nep-age New Economics Papers
on Economics of Ageing
Issue of 2011‒06‒18
twelve papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Ageing, Government Budgets, Retirement, and Growth By Dirk Niepelt; Martín Gonzalez-Eiras
  2. Optimal Unemployment Insurance for Older Workers By Hairault, Jean-Olivier; Langot, François; Ménard, Sébastien; Sopraseuth, Thepthida
  3. Would emerging market pension funds benefit from international diversification: investigating wealth accumulations for pension participants By Kumara, Ajantha Sisira; Pfau, Wade Donald
  5. How Much Do Means-Tested Benefits Reduce the Demand for Annuities? By Bütler, Monika; Peijnenburg, Kim; Staubli, Stefan
  6. Financial Literacy and Retirement Planning in Germany By Tabea Bucher-Koenen; Annamaria Lusardi
  7. Who pays for occupational pensions? By Vestad, Ola Lotherington
  8. Maternal age and offspring adult health: evidence from the Health And Retirement Study By Mikko Myrskylä; Andrew T. Fenelon
  9. Old Times, Better Times? German Miners’ Knappschaften, Pay-as-you-go Pensions, and Implicit Rates of Return, 1854–1913 By Tobias A. Jopp
  10. China’s New Demographic Challenge: From Unlimited Supply of Labour to Structural Lack of Labour Supply. Labour market and demographic scenarios: 2008-2048 By Michele Bruni
  11. Regional deposits and demographic changes By Nagayasu, Jun
  12. Revisiting the optimal population size problem under endogenous growth: minimal utility level and finite lives By Raouf Boucekkine; Giorgio Fabbri; Fausto Gozzi

  1. By: Dirk Niepelt (Study Center Gerzensee, University of Bern, IIES Stockholm University); Martín Gonzalez-Eiras (Universidad de San Andrés)
    Abstract: We analyze the short and long run effects of demographic ageing—increased longevity and reduced fertility—on per-capita growth. The OLG model captures direct effects, working through adjustments in the savings rate, labor supply, and capital deepening, and indirect effects, working through changes of taxes, government spending components and the retirement age in politico-economic equilibrium. Growth is driven by capital accumulation and productivity increases fueled by public investment. The closed-form solutions of the model predict taxation and the retirement age in OECD economies to increase in response to demographic ageing and per-capita growth to accelerate. If the retirement age were held constant, the growth rate in politico-economic equilibrium would essentially remain unchanged, due to a surge of social security transfers and crowding out of public investment.
    Date: 2011–06
  2. By: Hairault, Jean-Olivier; Langot, François; Ménard, Sébastien; Sopraseuth, Thepthida
    Abstract: This paper shows that optimal unemployment insurance contracts are age-dependent. Older workers have only a few years left on the labor market prior to retirement. This short horizon implies a more decreasing replacement ratio. However, there is a sufficiently short distance to retirement for which flat unemployment benefits can be the optimal contract. It is the result of the inability to reconcile both incentives and insurance for the soon-to-be-retired unemployed workers. We show that the unemployment benefit agency could take advantage of the retirement period to tax pensions in order to optimize the trade-off between insurance and incentives at the end of working life.
    Keywords: Unemployment insurance; Retirement; Recursive contracts; Moral Hazard
    JEL: C61 J64 J65
    Date: 2011–06
  3. By: Kumara, Ajantha Sisira; Pfau, Wade Donald
    Abstract: In recent years, investment portfolio selection is growing in importance for many emerging market pension funds, as pension reforms replace traditional pay-as-you-go systems with advanced funding systems. Various investment regulations are applied to the funded pensions, particularly in the form of portfolio limits for equities and international assets. With a bootstrap simulation approach, this paper attempts to quantify the impacts on retirement benefits of restricting international assets from the investment portfolios of emerging market pension funds. We find that, on average, over half of the pension portfolios of emerging market countries should be in international assets in order to maximize the expected utility of moderate and conservative pension fund participants. More generally, international assets can play a significant role in the investment portfolios for workers with risk aversion varying from aggressive to conservative. With few exceptions, the entire probability distribution of wealth accumulations at retirement could be shifted higher with the inclusion of international assets.
