nep-age New Economics Papers
on Economics of Ageing
Issue of 2011‒07‒13
twenty-one papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. The surprisingly large policy implications of changing retirement durations By Peter Hicks
  2. Simulating the impact of pension reforms on labour force participation for the 55+: a comparison of three models By M. BACHELET; M. BEFFY; D. BLANCHET
  3. Pension reform, employment by age, and long-run growth in OECD countries. By T. BUYSE; F. HEYLEN; R. VAN DE KERCKHOVE
  4. The Decline of Early Retirement Pathways in the Netherlands: An Empirical Analysis for the Health Care Sector By Euwals, Rob; van Vuren, Annemiek; van Vuuren, Daniel
  5. Getting on Track for a Sustainable Retirement: A Reality Check on Savings and Work By Pfau, Wade Donald
  6. A global view on demographic pressure and labour market participation By Groot, Loek; Peeters, Marga
  7. The employer’s perspective on retirement. By Henkens, C.J.I.M.; Dalen, H.P. van
  8. Life expectancy and income: The Ben-Porath mechanism revisited By Hansen, Casper Worm; Lønstrup, Lars
  9. The Age Pattern of Retirement: A Comparison of Cohort Measures By Frank T. Denton; Ross Finnie; Byron G. Spencer
  10. Saving, growth, and age dependency for OECD countries By Herzog, Ryan W.
  11. Health status and retirement decisison for older european couples. By Jiménez-Martín, Sergi; Labeaga, José M.; Martínez-Granado, Maite
  12. A Stochastic Model for the Analysis of Demographic Risk in Pay-As-You-Go Pension Funds By Alessandro Fiori Maccioni
  13. Antidepressants and Age By Blanchflower, David G; Oswald, Andrew
  14. Retirement Flexibility and Portfolio Choice By Jan Bonenkamp
  15. Equilibria with social security. By Boldrin, Michele; Rustichini, Aldo
  16. Golden-rule social security and public health in a dynastic model with endogenous longevity and fertility By Jie Zhanga; Siew Ling Yew
  17. Intergenerational transfer institutions public education and public pensions. By Boldrin, Michele; Montes Alonso, Ana
  18. Effects of Argentina's Social Security Reform on Labor Markets and Poverty By Maria Laura Alzua; Hernan Ruffo
  19. Assessing wellbeing and deprivation in later life: A multidimensional counting approach By Armando Barrientos; Casilda Lasso de la Vega
  20. Unobserved Factors Linking Functional Decline and Depression Among the Oldest Americans By Obrizan, Maksym
  21. Poverty transitions among older households in Brazil and South Africa By Armando Barrientos; Julia Mase

  1. By: Peter Hicks
    Abstract: The paper reviews evidence that suggests that, over the coming two decades, people are likely to stay in the work force at least five years longer, possibly by considerably more. The implications for policy are surprisingly large and surprisingly unrecognized. Recent trends, if extended into the future, suggest that changes of this magnitude are quite likely given a continuation of past labour market conditions. However, these past trends do not reflect new pressures that will work strongly in the direction of even shorter durations of retirement and longer durations of work. These new pressures will result from changes in labour supply and demand that will result from the baby boom generation moving into traditional retirement years in large numbers, increasing the demand for older workers. On the supply side, there will be a large in increase in the educational levels and skills of older people. The effect of market forces could be further enhanced by policy action. In other words, a five year extension of working life is the minimum that should be included in most future labour market scenarios. Delaying work-retirement transitions by even this amount would have large, positive economic and fiscal effects, significantly reducing the well-known negative effects of population ageing. They would have particularly important consequences for pension policy, with a dramatic reduction in the need for retirement savings and, particularly if accompanied by flexible work-toretirement pathways, would reduce the risk of changed income needs in old age. A range of other social benefits, including greater individual choice and well-being, also seem likely – if harder to quantify. However, as with any large social change, distributional consequences are inevitable. A few groups could be relatively worse off in a world where the norm was for work to be extended later in life. In the absence of strategy for addressing the needs of these potential losers, there may well be reluctance to take policy action, despite the likelihood of large gains for most, and on many fronts.
