nep-age New Economics Papers
on Economics of Ageing
Issue of 2012‒02‒27
fifteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. The Future of Contractual Mandatory Retirement in South Korea By Klassen, Thomas R.
  2. Increasing life expectancy and optimal retirement:does population aging necessarily undermine economic prosperity? By Klaus Prettner; David Canning
  3. Individuals’ paths to retirement. By Nies, Kathrin
  4. Optimal Unemployment Insurance for Older Workers By Jean-Olivier Hairault; François Langot; Sébastien Ménard; Thepthida Sopraseuth
  5. Pension Liabilities: Fear Tactics and Serious Policy By David Rosnick; Dean Baker
  6. Do Low-Income Workers Benefit from 401(k) Plans? By Eric Toder; Karen E. Smith
  7. Lifespan variation by occupational class: compression or stagnation over time? By Alyson A. van Raalte; Pekka Martikainen; Mikko Myrskylä
  8. The Battle Over Private Pensions By Luca Barbone
  9. Social Security Claiming: Trends and Business Cycle Effects By Owen Haaga; Richard W. Johnson
  10. Provision of Long Term Care for the Elderly in Poland in Comparison to Other European Countries By Izabela Styczynska (Marcinkowska)
  11. The Economics of Pensions. Remarks on Growth, Distribution and Class Con ict. By Codrina Rada
  12. Ensuring the Service Quality of Long-Term Care Provided through Competitive Markets: The Experience of Care Workers' Training in Japan By Yoshihiko Kadoya
  13. Ill-health and transitions to part-time work and self-employment among older workers By Zucchelli, E.;; Harris, M.;; Zhao, X.;
  14. Long-term Care Insurance in Germany Assessments, benefits, care arrangements and funding By Theobald, Hildegard
  15. The Role of Parental Cognitive Aging in the Intergenerational Mobility of Cognitive Abilities By Valentina Conti; Joanna Kopinska

  1. By: Klassen, Thomas R.
    Abstract: Although contractual mandatory retirement at a specified age has been eliminated, or limited, in many Western nations, the practice remains widespread in other parts of the world. In South Korea (henceforth, Korea) most workers are subject to contractual mandatory retirement, often while still relatively young; that is, in the 50s. Korean retirement policies are deeply rooted in the belief by policy makers, employers and unions that mandatory retirement creates jobs for young workers. In addition, because worker compensation is linked to age, employers argue that the seniority-based wages paid to older workers are excessive. Notwithstanding the opposition to reforming retirement policies, Korea faces a rapidly aging population that will require modifications to existing retirement arrangements. Moreover, greater emphasis on human rights, and efforts to reduce age-based discrimination in employment, will add to the pressures to increase the age of contractual mandatory retirement.
    Keywords: Mandatory Retirement, South Korea, Age Discrimination, Population Aging
    JEL: J26 J14 J78
    Date: 2012–02–19
  2. By: Klaus Prettner (Harvard Center for Population and Development Studies); David Canning (Harvard School of Public Health)
    Abstract: In this paper we analyze the eects of changes in longevity and the pace of technological progress on interest rates, savings behaviour and optimal retirement decisions. In so doing we embed the dynamic optimization problem of choosing a life-cycle consumption path and the retirement age into a general equilibrium setting. Thereby we assume that technology evolves exogenously and the production side of the economy can be described by means of a neoclassical production function. Our results show that (i) the aggregate capital to consumption ratio increases and interest rates decrease in response to increases in longevity; (ii) the response of the optimal retirement age to increases in longevity is ambiguous. However, for reasonable parameter values the optimal retirement age increases in longevity; (iii) the aggregate capital to consumption ratio decreases and interest rates increase in response to faster technological progress; (iv) the response of the optimal retirement age to faster technological progress is ambiguous. However, for reasonable parameter values the optimal retirement age increases in the pace of technological improvements.
