nep-age New Economics Papers
on Economics of Ageing
Issue of 2012‒05‒02
eleven papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Entitlement Reforms in Europe: Policy Mixes in the Current Pension Reform Process By Axel H. Börsch-Supan
  2. What is the Role of Social Pensions in Asia? By Armando Barrientos
  3. Innovative Approaches to Managing Longevity Risk in Asia : Lessons from the West By Amlan Roy
  4. The Prospects of the Baby Boomers: Methodological Challenges in Projecting the Lives of an Aging Cohort By Christian Westermeier; Anika Rasner; Markus M. Grabka
  5. Health, Height, Height Shrinkage and SES at Older Ages: Evidence from China By Huang, Wei; Lei, Xiaoyan; Ridder, Geert; Strauss, John; Zhao, Yaohui
  6. 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
  7. An Analysis of Risk-Taking Behavior for Public Defined Benefit Pension Plans By Nancy Mohan; Ting Zhang
  8. Lifetime Labor Income and the Erosion of Seniority-Based Wages in Japan: Evidence Based on Administrative Data Records By Hori, Masahiro; Iwamoto, Koichiro
  9. Workfare for the old and long-term unemployed By Bennmarker, Helge; Nordström Skans, Oskar; Vikman, Ulrika
  10. Disability costs and equivalence scales in the older population By Morciano, Marcello; Hancock, Ruth; Pudney, Stephen
  11. Evaluating the Impact of a Reduction in the Generosity of Disability Benefits: The 2008 Spanish Reform By Silva, José I.; Vall Castello, Judit

  1. By: Axel H. Börsch-Supan
    Abstract: Many European countries have begun (or have announced) programs intended to reduce the growth of entitlement programs, in particular of public pensions. Current costs are high, and the pressures will increase due to population aging and negative incentive effects. This paper focuses on the pension reform process in Europe. It links the causes for current problems to the cures required to make the pay-as-you-go entitlement programs in Continental Europe sustainable above and beyond the financial crisis. It discusses examples which appear, from a current point of view, to be the most viable and effective options to bring entitlement systems closer to fiscal balance and still achieve their key aims. There is no single policy prescription that can solve all problems at once. Reform elements include a freeze in the contribution and tax rates, an indexation of benefits to the dependency ratio, measures to stop the current trend towards early retirement, an adaptation of the normal retirement age to increased life expectancy, and more reliance on private savings – elements of a sustainable but complex multipillar system of pensions and similar entitlement programs.
    JEL: H51 H55 H68
    Date: 2012–04
  2. By: Armando Barrientos (Asian Development Bank Institute (ADBI))
    Abstract: Rapid population ageing and economic transformation in Asia raise the policy challenge of ensuring income security in old age. There is growing interest among policymakers in the potential role of noncontributory transfers as an instrument to address a variety of policy challenges, including old age poverty and vulnerability, rapid population ageing, the effects of migration on intergenerational family support structures, and the effects of informality on social protection systems. The main objective of this paper is to explore the potential role of social pensions and other noncontributory schemes in Asia, informed by insights from theory and international experience. The paper identifies alternative forms of providing income security in old age, including social pensions. It also examines the welfare effects of adopting alternative social pension designs, especially around two key policy nodes : the comparative advantages of social assistance and social pensions, and the integration of noncontributory transfers within advanced contributory pension schemes.
    Keywords: Social pension, Asia, population aging, income security, economic transformation, pension scheme
    JEL: H55 I38 J14 J32 O17
    Date: 2012–04
  3. By: Amlan Roy (Asian Development Bank Institute (ADBI))
    Abstract: This paper discusses what is longevity risk, why it is important, approaches used by the West to manage longevity risk and what lessons can be learnt by Asian countries from the experiences of the West. Increasing and uncertain longevity has emerged as a key risk affecting individuals, pension plans, insurers and governments in both the developed and emerging world. I discuss progress in the field of longevity modelling and the merits as well as drawbacks of these models. In Western countries, attempts have been made by capital market and governments to deal with longevity risk, but the availability of solutions remain limited. Further developments should focus on creating a set of instruments that are effective, economically affordable, and transparently priced. It is important to understand, measure, and manage longevity risk. Moreover, further pension reforms are needed to address the root of the problem. For Asian countries, the experience of the West provides ample guidance in formulating their pension plans and promoting capital market developments to avoid the same predicament the West is now struggling with. Simple cost-effective solutions linking retirement ages to longevity, efficiently engaging women and older workers in the work force for longer, education and technology driven flexible work practices, along with preventing productive human capital outflows ought to be considered seriously in Asia.
