nep-age New Economics Papers
on Economics of Ageing
Issue of 2011‒11‒07
fourteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. How Prepared Are State and Local Workers for Retirement By Alicia H. Munnell; Jean-Pierre Aubry; Josh Hurwitz; Laura Quinby
  2. Maintaining and Improving Social Security for Poorly Compensated Workers By Shawn Fremstad
  3. How Did the Recession of 2007-2009 Affect the Wealth and Retirement of the Near Retirement Age Population in the Health and Retirement Study? By Alan L. Gustman; Thomas L. Steinmeier; Nahid Tabatabai
  4. Severance Pay or Pension Funds? By Devis Geron
  5. Capital Utilisation and Retirement By Antoine Bonleu; Gilbert Cette; Guillaume Horny
  6. The Composition and Draw-down of Wealth in Retirement By James M. Poterba; Steven F. Venti; David A. Wise
  7. Some notes on how to catch a red herring Ageing, time-to-death & care costs for older people in Sweden By Karlsson, Martin; Klohn, Florian
  8. The Determinants and Long-term Projections of Saving Rates in Developing Asia By Charles Yuji Horioka; Akiko Terada-Hagiwara
  9. Le soutien familial aux personnes âgées dépendantes : Analyses micro-économétriques des comportements individuels et familiaux de prise en charge. By Fontaine, Roméo
  10. Demographic Transitionand theRegulatory Shortcomings of Brazil’s Social Security By Riovaldo Alves de Mesquita e Giacomo Balbinotto Neto
  11. Measuring the Stock of Human Capital for Comparative Analysis: An Application of the Lifetime Income Approach to Selected Countries By Gang Liu
  12. Adverse Selection and Incentives in an Early Retirement Program By Kenneth T. Whelan; Ronald G. Ehrenberg; Kevin F. Hallock; Ronald L. Seeber
  13. Age, Life-Satisfaction, and Relative Income: Insights from the UK and Germany By FitzRoy, Felix; Nolan, Michael A.; Steinhardt, Max
  14. Will You Still Want Me Tomorrow? The Dynamics of Families' Long-Term Care Arrangements By Michelle Goeree; Bridget Hiedemann; Steven Stern

  1. By: Alicia H. Munnell; Jean-Pierre Aubry; Josh Hurwitz; Laura Quinby
    Abstract: A widespread perception is that state-local government workers receive high pension benefits which, combined with Social Security, provide more than adequate retirement income. The perception is consistent with multiplying the 2-percent benefit factor in most plan formulae by a 35- to 40- year career and adding a Social Security benefit. But this calculation assumes that individuals spend enough of their career in the public sector to produce such a retirement outcome. This brief summarizes the results of a paper that uses Health and Retirement Study (HRS) and actuarial reports published by state and local pension systems to test the hypothesis that state-local workers have more than enough money for retirement.
    Date: 2011–10
  2. By: Shawn Fremstad
    Abstract: Millions of American workers are poorly compensated for the work they do. This is not because they do not work hard or deserve adequate compensation. Rather, it is due to a political failure to ensure that increases in economic growth and productivity over the last several decades have been fairly distributed. One consequence of this failure is that many working-class Americans do not enjoy the living standards they deserve either during their working years or when they retire. Without the earned benefits provided by Social Security, along with Medicare and related health insurance benefits for the elderly, these workers would see their already modest living standards in old age fall even further below typical ones. The federal government should strengthen Social Security in ways that increase the retirement security of middle- and working-class Americans. Particular attention should be paid to improving the living standards in retirement of workers in poorly compensated jobs, who typically have little or no retirement savings outside of Social Security. Some recent proposals to cut Social Security would put the retirement security of workers in poorly compensated jobs at further risk. While it would be wise to shore up the long-term finances of Social Security, this can be done without cutting benefits for working- and middle-class retirees. Finally, it is important to remember that Social Security by itself cannot be the sole vehicle for addressing an economy that is out of balance. We need to do much more improve job quality in the United States by ensuring that poorly compensated workers get a better deal. This report examines the essential role that Social Security plays in bolstering the retirement security of poorly compensated workers.
