nep-age New Economics Papers
on Economics of Ageing
Issue of 2011‒06‒11
eight papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Life-Cycle Unemployment, Retirement, and Parametric Pension Reform By Fisher, Walter H.; Keuschnigg, Christian
  2. Pension reform in a rapidly ageing country: the case of Ukraine By Katerina Lisenkova
  3. The Persistence of Employee 401(k) Contributions Over a Major Stock Market Cycle: Evidence on the Limited Power of Inertia on Savings Behavior By Leslie A. Muller; John A. Turner
  4. Economic Effects of Financing Public Pension Plans from Tax Revenue (Japanese) By HASHIMOTO Kyoji; KIMURA Shin
  5. Baby Booming Inequality? Demographic Change and Earnings Inequality in Norway, 1967-2000 By Almas, Ingvild; Havnes, Tarjei; Mogstad, Magne
  6. Immigration and growth in an ageing economy By Muysken, Joan; Ziesemer, Thomas
  7. The Tragedy of Annuitization By Heijdra, Ben J.; Mierau, Jochen O.; Reijnders, Laurie S.M.
  8. Early Life Conditions and Financial Risk–Taking  in Older Age By Dimitrios Christelis; Loreti I. Dobrescu; Alberto Motta

  1. By: Fisher, Walter H. (Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria); Keuschnigg, Christian (University of St. Gallen (FGN-HSG), CEPR, CESifo and Netspar, Switzerland)
    Abstract: This paper investigates the consequences of pension reform for life-cycle unemployment and retirement. We find that (i) improving actuarial fairness in pension assessment not only boosts old age participation but also reduces unemployment among prime age workers and raises welfare; (ii) strengthening the tax benefit link boosts life-cycle labor supply on all margins and welfare; (iii) excluding unemployment benefits from the pension assessment base reduces unemployment, encourages later retirement and boosts efficiency; and (iv) extending the calculation period favors employment of young workers, might possibly lead to more unemployment among older ones, encourages postponed retirement and most likely yields positive welfare gains.
    Keywords: Pensions, Tax benefit link, Retirement, Unemployment
    JEL: H55 J26
    Date: 2011–05
  2. By: Katerina Lisenkova (Department of Economics, University of Strathclyde)
    Abstract: Ukraine has a rapidly ageing and declining population. A dynamic forward­â€looking Computable General Equilibrium(CGE)modelwith an explicitly modelled Pay-­As-­You-­Go pension scheme is constructed to perform simulations of different pension reform scenarios and investigate the impact of population ageing on a wide range of macroeconomic variables. It is shown that, changes in age structure will result in a significant negative impact on the economy and stability of the pension system. Analysis of the potential changes to the pension system is limited to modelling an increase of the pension age, keeping either the workers’ contribution rate or replacement rate constant.
    Keywords: Ukraine, CGE Modelling, Pension Reform, Ageing
    JEL: J26 J11 C68
    Date: 2011–05
  3. By: Leslie A. Muller (Hope College); John A. Turner (Pension Polciy Center)
    Abstract: Many middle-income workers save for retirement through 401(k) plans. This study addresses the concern that low account balances of older workers may indicate that these vehicles are not sufficient to insure adequate retirement savings. In particular, the study shows that workers are not persistent (continuing once a worker has started) in contributing, and a weak stock market exacerbates the problem. The study suggests that the concept of inertia, which is in vogue in behavioral economics, does not seem to hold for 401(k) saving behavior. Furthermore, the investment strategy of dollar cost averaging does not seem to hold, either. Using panel data (Panel Study of Income Dynamics) covering a six-year time span from 1999 to 2005, the study presents descriptive and econometric evidence about the persistence behavior of individuals with 401(k) accounts. In particular, the PSID data that were analyzed come from four biannual waves in 1999, 2001, 2003, and 2005. Descriptive data show that of the sample of household heads aged 21-65 in 2005 who were employed in every time period, only about one-third (35 percent) contributed to their plan in all four waves. Job changing had an impact. However, even for individuals in the sample who did not change jobs, less than half (46 percent) contributed in all four years of the survey. An equation modeling 401(k) contribution behavior was estimated using logit regression analysis. When this model was estimated with the sample of individuals who were employed in each panel and with the sample of individuals who were employed in each panel and never changed jobs, the coefficient on the Dow Jones Industrial Average was positive and significant. Workers contributed to their plans when the market was up. This investment error is called herd investing, where individuals get into the market when it is high and not when it is low. The study concludes that the findings have important implications for the pension system and adequacy of retirement income. Projects of future retirement income readiness that assume that workers persistently contribute over their working lives greatly exaggerate the future levels of pension assets workers will have accumulated.
