nep-age New Economics Papers
on Economics of Ageing
Issue of 2011‒05‒14
twelve papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. A review of the pension systems in Latin America By David Tuesta
  2. How much do respondents in the health and retirement study know about their tax-deferred contribution plans? A cross-cohort comparison. By Marjorie Honig; Irena Dushi
  3. Myopia, pension payments and retirement: An experimental approach By Craig Holmes
  4. Measuring Longevity Risk for a Canadian Pension Fund By M. Martin Boyer; Joanna Mejza; Lars Peter Stentoft
  5. On Effects of Unfunded Pension -a comparative dynamic analysis- By Takao Fujii; Fumiaki Hayashi; Jun Iritani
  6. A Matter of Trust: Understanding Worldwide Public Pension Conversions By Kent Smetters; Walter E. Theseira
  7. Framing Effects and Expected Social Security Claiming Behavior By Jeffrey R. Brown; Arie Kapteyn; Olivia S. Mitchell
  8. Life-Cycle Patterns in Male/Female Differences in Job Search. By Kunze, Astrid; Troske, Kenneth R.
  9. The Labor Supply Effects of Disability Insurance: Evidence from Automatic Conversion Using Administrative Data By Nicole Maestas; Jae Song
  10. Baby Booming Inequality? Demographic Change and Inequality in Norway, 1967{2004. By Almås, Ingvild; Havnes, Tarjei; Mogstad, Magne
  12. Socioeconomic Status in Childhood and Health After Age 70: A New Longitudinal Analysis for the U.S., 1895-2005 By Joseph P. Ferrie; Karen Rolf

  1. By: David Tuesta
    Abstract: Latin America is one of the pioneers in introducing individual capitalization schemes as part of their compulsory component of their pension systems. Thirty years have passed since Chile took the !irst step. Now what reforms have been achieved today? What challenges lie ahead? This paper reviews the motivations of the reforms and their progress, using the experience of Colombia, Chile, Mexico and Peru. The main results are presented in terms of coverage, replacement rates, and !iscal sustainability, with projections to 2050. The results show that while the reforms of both the public and private pension systems have been key to providing !iscal sustainability and have strengthened retirement savings for groups with greater permanence in the labour market, there are still many pending challenges in order to address the signi!icant percentage of people who are self-employed, within the informal sector or frequently unemployed. In that sense, for each of the countries studied, recommendations have been explored that could help reduce the level of vulnerability at the retirement stage, incentivize savings, focus resources on the truly poor, and maintain !iscal balance.
    Keywords: pensions, retirement, Latin America
    JEL: H55 J26
    Date: 2011–04
  2. By: Marjorie Honig (Hunter College); Irena Dushi (Social Security Administration)
    Abstract: We use information from Social Security earnings records to examine the accuracy of survey responses regarding participation in tax-deferred pension plans. As employer-provided defined benefit pensions are replaced by voluntary contribution plans, employees’ understanding of the link between their annual contribution decisions and their post-retirement wealth is becoming increasingly important. We examine the extent to which wage-earners in the Health and Retirement Study correctly report their inclusion in tax-deferred contribution plans and, conditional on inclusion, their annual contributions. We use two samples representing different cohorts in two different periods: the original HRS cohort interviewed in 1992 at ages 51-61, and a combination of the War Babies and Early Baby Boomer cohorts at the same ages interviewed twelve years later. Our findings indicate that while respondents interviewed in 2004 were more likely to report correctly whether they were included in DC plans, they were no more accurate in reporting whether they contributed to their plans than respondents interviewed in 1992. Respondents in both cohorts, moreover, overestimated their annual contributions. In both 1992 and in 2004, the mean absolute difference between respondent-reported and Social Security earnings record contributions was 1.5 times larger than the mean earnings record contribution.