    Keywords: social security, retirement, COLA, CPI
    JEL: H H5 H55 J J1 J14
    Date: 2011–11
  3. By: Alan L. Gustman; Thomas L. Steinmeier; Nahid Tabatabai
    Abstract: This paper uses asset and labor market data from the Health and Retirement Study (HRS) to investigate how the recent "Great Recession" has affected the wealth and retirement of those in the population who were just approaching retirement age at the beginning of the recession, a potentially vulnerable segment of the working age population. The retirement wealth held by those ages 53 to 58 before the onset of the recession in 2006 declined by a relatively modest 2.8 percentage points by 2010. In more normal times, their wealth would have increased over these four years. Members of older cohorts accumulated an additional 5 percent of wealth over the same age span. To be sure, a part of their accumulation was the result of the upside of the housing bubble. The wealth holdings of poorer households were least affected by the recession. Relative losses are greatest for those who initially had the highest wealth when the recession began. The adverse labor market effects of the Great Recession are more modest. Although there is an increase in unemployment, that increase is not mirrored in the rate of flow out of full-time work or partial retirement. All told, the retirement behavior of the Early Boomer cohort looks similar, at least so far, to the behavior observed for members of older cohorts at comparable ages. Very few in the population nearing retirement age have experienced multiple adverse events. Although most of the loss in wealth is due to a fall in the net value of housing, because very few in this cohort have found their housing wealth under water, and housing is the one asset this cohort is not likely to cash in for another decade or two, there is time for their losses in housing wealth to recover.
    JEL: D31 D91 E21 H55 I3 J14 J26 J32
    Date: 2011–10
  4. By: Devis Geron (University of Padova)
    Abstract: The paper aims to analyze the determinants of the individual choice of con- tributing to pension funds, particularly by focusing on individual preferences towards the annuitization of the accumulated pension capital. The analysis is performed in the light of the latest reform of social security in Italy, convert- ing the severance pay scheme (the so-called TFR) into a fully funded scheme of pension funds. The model describes the behavior of a representative agent belonging to a representative generation in steady state, in a partial equilibrium setting with mortality risk as well as uncertainty on wages and financial market returns. Investing in riskier but potentially more rewarding pension funds, paying out annuities from retirement onwards, turns out to be slightly welfare improving with respect to contributing to a severance pay scheme eventually paying out a lump-sum amount. Nonetheless, the welfare-based value of insurance provided by private annuities from pension funds is relatively low, mainly due to a) the pre-existence of (sizeable) public annuities, and b) constraints imposed by annuitization on both saving and consumption behavior after retirement. These findings provide further insights into the Òannuity puzzleÓ issue.
    Keywords: Social Security Reforms; Uncertainty; Fully Funded Pension Schemes.
    JEL: E62 G23 H31 H55
    Date: 2011–10
  5. By: Antoine Bonleu (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); Gilbert Cette (Banque de France - Banque de France); Guillaume Horny (Centre de recherche de la Banque de France - Banque de France)
    Abstract: This empirical analysis aims at assessing the effect of the economic climate and the intensity of capital utilisation on companies' capital retirement behaviour. It is conducted using individual company data, as well as original data on the degree of utilisation of production factors. The sample includes 6,998 observations over the period 1996-2008. This database is, to our knowledge, unique for the empirical analysis of the intensity of capital utilisation on firms' capital retirement behaviour. We adjust for endogeneity biases by means of instrumental variables. The main results obtained from the estimation of capital retirement models may be summarised as follows: i) The retirement rate decreases with the variations in cyclical pressures measured by the changes in output and the workweek of capital; this relation corresponds to a countercyclical decelerator effect on capital retirement; ii) The capital retirement rate increases with the structural intensity of capital utilisation; this effect, which corresponds to a wear and tear one, is nevertheless small compared to the decelerator one; iii) The profit rate does not have a significant impact on the retirement rate. Compared with the existing literature, here mainly Mairesse and Dormont (1985), the contribution of these results is to show, through the use of unique survey data, that the effect of the intensity of capital utilisation on capital retirement is structurally positive, via a wear and tear effect, and cyclically negative, via a decelerator effect which completes that already taken into account via the effect of changes in value added.
