nep-age New Economics Papers
on Economics of Ageing
Issue of 2011‒05‒24
twenty-one papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. What determines annuity demand at retirement? By Giuseppe Cappelletti; Giovanni Guazzarotti; Pietro Tommasino
  2. Hiring older employees: Do incentives of early retirement channels matter? By Ilmakunnas, Pekka; Ilmakunnas, Seija
  3. Disability and Social Security Reforms: The French Case By Luc Behaghel; Didier Blanchet; Thierry Debrand; Muriel Roger
  4. How much do lifetime earnings explain retirement resources? By Antoine Bozio; Carl Emmerson; Gemma Tetlow
  5. The third pillar in Europe: institutional factors and individual decisions By Le Blanc, Julia
  6. Health, Disability and Pathways to Retirement in Spain By Pilar García-Gómez; Sergi Jiménez-Martín; Judit Vall Castelló
  7. Non take up of social benefits in Greece and Spain By Matsaganis, Manos; Levy, Horacio; Flevotomou, Maria
  8. Disability Insurance and Labor Market Exit Routes of Older Workers in The Netherlands By Klaas de Vos; Arie Kapteyn; Adriaan Kalwij
  9. Disability Pension Program and Labor Force Participation in Japan: A Historical Perspective By Takashi Oshio; Satoshi Shimizutani
  10. Funding in Public Sector Pension Plans: International Evidence By Eduard Ponds; Clara Severinson; Juan Yermo
  11. Public Service Pension Reform in the United Kingdom By Finkelstein, Tamara; Perkins, Joe
  13. Disability, Health and Retirement in the United Kingdom By James Banks; Richard Blundell; Antoine Bozio; Carl Emmerson
  14. Disability Insurance, Population Health and Employment in Sweden By Lisa Jönsson; Mårten Palme; Ingemar Svensson
  15. Demographic Structure and the Security of Property Rights in Developing Countries – An Empirical Exploration By Philipp Harms; Philipp an de Meulen
  16. Can We Predict the Sustainable Withdrawal Rate for New Retirees? By Pfau, Wade Donald
  17. The associations between early life circumstances and later life health and employment in the Netherlands and Spain By Manuel Flores; Adriaan Kalwij
  18. Changes in the Japanese Employment System in the Two Lost Decades By Hamaaki, Junya; Hori, Masahiro; Maeda, Saeko; Murata, Keiko
  19. The Demographic Transition: Causes and Consequences By Oded Galor
  20. Stability and Change of Personality across the Life Course: The Impact of Age and Major Life Events on Mean-Level and Rank-Order Stability of the Big Five By Jule Specht; Boris Egloff; Stefan C. Schmukle
  21. Life span and the problem of optimal population size By Raouf BOUCEKKINE; Giorgio FABBRI; Fausto GOZZI

  1. By: Giuseppe Cappelletti (Bank of Italy); Giovanni Guazzarotti (Bank of Italy); Pietro Tommasino (Bank of Italy)
    Abstract: In most advanced countries, future retirees will have to rely less on social security schemes and more on private pension plans, which mostly leave to the worker the choice between ashing-in or annuitizing pension wealth at retirement. Therefore, a better understanding of the determinants of the demand for annuities will soon become a priority. Research in this field has been hampered by lack of data (due to current market thinness) and by difficulties in disentagling demand from supply-side effects. In this paper, we avoid these problems resorting to ad hoc survey data from Italy. Our results highlight the importance of wealth, impatience, education and (to a lesser extent) financial literacy in shaping annuity demand.
