nep-age New Economics Papers
on Economics of Ageing
Issue of 2011‒11‒28
sixteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Are we doing enough to discourage early retirement? By Goulão, Catarina; Gouveia, Miguel
  2. Do Stronger Age Discrimination Laws Make Social Security Reforms More Effective? By David Neumark; Joanne Song
  3. Does Raising the Retirement Age Increase Employment of Older Workers? By Stefan Staubli; Josef Zweimüller
  4. Income Adequacy in Retirement: Accounting for the Annuitized Value of Wealth in Canada By Baldwin, John R.<br/> Frenette, Marc<br/> Lafrance, Amélie<br/> Piraino, Patrizio
  5. Pension Reform in Greece: A Discussion By Takayama, Noriyuki
  6. The Role of the Spouse in Early Retirement Decisions for Older Workers By Malene Kallestrup-Lamb
  7. Health Consequences of an Eclectic Social Security Regime: The Case of Turkey By Hasan Tekguc
  8. Labor Supply and Government Programs: A Cross-Country Analysis By Andres Erosa; Luisa Fuster; Gueorgui Kambourov
  9. Social security and the rise in health spending: a macroeconomic analysis By Zhao, Kai
  10. Consumption and Differential Mortality By Michael Hurd; Susann Rohwedder
  11. The Effects of the Financial Crisis on Actual and Anticipated Consumption By Michael D. Hurd; Susann Rohwedder
  12. Malaria: An Early Indicator of Later Disease and Work Level By Sok Chul Hong
  13. Age, Life-satisfaction, and Relative Income-Insights from the UK and Germany By Felix F. FitzRoy; Michael Nolan; Max F. Steinhardt
  14. The Influence of Public Policy on Health, Wealth and Mortality By John Karl Scholz; Ananth Seshadri
  15. The Causes and Consequences of the Demographic Transition By David Canning
  16. Revenu adéquat à la retraite : prise en compte de la valeur de la richesse convertie en rente au Canada By Baldwin, John R.<br/> Frenette, Marc<br/> Lafrance, Amélie<br/> Piraino, Patrizio

  1. By: Goulão, Catarina; Gouveia, Miguel
    Abstract: Increasing the effective retirement age contributes to the sustainability of pension systems. However, oftentimes policies aiming at rising employment rates of older workers fall short in delaying retirement. This seems to be the case with retirement age flexibility reforms in Portugal. We analyze the recent Portuguese history of incentives to retire. For 1990-2006 we find that individuals faced very high implicit taxes on working with the result that half the workers had already left the labour force before age 65. We then look at the Social Security reforms in 2007 and find that the incentives to continue working became even smaller than they already were. We conclude that increasing the labour supply of older workers in a system with flexible retirement age needs policies with more aggressive use of penalties and bonuses than what decision makers were willing to accept.
    Keywords: Early retirement, Pensions, Social Security
    Date: 2011–01
  2. By: David Neumark (University of California, Irvine National Bureau of Economic Research); Joanne Song (University of California, Irvine)
    Abstract: Supply-side Social Security reforms to increase employment and delay benefit claiming among older individuals may be frustrated by age discrimination. We test for policy complementarities between supply-side Social Security reforms and demand-side efforts to deter age discrimination, specifically studying whether stronger state-level age discrimination protections enhanced the impact of the increases in the Social Security Full Retirement Age (FRA) that occurred in the past decade. The evidence indicates that, for older individuals who were “caught” by the increase in the FRA, benefit claiming reductions and employment increases were sharper in states with stronger age discrimination protections.
    Date: 2011–09
  3. By: Stefan Staubli; Josef Zweimüller
    Abstract: This paper studies how an increase in the minimum retirement age affects the labor market behavior of older workers. Between 2000 and 2006 the Austrian government gradually increased the early retirement age from 60 to 62.2 for men and from 55 to 57.2 for women. Using administrative data on the universe of Austrian private-sector employees, the results from the empirical analysis suggest that this policy change reduced retirement by 19 percentage points among affected men and by 25 percentage points among affected women. The decline in retirement was accompanied by a sizeable increase in employment of 7 percentage points among men and 10 percentage points among women, but had also a important spillover effects into the unemployment insurance program. Specifically, the unemployment rate increased by 10 percentage points among men and 11 percentage points among women. In contrast, the policy change had only a small impact on the share of individuals claiming disability or partial retirement benefits.