    Keywords: endogenous retirement, life-cycle savings, population aging, technological progress, economic prosperity
    Date: 2012–02
  3. By: Nies, Kathrin (Maastricht University)
    Date: 2011
  4. By: Jean-Olivier Hairault (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne, IZA - Institute for the Study of Labor); François Langot (IZA - Institute for the Study of Labor, GAINS-TEPP - Université du Mans, CEPREMAP - Centre pour la recherche économique et ses applications); Sébastien Ménard (GAINS - Université du Maine); Thepthida Sopraseuth (CEPREMAP - Centre pour la recherche économique et ses applications, GAINS-TEPP - Université du Maine)
    Abstract: This paper studies the optimal unemployment insurance for older workers in a repeated principal-agent model, where the search intensity of risk-averse workers (the agents) is not observed by the risk-neutral insurance agency (the principal). When unemployment benefits are the only available tool, the insurance agency is not able to induce older workers to search for a job. This is because of the short time-horizon of workers close to retirement. We propose to introduce a pension tax dependent on the length of the unemployment spell. We show that this device performs better than a wage tax after re-employment. First, it makes jobs more attractive, as they are free of tax. Second, because re-employment will be short-lived, a pension tax is a more powerful incentive than a wage tax, and provides more substantial fiscal gains to the agency. Finally, a pension tax allows those workers near retirement who still do not exercise job search to smooth their consumption during their unemployment spell, as if they could borrow against their future pension.
    Date: 2012–02–13
  5. By: David Rosnick; Dean Baker
    Abstract: This working paper argues that pension funds should adopt a funding principle that is consistent with a return on holdings conditional on the state of the stock market. As will be shown, the expected “conditional rate of return” used in making this assessment will vary depending on the current ratio of stock prices to trend corporate earnings. This funding rule will lead to a more even flow of contributions into the fund than a rule that is based on a fixed return for assets over time.
    Keywords: pensions, retirement
    JEL: G G2 G23 J J3 J32
    Date: 2012–01
  6. By: Eric Toder; Karen E. Smith
    Abstract: Economists frequently assume that employees "pay for" employer-provided fringe benefits, such as contributions to retirement plans, in the form of reduced wages. Because low-income employees receive little tax benefit from saving in qualified retirement plans, however, and may prefer immediate consumption to additional retirement accruals, they may not be willing to accept a one dollar reduction in their wage in return for an additional dollar contributed to their 401(k) plan, while high income workes may be willing to give up more than a dollar in wages to get the tax benefit...
    Date: 2011–09
  7. By: Alyson A. van Raalte (Max Planck Institute for Demographic Research, Rostock, Germany); Pekka Martikainen; Mikko Myrskylä (Max Planck Institute for Demographic Research, Rostock, Germany)
    Abstract: Adult lifespan variation in most western countries has stagnated since the 1960s, despite continued improvements in longevity. Cross-sectional analyses, however, find that in the 1990s higher socio-economic position was associated with lower lifespan variation. Trends in this association over time are unknown. We investigated trends in lifespan variation over four decades by occupational social class (manual, lower non-manual, upper non-manual) using Finnish register data (1971-2007). We performed age and cause-of-death decompositions of lifespan variation for each sex (a) by occupational class over time and (b) between occupational classes at a shared life expectancy. We found that although all occupational classes experienced increases in life expectancy, manual workers had stagnating lifespan variation over time while the higher occupational groups experienced mortality compression. These differences were caused by diverging trends in early adult mortality: all occupational classes experienced similar trends in lifespan variation at older ages, but variation in early adult mortality increased for all classes except the highest category. The high and stagnant lifespan variation of the manual class was mostly due to higher early adult mortality from external causes. These results suggest that mortality compression can be compatible with increases in life expectancy by tackling inequalities in early adult mortality.
    Keywords: Finland, adult mortality, age distribution, causes of death, mortality trends, socio-economic differentials
    JEL: J1 Z0
    Date: 2012–02
  8. By: Luca Barbone
    Abstract: Funded, compulsory pension funds are under attack in Europe and beyond. But are recent policy actions likely to improve the lot of future pensioners, or will they turn out to be short-term politically-motivated fixes that ultimately make life harder?