    Keywords: Social Security, Tax-deferred contribution, pension plan, Voluntary contribution, Health and Retirement Study, Baby Boomers
    JEL: J11 J14 J26 J33
    Date: 2011
  3. By: Craig Holmes (Department of Economics, University of Oxford)
    Abstract: The behavioral economics literature on time discounting has suggested that individuals may systematically undersave when planning for retirement. Hence, pension systems have developed to enable, or indeed force, individuals to save more for retirement. Of course, the saving aspect and the timing of retirement are connected, in the sense that the expected length of retirement determines what is meant by adequate post-retirement resources, and vice versa. Despite this, the timing aspect rarely enters into policy discussions, although the same behavioural phenomena that lead to undersaving – in this paper, myopia and present bias – may also have implications for the retirement decision. Moreover, the form of pension payments may also affect the timing decision when individuals do not have time consistent preferences. This paper presents a model of saving and retirement timing where saving rates are mandated, and pension payment may come in either a lump-sum or an annuity. It tests the model using data collected through a new experiment. The experiment presented has a particular novel feature which made it uniquely suited for testing the theoretical model. Specifically, participants in the experiment came back to the laboratory on a weekly basis over a two month period. This decision to return to the laboratory (or, to leave the experiment and collect a pension) became in itself the main variable of interest. The experiment therefore exploited the effort it takes for participants to come to the laboratory to capture preferences over time-use and leisure. The results shown that plans over leaving the experiment tend not to reflect preferences, whilst actual leaving times were lower for more impulsive individuals and those who gave up more time to participate. This suggests a tradeoff between increasing saving through pension systems and earlier retirement. Payment group had no effect on retirement timing, most likely because the small rewards meant participants were indifferent between the two forms of payment. The results suggest individuals may have time-inconsistent preferences over leisure choices, leading to the incidences of unplanned early retirement.
    Keywords: Retirement, Quasi-hyperbolic discounting, Pension payments, Laboratory experiment
    JEL: J26 D91 C91
    Date: 2011–03
  4. By: M. Martin Boyer; Joanna Mejza; Lars Peter Stentoft
    Abstract: In this paper we consider two particular Canadian defined benefit pension plans to illustrate the importance of adequate mortality forecasting on actuarial liabilities. An employer who sets up an employee defined benefit pension plan promises to periodically pay a certain sum to the participant until death. Both the employee and the employer finance these periodical payments during the beneficiary’s career. Any shortcoming of funds in the future is, however, the employer’s responsibility. It is therefore essential for the employer to be able to predict with a high degree of confidence the total amount that will be required to cover its obligations to the future retiree. If increases in life expectancy were predictable and taken into consideration when establishing retirement funds, assessing future liabilities would be riskless in that respect. Unfortunately, future survival rates are uncertain. On that account, pensioners may outlive their life expectancies and expose pension funds to longevity risk. We present different tools to hedge this risk and the potential cost for two Canadian public pension plans. <P>
    Keywords: Cairns-Blake-Dowd model, Lee-Carter model, Pension Funds.,
    JEL: G22 G23
    Date: 2011–04–01
  5. By: Takao Fujii (Graduate School of Economics, Kobe University); Fumiaki Hayashi (Graduate School of Economics, Kobe University); Jun Iritani (Graduate School of Economics, Kobe University)
    Date: 2011–04
  6. By: Kent Smetters; Walter E. Theseira
    Abstract: This paper seeks to explain the key two stylized facts of fundamental reforms to social security systems worldwide: Why have so many countries reformed when traditional systems seem, at first glance, to have a higher probability of delivering a secure retirement income? Why have these reforms been larger in developing countries facing less severe demographic problems? We show that an OLG voter model can answer both questions. Larger reforms are motivated by a fundamental breakdown in intergenerational trust while smaller reforms are caused by a lack of trust in the ability of the government to save. Empirical analysis seems to support the model.
    JEL: H0 H55
    Date: 2011–05
  7. By: Jeffrey R. Brown; Arie Kapteyn; Olivia S. Mitchell
    Abstract: Eligible participants in the U.S. Social Security system may claim benefits anytime from age 62-70, with benefit levels actuarially adjusted based on the claiming age. This paper shows that individual intentions with regard to Social Security claiming ages are sensitive to how the early versus late claiming decision is framed. Using an experimental design, we find that the use of a “break-even analysis” has the very strong effect of encouraging individuals to claim early. We also show that individuals are more likely to report they will delay claiming when later claiming is framed as a gain, and when the information provides an anchoring point at older, rather than younger, ages. Moreover, females, individuals with credit card debt, and workers with lower expected benefits are more strongly influenced by framing. We conclude that some individuals may not make fully rational optimizing choices when it comes to choosing a claiming date.