    Keywords: Emerging Market Pension Funds; International Diversification; Bootstrapping; Monte Carlo Simulations
    JEL: G11 H55 G23
    Date: 2011–06–08
  4. By: Fadilah Bt Puteh; Nor Intan Rafidah Binti Abd Radzuan; Noor Shahidah Shazlina Bt Abd Ghafar (Faculty of Administrative Science and Policy Studies, University Teknologi MARA)
    Abstract: When CUEPACS called for Malaysian Government to increase the retirement age from 56 to 60, many believes that the bold moves provides more rooms for the civil servants to have prudent financial security for the retirement preparation. On 1st July 2008, government has approved the raising of retirement age from 56 to 58 years old and it was gazetted in PKPA 6/2008 (Reference No: JPA/PEN/228/25/1/Jld 4). However, many research shows that there are mixture feeling between those who prefer to retire early and those who do not. This paper aims to look at the association between the effects of new retirement age policy with the variables. This study involves 200 public sector employees from Majlis Amanah Rakyat (MARA) Headquarter in Kuala Lumpur as our respondents using questionnaire. Our objectives are (1) we want to determine whether there are relationship between new retirement age with job performance, career advancement, financial security and also job satisfaction, (2) what is the level of perception among the public sector employees on the factors affected by the new retirement age policy. The findings show that there are positive relationship between the new retirement age with job performance, career advancement, financial security and job satisfaction. Job performance and job satisfaction shows a moderate relationship with the value of 0.424 and 0.576 while career advancement and financial security shows a low relationship with the value of 0.256 and 0.388. High total mean score of career advancement (4.0286) and job performance (3.9075) shows that these two factors are highly affected by the new retirement age policy while financial security and also job satisfaction have moderate mean scores. We also found out that the percentage of civil servants that agree to the new retirement age (44%) is not much different from those who disagree (42%)
    Keywords: retirement, public sector employees, job performance, financial security, career advancement, job satisfaction
    JEL: M0
    Date: 2011–03
  5. By: Bütler, Monika; Peijnenburg, Kim; Staubli, Stefan
    Abstract: We analyze the effect of means-tested benefits on annuitization decisions. Most industrialized countries provide a subsistence level consumption floor in old age, usually in the form of means-tested benefits or income supplements. The availability of such meanstested payments creates an incentive to cash out (occupational) pension wealth for low and middle income earners, instead of taking the annuity. Agents trade-off the advantages from annuitization, receiving the wealth-enhancing mortality credit, to the disadvantages, giving up "free" wealth in the form of means-tested supplemental benefits. We show that the availability of means-tested benefits can reduce the desired annuitization levels substantially. Moreover, the model's predicted annuitization rates as a function of the level of pension wealth are roughly consistent with the cash-out patterns of occupational pension wealth observed in Switzerland.
    Keywords: Means-Tested Benefits, Occupational Pension, Annuity.
    JEL: D81 D91 G23 J26
    Date: 2011–06
  6. By: Tabea Bucher-Koenen; Annamaria Lusardi
    Abstract: We examine financial literacy in Germany using data from the SAVE survey. We find that knowledge of basic financial concepts is lacking among women, the less educated, and those living in East Germany. In particular, those with low education and low income in East Germany have little financial literacy compared to their West German counterparts. Interestingly, there is no gender disparity in financial knowledge in the East. In order to investigate the nexus of causality between financial literacy and retirement planning, we develop an IV strategy by making use of regional variation in the financial knowledge of peers. We find a positive impact of financial knowledge on retirement planning.
    JEL: D14 D91
    Date: 2011–06
  7. By: Vestad, Ola Lotherington (Ragnar Frisch Centre for Economic Research)
    Abstract: The purpose of this paper is to estimate wage effects of occupational pensions, exploiting the introduction of mandatory occupational pensions in Norway as a source of exogenous variation in pension coverage. Various difference-in-differences models are estimated on a large sample of Norwegian private sector firms. The results indicate that on average, less than half the costs of a minimum requirement occupational pension was shifted from firms to workers in terms of lower wages, and that there are important heterogeneities with respect to the influence of local unions and central negotiations on the wage setting in different industries.
    Keywords: pension reform; mandatory occupational pensions; labour unions and centralised negotiations; matched employer-employee register data
    JEL: H22 J32 J38 J50
    Date: 2011–04–19
  8. By: Mikko Myrskylä (Max Planck Institute for Demographic Research, Rostock, Germany); Andrew T. Fenelon (Max Planck Institute for Demographic Research, Rostock, Germany)
    Abstract: Advanced maternal age is associated with negative offspring health outcomes. The interpretation often relies on physiological processes related to aging, such as decreasing oocyte quality. We use a large population-based sample of American adults to analyze how selection and lifespan overlap between generations influence the maternal age-offspring adult health association. We find that offspring born to mothers below age 25 or above 35 have worse outcomes with respect to mortality, self-rated health, height, obesity and the number of diagnosed conditions than those born to mothers aged 25-34. Controls for maternal education and age at which the child lost the mother eliminate the effect for advanced maternal age up to age 45. The association between young maternal age and negative offspring outcomes is robust to these controls. Our findings suggest that the advanced maternal age-offspring adult health association reflects selection and factors related to lifespan overlap. These may include shared frailty or parental investment, but are not directly related to the physiological health of the mother during conception, fetal development, or birth. The results for young maternal age add to the evidence suggesting that children born to young mothers might be better off if the parents waited a few years.