    Keywords: Private Pension
    Date: 2011–05
  9. By: Owen Haaga; Richard W. Johnson
    Abstract: This study examines Social Security claiming behavior, which has important implications for older Americans and for the system itself. Retireees may begin collecting benefits as early as age 62, but early claimants receive lower monthly benefits for the rest of their lives. Our data come from Survey of Income and Program Participation (SIPP) files from 1984 to 2009 linked to administrative records on earning and benefits. The sample is restricted to respondents with 40 quarters of covered employment who did not claim benefits before age 62. Results indicate that early claiming has declind over the past decade after increasing over the previous ten years. For men, the share claiming at age 62 fell from 55.3 percent in the 1930 - 34 birth cohort to 46.4 percent in the 1940 - 44 cohort. Over the same period, the share of women claiming at 62 fell from 59.3 to 49.0 percent. The recent trend toward delayed claiming is evident among all educational groups, not just college graduates. Hazard models show that high unemployment boosts Social Security claiming among men with limited education. A 1 percent point increase in the state unemployment rate is associated with a 0.4 percentage point increase in the likelihood each month that men who never attended college will claim benefits, a relative increase of 6 percent, This estimate implies that the Great Recession increased claiming for men with limited education by about 40 percent. Claiming behavior among women and well-educated men is not significantly correlated with the state unemployment rate, however.
    Date: 2012–02
  10. By: Izabela Styczynska (Marcinkowska)
    Abstract: In recent years, population ageing has attracted the attention of research and policy advisors in all European countries. Several policy actions have been directed toward ensuring optimal long-term care (LTC) for elderly people while maintaining fiscal rationality. LTC systems are very different across all European countries. Their design is characterized by diverse arrangements for the provision of care/organization and financing. Despite general concerns, the Polish LTC system is still at the bottom of the pile in terms of the organization and provision of care.
    Keywords: LTC system,Labor market, social policy and social services, Europe, long-term care
    Date: 2012–02
  11. By: Codrina Rada
    Keywords: E24; E12; G23; H55; JEL Classification: This paper compares fully-funded (FF) and pay-as-you-go (paygo) pension plans in a Keynesian framework for an economy with overlapping generations and excess capacity. The model addresses both short/mediumrun equilibria and steady-states. Income distribution and class con ict, two crucial aspects of the political economy of pensions, become multidimensional. In a fully-funded economy class con ict between capitalists and labor gets diused in the short-run by retirees' own interest to maintain a high prot share. In the long-run capitalists recognize that they can control their (net) share of prots by controlling employment and therefore the number of future retirees through capital accumulation. An extension of the model can show that scal policy is not always helpful in a fully-funded economy. A pay-as-you-go economy maintains a closer resemblance to the classical story of class con ict over income distribution. This is because workers and retirees have their interests aligned with the wage share. In this case scal policy through spending can be eective without creating a debt problem.
    Date: 2012
  12. By: Yoshihiko Kadoya
    Abstract: Ensuring the service quality of long-term care provided through competitive markets is a major concern among the governments of OECD members. The public officials in these nations recognise the importance of care workers' training to address this issue. However, most of them have hesitated to introduce comprehensive training due to financial constraints. Analysing the experience of Japan, this paper reveals that governments can ensure the financial sustainability of care workers' training by aiming at the best possible long-term care.
    Date: 2012–02
  13. By: Zucchelli, E.;; Harris, M.;; Zhao, X.;
    Abstract: This paper employs a dynamic multinomial choice framework to provide new evidence on the effect of health on labour market transitions among older individuals. We consider retirement as a multi-state process and examine the effects of ill-health and health shocks on mobility between full-time employment, part-time employment, self-employment and inactivity. In order to disentangle the roles of unobserved individual heterogeneity and true state dependence, we estimate dynamic panel multinomial logit models with random effects, assuming a first order Markov process and accounting for the initial conditions problem. We also account for potential measurement error in the self-assessed health status by building a latent health stock model and employing measures of health shocks. Using data from the first nine waves of the (2001 - 2009) Household, Income and Labour Dynamics in Australia (HILDA) Survey, we find that both ill-health and health shocks greatly increase the probability of leaving full-time employment towards inactivity. We also find evidence of health-driven part-time and selfemployment paths into inactivity.