    Keywords: Early retirement, retirement age, labor supply, policy reform
    JEL: J14 J26
    Date: 2011–07
  4. By: Baldwin, John R.<br/> Frenette, Marc<br/> Lafrance, Amélie<br/> Piraino, Patrizio
    Abstract: Discussions of pension adequacy for elderly Canadians have used the rate at which income falls with age; the income replacement rate or the ratio of post-retirement income to pre-retirement income. Use of income streams to assess post-retirement welfare requires a standard against which adequacy of the replacement rates can be judged. Because some expenditures (for example, work-related expenses) can be expected to fall after retirement, a declining income stream does not necessarily signal financial problems for seniors. More importantly, income as normally measured captures only part of what is available to seniors if households possess assets, which in retirement are not being used to generate measured income. This paper uses a different metric, referred to as "potential" income. Potential income is the sum of realized income and the income that could be realized from owned assets such as mutual funds and housing. Households prepare for retirement by saving and borrowing and investing the proceeds. The assets accumulated over a lifetime may or may not be drawn down in later years. If they are not, income streams underestimate the "potential" income available to support retirement. This paper takes this potential into account when comparing the pre- and post-retirement financial status of Canadian households.
    Keywords: Families, households and housing, Income, pensions, spending and wealth, Seniors, Household assets, debts and wealth, Income, pensions and wealth
    Date: 2011–11–21
  5. By: Takayama, Noriyuki
    Date: 2011–11
  6. By: Malene Kallestrup-Lamb (Department of Economics and Business and CREATES)
    Abstract: This paper investigates the determinants of older workers' early retirement behavior in Denmark. Instead of considering dual retirement we recognize the importance of the spouse in the early retirement decision by assessing the effect of a rich number of spousal variables. Given the grouped nature of the data we set up a semi-parametric single risk grouped duration proportional hazard model accounting for right censoring and allows for time-varying covariates, a nonparametric baseline and unobserved heterogeneity. We find that spousal characteristics do influence the retirement decision and significant gender asymmetries also exist in the effects of spouse's characteristics.Classification-JEL: J26, C41.
    Keywords: Early Retirement, Gender Asymmetries, Spousal Effects, Duration analysis, Grouped data, Unobserved heterogeneity.
    Date: 2011–11–16
  7. By: Hasan Tekguc (Mardin Artuklu Univeristy; Mardin Artuklu Univeristy)
    Abstract: Until 2008 access to healthcare was very stratified in Turkey depending on the insurance scheme the employed person belonged to. A widely accepted ranking of health services of different pension schemes in Turkey (from best to worst) is Government Employees Retirement Fund (GERF),Social Insurance Institution (SII) for workers, Bağ-Kur (BK) for urban self-employed and farmers, Green Card (a means-tested poverty relief scheme), and uncovered population with no formal right to access hospital services. The reforms enacted between 2004 and 2008 had gradually eliminated the stratification in access to health care among separate schemes. Even though the Turkish Statistical Institute (TurkStat) has tracked satisfaction with health services; to our knowledge, our paper is the first attempt that tries to validate the above ranking empirically using an objective and cumulative measure. In order to test this claim, we chose age-adjusted average age of death and age-adjusted death rate as outcome variables. We were able to obtain the most comprehensive data for insurees of SII for the period 2000-10, of BK for 2004-10 (separately for urban self-employed and farmers) and of Green Card old age pensioners for 2007-10 (no data for GERF). Among the groups for which data is available, SII members have the highest age-adjusted age of death as expected: for men (women) average age of death is 66 (68.5) years for SII insurees, 63.7 (66.5) for farmers in BK and 65.2 (64.5) for self-employed BK insurees. Green Card beneficiaries have the highest age adjusted death rate as expected. If the death rate prevailing for other insurees had held for Green Card members as well, the death toll would have been halved (from 64,062 to 31,700 for 2009) for old age pensioners in Green Card. Unfortunately we are unable to adjust our findings for income level and education so all the differences could not be attributed to stratified access to healthcare.