    Keywords: Capital; Capital measure; Capital retirement; Capital utilisation
    Date: 2011–10–25
  6. By: James M. Poterba; Steven F. Venti; David A. Wise
    Abstract: This paper presents evidence on the resources available to households as they enter retirement. It draws heavily on data collected by the Health and Retirement Study and calculates the "potential additional annuity income" that households could purchase, given their holdings of non-annuitized financial assets at the start of retirement. Even if households used all of their financial assets inside and outside personal retirement accounts to purchase a life annuity, only 47 percent of households between the ages of 65 and 69 in 2008 could increase their life-contingent income by more than $5,000 per year. At the upper end of the wealth distribution, however, a substantial number of households could make large annuity purchases. The paper also considers the role of housing equity in the portfolios of retirement-age households, and explores the extent to which households draw down housing equity and financial assets as they age. Many households appear to treat housing equity and non-annuitized financial assets as “precautionary savings,” tending to draw them down only when they experience a shock such as the death of a spouse or a period of substantial medical outlays. Because home equity is often conserved until very late in life, for many households it may provide some insurance against the risk of living longer than expected.
    JEL: D14 D91 J14
    Date: 2011–10
  7. By: Karlsson, Martin; Klohn, Florian
    Abstract: In this paper we test the 'red herring' hypothesis for expenditures on long-term care. The main contribution of this paper is that we assess the 'red herring' hypothesis using an aggregated measure that allows us to control for entering the final period of life on the individual level. In addition we implement a model that allows for age specific time-to-death (TTD) effects on Long Term Care. We also account for the problem that mortality, and therefore TTD, are themselves influenced by care expenditure. For our analysis we use administrative data from the Swedish statistical office. In contrast to many previous empirical studies, we are able to use the entire population for estimation instead of a sample. Our identification strategy is based on fixed effects estimation and the instrumental variable approach to achieve exogenous variation in TTD. Our results indicate that although time-to-death is a relevant indicator for long term care, age itself seems to be much more important for the projection of long-term care expenditure.
    Date: 2011–10
  8. By: Charles Yuji Horioka; Akiko Terada-Hagiwara
    Abstract: In this paper, we present data on trends over time in domestic saving rates in twelve economies in developing Asia during the 1966-2007 period and analyze the determinants of these trends. We find that domestic saving rates in developing Asia have, in general, been high and rising but that there have been substantial differences from economy to economy and that the main determinants of these trends appear to have been the age structure of the population (especially the aged dependency ratio), income levels, and the level of financial sector development. We then project future trends in domestic saving rates in developing Asia for the 2011-2030 period based on our estimation results and find that the domestic saving rate in developing Asia as a whole will remain roughly constant during the next two decades despite rapid population aging in some economies in developing Asia because population aging will occur much later in other economies and because the negative impact of population aging on the domestic saving rate will be largely offset by the positive impact of higher income levels.
    Date: 2011–10
  9. By: Fontaine, Roméo
    Abstract: Face au vieillissement de la population, l’augmentation attendue de la demande de soins de longue durée pose la question du rôle que nos sociétés souhaitent confier aux familles dans la prise en charge des personnes âgées dépendantes. Nous menons dans ce travail de recherche trois analyses micro-économétriques des comportements individuels et familiaux de prise en charge des personnes âgées. Trois résultats majeurs se dégagent. Premièrement, la mise en évidence d’une interdépendance des comportements d’aide au sein de la famille conduit à requestionner l’idée d’une diminution programmée de l’aide informelle. Deuxièmement, la réduction de l’offre de travail au-delà d’un certain volume d’aide pointe les limites d’une politique publique visant à la fois l’augmentation de l’activité des seniors et le maintien à domicile des populations les plus âgées. Enfin, le recours aux aides publiques de prise en charge induit un effet d’éviction relativement modeste des aides familiales.