    Keywords: annuities, retirement, life cycle model
    JEL: D91 G23 H55 J26
    Date: 2011–04
  2. By: Ilmakunnas, Pekka; Ilmakunnas, Seija
    Abstract: We examine the impact of a Finnish reform in the 1990s that restricted the use of particular early retirement channels, unemployment pension and individual early retirement, and simultaneously changed the rules of firm size related experience rating in disability pensions. Our emphasis is on how the reforms affected the incentives of the firms to hire older employees. In a simple model we illustrate how forward-looking behaviour of firms affects the value of a new hire. Simulations with the model illustrate that although the reform in the unemployment pension in principle affected particular age groups, 53-54 year olds in the case of unemployment pension and 55-57 year olds in the case of individual early retirement, the impacts on hiring may have been felt also in other, younger, age groups. On the other hand, the effects of both reforms are likely to have varied by firm size. In a differences-indifferences-in-differences analysis with firm-level data we show that the impact of the reforms has been to increase the probability of hiring especially in the age group 51-52 and especially in the largest firms.
    Keywords: early retirement; hiring; pension reform
    JEL: J14 J63 J26
    Date: 2011–04
  3. By: Luc Behaghel; Didier Blanchet; Thierry Debrand; Muriel Roger
    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.
    JEL: H55 H63 J14 J26
    Date: 2011–05
  4. By: Antoine Bozio (Institute for Fiscal Studies and UCL); Carl Emmerson (Institute for Fiscal Studies); Gemma Tetlow (Institute for Fiscal Studies)
    Abstract: <p>We use a unique dataset, containing individual survey data from the English Longitudinal Study of Ageing linked to administrative data on earnings histories from administrative records, to construct measures of lifetime earnings and examine how these relate to financial resources in retirement. Retirement income and wealth at retirement is, as expected, positively correlated with lifetime earnings but there is also substantial dispersion in retirement income and retirement wealth among people with similar lifetime earnings. For example, we find that those with greater numerical ability and higher education tend to have greater retirement resources even after controlling for differences in lifetime earnings. The retirement resources of single women are far less well explained by their own lifetime earnings than those of couples or single men. We hypothesise that, as the vast majority of single women in the age group considered had previously been married and are now widowed or divorced, this reflects the fact that we do not observe the lifetime earnings of their former spouses. </p>
    Keywords: Lifetime earnings, savings, wealth, retirement
    JEL: D91 H25
    Date: 2011–02
  5. By: Le Blanc, Julia
    Abstract: This paper studies and documents household participation in voluntary individual retirement accounts (IRAs) in eleven European countries. Using recently available, internationally comparable data of households aged 50+, we calculate country-by-country average marginal effects of the probability to save in IRAs. We link the evidence from the micro data to the institutional differences in pension systems that prevail across the countries in our sample. Our results indicate that households' participation in the 'third pillar' varies substantially across countries, both due to institutional differences and household characteristics. Higher education is crucial for participation in countries with shorter traditions of IRAs where awareness matters most. Background risk due to expectations of future pension reforms as well as experience with occupational pensions increase voluntary retirement savings additionally for the currently employed individuals in our sample. --
    Keywords: individual retirement accounts,pension reform,consumption and saving over the life-cycle
    JEL: D12 G11 J26
    Date: 2011
  6. By: Pilar García-Gómez; Sergi Jiménez-Martín; Judit Vall Castelló
    Abstract: In this paper we analyze the trends in labor force participation and transitions to benefit programs of older workers in relation to health trends as well as recent Social Security reforms. Our preliminary conclusions are pessimistic regarding the effect of health improvements on the labor market attachment of older workers since we show that despite the large improvements in the mortality rates among older individuals in Spain, the employment rates of individuals older than fifty-five remain lower than the ones observed in the late 1970s. Some caution should remain in our conclusions as the evidence on health trends is inconclusive. Regarding the effect of Social Security reforms, we find that both the 1997 and the 2002 reform decreased the stock into old-age benefits at the cost of an increased share of the participation into disability. Finally, we find that there was a significant increase in the outflow from employment into disability after the 2002 reform.