    Keywords: Longevity Risk, Asia, pension reforms, Capital Markets
    JEL: G17 G22 G23 E24
    Date: 2012–04
  4. By: Christian Westermeier; Anika Rasner; Markus M. Grabka
    Abstract: In most industrialized countries, the work and family patterns of the baby boomers characterized by more heterogeneous working careers and less stable family lives set them apart from preceding cohorts. Thus, it is of crucial importance to understand how these different work and family lives are linked to the boomers’ prospective material well-being as they retire. This paper presents a new and unique matching-based approach for the projection of the life courses of German baby boomers, called the LAW-Life Projection Model. Basis for the projection are data from 27 waves of the German Socio-Economic Panel linked with administrative pension records from the German Statutory Pension In-surance that cover lifecycle pension-relevant earnings. Unlike model-based micro simula-tions that age the data year by year our matching-based projection uses sequences from older birth cohorts to complete the life-courses of statistically similar baby boomers through to retirement. An advantage of this approach is to coherently project the work-life and family trajectories as well as lifecycle earnings. The authors present a benchmark anal-ysis to assess the validity and accuracy of the projection. For this purpose, they cut a signif-icant portion of already lived lives and test different combinations of matching algorithms and donor pool specifications to identify the combination that produces the best fit be-tween previously cut but observed and projected life-course information. Exploiting the advantages of the projected data, the authors compare the returns to education - measured in terms of pension entitlements – across cohorts. The results indicate that within cohorts, differences between individuals with low and high educational attainment increase over time for men and women in East and West Germany. East German boomer women with low educational attainment face the most substantial losses in pension entitlements that put them at a high risk of being poor as they retire.
    Keywords: Forecasting Models, simulation methods, SOEP, baby boomers, education, public pensions
    JEL: C53 H55 I24
    Date: 2012
  5. By: Huang, Wei (Harvard University); Lei, Xiaoyan (Peking University); Ridder, Geert (University of Southern California); Strauss, John (University of Southern California); Zhao, Yaohui (Peking University)
    Abstract: Adult height, as a marker of childhood health, has recently become a focus in understanding the relationship between childhood health and health outcomes at older ages. However, measured height of the older individuals is contaminated by height shrinkage from aging. Height shrinkage, in turn may be correlated with health conditions and socio-economic status from throughout the life-cycle. In this case it would be problematic to use measured height directly in regressions without considering such an effect. In this paper, we tackle this problem by using upper arm length and lower leg length to estimate a pre-shrinkage height function for a younger population that should not have started their shrinkage. We then use these estimated coefficients to predict pre-shrinkage heights for an older population, for which we also have upper arm and lower leg lengths. We then estimate height shrinkage for this older population and examine the associations between shrinkage and socio-economic status variables. We provide evidence that height shrinkage for both men and women is negatively associated with better current SES and early life conditions and, for women, positively with pre-shrinkage height. We then investigate the relationships between pre-shrinkage height, height shrinkage and a rich set of health outcomes of older respondents, finding that height shrinkage is positively associated with poor health outcomes across a variety of outcomes, with results for older age cognition being especially strong. Indeed height shrinkage is more strongly associated with later life outcomes than is pre-shrinkage height, suggesting that later life conditions are especially important correlates for these outcomes.
    Keywords: height, height shrinkage, health, China
    JEL: D1 I12 J13
    Date: 2012–04
  6. 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.