    Abstract: With the population ageing, the expected increase in the long term care demand questions the role our societies want to entrust to family in the care provision for disabled elderly people. We use a micro-econometric framework to study individual and family caregiving behaviours. From a public policy perspective, three mains findings emerge from the analysis proposed. First, the identification of family interactions in individual caregiving decisions highlights the necessity to reconsider the idea of an inexorable decline in family support. Second, the decrease in labour supply induced by the care provision beyond a certain level points out the limits of a public policy aimed at both extending the work lives of seniors and encouraging informal care for disabled elderly people. Finally, the use au publicly funded formal care is associated with a rather modest decline in family support.
    Keywords: Discrete game models; Social interactions; Informal care; Long-term care;
    JEL: D19 J14
    Date: 2011–06
  10. By: Riovaldo Alves de Mesquita e Giacomo Balbinotto Neto
    Date: 2011
  11. By: Gang Liu
    Abstract: This paper summarizes the outcomes of the first phase of the OECD human capital project. In so doing, it shows the feasibility of applying the lifetime income approach to measuring human capital for comparative analysis, both across countries and over time. It also highlights the feasibility of applying the methodology to the categorical data (i.e. by 5-year or 10-year age group) that are typically available within the OECD statistics system, rather than to data by single year of age required by the original Jorgenson- Fraumeni methodology. The results in this paper indicate that the estimated value of human capital is substantially larger than that of traditional physical capital. Ratios of human capital to GDP are in a range from around eight to over ten across countries, broadly in line with those reported in a number of national studies. The distributions of human capital by age, gender, and education show that men dominate women in terms of their human capital holdings. In addition, people with higher education are better off than those with lower education, and the same is true for younger people compared to their older counterparts, although the detailed patterns vary across countries. Decomposition analysis of changes in the volume of human capital demonstrates that changes in population structure between men and women had little effect on the change of human capital per capita. While in all countries higher educational attainment contributed positively to the change of human capital per capita, this is not always sufficient to offset the negative effect of population ageing; as a result, the volume of human capital per capita appeared to have declined in some countries over the observed period. Finally, sensitivity analysis confirms that estimates of the value of human capital depend on the choice of the two key parameters, i.e. annual real income growth rate and discount rate, while within-country distribution of human capital and trends of the volume of human capital are less sensitive to these assumptions.<BR>Ce document de travail fait la synthèse des résultats de la première phase du projet de l’OCDE consacré au capital humain. Il démontre notamment qu’il est possible d’appliquer l’approche en terme de revenus actualisés le long du cycle de vie à la mesure du capital humain à des fins d’analyse comparative, à la fois entre les pays et dans le temps. Le document souligne également que cette méthodologie peut aussi être appliquée à des données catégoriels (c’est-à-dire par classe d’âge de 5 ou 10 ans), généralement disponibles dans le système statistique de l’OCDE, plutôt qu’aux données continues par âge, requises par la méthode Jorgenson-Fraumeni. Les résultats présentés dans ce rapport montrent que la valeur estimée du capital humain est bien plus importante que celle du capital physique traditionnel. Le rapport capital humain/sur PIB s’inscrit dans une fourchette comprise entre huit et dix dans les différents pays, ce qui est globalement conforme aux chiffres rapportés par un certain nombre d’études nationales. La répartition du capital humain en fonction de l’âge, du sexe et du niveau d’instruction montre que les hommes surpassent les femmes en termes de stock de capital humain. Par ailleurs, les individus les plus instruits tirent davantage leur épingle du jeu que les personnes moins qualifiées et les jeunes ont un capital humain supérieur à celui des personnes plus âgées, bien que dans le détail les schémas varient d’un pays à l’autre. L’évolution des volumes de capital humain montre que l’évolution démographique entre hommes et femmes n’a eu finalement qu’un impact limité sur la variation du capital humain par habitant. Si, dans tous les pays, l’amélioration du niveau d’instruction a contribué à l’augmentation du capital humain par habitant, cela n’a pas toujours été suffisant pour compenser les conséquences du vieillissement de la population, entraînant une baisse des volumes de capital humain par habitant dans certains pays. Enfin, l’analyse de sensibilité confirme que les estimations des valeurs du capital humain dépendent du choix de deux paramètres, à savoir le taux de croissance annuel du revenu réel et le taux d’actualisation. Mais la répartition du capital humain et l’évolution des volumes de capital humain dans chaque pays sont moins sensibles à ces paramètres.