    JEL: J1 Z0
    Date: 2011–06
  9. By: Tobias A. Jopp
    Abstract: This paper contributes to the literature on the weakness of modern pay-as-you-go social security systems in financing pensions by taking a business and economic historical perspective on the issue. It focuses on Prussian Knappschaften (plural of Knappschaft), which provided miners with compulsory invalidity and implicit old-age insurance, and studies the period from 1854 to 1913. Knappschaften used the pay-as-you-go mechanism, and, in the long-term, came under financial pressure by the rising number of pensioners. The question to be answered is whether Knappschaften were able to off er cohorts of miners entering the system at diff erent times the same implicit rates of return. Did Knappschaften provide an intergenerationally sustainable policy, or did adjustments of contributions and other parameters decrease the dividend for insured miners over time?
    Keywords: Insurance; implicit rates of return; Knappschaft; mining; pay-as-you-go; pensions; Prussia; welfare state
    JEL: N33 N83 H53 H55
    Date: 2011–01
  10. By: Michele Bruni
    Abstract: The paper focuses on the demographic and labour market consequences of the dramatic decline in fertility that has characterized China starting at the beginning of the ‘50s. It is shared opinion that a sustained decline in fertility below replacement level will provoke a decline in Total population, an even more pronounced decline in Working age population and very relevant ageing phenomena. I have recently shown that, on the contrary and coherently with empirical evidence, a decline in fertility provokes a structural lack of labour supply that determines positive migration balances and, finally, positive demographic trends. The paper applies the same approach to China with similar results. The decline in fertility, determined by the process of economic development and its impact on education and urbanization, but promoted also trough the one-child policy, will provoke a relevant and growing structural lack of labour supply, even in the hypothesis that Chinese employment growth should sharply decline. The implication is that in order to continue its road to economic growth and social development, China will have to rely on large and growing migration flows that will determine a demographic expansion. In conclusion, the decline in fertility, actively pursued to set a ceiling to population growth, will end up provoking the opposite result. The uncertainty about the age structure of the Chinese population makes it impossible to determine in which year China will start to be affected by serious labour shortages. Our scenarios do however clearly show that China will reach the Lewis turning point in the next few years and before the middle of the century will become the world largest importer of labour. Our analysis does therefore clearly suggest that any legal restriction to fertility and territorial mobility is totally unwarranted, and that China should start to consider educational and labour policies aimed to mitigate labour shortages. It also indicates the necessity to start an in depth discussion of which immigration and social integration policies could better serve the interests of China, on the light both of the experiences of other countries, and of the role that China wants to play in the international arena.
    Keywords: Demography; Labour market; Demographic and labour market scenarios; Migrations; Lewis turning point; China
    JEL: J11 F22 O15 O53
    Date: 2011–02
  11. By: Nagayasu, Jun
    Abstract: This paper empirically analyzes the relationship between regional deposits and demographic changes. Using different types of deposit data from Japan which has experienced a sharp increase in the number of retirees, we provide clear evidence that an increase in the dependency ratio is negatively correlated with overall deposits but positively with the most liquid deposits.
    Keywords: Regional deposits; Demographic changes; Panel cointegration; Panel DOLS
    JEL: F4 E1
    Date: 2011–04
  12. By: Raouf Boucekkine (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579); Giorgio Fabbri (Dipartimento Matematica e statistica - Université de Naples); Fausto Gozzi (Dipartimento di Scienze Economiche e Aziendali - Libera Università INTERNAZIONALE DEGLI STUDI SOCIALI G. CARLI)
    Abstract: In this paper, we devise a social criterion in the spirit of the critical utility level of Blackorby-Donaldson (1984) to study an optimal population size problem in an endogenously growing economy populated by workers living a fixed amount of time and without capital accumulation. Population growth is endogenous. The problem is analytically solved, yielding closed-form solutions to optimal demographic and economic dynamics. It is shown that provided the economy is not driven to optimal finite time extinction, the optimal solution is egalitarian for appropriate choices of the critical utility levels: all individuals of any cohort are given the same consumption. The results obtained do not require any priori restriction of the values of the elasticity of intertemporal substitution unlike in several related papers.
    Keywords: Optimal population size; finite life span; critical utility value; optimal extinction; balanced growth paths
    Date: 2011–06–08

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