nep-age New Economics Papers
on Economics of Ageing
Issue of 2011‒05‒07
seven papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Pensions in the 2000s: the Lost Decade? By Edward N. Wolff
  2. A simple model of aggregate pension expenditure By Angel de la Fuente
  3. Unemployment, Human Capital Depreciation and Pension Benefits: An Empirical Evaluation of German Data By Niklas Potrafke
  4. Reforming Pensions: Lessons from Economic Theory and Some Policy Directions By Nicholas Barr; Peter Diamond
  5. Income and Poverty among Older Koreans: Relative Contributions of and Relationship between Public and Family Transfers By Jinkook Lee; Drystan Phillips
  6. Rethinking the informal labour from an evolutionary point of view By Senses Dayangac, Renginar; Ozturk Goktuna, Bilge
  7. Non-Existence of Steady State Equilibrium in the Neoclassical Growth Model with a Longevity Trend By Mikkel Nørlem Hermansen

  1. By: Edward N. Wolff
    Abstract: One of the most dramatic changes in the retirement income system over the last three decades has been a decline in traditional defined benefit (DB) pension plans and a corresponding rise in defined contribution (DC) pensions. Have workers benefited from this change? Using data from the Survey of Consumer Finances, I find that after robust gains in the 1980s and 1990s, pension wealth experienced a marked slowdown in growth from 2001 to 2007. Projections to 2009 indicate no increase in pension wealth from 2001 to 2009. Retirement wealth is also found to offset the inequality in standard household net worth. However, I find that pensions had a weaker offsetting effect on wealth inequality in 2007 than in 1989. As a result, whereas standard net worth inequality showed little change from 1989 to 2007, the inequality of private augmented wealth (the sum of pension wealth and net worth) did increase over this period. These results hold up even when Social Security wealth and employer contributions to DC plans are included in the measure of wealth and when adjustments are made for future tax liabilities on retirement wealth.
    JEL: D31 H55 J32
    Date: 2011–04
  2. By: Angel de la Fuente
    Abstract: This paper develops a simple model that can be used to analyze the long-term sustainability of the contributive pension system and the steady-state response of pension expenditure to changes in some key demographic and economic variables, in the characteristics of the average pensioner and in the parameters that describe how pensions are calculated in Spain as a function of workers' Social Security contribution histories.
    Keywords: pensions, sustainability, Spain
    JEL: H55
    Date: 2011–04–26
  3. By: Niklas Potrafke (Department of Economics, University of Konstanz, Germany)
    Abstract: This paper investigates empirically how unemployment-induced employment-breaks at different career stages influence pension benefits. The analysis is based on German data. I distinguish four different career phases and investigate to what extent the prevailing social security policy compensated for earning losses. The results suggest that (1) losses in pension benefits were the greatest if unemployment occurred in the middle of a career (between 31 50); (2) social security policies have had a mitigating effect on losses in pension benefits. These findings indicate that institutions have a decided influence on how career patterns translate into pension benefits.
    Keywords: employment histories, career interruptions, pension benefits, social security policy, human capital depreciation, institutions
    JEL: J26 J24 H55 I38
    Date: 2011–04–25
  4. By: Nicholas Barr; Peter Diamond
    Abstract: Pension systems have wide-ranging and important effects. They influence the living standards of older people and hence the welfare of both older people and their children. They can also affect national economic performance through potential effects on the labor supply and saving. The design of pensions therefore matters. In discussing the topic, this paper draws on two of our earlier works. It starts by setting out some central lessons from economic theory. Then we derive some policy implications of particular relevance to Latin America.
    Date: 2010–03–31
  5. By: Jinkook Lee; Drystan Phillips
    Abstract: The authors examined the economic wellbeing of the Korean elderly and their reliance on public and private transfers. Under-developed public transfer programs are at the center of heated political debates, and better understanding of economic wellbeing and the relation between public and private transfers will provide further insights in evaluating policy reform proposals under consideration. Using data from the 2006 and 2008 Korean Longitudinal Study of Aging, they found that the elderly poverty rate between 2006 and 2008 decreased significantly but was still significantly higher than other OECD countries. This poverty reduction did not benefit individuals who were older, less educated, living alone, living in rural areas, or in poor health. They found that low income elderly who co-reside depend almost completely on the income of their children or other household members. Public transfers account for no more than a third of income for low-income elderly, while private transfers accounted for half. Their analysis suggests that crowding-out is not a real concern in increasing welfare transfers for the low-income elderly.
    Date: 2011–04
  6. By: Senses Dayangac, Renginar (Galatasaray University Economic Research Center); Ozturk Goktuna, Bilge (Galatasaray University Economic Research Center)
    Abstract: The model presents the dynamics and the equilibrium of an overlapping generation economy when there is informal employment, a pension system and altruistic agents. The model inspires from stylised facts on developping and Euro-Mediteranean countries where family plays a central role in risk insurance. The rational is emphasised by lower costs compared to private and public insurance systems. Given an initial distribution of the informally employed individuals, the model captures the e¤ects of social security decisions and anticipated bequests on the preference of the agents for formal or informal employment. The impact of scal policies on the distribution of employment to formal and informal categories is analysed through the political competition. We show that opportunist behaviour would amplify the relative size of the informal employment.
    Keywords: Informal labour; Overlapping generations; Political competition
    Date: 2011–04–01
  7. By: Mikkel Nørlem Hermansen (School of Economics and Management, Aarhus University, Denmark)
    Abstract: Longevity has been increasing in the developed countries for almost two centuries and further increases are expected in the future. In the neoclassical growth models the case of population growth driven by fertility is well-known, whereas the properties of population growth caused by persistently declining mortality rates have received little attention. Furthermore, the economic literature on the consequences of changing longevity has relied almost entirely on analysis applying a once and for all change in the survival probability. This paper raises concern about such an approach of comparison of steady state equilibrium when considering the empirically observed trend in longevity. We extend a standard continuous time overlapping generations model by a longevity trend and are thereby able to study the properties of mortality-driven population growth. This turns out to be exceedingly complicated to handle, and it is shown that in general no steady state equilibrium exists. Consequently analytical results and long run implications cannot be obtained in a setting with a realistic demographic setup.
    Keywords: Longevity, Population growth, Overlapping generations models, Steady state equilibrium, Existence
    JEL: J11 C62 O41 E13
    Date: 2011–04–18

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