    JEL: H55 I18 J11
    Date: 2011–05
  7. By: Matsaganis, Manos; Levy, Horacio; Flevotomou, Maria
    Abstract: Even though interest in non take up of social benefits is considerable in many European countries, the topic is under-researched in southern Europe. The paper provides preliminary estimates of the extent of non take up of two pairs of means-tested retirement benefits in Greece and Spain. The benefits examined are (i) the minimum pension supplements pensioner social solidarity benefit S and complementos por mnimos, and (ii) the social pensions pension to uninsured elderly and pensin de jubilacin no contributiva. The paper finds that non take up of social benefits in the two countries is rather extensive, examines the methodological difficulties inherent in the analysis of non take up, and concludes with a discussion of the results and their implications.
    Date: 2010–11–24
  8. By: Klaas de Vos; Arie Kapteyn; Adriaan Kalwij
    Abstract: This paper presents information on labor market participation of the elderly, mortality and health, pathways to retirement and rates of participation in various earnings replacing programs in the Netherlands. It presents an overview of reforms to Disability Insurance (DI) and other income maintenance and early retirement programs over the past few decades, and examines to what extent these reforms have affected labor market exit routes of older workers. The overall picture that emerges is that DI receipt appears unrelated to the general health of the population and that over the last two decades relatively fewer older workers exit the labor market through DI. This reduction may, arguably, in part be attributed to stricter DI eligibility rules.
    JEL: J26
    Date: 2011–05
  9. By: Takashi Oshio; Satoshi Shimizutani
    Abstract: This paper utilizes historical information to explore the relationship between labor force participation of middle aged and old people and the disability program in Japan. In particular, we explore the time series dimension to identify what has determined the trend in disability program participation over time and relate it with the labor supply. We find that mortality and health measures have been largely unrelated to the disability program participation rates. While major revisions to the disability program have slightly expanded the eligibility for DI programs, the program participation is still very low; thus, the effect on labor force participation is very limited in Japan, which is in contrast with some European countries that have high take up rates, inducing early retirement.
    JEL: H55 J26
    Date: 2011–05
  10. By: Eduard Ponds; Clara Severinson; Juan Yermo
    Abstract: Most countries have separate pension plan for public sector employees. The future fiscal burden of these plans can be substantial as the government usually is the largest employer, pension promises in the public sector tend to be relatively generous, and future payments have to be paid out directly from government revenues (pay-as-you-go) or by funded plans (pension funds) which tend to be underfunded. The valuation and disclosure of these promises in some countries lacks transparency, which may be hiding potentially huge fiscal liabilities that are being passed on to future generations of workers.<p> In order to arrive at a fair comparison between countries regarding the fiscal burden of their DB public sector pension plans, this paper gathers more evidence on public sector pension plans regarding the type of pension promise and quantifies the future tax burden related to these pension promises. The reported liabilities are recalculated using both a fair value approach (local market discount rates) and a common, fixed discount rate across all countries which reflects projected growth in national income. We also estimate for a number of plans from a sample of OECD countries the size of the net unfunded liabilities in fair value terms as of the end of 2008. This fiscal burden can also be interpreted as the implicit pension debt in fair value terms.
    Keywords: pension fund, funding, defined benefit, fair value, hybrid plans, public sector pensions, actuarial evaluation
