nep-age New Economics Papers
on Economics of Ageing
Issue of 2012‒06‒13
fifteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Longevity, life-cycle behavior and pension reform By Haan, Peter; Prowse, Victoria
  2. The Impact on Inequality of Raising the Social Security Retirement Age By Dean Baker; David Rosnick
  3. Retirement and cognitive development: are the retired really inactive? By Grip Andries de; Dupuy Arnaud; Jolles Jelle; Boxtel Martin van
  4. Collateral effects of a pension reform in France By Hélène Blake; Clémentine Garrouste
  5. Choosing a retirement income strategy: a new evaluation framework By Pfau, Wade Donald
  6. Spain 2011 Pension Reform By Conde-Ruiz, J. Ignacio; Gonzalez, Clara I.
  7. Is Recipiency of Disability Pension Hereditary? By Bratberg, Espen; Nilsen, Øivind Anti; Vaage, Kjell
  8. Optimal Cap on Pension Contributions By Andr s Simonovits
  9. Patterns and correlates of intergenerational non-time transfers : evidence from CHARLS By Lei, Xiaoyan; Giles, John; Hu, Yuqing; Park, Albert; Strauss, John; Zhao, Yaohui
  10. Workfare for the old and long-term unemployed By Bennmarker, Helge; Nordström Skans, Oskar; Vikman, Ulrika
  11. Ageing and Employability. Evidence from Belgian Firm-Level Data By Mariann RIGO; Vincent VANDENBERGHE; Fabio WALTENBERG
  12. Aging and Attitudes Towards Strategic Uncertainty and Competition: An Artefactual Field Experiment in a Swiss Bank By Thierry Madiès; Marie-Claire Villeval; Malgorzata Wasmer
  13. Health Investment over the Life-Cycle By Timothy Halliday; Hui He; Hao Zhang
  14. Entrepreneurial aging and employment growth in the context of extreme growth events By Schimke, Antje
  15. Cost-Benefit Analyses of Sprinklers in Nursing Homes for Elderly By Jaldell, Henrik

  1. By: Haan, Peter; Prowse, Victoria
    Abstract: How can public pension systems be reformed to ensure fiscal stability in the face of increasing life expectancy? To address this pressing open question in public finance, we use micro data to estimate a structural life-cycle model of individuals' employment, retirement and consumption decisions. Our modeling approach allows life expectancy and the nature of the public pension system to influence the decisions of forward-looking individuals planning for retirement. We calculate that, in the case of Germany, an increase of 4.34 years in the full pensionable age or a cut of 37.7% in the per-year value of public pension benefits would offset the fiscal consequences of the 6.4 year increase in age 65 life expectancy anticipated to occur over the next 40 years. Of these two approaches to coping with the fiscal impact of improving longevity, increasing the full pensionable age generates the largest responses in labor supply and retirement behavior.
    Keywords: Life Expectancy; Public Pension Reform; Retirement; Employment; Life-cycle Models; Consumption; Tax and Transfer System
    JEL: D91 J22 J64 J26 J11
    Date: 2012–06–06
  2. By: Dean Baker; David Rosnick
    Abstract: There have been a number of proposals in policy circles that involve raising the Social Security retirement age. This is viewed as both a way to reduce or eliminate the projected shortfall in the program and also a response to projected increases in longevity. This paper examines the impact of an increase in the retirement age on various demographic groups. Treating future Social Security benefits as a form of wealth, it projects the impact of a gradual increase in the normal retirement age from 67 to 70 (2 months a year for 18 years) on each quintile of the wealth distribution using data from the Federal Reserve Board’s 2007 Survey of Consumer Finances. It constructs separate projections for homeowners and non-homeowners, single individuals and couples in the age cohorts 35-44, 45-54, and 55-64. The projections show that Social Security wealth is a far larger share of the wealth of the bottom four quintiles in each of these categories, therefore a reduction in Social Security benefits will have the effect of increasing inequality.