    JEL: D12 D14 H55
    Date: 2011–05
  8. By: Kunze, Astrid (Dept. of Economics, Norwegian School of Economics and Business Administration); Troske, Kenneth R. (University of Kentucky)
    Abstract: We investigate whether women search longer for a job than men and whether these differences change over the life cycle. Our empirical analysis exploits German register data on highly attached displaced workers. We apply duration models to analyze gender differences in job search taking into account observed and unobserved worker heterogeneity and censoring. Simple survival functions show that displaced women take longer to find a new job than comparable men. Disaggregation by age groups reveals that these differences are driven by differential behavior of prime age women. There is no significant difference in job search duration among the very young and older workers. These differential outcomes remain even after we control for differences in human capital, and when time dependence and unobserved heterogeneity are incorporated into the model.
    Keywords: Gender differences; job search; displaced workers; wage differences. discrimination.
    JEL: J31 J63 J64 J71
    Date: 2010–01–21
  9. By: Nicole Maestas (RAND); Jae Song (Social Security Administration)
    Abstract: We analyze a natural experiment generated by the interaction of the Social Security DI and OA programs at Full Retirement Age, when DI beneficiaries are automatically converted from the DI program to the OA retired worker program. At conversion benefit payments continue unchanged, however the DI program’s high implicit marginal tax rate on earnings is abruptly relaxed. We use administrative Social Security data for the universe of primary worker DI beneficiaries from the 1934-1942 birth cohorts observed in panel over the period of 1995-2008. Our estimates imply that the DI program depresses labor supply among even the oldest DI beneficiaries. In the context of the literature to date that has sought to establish an upper bound on the earnings losses caused by the presence of the DI program by using quasi-experimental variation occurring at the program entry margin, our use of quasi-experimental variation arising from the program exit margin, when individuals are already in their mid-60s and the dominant trend in labor force participation in the population at large is downward, suggests that our estimates are most appropriately viewed as a lower bound estimate of the residual work capacity of all beneficiaries.
    Date: 2011–04
  10. By: Almås, Ingvild (Dept. of Economics, Norwegian School of Economics and Business Administration); Havnes, Tarjei (University of Oslo); Mogstad, Magne (Statistics Norway)
    Abstract: We demonstrate how age-adjusted inequality measures can be used to evaluate whether changes in inequality over time are because of changes in the age structure. In particular, we explore the hypothesis that the substantial rise in earnings inequality since the early 1980s is driven by the large baby boom cohorts approaching the peak of the age{earnings pro le. Using administrative data on earnings for every Norwegian male over the period 1967{2004, we nd that the impact of age adjustments on the trend in inequality is highly sensitive to the method used:while the most widely used age-adjusted inequality measure indicates that the rise in inequality in the 1980s and 1990s is indeed driven partly by the baby boom, a new and improved age-adjusted measure indicates the opposite, namely that the rise in inequality was even larger than what the inequality measures unadjusted for age reveal.
    Keywords: Inequality trend; age structure; age{earnings profile; Gini coefficient.
    JEL: D31 D63 D91 E21
    Date: 2011–05–07
  11. By: Jane Golley; Rod Tyers
    Abstract: The timing of China‘s and India‘s demographic transitions and the implications of alternative fertility scenarios are here explored using a global economic model incorporating full demographic behavior and measures of dependency that include the working aged and those of working age who do not work. The results show that, while the path of total dependency in China will be comparatively flat, the positive contribution of declining youth dependency to real per capita income will not be offset by rising aged dependency until beyond 2030. India‘s dependency ratio declines more sharply. Its higher initial fertility contributes positively to growth in GDP while weakening that in its real per capita income. Yet, so long as fertility continues to decline the latter negative effect will be partially offset by a demographic dividend worth at least five per cent of its 2000 real per capita income over more than three decades.
    JEL: C68 E27 F43 J11 O53
    Date: 2011–05
  12. By: Joseph P. Ferrie; Karen Rolf
    Abstract: The link between circumstances faced by individuals early in life (including those encountered in utero) and later life outcomes has been of increasing interest since the work of Barker in the 1970s on birth weight and adult disease. We provide such a life course perspective for the U.S. by following 45,000 U.S.-born males from the household where they resided before age 5 until their death and analyzing the link between the characteristics of their childhood environment – particularly, its socioeconomic status – and their longevity and specific cause of death. Individuals living before age 5 in lower SES households (measured by father’s occupation and family home ownership) die younger and are more likely to die from heart disease than those living in higher SES households. The pathways potentially generating these effects are discussed.
    JEL: I1 J1 N31 N32
    Date: 2011–05

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