    JEL: G23 H55 H75 H83 J32
    Date: 2011–05
  11. By: Finkelstein, Tamara; Perkins, Joe
    Date: 2011–03
  12. By: Lim, So Yeong; Chen, Susan E.; Waldorf, Brigitte S.
    Abstract: Low income populations are more severely affected by economic downturns than their high income counterparts because they are at high risk of unemployment and face reduced earnings in recessions. The use of food stamp benefits and other types of welfare are one mechanism that families can use to buffer the economic shock brought about by income losses due to unemployment during a recession. As a result, during unfavorable economic conditions, low income households disproportionately rely on public assistance including food stamps. What is less understood are the differential effects of macroeconomic conditions on the participation propensities of different population subgroups. Of particular importance are differential effects by age. Depending on their age, poor workers are likely to experience different patterns of unemployment so that their welfare participation patterns also differ. For example, once older workers lose their jobs, their probability of re-employment is lower than that of their younger counterparts. The reduced expectations of re-employment coupled with fewer opportunities to invest in re-training are discouraging to older unemployed persons, often implying that job losses for older workers are permanent, and eventually lead to long term reliance on welfare programs. In contrast, younger poor workers have comparatively higher chances of re-employment and exit from welfare. Whether the age differences in welfare participation will remain unchanged during economic recessions as well is still unanswered. Understanding variations in FSP participation propensities across age groups and their dependency on macroeconomic conditions is essential to predict future demand for food stamp benefits and, by extension, other welfare programs. The continuing growth in FSP demand may point to unexpectedly large fiscal burdens for future taxpayers. Moreover, understanding differential effects of macroeconomic conditions on participation propensities for different groups will allow policy makers to better identify and eventually reach genuine needy families. Therefore, this study aims to investigate FSP participation patterns with a special emphasis on the differential impact of macroeconomic factors across several demographic groups with a particular focus on age cohort effects. Specifically, transitions into and out of FSP will be explicitly addressed using longitudinal data from the Survey of Income and Program Participation (SIPP) 2004 panel. To measure the impact of economic conditions, we match SIPP data with economic measures such as the unemployment rate and wages at the state level available from the Bureau of Labor Statistics. Using the data, monthly movements on and off of FSP of individuals is followed and categorized into entry sample and continuation sample. A household not participating in FSP in one month, and thus being part of the entry sample, can choose between entering or not entering FSP in the subsequent month. Similarly, a household enrolled in one month (and thus part of the continuation sample) can choose between either continuing to stay on FSP or exiting FSP in the next month. This gives rise to two types of transition models. The first model, referred to as the entry model, tackles the decision between entry versus non-entry into FSP, conditional on non-participation in the previous months. The second model, referred to as continuation model, addresses the decision between exiting from versus continuing FSP, conditional upon participation in the preceding month. Two transition models are estimated using probit technique while controlling for individual specific effects. This study finds several important results. First, there are significant age differences in entry into and exit from the FSP. The propensity of entry into the FSP among younger people is higher than among older people while young cohorts are more prone to exiting FSP than the oldest cohort of retired or retirement-bound people. The implication for the elderly is that once receiving FSP benefits, they are very likely to continue the FSP. Their observed low FSP participation rates can thus primarily be attributed to FSP entry barriers. Second, rising unemployment boosts FSP entry propensities and lengthens FSP spells. Changes in wage levels, however, affect neither entry nor exit propensities. Third, the effect of unemployment on FSP continuation propensities varies by age. The youngest cohort responds to increasing unemployment by drastically prolonging their FSP spells whereas the older extend their FSP spells more gradually. For the oldest cohort, FSP exit probabilities are even found to rise in association with rising unemployment, a phenomenon that can be explained by retirement and special transfer programs for the elderly.
    Keywords: Food Stamp Program, Age, Macroeconomy, Transition, Agricultural and Food Policy, Food Consumption/Nutrition/Food Safety, I38, J64,
    Date: 2011
  13. By: James Banks; Richard Blundell; Antoine Bozio; Carl Emmerson
    Abstract: Over the last thirty years pathways to retirement have changed substantially in the UK. They have been dominated by spells of unemployment in the late 1970s, with then an increased importance of disability spells from the mid-1980s onwards. At the end of the period the direct route from work to retirement was increasingly more common. General economic conditions seem to have been important driving forces during the entire period. In contrast changes in health do not seem to provide convincing explanations for these trends: mortality has been falling over the period without any apparent link to the share of the population reporting ill health or disability or to the number claiming benefits. We also find evidence that recent reforms have had some impact. The halting of the previous growth in the rate of in-flow onto disability benefits in the mid-1990s coincided with the implementation of a major reform. Evidence from the pilots of the Pathways-to-Work programme in 2003-2005 suggests that those moving onto disability benefits moved off these benefits faster than they would otherwise have done as a direct result of the programme.