    Keywords: private pensions, non-wage compensation, financial literacy, investment behavior, 401(k) plans, retirement savings, stock market cycle
    JEL: D14 J26 J32
    Date: 2011–04
  4. By: HASHIMOTO Kyoji; KIMURA Shin
    Abstract: This paper summarizes the literature on financing Japanese public pension plans from tax revenue and simulates the economic effects of financing from tax revenue in the short and long terms. From our analysis for the short term, we have found that financing the basic pension from consumption tax will likely lower the household welfare level compared with financing from social insurance premiums. This is because the excess burdens generated by social insurance premiums, which are imposed on labor, are lighter than excess burdens from consumption tax if the supply of labor is mostly fixed. In the long term, financing public pension plans from consumption tax will help achieve higher economic growth rates than financing from social insurance premiums, which are imposed on income, but will curb consumption by those generations still working and will lower the welfare level. Japan should also avoid depending solely on consumption tax for financing public pension plans from tax revenue because of the regressive nature of the tax.
    Date: 2010–07
  5. By: Almas, Ingvild; Havnes, Tarjei; Mogstad, Magne
    Abstract: In this paper, we demonstrate how age-adjusted inequality measures can be used to evaluate whether changes in inequality over time are due to changes in the age-structure. To this end, we use administrative data on earnings for every male Norwegian over the period 1967-2000. We find that the substantial rise in earnings inequality over the 1980s and into the early 1990s, is to some extent driven by the fact that the large baby boom cohorts are approaching the peak of the age-earnings profile. We further demonstrate that the impact of age-adjustments on the trend in inequality during the period 1993-2000 is highly sensitive to the method used: While the most widely used age-adjusted inequality measure indicates little change in inequality over this period, a new and improved age-adjusted measure suggest a decline in inequality.
    Keywords: age structure; age-earnings profile; Gini coefficient; inequality trend
    JEL: D31 D63 D91 E21
    Date: 2011–05
  6. By: Muysken, Joan (Department of Economics, Maastricht University); Ziesemer, Thomas (UNU-MERIT and Department of Economics, Maastricht University)
    Abstract: This paper argues that immigration can help to alleviate the burden ageing presents for the welfare states of most Western Economies. We develop a macroeconomic framework which deals with the impact of both ageing and immigration on economic growth. This is combined with a detailed model of the labour market, to include the interaction with lowskilled unemployment. The empirical relevance of some crucial model assumptions is shown to hold for the Netherlands, 1973 – 2007. The conclusions are that immigration will help to alleviate the ageing problem, as long as the immigrants will be able to participate in the labour force at least as much as the native population. Moreover, the better educated the immigrants are or become, the higher their contribution to growth will be.
    Keywords: ageing population, immigration, unemployment, skills
    JEL: E24 F22 O15 O52
    Date: 2011
  7. By: Heijdra, Ben J. (Faculty of Economics and Business, University of Groningen, The Netherlands, and Institute for Advanced Studies, CESifo, Netspar); Mierau, Jochen O. (Faculty of Economics and Business, University of Groningen, The Netherlands); Reijnders, Laurie S.M. (Faculty of Economics and Business, University of Groningen, The Netherlands)
    Abstract: We construct a tractable discrete-time overlapping generations model of a closed economy and use it to study government redistribution of accidental bequests and private annuities in general equilibrium. Individuals face longevity risk as there is a positive probability of passing away before the retirement period. We find non-pathological cases where it is better for longrun welfare to waste accidental bequests than to give them to the elderly. Next we study the introduction of a perfectly competitive life insurance market offering actuarially fair annuities. There exists a tragedy of annuitization: although full annuitization of assets is privately optimal it is not socially beneficial due to adverse general equilibrium repercussions.
    Keywords: Longevity risk, Risk sharing, Overlapping generations, Intergenerational transfers, Annuity markets
    JEL: D52 D91 E10 J20
    Date: 2011–05
  8. By: Dimitrios Christelis (SHARE, CSEF and CFS); Loreti I. Dobrescu (University of New South Wales); Alberto Motta (University of New South Wales)
    Abstract: Using life-history survey data from eleven European countries, we investigate whether childhood conditions, such as socioeconomic status, cognitive abilities and health problems influence portfolio choice and risk attitudes later in life. After controlling for the corresponding conditions in adulthood, we find that superior cognitive skills in childhood (especially mathematical abilities) are positively associated with stock and mutual fund ownership. Childhood socioeconomic status, as indicated by the number of rooms and by having at least some books in the house during childhood, is also positively associated with the ownership of stocks, mutual funds and individual retirement accounts, as well as with the willingness to take financial risks. On the other hand, less risky assets like bonds are not affected by early childhood conditions. We find only weak effects of childhood health problems on portfolio choice in adulthood. Finally, favorable childhood conditions affect the transition in and out of risky asset ownership, both by making divesting less likely and by facilitating investing (i.e., transitioning from non-ownership to ownership).
    Keywords: Portfolio Choice, Childhood Socio-economic Status, Cognition, Health, Financial Risk
    JEL: G11 D14 E21 J13 C23 C25
    Date: 2011–05–27

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