nep-age New Economics Papers
on Economics of Ageing
Issue of 2011‒06‒25
eleven papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Pension Reforms in Poland and Elsewhere: the View from Paris By Peter Jarrett
  2. The Future of Retirement and the Pension System: How the Public's Expectations Vary over Time and across Socio-Economic Groups By Bissonnette, Luc; van Soest, Arthur
  3. Disability Programs, Health and Retirement in Denmark since 1960 By Paul Bingley; Nabanita Datta Gupta; Peder J. Pedersen
  4. The impact of reforms on labour market exit probabilities By Rob Euwals; Daniel van Vuuren; Annemiek van Vuren
  5. Retirement savings guidelines for residents of emerging market countries By Meng, Channarith; Pfau, Wade Donald
  6. Lifecycle Impacts of the Financial and Economic Crisis on Household Optimal Consumption, Portfolio Choice, and Labor Supply By Jingjing Chai; Raimond Maurer; Olivia S. Mitchell; Ralph Rogalla
  7. Labor supply and government programs: A cross-country analysis By Andrés Erosa; Luisa Fuster; Gueorgui Kambourov
  8. Contrasting Giants: Demographic Change and Economic Performance in China and India By Jane Golley; Rod Tyers
  9. Dimensions of Health in the Elderly Population By David M. Cutler; Mary Beth Landrum
  10. Antidepressants and Age By Blanchflower, David G.; Oswald, Andrew J.
  11. Challenges of formal social security systems in Sudan By Mohamed, Issam A.W.

  1. By: Peter Jarrett
    Abstract: Recently several countries, including Estonia, Latvia, Lithuania, Hungary, Poland, Romania and Slovakia, have at least partially reversed their earlier moves towards compulsory defined-contribution schemes. This paper concentrates on Poland, which just reduced contributions going to the mandatory second pillar from 7.3 to 2.3% of earnings with that amount diverted to the public pension regime (ZUS). Trying to solve the problem of public finance sustainability by radically shrinking the second tier of the pension system has obvious costs in terms of poverty among old-age pensioners. Their incomes will fall sharply relative to those of working-age population. Partially reversing pension reform will also cost Poland in terms of risk spreading and capital market development. It will also undermine the population’s trust in the system. There is no alternative for achieving public finance sustainability but to restrain current spending and/or raise taxes. The pensionable age should be raised further (probably to 70 by mid-century), even in the general scheme, to deal with the long-run demographic challenge and be equalized across the two sexes. The authorities should move to unify pension provision systems, in particular by phasing out the farmers’ regime (KRUS) and making pensions for miners and others with special regimes closer to actuarially neutral.
    Keywords: pension system, pension reform, pension adequacy, pension funds, retirement age, replacement age, Poland
    JEL: G23 H55 J26
    Date: 2011–06
  2. By: Bissonnette, Luc (Tilburg University); van Soest, Arthur (Tilburg University)
    Abstract: We analyze expectations of the Dutch population of ages 25 and older concerning the future generosity state and occupational pensions, the two main pillars of the Dutch pension system. Since the summer of 2006, monthly survey data were collected on the expectations of Dutch households concerning purchasing power of occupational pensions, eligibility and purchasing power of old age social security benefits, and the average retirement age ten or twenty years from now. We investigate how these expectations have changed over time and how they vary with socio-economic characteristics. Exploiting the fact that we have data until September 2010, we also analyze the effect of the recent financial and economic crisis. We find significant differences in expectations of different socio-economic groups, mainly suggesting that groups who are probably better informed were also more pessimistic.
    Keywords: subjective probabilities, old age social security, occupational pensions
    JEL: D84 H55 J26
    Date: 2011–06
  3. By: Paul Bingley; Nabanita Datta Gupta; Peder J. Pedersen
    Abstract: This paper investigates the interaction between measures of health, disability pension take up and labor market performance in Denmark by charting their development over time and by examining how they are affected by key policy reforms in the area of early retirement. The main emphasis is on the long-run development of the Social Disability Pension (SDP) program, and whether it concurs with trends in population health based on mortality indicators (both overall and cause-specific) and with self-reported health. A strong relationship is found between labor force activity measures and non-health related programs for early retirement for those 60 and older. However, no clear relationship is evident between SDP take up and the health indicators. One reason for the lack of a correlation is most probably that SDP is “on its own track” due to program innovations and reforms creating competing risks or program substitution especially for the 50+ population.