    Keywords: Income replacement, pension systems, pensions, retirement, retirement age, life expectancy, older workers, aging, Canada, projections, public policy
    JEL: D78 H53 H55 H60 J08 J10 J18 J20 J26 J32 L38
    Date: 2011–06
  2. By: M. BACHELET (Insee); M. BEFFY (Insee); D. BLANCHET (Insee)
    Abstract: A specific attention is devoted to the 55+ age group when building global labour force projections regularly updated by Insee. This requires taking into account individual heterogeneity, because the impact of pension reforms on behavior is potentially very different across individuals. For instance, increasing to 62 the minimum age of eligibility, as decided in 2010, will be neutral for people who already planned to retire after this age. It will be constraining for other people, but the impact on global labour force will depend upon employment status before retirement: postponing pension claiming for individuals who have already left the labour market does not affect this labour force, at least as long as it does not change labour market behavior before retirement age. Simulating individual transitions to retirement raises however considerable problems, to which models only bring imperfect and uncertain answers. This argues in favor of scenarized projections based on alternative assumptions. We present here results based on three options offered by the Destinie 2 microsimulation model. Depending upon these assumptions, cumulated impacts of past reforms on labour force participation rates for the 60-64 age group range, in the long run, between 10 and 40%, but starting from no-reform trends that are themselves very different from one scenario to the next. On the whole, after reforms, the long run labour force participation rate for the 60-64 group would lie within the 40%-50% bracket. This corresponds to mean ages at pension claiming lying between 64 and 65 years, and to mean ages at exit from the labour force fluctuating between 61 and 63 years, depending upon possible retroactions on career paths before full retirement.
    Keywords: pension reform, age at retirement, microsimulation, labour force projection
    JEL: C53 J22 J26
    Date: 2011
    Abstract: We study the effects of pension reform in a four-period OLG model for an open economy where hours worked by three active generations, education of the young, the retirement decision of older workers, and aggregate per capita growth, are all endogenous. Next to the characteristics of the pension system, our model assigns an important role to the composition of fiscal policy. We find that the model explains the facts remarkably well for many OECD countries.<br> Our simulation results prefer an intelligent pay-as-you-go pension system above a fully-funded private system. When it comes to promoting employment, human capital, growth, and welfare, positive effects in a PAYG system are the strongest when it includes a tight link between individual labor income (and contributions) and the pension, and when it attaches a high weight to labor income earned as an older worker to compute the pension assessment base.
    Date: 2011–05
  4. By: Euwals, Rob (CPB Netherlands Bureau for Economic Policy Analysis); van Vuren, Annemiek (CPB Netherlands Bureau for Economic Policy Analysis); van Vuuren, Daniel (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: 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. 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. 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.
    Keywords: early retirement, disability insurance, labour supply
    JEL: C35 J26
    Date: 2011–06
  5. By: Pfau, Wade Donald
    Abstract: The aim of traditional retirement planning is to set a wealth accumulation target for your retirement date so that your desired expenditures can be obtained using a “safe” withdrawal rate. But it is quite difficult to know if you are making progress toward this target. Volatility over short periods of time strongly limits the usefulness of using your current wealth accumulation at ten or even five years before retirement to predict your final retirement wealth. Fortunately, it is not necessary to focus on a retirement wealth accumulation target. The accumulation and retirement phases should not be treated separately in this way. This paper outlines a framework for considering if someone in mid-career is on track for a sustainable retirement. It investigates what combinations of savings rates and years of continued work would have allowed someone to have always accumulated enough by retirement to afford one’s desired retirement expenditures in all of the rolling periods from the historical data. A strategy is “safe” if it worked in the worst-case offered thus far by history. I consider a 55 year old as a case study to show what savings rate will be needed to retire 10 years later, or how much longer one should work with a variety of other savings rates. Results are shown for a wide variety of situations. These findings can potentially serve as a reality check about the sustainability of one’s retirement plans.
