nep-age New Economics Papers
on Economics of Ageing
Issue of 2012‒03‒21
seventeen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. A Life Cycle Model of Health and Retirement: The Case of Swedish Pension Reform By Laun, Tobias; Wallenius, Johanna
  2. The relationship between elderly employment and youth employment: evidence from China By Zhang, Chuanchuan
  3. The Impact of Later Retirement Ages on Aggregate Household Savings and Saving Rates: An Analysis of OECD Countries By Aylit Tina Romm; Martha Wolny
  4. Retirement Date Effects on Pre-Retirement Wealth Accumulation: An Analysis of US Households By Aylitt Tina Romm
  5. Employed and Happy despite Weak Health? Labour Market Participation and Job Quality of Older Workers with Disabilities By Catherine Pollak
  6. Target-Date Funds in 401(k) Retirement Plans By Olivia S. Mitchell; Stephen Utkus
  7. Earning Distribution and Labour Supply after a Retirement Earnings Test Reform By Hernæs, Erik; Jia, Zhiyang
  8. The public economics of increasing longevity By Pierre Pestieau; Grégory Ponthière
  9. Lifetime labor supply and human capital investment By Rodolfo E. Manuelli; Ananth Seshadri; Yongseok Shin
  10. Home production and Social Security reform By Michael Dotsey; Wenli Li; Fang Yang
  11. Like Father, Like Son: Inheriting and Bequeathing By Lars Kunze
  12. Is it true love? Altruism versus exchange in time and money transfers By Giacomo Pasini; Rob Alessie; Viola Angelini
  13. The Timing of Daily Demand for Goods and Services - Microsimulation Policy Results of an Aging Society, Increasing Labour Market Flexibility and Extended Public Childcare in Germany By Joachim Merz; Dominik Hanglberger; Rafael Rucha
  14. On the Desirability of Taxing Capital Income in Optimal Social Insurance By Bas Jacobs; Dirk Schindler
  15. Why Do Life Insurance Policyholders Lapse? The Roles of Income, Health and Bequest Motive Shocks By Hanming Fang; Edward Kung
  16. Earnings Growth versus Measures of Income and Education for Predicting Mortality By Harriet Orcutt Duleep; David Jaeger
  17. Are My Neighbours Ageing Yet? Local Dimensions of Demographic Change in German Cities By Uwe Neumann

  1. By: Laun, Tobias (Dept. of Economics, Stockholm School of Economics); Wallenius, Johanna (Dept. of Economics, Stockholm School of Economics)
    Abstract: In this paper we develop a life cycle model of labor supply and retirement to study the interactions between health and the labor supply behavior of older workers, in particular disability insurance and pension claiming. In our framework, individuals choose when to stop working and, given eligibility criteria, when/if to apply for disability and pension benefits. Individuals care about their health and can partially insure against health shocks by investing in health. We use the model to study the labor supply implications of the recent Swedish pension reform. We find that the new pension system creates big incentives for the continued employment of older workers. In particular, the model predicts an increase in the average retirement age of more than two years.
    Keywords: life cycle; retirement; pension reform; disability insurance; health
    JEL: E24 J22 J26
    Date: 2012–03–06
  2. By: Zhang, Chuanchuan
    Abstract: Retirement system reforms such as postponing retirement age in law are needed in China because of its rapid population aging. The overquick aging will result in both shortage of labor force supply and incubus of the social security system. The Chinese government acknowledged the negative influences of population aging, but finally decided to maintain the retirement age in law unchanged. The reason, as claimed by the policy makers and many socio-economic scholars, is postponing retirement age in law in China will crowd out youth employment. Unfortunately, no empirical evidences are provided, although the claim is critical to the potential retirement system reform. In this paper, we firstly address the validity of this claim. Using micro data from China’s 1990 and 2000 census and the 2005 1% population sample survey, we provide the first piece of evidence on the relationship between elderly employment and youth employment in China. Our OLS estimation results suggest that employment rates of younger persons are positively rather than negatively associated with employment rate of older persons. We further tried to identify a causal relationship by using two-way fixed effects and TSLS estimation strategies and found results consistent with our OLS estimation. Finally, we examine whether employment of older persons hurts the youth at the intensive margin by estimating the impact of elderly employment on younger workers’ monthly wage and still found a positive rather than negative effect. In short, the claim that postponing the retirement age will hurt the youth cannot be supported by empirical evidence. Although our empirical results are tentative, we view this paper as an important try to provide the first piece of evidence on the potential impact of retirement reform on youth employment and as suggesting further empirical studies on the claim that postponing retirement age will hurt the youth.