    Keywords: Ageing, Mortality, Long Term Care Expenditures
    Date: 2011–11–11
  7. By: Nancy Mohan (University of Dayton); Ting Zhang (University of Dayton)
    Abstract: This paper investigates the determinants of public pension plan risk-taking behavior using the percentage of total plan assets invested in the equity markets and the pension asset beta as measures of investment risk. We find that government accounting standards strongly affect public fund investment risk, as higher return assumptions (used to discount pension liabilities) are associated with higher equity allocation and beta. Unlike private pension plans, public funds undertake more risk if they are underfunded and have lower investment returns in the previous years, consistent with the risk transfer hypothesis. Furthermore, pension funds in states facing financial constraints allocate more assets to equity and have higher pension asset betas. There also appears to be a herding effect in that a change in CalPERS portfolio beta or equity allocation is mimicked by other pension funds. Finally, the results offer mild support of a public union effect.
    Keywords: Public pension funds, investment risk, state financial constraints, risk transfer, government accounting
    JEL: G23 H75 G11
    Date: 2011–11
  8. By: Hori, Masahiro; Iwamoto, Koichiro
    Abstract: This paper examines the impact of the erosion in seniority-based wages on lifetime labor income in Japan. Despite the importance of this issue, studies to date have not been able to address it directly because reliable datasets long enough to cover individuals’ entire careers were not available. Taking advantage of administrative data records on individuals’ careers, which became available with the introduction of Pension Coverage Regular Notices, Takayama et al. (2012) constructed a panel dataset of career records covering a period of more than 30 years. We use the dataset to derive wage profiles throughout individuals’ careers. Moreover, using the estimated wage profiles for individuals with different sets of characteristics, we calculate the lifetime labor income (over a 35-year period) for those individuals to examine the impact of the erosion of Japan’s seniority wages on lifetime income. We confirm that the wage-age profile of lifetime employees over their working life has been gradually flattening in recent years. The flattening is particularly prominent among middle-aged and elderly white-collar workers with a college background, and it appears to have decreased their lifetime labor income by about 10 to 30 percent.
    Keywords: Seniority-based wages, Lifetime labor income, Japan
    JEL: C81 D31 J31
    Date: 2012–04
  9. By: Bennmarker, Helge (IFAU); Nordström Skans, Oskar (Uppsala Center for Labor Studies); Vikman, Ulrika (Uppsala Center for Labor Studies)
    Abstract: We estimate the effects of conditioning benefits on program participation among older long-term unemployed workers. We exploit a Swedish reform which reduced UI duration from 90 to 60 weeks for a group of older unemployed workers in a setting where workers who ex-hausted their benefits received unchanged transfers if they agreed to participate in a work practice program. Our results show that job finding increased as a result of the shorter duration of passive benefits. The time profile of the job-finding effects suggests that the effects are due to deterrence effects during the program-entry phase. We find no evidence of wage reductions, suggesting that the increased job-finding rate was driven by increased search intensity rather than lower reservation wages.
    Keywords: Activation; program evaluation; UI; duration
    JEL: J26 J64 J65 J68
    Date: 2012–04–11
  10. By: Morciano, Marcello; Hancock, Ruth; Pudney, Stephen
    Abstract: We estimate the implicit disability costs faced by older people, using data on over 8,000 individuals from the UK Family Resources Survey. We extend previous research by using a more flexible statistical modelling approach and by allowing for measurement error in observed disability and standard of living indicators. We find that disability costs are strongly related to the severity of disability and to income and at an average level of almost 100 per week among over-65s with significant disability they typically far exceed the value of any state disability benefits received.
    Date: 2012–04–24
  11. By: Silva, José I. (Universitat de Girona); Vall Castello, Judit (Universitat de Girona)
    Abstract: We evaluate the effects of a reduction in the generosity of disability benefits in Spain that occurred in 2008. The main objective of the reform was to reduce the amount of benefits for individuals that do not have a long contributory history as the reform introduced a disincentive to apply to the system if the individual does not have 35 years of effective contributions. Theoretical insights are gained with a life-cycle model with heterogeneous disabled workers. The model's simulations predict a reduction in the incentives to apply for disability benefits for partially disabled individuals who do not reach the 35 years of contributions. Diff-in-diff estimates are consistent with our model predictions.
    Keywords: disability benefits reform, life-cycle model, policy evaluation
    JEL: C33 I18 H51
    Date: 2012–04

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