nep-age New Economics Papers
on Economics of Ageing
Issue of 2011‒11‒21
eight papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. The Labor Supply and Retirement Behavior of China's Older Workers and Elderly in Comparative Perspective By Giles, John T.; Wang, Dewen; Cai, Wei
  2. Pensions in a shrinking economy: a comment on Kuné By Sergio Cesaratto
  3. The Extension of Social Security Coverage in Developing Countries By Juergen Jung; Chung Tran
  4. Firm-Sponsored Classroom Training: is it Worth it for Older Workers ? By Benoit Dostie; Pierre Thomas Léger
  6. The Determinants and Long-term Projections of Saving Rates in Developing Asia By Charles Yuji Horioka; Akiko Terada-Hagiwara
  7. Longevity hedge effectiveness: a decomposition By Cairns, Andrew; Dowd, Kevin; Blake, David; Coughlan, Guy
  8. Age, life-satisfaction, and relative income By FitzRoy, Felix; Steinhardt, Max Friedrich; Nolan, Michael

  1. By: Giles, John T. (World Bank); Wang, Dewen (World Bank); Cai, Wei (World Bank)
    Abstract: This paper highlights the employment patterns of China’s over-45 population and, for perspective, places them in the context of work and retirement patterns in Indonesia, Korea, the United States, and the United Kingdom. As is common in many developing countries, China can be characterized as having two retirement systems: a formal system, under which urban employees receive generous pensions and face mandatory retirement by age 60, and an informal system, under which rural residents and individuals in the informal sector rely on family support in old age and have much longer working lives. Gender differences in age of exit from work are shown to be much greater in urban China than in rural areas, and also greater than observed in Korea and Indonesia. Descriptive evidence is presented suggesting that pension eligible workers are far more likely to cease productive activity at a relatively young age. A strong relationship between health status and labor supply in rural areas is observed, indicating the potential role that improvements in access to health care may play in extending working lives and also providing some basis for a common perception that older rural residents tend to work as long as they are physically capable. The paper concludes with a discussion of measures that may facilitate longer working lives as China’s population ages.
    Keywords: retirement, population aging, labor supply, pensions, China, Indonesia, Korea
    JEL: J26 J14 O15 O17 O57
    Date: 2011–10
  2. By: Sergio Cesaratto
    Abstract: In a contribution to Pensions: An International Journal, Prof. Jan Kuné discusses whether a fully funded (FF) pension scheme can cope with a demographic shock better than a payas- you-go (PAYG) system. He makes ample use of my own contributions on this issue but ignores my criticism of the neoclassical interpretation of FF pension schemes and especially of the claim that an FF scheme is superior to PAYG in this and other respects. The purpose of this note is to stimulate some response, from Prof. Kuné or others, to my critique of the neoclassical interpretation. The policy implications of this discussion for pension reforms are evident.
    JEL: E11 G23 H55
    Date: 2011–10
  3. By: Juergen Jung (Department of Economics, Towson University); Chung Tran (Research School of Economics, The Australian National University)
    Abstract: We study the dynamic general equilibrium effects of introducing a social pension program to elderly informal sector workers in developing countries who lack formal risk sharing mechanisms against income and longevity risk. To this end, we formulate a stochastic dynamic general equilibrium model that incorporates defining features of developing countries: a large informal sector, private transfers as an informal safety net, and a non-universal social security system. We find that the extension of retirement benefits to informal sector workers results in efficiency losses due to adverse effects on capital accumulation and the allocation of resources across formal and informal sectors. Despite these losses recipients of social pensions experience welfare gains as the positive insurance effects attributed to the extension of a social insurance system dominate. The welfare gains crucially depend on the skill distribution, private intra-family transfers and the specific tax used to finance the expansion.
    Keywords: Informal Sector, Family Social Safety Nets, Social Pension, General Equi-librium, and Welfare.
    JEL: E6 E21 E26 H30 H53 H55 I38 O17
    Date: 2011–11
  4. By: Benoit Dostie; Pierre Thomas Léger
    Abstract: We use longitudinal linked employer-employee data and find that the probability of participating in firm-sponsored classroom training diminishes rapidly for workers aged 45 years and older. Although the standard human capital investment model predicts such a decline, we also consider the possibility that returns to training decline with age. Taking into account endogenous training decisions, we find that the training wage premium diminishes only slightly with age. However, estimates of the impact of training on productivity decrease dramatically with age, suggesting that incentives for firms to invest in classroom training are much lower for older workers.
    Keywords: Firm-Sponsored Classroom Training, Wages, Productivity, Aging, Linked Employer-Employee Data
    JEL: C23 D24 J31
    Date: 2011
  5. By: Bill Russell
    Abstract: On 1 October 2011 the Universities Superannuation Scheme (USS) substantially reduced the pension entitlements of its members. The most onerous of the changes is the cap placed on the indexation of pensions where in the event of high inflation the cap will quickly lower the real value of the pension. This paper quantifies the impact of the inflation cap and high inflation on the real value of the member’s pension and the concomitant impact on the USS and universities.
    Keywords: pensions, superannuation, USS
    JEL: G00 G23
    Date: 2011–11
  6. 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.
    JEL: D91 E21 G10 J11
    Date: 2011–11
  7. By: Cairns, Andrew; Dowd, Kevin; Blake, David; Coughlan, Guy
    Abstract: We use a case study of a pension plan wishing to hedge the longevity risk in its pension liabilities at a future date. The plan has the choice of using either a customised hedge or an index hedge, with the degree of hedge effectiveness being closely related to the correlation between the value of the hedge and the value of the pension liability. The key contribution of this paper is to show how correlation and, therefore, hedge effectiveness can be broken down into contributions from a number of distinct types of risk factor. Our decomposition of the correlation indicates that population basis risk has a significant influence on the correlation. But recalibration risk as well as the length of the recalibration window are also important, as is cohort effect uncertainty. Having accounted for recalibration risk, parameter uncertainty and Poisson risk have only a marginal impact on hedge effectiveness. Our case study shows that longevity risk can be substantially hedged using index hedges as an alternative to customised longevity hedges and that, as a consequence, index longevity hedges - in conjunction with the other components of an ALM strategy - can provide an effective and lower cost alternative to both a full buy-out of pension liabilities or even to a strategy using customised longevity hedges.
    Keywords: Hedge Effectiveness; Correlation; Mark-to-Model; Valuation Model; Simulation; Value Hedging; Longevity Risk; Stochastic Mortality; Population Basis Risk; Recalibration Risk
    JEL: G23 J11
    Date: 2011–05
  8. By: FitzRoy, Felix; Steinhardt, Max Friedrich; Nolan, Michael
    Abstract: We first confirm previous results with the German Socio-economic Panel, 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 46, consistent with Hirschman's (1973) tunnel effect and only negative (and larger than in the full sample) for those over 46, 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 age groups. --
    Date: 2011

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