    Keywords: Retirement Reform; Elderly Employment; Youth Employment
    JEL: H5 J1 J2
    Date: 2012–03
  3. By: Aylit Tina Romm; Martha Wolny
    Abstract: As a result of population aging, governments of many OECD countries have begun to implement policies to increase average retirement ages in an attempt to alleviate some of the Â…nancial strain in supporting retirees. This paper explores the effect that later retirement ages have on aggregate household saving rates, both on a theoretical and empirical level. Using a two-wave panel of OECD countries, the results show that later retirement ages have the effect of decreasing aggregate household saving rates. We show that it is likely that this corresponds to a decrease in household saving. In addition, it appears that it is increases in female retirement ages that is driving this result.
    Keywords: retirement age, saving, life-cycle model
    JEL: E21 J26
    Date: 2012
  4. By: Aylitt Tina Romm
    Abstract: This paper uses seven waves of data from the US Health and Retirement Study to investigate the impact of expectations regarding the timing of retirement on pre-retirement wealth accumulation. More specifically, we analyze the effect of the individual's subjective belief that he will work full time after age 62 on his current level of wealth. We use the individual's perception of the usual retirement age on the job as an instrument for his subjective belief that he will work full time after age 62. We look at single women, single men and married individuals separately. On a whole, the point estimates suggest that the responsiveness of individuals saving behaviour to retirement dates expectations is large. A ten percent-age point increase in the subjective probability of working past age 62 results in a decrease in household wealth well in excess of 20% for most demographic groups. In addition, we find that, in the case of married couples in particular, there is a threshold effect in this response
    Keywords: Retirement timing; Subjective beliefs; Wealth
    JEL: E21 J26
    Date: 2012
  5. By: Catherine Pollak (IRDES institut for research and information in health economics)
    Abstract: European countries with high senior employment rates have the highest levels of job satisfaction despite an older and more physically limited workforce. In this paper, we argue that this paradox can be explained by heterogeneous levels of job quality: better working conditions may enable older workers with disabilities to remain satisfied and employed. Using panel data from the Survey of Health, Ageing and Retirement in Europe, we find that health status, job satisfaction, but also working conditions, are major individual determinants of early labour market exits. We also show that high intrinsic and extrinsic rewards can mitigate the selective effects of disability. Finally,the comparative analysis reveals that older workers with disabilities are more likely to be employed in countries where they receive higher rewards. The findings therefore indicate that improved job quality is a major factor of successful active ageing strategies.
    Keywords: Job satisfaction, Working conditions, Occupational health, Ageing labour supply.
    JEL: J28 J22 I19
    Date: 2012–03
  6. By: Olivia S. Mitchell; Stephen Utkus
    Abstract: Individual responsibility for portfolio construction is a central theme for defined contribution pensions, yet the rise of target-date funds is shifting investment decisions from workers back to employers. A complex choice architecture including automatic enrollment, reenrollment, and fund mapping, is increasing the number of participants defaulting into employer-selected target-date funds. At the same time, portfolios of non-defaulted participants undergo sizeable changes, with equity share ratios widening by over 40 percent points between younger/older participants. Among active decision-makers, these funds act as a form of implicit employer-provided lifecycle investment advice. More broadly, our findings highlight malleable preferences among retirement investors and a demand for default-based guidance or simplified advice for households facing complex choices.
    JEL: G11 G2 G23 J14 J26
    Date: 2012–03
  7. By: Hernæs, Erik (Frisch Centre for Economic Research); Jia, Zhiyang (Statistics Norway,)
    Abstract: Norwegian administrative data are used to evaluate the impact of a doubling of the threshold in the retirement earnings test. We find almost no impact on the extensive margin, but a positive effect on the intensive margin. This positive effect is uneven over the earnings distribution, and concentrated on workers around the threshold, increasing with exposure to the reform and leading to a decrease in earnings inequality. Individuals who remain active until retirement age respond more to the reform. Conditional on pre-reform earnings, we find little evidence that individual characteristics such as working histories influence the responsiveness to the reform
    Keywords: retirement earnings test; benefit entitlement; labour supply behaviour; heterogeneity
    JEL: H55 J14
    Date: 2012–02–07
  8. By: Pierre Pestieau (CREPP - Center of Research in Public Economics and Population Economics - Université de Liège, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CORE - Center of Operation Research and Econometrics [Louvain] - Université Catholique de Louvain, CEPR - Center for Economic Policy Research - CEPR); Grégory Ponthière (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Normale Supérieure de Paris - ENS Paris - INRA, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: One of the greatest success stories in our societies is that people are living longer, life expectancy at birth being now above 80 years. Whereas the lengthening of life opens huge opportunities for individuals if extra years are spent in prosperity and good health, it is however often regarded as a source of problems for policy-makers. The goal of this paper is to examine the key policy challenges raised by increasing longevity. For that purpose, we first pay attention to the representation of individual preferences, and to the normative foundations of the economy, and, then, we consider the challenges raised for the design of the social security system, pension policies, preventive health policies, the provision of long term care, as well as for long-run economic growth.