    Keywords: ill-health; health shocks; labour transitions; dynamic multinomial choice models
    JEL: C23 I10 J24
    Date: 2012–02
  14. By: Theobald, Hildegard (University of Vechta)
    Abstract: The establishment of Long-term Care Insurance (LTCI) in Germany in 1995/96 significantly restructured Germany's public long-term care support. Before, the responsibility for providing care to Germany's elderly population lay mainly with the family, while based on the principle of subsidiarity public support was only available after a means-test within a tax-based social assistance framework. The law on LTCI established a social-insurance and mandatory private insurance scheme to grant universal public support in strictly defined situations of care dependency. LTCI in Germany was created at the beginning of the 1990s in a situation of welfare state constraints characterised by criticism towards comprehensive public welfare spending and an increasing emphasis on individual responsibilities and market solutions (Landenberger, 1994; Meyer, 1996). Against this background the law was a compromise on the balance of private, family, public and market responsibilities between more economically - and more social-policy oriented politicians and social actors. The LTCI law aimed to combine several goals, namely the introduction of universal social rights, cost containment strategies, the promotion of ageing in place, with an emphasis on family care, and the expansion of a market-oriented care infrastructure (Theobald, 2011, forthcoming). The goals are reflected in the definition of social rights valid in the whole country, the construction of funding schemes and the regulation of family care-giving and professional care provision based on free choice for users between both types of care provision and care providers. Prevalent benefit use and care arrangement patterns emerging within the framework of LTCI still confirm a family-oriented strategy of long-term care provision mainly supported by cash payments. However, a more detailed analysis of current care arrangements reveals considerable differences in the interplay of family care, professional care provision and further paid care services depending on gender, socio-economic class and migration background. Furthermore, the development of a market-oriented care infrastructure based on price competition resulted in considerable regional differences, which run counter to the goal of the insurance to provide equal support in defined situations of care dependency throughout the country. Public long-term care support is embedded and simultaneously limited by mode and principles of funding; i.e. the introduction of a separated social- and private insurance scheme and cost containment strategies. The basic presumptions surrounding the two distinct schemes on the role of state respectively public, market or private responsibilities are the subject matter of continual discussions. The paper aims to give a broad overview of social rights, benefits, modes and principles of LTCI funding and an analysis of outcomes related to patterns of care provision and the financial development of this insurance. First, the interrelationship of LTCI with other valid policy schemes in the sector provide a background for the analysis and are outlined to reveal the position of LTCI and further available public support. Second, the basic features of LTCI are presented (sections 2 and 3). The paper goes on to describe and explain assessment procedures, benefit use, prevalent care arrangements patterns, and the situation of informal carers against the background of LTCI (sections 4 and 5). Funding schemes are presented and discussed with regard to their financial development and difficulties, alternative funding concepts and processes of policy-making with their political and social actors (section 6). Finally, LTCI features and their outcomes related to care provision and funding are summarised and discussed in the conclusion (section 7).
    Keywords: Long-term Care Insurance; LTCI; Germany; elderly population; family care; market-oriented care
    JEL: H53
    Date: 2012–02–06
  15. By: Valentina Conti (Faculty of Economics, University of Rome "Tor Vergata"); Joanna Kopinska (Faculty of Economics, University of Rome "Tor Vergata")
    Abstract: This paper studies intergenerational transmission of cognitive abilities from parents to children. We create a measure of parental cognitive evolution across time, which combines cognitive tests scores obtained at the age of 16 with the ones at the age of 50. We are thus able to identify cognitive aging patterns and assess their impact in the intergenerational perspective. The British National Child Development Study (NCDS) allows us to investigate the effect of parental cognition on two distinct offspring's outcomes: cognitive abilities and educational attainment. Our analysis provides novel results concerning the role of parental cognitive transition during adult life. We find that children benefit not only from the stock of cognitive abilities their mothers and fathers hold as adolescents, but also from cognitive evolution their parents achieve as adults. This outcome is significant and robust under various model specifications. Finally, we investigate the determinants of parental cognitive transition. We find that cognitive aging is attenuated for individuals who undergo multiple job variations, follow on-the-job trainings and engage in leisure activities. This analysis delivers new evidence on the role of policy interventions aimed at fostering cognitive function during adult life, which aside from improving individual outcomes, has positive externalities for the subsequent generations.
    Keywords: intergenerational mobility, cognitive ability
    JEL: I20 J24 J62
    Date: 2012–01–30

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