    Keywords: retirement planning; lifetime perspective; safe savings rate; safe retirement age; wealth accumulation targets; retirement spending goals; safe withdrawal rates
    JEL: G11 N22 C15 N21 D14
    Date: 2011–06–29
  6. By: Groot, Loek; Peeters, Marga
    Abstract: Demographic change across the globe puts pressure on labour markets and public finances. Most studies on ageing focus on the projected development of the old age dependency ratio, being the ratio of persons 65 or older relative to the working age population. This ratio gives a very incomplete picture of the (fiscal) pressure from demographic changes. In this study, besides the share of the dependent population composed of the young and the old, we also include the share of the working age population that is not active on the labour market, labelled as the labour market space. By analysing 21 developing and 29 developed economies across the globe, we cover 75% of the 9.3 billion people that the United Nations projects for the whole world in 2050. A new indicator, relating demographic pressure from fiscal spending to the available space at the labour market, enables us to quantify and compare the pressure-to-space across countries over the time span 2010-2050. The indicator points out that Poland, Turkey and Greece are most under pressure. Developing countries, such as Uganda, the Democratic Republic of Congo and Tanzania will experience a very low pressure up to 2050 in case their fiscal spending per young and elderly person remains at the current levels. In most of the countries under high pressure there seems to be room for using the labour market space by, for instance, working more hours or increasing the retirement age, as this will alleviate the fiscal pressure. This suggests a policy trade-off between maintaining publicly financed services to the dependent population and maintaining labour market space.
    Keywords: demography; dependency rates; labour market; unemployment; social security; pensions; government spending;
    JEL: H55 E24 N3 J21 J0
    Date: 2011–07–06
  7. By: Henkens, C.J.I.M. (Universiteit van Tilburg); Dalen, H.P. van (Universiteit van Tilburg)
    Date: 2011
  8. By: Hansen, Casper Worm (Department of Business and Economics); Lønstrup, Lars (Department of Business and Economics)
    Abstract: In this paper we show that it may be optimal for individuals to educate themselves more and decrease future labor supply (choose earlier retirement) when life expectancy increases. This result reconciles the findings of Hazan [Hazan, M., 2009. Longevity and Lifetime Labor Supply: Evidence and Implications. Econometrica 77, 1829.1863] with theory. Further, the paper contributes to a better understanding of the conflicting empirical findings on the causal effect on income per capita from increased life expectancy.
    Keywords: Life-cycle model; life expectancy; schooling; retirement
    JEL: D91 J22 J24 J26 O11
    Date: 2011–02–16
  9. By: Frank T. Denton; Ross Finnie; Byron G. Spencer
    Abstract: Measures of retirement that take a cohort perspective are appealing since retirement patterns may change, and it would be useful to have consistent measures that would make it possible to compare retirement patterns over time and between countries or regions. We propose and implement two measures. One is based on administrative income tax records and relates to actual cohorts; the other is based on a time-series of cross sectional labour force surveys and relates to pseudo-cohorts. We conclude that while the tax-based observations for actual cohorts provide a richer data set for analysis, the estimated measures of retirement and transition from work to retirement based on the two data sets are quite similar.
    Keywords: Measures of retirement, cohort perspective
    JEL: J14 J26
    Date: 2011–06
  10. By: Herzog, Ryan W.
    Abstract: Using threshold effects we find that as countries experience an increase in old-age dependency rates, countries with lower domestic saving rates, moderate current account deficits, and are more open to trade can actually experience an increase in GDP growth rates. These countries have greater access to capital markets which will allow them to sustain economic growth in light of substantial increases in their old-age dependency rates. Countries with a lower savings rate are able to rely on domestic consumption and more importantly can rely on foreign investment to offset the decline in worker productivity caused by exodus of domestic workers. Although the effects of an increase in the old-age dependency rate on GDP growth rates are smaller for countries with lower saving rates, these countries also have significantly lower growth rates prior to the increase in the old-age dependency rate. We conclude the effects of population ageing for many high saving countries will depend on their desire to reduce saving rates at old-age dependency rates begin to increase. The ability for lower saving countries to maintain stable growth rates hinges on their ability to sustain current account deficits.
    Keywords: Dependency Rates; Growth; Ageing; Saving Rates; Capital Mobility
    JEL: O57 O40 J11
    Date: 2011–07–06
  11. By: Jiménez-Martín, Sergi; Labeaga, José M.; Martínez-Granado, Maite
    Abstract: In this paper we use data the European Community Household Panel (ECHP) to describe and analyse the dynamics of joint labour force behaviour of older couples for the EUI2 countries. We focus on three main issues: the relanvance of joint retirement across EUI2 countries, the existence of complementarities in leisure and/or assortative matting and the effects of health variables. Concerning the evidence, we first find that a working spouse is more likely to retire the more recently the other spouse has retired; this effect is stronger if the wife is the working spouse. Second, there is evidence of assortative mating and/or complementarities in leisure; the effects of all relevant factors on the retirement decision of one spouse depend strongly on whether the other one is working, unemployed, or retired. Third, besides the standard evidence that poor health increases the retirement probabiliby, we find that the husband's health affects the couple's retirement decisions much more strongly than the wife's health does. Additional asymmetric effects are detected with respect to income related variables.