    JEL: H55 I1 I38
    Date: 2011–05
  14. By: Lisa Jönsson; Mårten Palme; Ingemar Svensson
    Abstract: This paper describes the development of population health and disability insurance utilization for older workers in Sweden and analyzes the relation between the two. We use three different measures of population health: (1) the mortality rate (measured between 1950 and 2009); (2) the prevalence of different types of health deficiencies obtained from Statistics Sweden’s Survey on Living Conditions (ULF, 1975-2005); (3) the utilization of health care from the inpatient register (1968–2008). We also study the development of the relative health between disability insurance recipients and non-recipients. Finally, we study the effect of the introduction of less strict eligibility criteria for older workers in 1970 and 1972 as well as the subsequent abolishment of these rules in 1991 and 1997, respectively.
    JEL: H51 H55 I18 J26
    Date: 2011–05
  15. By: Philipp Harms; Philipp an de Meulen
    Abstract: It is often argued that countries with a high population share of children and young workers should attract large capital inflows from aging industrialized economies. However, many of these countries deter foreign investors by a high risk of creeping or outright expropriation. In this paper we explore whether the correlation between countries’ demographic structure and the perceived security of property rights reflects a causal relationship. We show that, once we control for other potential determinants of expropriation risk, the ratio of young to old workers has a positive effect on the perceived security of property rights in low-income countries. This effect is the stronger the more democratic the political system.
    Keywords: International investment; political economy; expropriation risk; demographics
    JEL: F21 D78 J10
    Date: 2010–11
  16. By: Pfau, Wade Donald
    Abstract: I investigate how well market valuation and yield measures predict the maximum sustainable withdrawal rate (MWR) that a person can use with their retirement savings to obtain inflation-adjusted income over a 30-year period. The regression framework includes variables to predict long-term stock returns, bond returns, and inflation (the components driving a retiree's remaining portfolio balance). It produces estimates that fit the historical data well. This study suggests that a 4 percent withdrawal rate cannot be considered as safe for U.S. retirees in recent years when the cyclically-adjusted price-earnings ratio has experienced historical highs and the dividend yield has experienced historical lows. Nevertheless, there are important qualifications for these predictions. Most importantly, they depend on out-of-sample estimates as the circumstances of the past 15 years have not been witnessed before. Readers persuaded by this analysis may wish to include TIPS and other assets as a part of their portfolios, and recent retirees should closely monitor their spending and portfolio balance. Maintaining flexibility with retirement spending is important. More generally, this framework can guide new retirees toward a reasonable range for their expected MWR so that the 4 percent rule need not be blindly followed.
    Keywords: safe withdrawal rates; retirement planning; market valuation; price-earnings ratio; dividend yield; stock returns; bond returns
    JEL: G11 C20 N22 C15 D14
    Date: 2011–05–12
  17. By: Manuel Flores; Adriaan Kalwij
    Abstract: Using data from the Survey of Health, Ageing and Retirement in Europe, this paper provides empirical evidence for the Netherlands and Spain on the associations between individuals' early life circumstances - measured by health and socioeconomic status (SES) during childhood - educational attainment, and later life health and employment (at ages 50-64). We find that for both men and women in the Netherlands and Spain, favorable early life circumstances (i.e., better childhood health and higher SES) are associated with a higher level of education, which is in turn associated with better health later in life. This latter is also linked to early life circumstances conditional on educational attainment. For men only, favorable early life circumstances are associated with a higher incidence of later life employment, primarily because of better later life health. Our findings thus suggest that policies aimed at improving children's s health and SES may have long-term benefits through increased individual educational attainment and later life health and employment.