    Keywords: Life Expectancy ; Mortality ; Public Policy
    Date: 2012–03
  9. By: Rodolfo E. Manuelli; Ananth Seshadri; Yongseok Shin
    Abstract: We develop a model of retirement and human capital investment to study the effects of tax and retirement policies. Workers choose the supply of raw labor (career length) and also the human capital embodied in their labor. Our model explains a significant fraction of the US-Europe difference in schooling and retirement. The model predicts that reforms of the European retirement policies modeled after the US can deliver 15–35 percent gains in per-worker output in the long run. Increased human capital investment in and out of school accounts for most of the gains, with relatively small changes in career length.
    Keywords: Human capital ; Labor supply ; Retirement
    Date: 2012
  10. By: Michael Dotsey; Wenli Li; Fang Yang
    Abstract: This paper incorporates home production into a dynamic general equilibrium model of overlapping generations with endogenous retirement to study Social Security reforms. As such, the model differentiates both consumption goods and labor effort according to their respective roles in home production and market activities. Using a calibrated model, we find that eliminating the current pay-as-you-go Social Security system has important implications for both labor supply and consumption decisions and that these decisions are influenced by the presence of a home production technology. Comparing our benchmark economy to one with differentiated goods but no home production, we find that eliminating Social Security benefits generates larger welfare gains in the presence of home production. This result is due to the self insurance aspects generated by the presence of home production. Comparing our economy to a one-good economy without home production, we show that the welfare gains of eliminating Social Security are magnified even further. These policy analyses suggest the importance of modeling home production and distinguishing between both time use and consumption goods depending on whether they are involved in market or home production.
    Keywords: Housing ; Social security ; Labor supply
    Date: 2012
  11. By: Lars Kunze
    Abstract: Empirical evidence suggests that parents who have themselves inherited from their own parents are more likely to leave an estate to their children even after controlling for income, wealth and education. This implies an indirect reciprocal behavior between three generations by transmitting the attitude towards bequeathing from one generation to the next. We incorporate such an intergenerational chain into an overlapping generations model and show that the economy might be characterized by multiple steady states involving poverty traps. Individuals will not leave bequests unless per capita income levels exceed a threshold level. In such a situation, an unfunded social security security programme may help to overcome poverty by providing additional old age income out of which to bequeath.
    Keywords: Capital accumulation; indirect reciprocity; overlapping generations; unfunded social security
    JEL: D64 D91 H55
    Date: 2012–02
  12. By: Giacomo Pasini (Department of Economics, University Of Venice Cà Foscari); Rob Alessie (University of Groningen); Viola Angelini (University of Groningen)
    Abstract: This paper investigates what motivates intergenerational time and money transfers. We consider a model in which transfers may be driven not only by altruism, but also by exchange considerations. We use data from the Survey of Health, Ageing and Retirement in Europe (SHARE) to discriminate between the two motives. We show that both if we consider money transfers from parents to children and time transfers from children to parents, the empirical evidence rejects pure altruism in favor of exchange.
    Keywords: Intergenerational transfers, altruism, exchange
    JEL: D12 J14
    Date: 2011
  13. By: Joachim Merz; Dominik Hanglberger; Rafael Rucha (LEUPHANA University Lüneburg,Department of Economic, Behaviour and Law Sciences, Research Institute on Professions (Forschungsinstitut Freie Berufe (FFB)))
    Abstract: Knowledge about the timing of consumption opens new insights into consumption behaviour for consumer, economic, social as well as for communal and societal policies. It not only allows sound information for a better match of timely supply and demand but also about everyday living arrangements. This study contributes to the timing aspect of daily consumption by posing the question: how is the timing of daily demand for goods and services affected by major changes in German society? We concentrate on important and currently discussed developments and policies: the huge shift in Germany’s demographic structure with an aging society (with a population forecast for 2020 by the German Federal Statistical Office), the deregulation and the further expansion in flexibility of the labour market and the current policy of extending public childcare support. For each aspect and policy we first describe the actual timing of daily demand for goods and services. With the microsimulation approach and different scenarios we then quantify the respective societal and policy impacts based on more than 37,000 time use diaries of the current German Time Budget Survey of 2001/2002.