    JEL: H51 H55 I18 J26
    Date: 2011–06
  4. By: Rob Euwals; Daniel van Vuuren; Annemiek van Vuren
    Abstract: <p>Early retirement schemes and disability insurance in the Netherlands have both been reformed during the past decades. The reforms have increased incentives to continue working and have decreased the substitution between early retirement and disability. This study investigates the impact of the reforms on labour market exit probabilities</p><p>We use administrative data for workers in the Dutch health care sector between 1999 and 2006. We estimate a multinomial Logit model for transitions out of the labour force.</p><p>The empirical results suggest that the reforms have been effective, as the labour market participation rate of the elderly has increased. The concept of substitute pathways into retirement seems less relevant today as the results confirm that disability insurance is closed off as an early retirement exit route.</p><p><em>Key words: early retirement, disability insurance, labour supply</em></p><p> </p>
    JEL: C35 J26
    Date: 2011–06
  5. By: Meng, Channarith; Pfau, Wade Donald
    Abstract: Most literature about retirement planning treats the working (accumulation) and retirement (decumulation) phases separately. The traditional approach decides on safe withdrawal rate, uses it to derive a wealth accumulation target, and then calculates the savings rate required to achieve this wealth target. Because low sustainable withdrawal rates tend to occur after bull markets, such a formulation will push individuals toward unnecessarily high savings rates to attain their desired retirement spending goals, reducing their feasible lifestyle prior to retirement. By jointly considering both phases of retirement planning, this study provides savings rate guidelines for individuals in 25 emerging market countries. The savings rates calculated here are those which provide an adequate success rate in financing desired retirement expenditures using bootstrapped Monte Carlo simulations. For many emerging market countries, these savings rates will be high, given the high volatility of returns for savings instruments and the inflationary environment. Starting to save early and using a relatively low stock allocation, a finding that contrasts with studies about the United States, provide the lowest necessary savings rate for a given probability of success.
    Keywords: safe withdrawal rates; retirement planning; savings and wealth accumulation targets; asset allocations; emerging market countries
    JEL: G11 C15 J26 D14
    Date: 2011–06–17
  6. By: Jingjing Chai; Raimond Maurer; Olivia S. Mitchell; Ralph Rogalla
    Abstract: The direct financial impact of the financial crisis has been to deal a heavy blow to investment-based pensions; many workers lost a substantial portion of their retirement saving. The financial sector implosion produced an economic crisis for the rest of the economy via high unemployment and reduced labor earnings, which reduced household contributions to Social Security and some private pensions. Our research asks which types of individuals were most affected by these dual financial and economic shocks, and it also explores how people may react by changing their consumption, saving and investment, work and retirement, and annuitization decisions. We do so with a realistically calibrated lifecycle framework allowing for time-varying investment opportunities and countercyclical risky labor income dynamics. We show that households near retirement will reduce both short- and long-term consumption, boost work effort, and defer retirement. Younger cohorts will initially reduce their work hours, consumption, saving, and equity exposure; later in life, they will work more, retire later, consume less, invest more in stocks, save more, and reduce their demand for private annuities.
    JEL: D1 G11 G23 G35 J14 J26 J32
    Date: 2011–06
  7. By: Andrés Erosa (IMDEA Social Sciences Institute); Luisa Fuster (IMDEA Social Sciences Institute); Gueorgui Kambourov (University of Toronto)
    Abstract: There are substantial cross-country differences in labor supply late in the life cycle (age 50+). A theory of labor supply and retirement decisions is developed to quantitatively assess the role of social security, disability insurance, and taxation for understanding differences in labor supply late in the life cycle across European countries and the United States. The findings support the view that government policies can go a long way towards accounting for the low labor supply late in the life cycle in the European countries relatively to the United States, with social security rules accounting for the bulk of these effects.
    Keywords: social security; disability insurance; labor supply; heterogeneity; life cycle
    JEL: D9 E2 E6 H2 H3 H5 J2
    Date: 2011–06–16
  8. By: Jane Golley (The Australian Centre on China in the World Australian National University); Rod Tyers (UWA Business School, The University of Western Australia)
    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.
    Date: 2011
  9. By: David M. Cutler; Mary Beth Landrum
    Abstract: In this paper, we characterize the multi-faceted health of the elderly and understand how health along multiple dimensions has changed over time. Our data are from the Medicare Current Beneficiary Survey, 1991-2007. We show that 19 measures of health can be combined into three broad categories: a first dimension representing severe physical and social incapacity such as difficulty dressing or bathing; a second dimension representing less severe difficulty such as walking long distances or lifting heavy objects; and a third dimension representing vision and hearing impairment. These dimensions have changed at different rates over time. The first and third have declined rapidly over time, while the second has not. The improvement in health is not due to differential mortality of the sick or a new generation of more healthy people entering old age. Rather, the aging process itself is associated with less rapid deterioration in health. We speculate about the factors that may lead to this.
    JEL: I1 I12
    Date: 2011–06
  10. By: Blanchflower, David G. (Dartmouth College); Oswald, Andrew J. (IZA)
    Abstract: Antidepressants as a commodity have been remarkably little-studied by economists. This study shows in new data for 27 European countries that 8% of people (and 10% of those middle-aged) take antidepressants each year. The probability of antidepressant use is greatest among those who are middle-aged, female, unemployed, poorly educated, and divorced or separated. A hill-shaped age pattern is found. The adjusted probability of using antidepressants reaches a peak – approximately doubling – in people’s late 40s. This finding is consistent with, and provides a new and independent form of corroboration of, recent claims in the research literature that human well-being follows a U-shape through life.
    Keywords: well-being, aging, mental health, depression, happiness, Easterlin paradox
    Date: 2011–06
  11. By: Mohamed, Issam A.W.
    Abstract: The present paper discusses issues of challenges of social security systems in Sudan. Following parameters advanced by ILO and UNCOSOC, those systems are analyzed. The conclusions focus on their applicability that faces axial difficulties mainly presented in the state of institutional interregnum facing the country. Moreover, it is important to revisit aspects of social cohesion that serves greater role in traditional social security in the Sudan.
    Keywords: Sudan;institutional interregnum; Social Cohesion; Social Security
    JEL: D0 H55 A13 A12 A19 D02 H5 A10 A14
    Date: 2011

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