    Keywords: Early life circumstances, health, employment
    JEL: D00 I10 J10 J20
    Date: 2011–04
  18. By: Hamaaki, Junya; Hori, Masahiro; Maeda, Saeko; Murata, Keiko
    Abstract: Despite changes in the economic and social environment following the burst of the bubble economy in the early 1990s, studies on the Japanese employment system so far have detected few major changes in seniority-based wage or lifetime employment patterns. Using recent microdata from the Basic Survey on Wage Structure, this paper takes another look at developments in these two key elements of the Japanese employment system. In contrast with previous studies, we do find evidence that the two practices are eroding and that, hence, the traditional employment system overall has begun to unravel. Specifically, with regard to seniority wages, we found, for example, that the age-wage profile has become flatter in recent years, especially for employees in the middle and final phase of their career. And as for lifetime employment, we found a clear downward trend in the share of lifetime employees among younger, university-educated workers from the early 2000s. Taken together, the findings suggest that a growing share of educated younger workers choose to leave indefinite-contract jobs due to the poor prospects for seniority-based wage progression, while older workers choose to stay in their present job despite stagnating or falling wages, since it is more difficult for them to find alternative employment.
    Keywords: Seniority-based wages, Lifetime employment, Japan
    JEL: J21 J31 J01
    Date: 2011–03
  19. By: Oded Galor
    Abstract: This paper develops the theoretical foundations and the testable implications of the various mechanisms that have been proposed as possible triggers for the demographic transition. Moreover, it examines the empirical validity of each of the theories and their significance for the understanding of the transition from stagnation to growth. The analysis suggests that the rise in the demand for human capital in the process of development was the main trigger for the decline in fertility and the transition to modern growth
    JEL: J1 O10
    Date: 2011–05
  20. By: Jule Specht; Boris Egloff; Stefan C. Schmukle
    Abstract: Does personality change across the entire life course, and are those changes due to intrinsic maturation or major life experiences? This longitudinal study investigated changes in the mean levels and rank order of the Big Five personality traits in a heterogeneous sample of 14,718 Germans across all of adulthood. Latent change and latent moderated regression models provided four main findings: First, age had a complex curvilinear influence on mean levels of personality. Second, the rank-order stability of Emotional Stability, Extraversion, Openness, and Agreeableness all followed an inverted U-shaped function, reaching a peak between the ages of 40 and 60, and decreasing afterwards, whereas Conscientiousness showed a continuously increasing rank-order stability across adulthood. Third, personality predicted the occurrence of several objective major life events (selection effects) and changed in reaction to experiencing these events (socialization effects), suggesting that personality can change due to factors other than intrinsic maturation.<br /> Fourth, when events were clustered according to their valence, as is commonly done,<br /> effects of the environment on changes in personality were either overlooked or<br /> overgeneralized. In sum, our analyses show that personality changes throughout the life<br /> span, but with more pronounced changes in young and old ages, and that this change is<br /> partly attributable to social demands and experiences.
    Keywords: personality development, Big Five, life events, stability, adulthood
    Date: 2011
  21. By: Raouf BOUCEKKINE (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES), Center for Operations Research and Econometrics (CORE) and GREQAM, Université Aix-Marseille II); Giorgio FABBRI (Dipartimento di Studi Economici S. Vinci, Università di Napoli Parthenope, Naples); Fausto GOZZI (Dipartimento di Scienze Economiche ed Aziendali, Università LUISS - Guido Carli, Rome)
    Abstract: We reconsider the optimal population size problem in a continuous time economy populated by homogenous cohorts with a fixed life span. Linear production functions in the labor input and standard rearing costs are also considered. First, we study under which conditions the successive cohorts will be given the same consumption per capita. We show that this egalitarian rule is optimal whatever the degree of altruism when life spans are infinite. However, when life spans are finite, this rule can only be optimal in the Benthamite case, i.e. when the degree of altruism is maximal. Second, we prove that under finite life spans the Millian welfare function leads to optimal extinction at finite time whatever the lifetime. In contrast, the Benthamite case is much more involved: for isoelastic utility functions, it gives rise to two threshold lifetime values, say T0 < T1: below T0, finite time extinction is optimal; above T1, balanced growth paths are optimal. In between, asymptotic extinction is optimal. Third, optimal consumption and population dynamics are given in closed-form.
    Keywords: Optimal population size, Benthamite Vs Millian criterion, finite lives, optimal extinction
    JEL: D63 D64 C61
    Date: 2011–04–04

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