    Keywords: Joint retirement decisions; Labour force transitions; Health variables; Asymmetric effects;
  12. By: Alessandro Fiori Maccioni (CRENoS and University of Sassari)
    Abstract: This research presents an analysis of the demographic risk related to future membership patterns in pension funds with restricted entrance, financed under a pay-as-you-go scheme. The paper, therefore, proposes a stochastic model for investigating the behaviour of the demographic variable "new entrants" and the influence it exerts on the financial dynamics of such funds. Further information on pension funds of Italian professional categories and an application to the Cassa Nazionale di Previdenza e Assistenza dei Dottori Commercialisti (CNPADC) are then provided.
    Date: 2011–06
  13. By: Blanchflower, David G; Oswald, Andrew (Dartmouth; University of Warwick)
    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
  14. By: Jan Bonenkamp
    Abstract: <p>This paper explores the interaction between retirement flexibility and portfolio choice in an overlapping-generations model. We analyse this interaction both in a partial-equilibrium and general-equilibrium setting. </p><p>Retirement flexibility is often seen as a hedge against capital-market risks which justifies more risky asset portfolios. We show, however, that this positive relationship between risk taking and retirement flexibility is weakened  and under some conditions even turned around, if not only capital-market risks but also productivity risks are considered. Productivity risk in combination with a high elasticity of substitution between consumption and leisure creates a positive correlation between asset returns and labour income, reducing the willingness of consumers to bear risk. Moreover, it turns out that general-equilibrium effects can either increase or decrease the equity exposure, depending on the degree of substitutability between consumption and leisure.</p><p>Key words: retirement (in) flexibility, portfolio allocation, risk, intratemporal substitution elasticity<br />JEL codes: E21, G11, J26<br /> </p>
    JEL: E21 G11 J26
    Date: 2011–06
  15. By: Boldrin, Michele; Rustichini, Aldo
    Abstract: We model pay-as-you-go (PAYG) social sucurity systems as the outcome of majority voting within a standard OLG model with production and an exogenous population growth rateo At each point in time individuals work, save, consume and invest by taking the social security policy as given. The latter consists of a tax on current wages transferred to elderly people. When they vote, individuals have to make two choices: If they want to keep the committment made by the previous generation by paying the elderly the promised amount of benefits, and which amount they want paid to themselves next periodo We show that when the growth rate of population is high enough compared to the productivity of capital there exists an equilibrium where PAYG pensions are voted into existence and maintained. PAYG systems are kept even when everybody knows that they will surely be abondoned, and that some generation will pay and not be paid back. We characterize the steady state and dynamic properties of these equilibria and study their welfare properties. Equilibria achieved by voting are typically inefficient; however, they may be so due to overaccumulation, as well as, in other cases, due to under accumulation. On the other hand, the efficient steady states turn out to be dynamically unstable: so we are presenting an unpleasant alternative for policy making.
  16. By: Jie Zhanga; Siew Ling Yew
    Abstract: In this paper we investigate long-run optimal social security and public health and their effects on fertility, longevity, capital intensity, output per worker and welfare in a dynastic model with altruistic bequests. Under empirically plausible conditions, social security and public health reduce fertility and raise longevity, capital intensity and output per worker. The effects of social security, except that on longevity, are stronger than those of public health. Numerically, they can improve welfare (better when they are used together than used separately). We also illustrate numerically that there exists a unique convergent solution in the dynamic system at the steady state.