    Keywords: timing of daily demand for goods and services, consumer policy analysis by microsimulation: aging society, deregulation of the labour market, flexible working hours, public childcare support, German Time Budget Survey 2001/2002
    JEL: D12 J12
    Date: 2011–05
  14. By: Bas Jacobs (Erasmus School of Economics, Erasmus University Rotterdam, The Netherlands); Dirk Schindler (Department of Economics, University of Konstanz, Germany)
    Abstract: This paper analyzes optimal linear taxes on labor income and savings in a two-period life cycle model with ex ante identical households, endogenous leisure demands in both periods, and general processes of skill shocks over the life cycle. We demonstrate that the Atkinson-Stiglitz theorem breaks down under risk. Capital taxes are employed besides labor income taxes for two distinct reasons: i) capital taxes reduce labor supply distortions on second-period labor supply, since second-period labor supply and saving are substitutes, ii) capital taxes insure first-period income risk, although this benefit is partially off-set because first-period labor supply and saving are complements. Our results imply that (retirement) saving should not be actuarially fair.
    Keywords: Optimal Capital Taxation, Risk, Atkinson-Stiglitz theorem
    JEL: H21 D80
    Date: 2012–01–23
  15. By: Hanming Fang; Edward Kung
    Abstract: Previous research has shown that the reasons for lapsation have important implications regarding the effects of the emerging life settlement market on consumer welfare. We present and empirically implement a dynamic discrete choice model of life insurance decisions to assess the importance of various factors in explaining life insurance lapsations. In order to explain some key features in the data, our model incorporates serially correlated unobservable state variables which we deal with using posterior distributions of the unobservables simulated from Sequential Monte Carlo (SMC) method. We estimate the model using the life insurance holding information from the Health and Retirement Study (HRS) data. Counterfactual simulations using the estimates of our model suggest that a large fraction of life insurance lapsations are driven by i.i.d choice specific shocks, particularly when policyholders are relatively young. But as the remaining policyholders get older, the role of such i.i.d. shocks gets smaller, and more of their lapsations are driven either by income, health or bequest motive shocks. Income and health shocks are relatively more important than bequest motive shocks in explaining lapsations when policyholders are young, but as they age, the bequest motive shocks play a more important role. We also suggest the implications of these findings regarding the effects of the emerging life settlement market on consumer welfare.
    JEL: G22 H31 L11
    Date: 2012–03
  16. By: Harriet Orcutt Duleep (Research Professor of Public Policy, Thomas Jefferson Program in Public Policy, The College of William & Mary); David Jaeger (Professor of Economics, The Graduate Center, City University of New York)
    Abstract: This paper begins an exploration to determine whether earnings growth, as a measure of the propensity to invest in human capital, is a valuable variable for predicting mortality. To insure its robustness and general applicability to ongoing Social Security models, the usefulness of earnings growth as a predictor of mortality will be explored in multiple time periods. This paper begins that process by reporting preliminary results for an early time period using the 1973 CPS-SSA-IRS Exact Match file. In addition to presenting preliminary results, the paper also describes how data challenges associated with the pre-1978 administrative record data on earnings and mortality are met.
    Date: 2011–09
  17. By: Uwe Neumann
    Abstract: In the discussion about demographic change, the regional dimension so far has played a subordinate role. Based on municipal data for the period between 1998 and 2008, this paper examines to what extent recent demographic change has affected the population of cities and neighbourhoods, focusing on the largest urban agglomeration in Germany, the Rhine-Ruhr conurbation in North Rhine-Westphalia. The local outcomes of demographic change are modified considerably by regional migration and interrelate closely with regional prosperity. The survey provides a precise outline of the interrelation between basic demographic characteristics and shifts in the composition of neighbourhood populations over the study period. The analysis shows that in the most thriving cities, there is a particularly strong tendency of young adults to separate from other demographic groups. In neighbourhoods where there is no such influx of younger people, particularly in low-density residential areas on the urban fringe, rapid demographic ageing aff ects neighbourhood populations and local economies.
    Keywords: Demographic change; neighbourhoods; segregation; migration
    JEL: J11 R23
    Date: 2012–02

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