    Keywords: age-adjusted age of death, eclectic healthcare, Turkey
    Date: 2011–10
  8. By: Andres Erosa; Luisa Fuster; Gueorgui Kambourov
    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 relative 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 H55 J2
    Date: 2011–11–15
  9. By: Zhao, Kai
    Abstract: In this paper, I develop a quantitative macroeconomic model with endogenous health and endogenous longevity and use it to study the impact of Social Security on aggregate health spending. I find that Social Security increases the aggregate health spending of the economy via two channels. First, Social Security transfers resources from the young with low marginal propensity to spend on health care to the elderly (age 65+) with high marginal propensity to spend on health care. Second, Social Security raises people's expected future utility and thus increases the marginal benefit from investing in health to live longer. In the calibrated version of the model, I show that the positive impact of Social Security on aggregate health spending is quantitatively important. The expansion of US Social Security since 1950 can account for approximately 43% of the dramatic rise in US health spending as a share of GDP over the same period (i.e. from 4% of GDP in 1950 to 13% of GDP in 2000). I also find that this positive impact of Social Security has two interesting policy implications. First, the negative effect of Social Security on capital accumulation in this model is significantly smaller than what previous studies have found, because Social Security induces extra years of life via health spending and thus encourages private savings for retirement. Second, Social Security has a significant spill-over effect on public health insurance programs (e.g. Medicare). As Social Security increases health spending and longevity, it also increases the insurance payments from these programs, thus raising their financial burden.
    Keywords: Social Security; Health Spending; Savings; Longevity
    JEL: H30 I00 E20 E60
    Date: 2011–06
  10. By: Michael Hurd (RAND); Susann Rohwedder (RAND)
    Abstract: It is well-established that differential mortality according to wealth or income introduces bias into age profiles of these variables when estimated on cross-sectional or synthetic cohort data. However, little is known about whether this association is also found with consumption, and if so, how strong this association is. In this paper we use panel data on total household spending from the Health and Retirement Study (HRS) and its supplemental study, the Consumption and Activities Mail Survey (CAMS), to estimate differences in consumption by survival status to the next survey wave. We quantify the bias in age profiles of consumption that results from differential mortality when estimating the age profiles on cross-sectional data or on synthetic cohort data. We find that the bias is smaller than that found for wealth or income.
    Date: 2011–09
  11. By: Michael D. Hurd (RAND); Susann Rohwedder (RAND)
    Abstract: We studied how households adjust their spending in response to the financial crisis. Based on five waves of data from the Consumption and Activities Mail Survey, we quantified the reduction in total consumption and in specific categories of consumption in the older population at large and by stock ownership, both as a proxy for wealth and to test assumptions about whether stock ownership was associated with different responses. In particular, we compared consumption changes between 2007 and 2009 with consumption changes over prior years. We used panel data on anticipated changes in spending at retirement to quantify the effects of the financial crisis on well-being in retirement via a difference-in-differences approach.
    Date: 2011–10
  12. By: Sok Chul Hong (Department of Economics, Sogang University, Seoul)
    Abstract: The effect of early-life exposure to malaria on disability and work level in old age has been rarely studied. This study investigates this less explored question over the past one and a half century. First, using longitudinal lifetime records of Union Army veterans, I estimate that exposure to a malarial environment in early life (c.1840) substantially increased the likelihood of having various chronic diseases and not working in old age (c.1900). Second, from data on US cohorts born between 1891 and 1965, I find that those exposed to a higher level of the antimalaria campaign, which began in 1920, suffered less from work disability in old age than otherwise. This effect was substantial among cohorts born in high-risk malaria counties. Third, I seek the same implications for the modern period by linking World Health Organization¡¯s country statistics on disability-adjusted life years (DALYs) among older populations in 2004 to country-level malaria risk in 1946. In the paper, I discuss possible mechanisms and propose the significance of malaria eradication and early-life conditions from a longer-term perspective.