    Keywords: Social security; Public health; Life expectancy; Fertility
    JEL: H55 J13 O41
    Date: 2011–06
  17. By: Boldrin, Michele; Montes Alonso, Ana
    Abstract: In a world in which credit markets to finance investments in human capital are rare, the competitive equilibrium allocation generally cannot achieve either static or dynamic efficiency. When generations overlap, this inefficiency can be overcome by properly designed institutions. We study the working of two such institutions: Public Education and Public Pensions. We argue that, when established jointly, they implement an intergenerational dynamic game of taxes and transfers through which public education for the young and public pensions for the elderly support each other. Through the public financing of education, the young borrow from the middle age to invest in human capital. When employed, they pay back their debt by means of a social security tax on labor income. The proceedings of the latter are used to finance pension payments to the now elderly lenders. We also show that such intergenerational agreement can be supported as a sub game perfect equilibrium of, relatively straightforward, majority voting games. While the intertemporal allocation so obtained does not necessarily reach full dynamic efficiency it does so under certain restrictions and it always improves upon the laissez-faire allocation. We test the main predictions of our model by using micro and macro data from Spain. The results are surprisingly good.
    Keywords: Intergenerational contract; Efficiency; Human capital; Political equilibria;
  18. By: Maria Laura Alzua; Hernan Ruffo
    Abstract: In 1994, Argentina introduced Pension Reform and Unemployment Benefits as a major reform component to its social security system. This papers analyzes the effects of introducing new individual accounts in the pension system -which was under effect between 1994 and 2008- over wages, employment and poverty. While the macroeconomic effects of a change in the pension system is an issue that is relatively well addressed by the literature, its microeconomic effects are often neglected in the analysis. We use a CGE model to evaluate the effects of the reform on labor market and poverty. Our result indicate that if private pension funds are allocated to physical investment, labor demand and wages increase and poverty goes down. However, these effects fade out if funds of private accounts are used to buy government debt.
    Keywords: Social security, Poverty, Argentina
    JEL: H53 H55 D39
    Date: 2011
  19. By: Armando Barrientos; Casilda Lasso de la Vega
    Abstract: The paper applies a multidimensional and comparative approach to the assessment of wellbeing and deprivation among a panel of older people in Brazil and South Africa. It develops and justifies a counting approach to rank order wellbeing and deprivation distributions. An application of this approach generates substantive findings on the dynamics of the distribution of wellbeing and deprivation in later life, on stratification, and on the importance of social policy addressing ageing.
    Date: 2011
  20. By: Obrizan, Maksym
    Abstract: This study considers the dependence between functional decline and depression in a nationally representative sample of older Americans from the Survey on Assets and Health Dynamics among the Oldest Old (AHEAD) covering the years from 1993 to 2002. Previous research has shown that depression is a significant predictor of functional decline and, conversely, functional limitations lead to more depressive symptoms. While this cross-dependence is an established fact in the literature, relatively few prior papers formally modeled the association between functional decline and depression. In this paper, functional decline is defined as 2 or more limitations in 5 Activities of Daily Living (ADL) and 2 or more limitations in 5 Instrumental Activities of Daily Living (IADL) from the baseline to the last available follow-up interview. Depression is defined as 3 or more points on the 8-item Center for Epidemiological Studies Depression (CES-D) Scale over the same range of time. In the analytic sample of 5,470 oldest Americans, each of the three measures is initially estimated in the univariate probit model controlling for a rich set of available risk factors identified in the previous studies. Then it is argued that univariate probit models are incapable of capturing individual differences (for example, predisposition to both physical and emotional ill health) that may link functional decline and depression in the oldest Americans. Thus, a more advanced multivariate probit model is employed, and three discrete equations are estimated jointly. In this way, unmeasured factors specific to the individual will become part of the error terms, and statistically significant correlations in the variance matrix will indicate dependence between functional decline and depression. Estimation of multivariate probit model reveals substantial unobserved heterogeneity in the dynamics of ADLs, IADLs, and CES-D score over time. Thus, previous results based on univariate methods should be interpreted with caution.
    Keywords: Multivariate probit; Activities of Daily Living; Depression; Older Adults
    JEL: I18 C35
    Date: 2011–06–13
  21. By: Armando Barrientos; Julia Mase
    Abstract: Using a panel dataset of older people and their households in Brazil and South Africa, this paper provides estimates of changes in poverty among older people in Brazil and South Africa. It examines poverty status transitions of older people and their households over time. It measures the extent to which panel households managed to escape from poverty, whilst others fell into poverty, and others still remained persistently poor or persistently non-poor over time. The analysis in the paper also throws light on changes in the depth and intensity of poverty among older households. A comparative approach provides an additional dimension to the estimates.
    Date: 2011

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