerhout
  5. Consumption Patterns Among Aging Canadians: A Synthetic Cohort Approach By Lafrance, Amélie; Larochelle-Côté, Sébastien
  6. Quality of Labor, Capital, and Productivity Growth in Japan: Effects of employee age, seniority, and capital vintage By SHINADA Naoki
  7. Design of a Social Security System: Pension System vs. Unemployment Insurance By Yusuke Kinai
  8. The effect of childhood education on old age cognitive abilities: evidence from a Regression Discontinuity design By James Banks; Fabrizio Mazzonna
  9. The Role of Desicion Making Processes in the Correlation between Wealth and Health By Binswanger, J.; Carman, K.G.

  1. By: Daniel van Vuuren
    Abstract: Flexible retirement - that is, the opportunity to choose one’s own personal retirement age - serves as a hedge against pension risk and provides insurance to workers facing health or productivity shocks. This paper discusses three conditions to provide insurance through flexible retirement.
    JEL: J26 H55
    Date: 2011–03
  2. By: Juan Yermo
    Abstract: This work describes the growing need that governments face to reform their pension systems into more financially sustainable structures, especially in light of the recent financial crisis and the rapidly ageing population. The study identi!ies two main types of structural reforms: those that automatically link the public pension system’s parameters to the demography or actuaries, and those that lead to a partial replacement of the PAYG-!inanced public pension systems by private pension arrangements and the transfer of a part of social security contributions to fully-funded, DC accounts. While both types of reform bring about long-term improvements in the financial balance of the public pension system, their design may have very different implications for the adequacy and equity of pension systems that policymakers need to address.
    Date: 2011–03
  3. By: Rob Alessie; Maarten van Rooij; Annamaria Lusardi
    Abstract: We present new evidence on financial literacy and retirement preparation in the Netherlands based on two surveys conducted before and after the onset of the financial crisis. We document that while financial knowledge did not increase from 2005 to 2010, significantly more individuals planned for their retirement in 2010. At the same time, employees’ expectations about the level of their pension income are high compared to what retirement plans may realistically provide. However, financially knowledgeable employees report lower expected replacement rates and acknowledge higher levels of uncertainty. Moreover using instrumental variation for financial conditions and financial knowledge of relatives, we find a positive effect of financial literacy on retirement preparation. Employing the panel feature of our dataset, we show that financial knowledge has a causal impact on retirement planning. Our findings suggest that the formation of pension expectations might be an important mechanism contributing to the impact of financial literacy on planning.
    Keywords: Financial Sophistication; Retirement Planning; Retirement Expectations
    JEL: D91 G11 D80
    Date: 2011–03
  4. By: Ed Westerhout
    Abstract: Intergenerational risk sharing by funded pension schemes may increase welfare in an ex ante sense. However, it also suffers from a time inconsistency problem. In particular, young generations may be unwilling to start participating in a pension scheme if this requires them to make huge transfers to older generations.
    JEL: H55
    Date: 2011–04
  5. By: Lafrance, Amélie; Larochelle-Côté, Sébastien
    Abstract: Studies of pre- and post-retirement annual income have focused on the extent to which income falls at this crucial stage in life. Although these studies vary in scope and intent, the overall consensus is that the Canadian retirement income system provides income replacement rates that are in the excess of 60% to 70% for a plurality of Canadians, especially for those who had low incomes during their prime working years. However, little has been published on the extent to which retirees maintain their same levels of consumption. Using data from the Survey of Family Expenditures (FAMEX) and from the Survey of Household Spending (SHS), this study develops a synthetic cohort approach to determine how the consumption patterns of households headed by individuals in their late 40s (in the early 1980s) differ from those of a group of households headed by individuals in their early 70s (in the late 2000s). It finds that, even though the nature of consumption changes over time, the overall levels of consumption "per adult" do not decline by substantial amounts among Canadians as they age.
    Keywords: Income, pensions, spending and wealth, Seniors, Household assets, debts and wealth, Work and retirement
    Date: 2011–03–25
  6. By: SHINADA Naoki
    Abstract: An aging population, low fertility rate, and suppressed corporate investment have left Japan with an older workforce and older vintages of fixed capital. To restore economic dynamism, Japan must encourage productivity growth. Using panel data of listed Japanese firms in FY 1977-2008, this paper demonstrates how both employee age and capital vintage affect the quality of labor and capital that influence productivity. Our research contributes three significant findings. (1) The older the average age of a firm's employees or the longer their seniority, the higher the firm's productivity growth, but it is unclear if the effects peak at specific ages. (2) The positive effects of employees' increasing age and seniority and the negative effect of older capital on Japan's productivity growth have declined since the 1990s. (3) These effects have been larger among manufacturers than non-manufacturers. Negative effects of increasing non-regular workers should be addressed, and it is further important for Japanese firms to organize and manage labor skills and enhance knowledge, rather than depend on technology accumulated over time.
    Date: 2011–03
  7. By: Yusuke Kinai (Graduate School of Economics, Osaka University)
    Abstract: This paper presents consideration of how the social security system evolves as the attributes of voters change. In our setting, policy determination is based on majority voting. The government has two components of social security policy: a pension system and unemployment insurance. When workers constitute most voters, the pension system is supported and when unemployed people are the majority, unemployment insurance is adopted. Under this setting, employing the concept of structure-induced equilibrium developed by Shepsle (1979), the present paper describes how the contents of the social security system evolve depending on the dynamics of capital accumulation and the unemployment rate, and demonstrates the possibility that one or the other social security system ceases to exist in certain instances.
    Keywords: Social Security, Pension System vs. Unemployment Insurance, Majority Voting, Structureinduced equilibrium.
    JEL: E61 H53 H55
    Date: 2011–03
  8. By: James Banks (Institute for Fiscal Studies and University of Manchester); Fabrizio Mazzonna
    Abstract: <p>We exploit the change to the minimum school-leaving age in the United Kingdom from 14 to 15 using a regression discontinuity design to evaluate the causal effect of one more year of education on cognitive abilities at older ages. We find a large and significant effect of this reform on males' memory and executive functioning measured using simple cognitive tests from the English Longitudinal Survey on Ageing (ELSA). This result is particularly remarkable since the 1947 reform had a powerful and immediate effect on about half the population of 14-yearolds. We investigate and discuss the potential channels by which this reform may have had its effects, as well as carrying out a full set of sensitivity analyses and robustness checks. </p>
    Date: 2011–03
  9. By: Binswanger, J.; Carman, K.G. (Tilburg University, Center for Economic Research)
    Abstract: There are many pathways explaining the relationship between socioeconomic status and health; one possibility is that some normally unobservable characteristic causes people to invest both in their financial well-being and their health. Here we consider the possibility that the decision making processes are similar across domains and that the steps individuals take to make decisions can help to explain the correlation in outcomes across domains. We focus particularly on retirement savings decisions and decisions in the health domain. Choices in both domains have long-term consequences and therefore require foresight and the ability to process complex information. Our results suggest that up to 44% of the correlation between wealth and health is due to the processes that people use to make these choices.
    Keywords: Health;Wealth;Decision Making.
    JEL: I12 D14
    Date: 2011

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