    Keywords: Early-Life Exposure to Malaria, Chronic Disease, Work Disability, DALYs, Aging, Malaria Eradication, Anti-Malaria Campaign, Cohort Study, Cross-Country Study
    JEL: I12 I18 J14 O15
    Date: 2011–10
  13. By: Felix F. FitzRoy; Michael Nolan; Max F. Steinhardt
    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: 2011–11
  14. By: John Karl Scholz (University of Wisconsin); Ananth Seshadri (University of Wisconsin)
    Abstract: In this project we extend an augmented lifecycle model, incorporating a Grossman-style model of health capital, to enhance understanding of factors influencing consumption, wealth and health. We develop three primary results when using the model to explore the effects of stylized versions of Medicare and Social Security on wealth and longevity. First, our model calibration implies consumption and health are complements. As health depreciates with age, households will get less utility from consumption than would be in the case of a lifecycle model that does not endogenize health. Second, it appears that forward-looking households, when confronted by a substantially reduced safety net, will respond by reducing consumption and by reducing their health investment and therefore longevity. Third, there is a potentially important difference between short- and long- run responses to policy.
    Date: 2011–09
  15. By: David Canning (Harvard School of Public Health)
    Abstract: The causes and consequences of the demographic transition are considered in light of the recent book by Dyson (2010) on demography and development. In the last 50 years the world has seen an exogenous decline in mortality that generated a decline in fertility and an increase in urbanization that has had profound economic, social and political consequences. However, historically, declines in mortality and fertility, and escape from the Malthusian trap, have required countries to have already undergone considerable economic and political development. We therefore argue for two way causality between the demographic transition and economic and political outcomes.
    Keywords: demographic transition, fertility, mortality
    Date: 2011–11
  16. By: Baldwin, John R.<br/> Frenette, Marc<br/> Lafrance, Amélie<br/> Piraino, Patrizio
    Abstract: Jusqu'à maintenant, les discussions portant sur le caractère adéquat des pensions des Canadiens âgés ont été fondées sur le taux de diminution du revenu avec l'âge, soit le taux de remplacement du revenu ou le ratio du revenu après la retraite au revenu avant la retraite. Pour utiliser les flux de revenu afin d'évaluer le bien-être après la retraite, il faut une norme par rapport à laquelle déterminer le caractère adéquat des taux de remplacement. Étant donné qu'on peut s'attendre à ce que certaines dépenses (par exemple, celles liées au travail) diminuent après la retraite, un flux de revenu à la baisse n'est pas nécessairement synonyme de problèmes financiers pour les personnes âgées. Qui plus est, le revenu tel qu'il est mesuré habituellement saisit une partie seulement du revenu dont disposent les personnes âgées si les ménages possèdent des actifs qui ne sont pas utilisés à la retraite pour produire le revenu mesuré. Dans la présente étude, nous utilisons une mesure différente appelée « revenu potentiel ». Le revenu potentiel est la somme du revenu réalisé et du revenu qui pourrait être réalisé à partir d'actifs possédés comme les fonds communs de placement et le logement. Les ménages se préparent à la retraite en faisant des épargnes et des emprunts et en investissant les produits. Les actifs accumulés au cours de la vie peuvent être ou ne pas être retirés plus tard. S'ils ne le sont pas, les flux de revenu sous-estiment le revenu « potentiel » disponible à la retraite. Dans la présente étude, nous prenons en compte ce revenu potentiel lorsque nous comp
    Keywords: Familles, ménages et logement, Revenu, pensions, dépenses et richesse, Aînés, Actif, endettement et richesse des ménages, Revenu, pension et patrimoine
    Date: 2011–11–21

This nep-age issue is ©2011 by Claudia Villosio. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.