    Date: 2011–10–10
  12. By: Kenneth T. Whelan; Ronald G. Ehrenberg; Kevin F. Hallock; Ronald L. Seeber
    Abstract: We evaluate potential determinants of enrollment in an early retirement incentive program for non-tenure-track employees of a large university. Using administrative record on the eligible population of employees not covered by collective bargaining agreements, historical employee count and layoff data by budget units, and public information on unit budgets, we find dips in per-employee finance in a budget unit during the application year and higher recent per employee layoffs were associated with increased probabiliites of eligible employee program enrollment. Our results also suggest, on average, that employees whose salaries are lower than we would predict given their personal characteristics and job titles were more likely to enroll in the early retirement program. To the extent that employees' compensation reflects their productivity, as it should under a pay system in which annual salary increases are based on merit, this finidng suggests that adverse selection was not a problem with the program. That is, we find no evidence that on average the "most productive" employees took the incentive.
    JEL: I23 J26 J33
    Date: 2011–10
  13. By: FitzRoy, Felix (University of St. Andrews); Nolan, Michael A. (University of Hull); Steinhardt, Max (Hamburg Institute of International Economics (HWWI))
    Abstract: We first confirm previous results with the German Socio-Economic Panel by Layard et al. (2010), and obtain strong negative effects of comparison income. However, when we split the sample by age, we find quite different results for reference income. The effects on life-satisfaction are positive and significant for those under 45, consistent with Hirschman's (1973) 'tunnel effect', and only negative (and larger than in the full sample) for those over 45, when relative deprivation dominates. Thus for young respondents, reference income's signalling role, indicating potential future prospects, can outweigh relative deprivation effects. Own-income effects are also larger for the older sample, and of greater magnitude than the comparison income effect. In East Germany the reference income effects are insignificant for all. With data from the British Household Panel Survey, we confirm standard results when encompassing all ages, but reference income loses significance in both age groups, and most surprisingly, even own income becomes insignificant for those over 45, while education has significant negative effects.
    Keywords: subjective life-satisfaction, comparison income, reference groups, age, welfare
    JEL: D10 I31 J10
    Date: 2011–10
  14. By: Michelle Goeree (University of Zurich); Bridget Hiedemann (Seattle University); Steven Stern (University of Virginia)
    Abstract: We estimate dynamic models of elder-care arrangements using data from the Assets and Health Dynamics Among the Oldest Old Survey. We model the use of institutional care, formal home health care, care provided by a child, and care provided by a spouse in the selection of each care arrangement, the primary arrangement, and hours in each arrangement. Our results indicate that both observed heterogeneity and true state dependence play roles in the persistence of care arrangements. We find that positive state dependence (i.e., inertia) dominates caregiver burnout, and that formal care decisions depend on the cost and quality of care.
    Keywords: Dynamic Models, Long-Term Care, Home Health Care, Informal Care
    JEL: C51 C61 J14
    Date: 2011–07

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