    Keywords: social security, retirement, inequality, retirement age
    JEL: H H5 H55 J J1 J14
    Date: 2012–04
  3. By: Grip Andries de; Dupuy Arnaud; Jolles Jelle; Boxtel Martin van (ROA rm)
    Abstract: This paper uses longitudinal test data to analyze the relation between retirement andcognitive development. Controlling for individual fixed effects, we find that retirees facegreater declines in information processing speed than those who remain employed.However, remarkably, their cognitive flexibility declines less, an effect that appears to bepersistent 6 years after retirement. Both effects of retirement on cognitive developmentare comparable to those of a five to six-year age difference. They cannot be explained by(1) a relief effect after being employed in low-skilled jobs, (2) mood swings or (3) changesin lifestyle. Controlling for changes in blood pressure, which are negatively related tocognitive flexibility, we still find lower declines in cognitive flexibility for retirees. Sincethe decline in information processing speed after retirement holds particularly for thelow educated, activating these persons after retirement could lower the social costs ofan aging society.
    Keywords: education, training and the labour market;
    Date: 2012
  4. By: Hélène Blake (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); Clémentine Garrouste (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: How does the retirement age affect the physical and mental health of seniors? We identify this effect based on the 1993 reform of the French pension system, which was heterogeneously introduced among the population. With each cohort, the French government gradually increased the incentive to work using two tools: the contribution period required for entitlement to a full pension and the number of reference earning years taken to calculate pensions. We use a unique database on health and employment in France in 1999 and 2005, when the cohorts affected by the reform started to retire. A difference-in-differences approach, with the control group comprising public sector employees (not concerned by the 1993 reform), finds that the people more affected by the reform, and hence with a stronger incentive to work, were those posting less of an improvement and even a deterioration in their health between 1999 and 2005. Subsequently, taking the reform as a tool to filter out the potential influence of health on employment choices, we show that retirement improves physical and social health. The more physically impacted are the low-educated individuals.
    Keywords: Retirement ; Health ; Pension Reform
    Date: 2012–06
  5. By: Pfau, Wade Donald
    Abstract: This article presents the initial stages of a new evaluation framework for choosing among retirement income strategies. The investigation includes eight retirement income strategies: constant inflation-adjusted withdrawal amounts, a constant withdrawal percentage of remaining assets, a withdrawal percentage based on remaining life expectancy, a more aggressive hybrid withdrawal percentage, inflation-adjusted and fixed single premium immediate annuities, a variable annuity with a guaranteed living withdrawal benefit rider, and a strategy which annuitizes the flooring level to meet basic needs and uses the hybrid withdrawal percentage for remaining assets. These eight strategies will be analyzed with six retirement outcome measures over a 30-year retirement period: the average amount whereby spending falls below the minimally acceptable level, the average spending amount, the remaining bequest at the end of the retirement period, the minimum spending amount for any year in the retirement period, a measure of whether spending increases or decreases over time defined as spending in the first year divided by spending in the 30th year, and the value of total spending after accounting for diminishing returns from increased spending for a client with somewhat inflexible spending needs. The model is applied to three client scenarios representing a cross-section of RIIA’s client segmentation matrix. It is built using Monte Carlo simulations which reflect current market conditions, so that systematic withdrawals and guaranteed products share compatible underlying assumptions.
    Keywords: retirement planning; retirement income modeling
    JEL: G11 C15 D14
    Date: 2012–06–01
  6. By: Conde-Ruiz, J. Ignacio; Gonzalez, Clara I.
    Abstract: The aim of this paper is to evaluate the impact of the Spanish pension reform enacted in 2011. We use an accounting model with heterogeneous agents and overlapping generations in order to project revenues and expenditures of the pension system for the next four decades. Specifically, we analyze the impact of changes in the replacement rate, in the period of calculation and the delay of the retirement age. We obtain results under two alternative migration scenarios: (i) a combination of the latest figures released by the INE, which forecast a reduced annual immigration net flow of some 70,000 persons; and (ii) a revised scenario featuring a more generous hypothesis concerning this net flow. We demonstrate that the results show that these three changes instigated by the reform could imply a savings of about 3 percentage points of GDP in 2051. However, we couldn't include in the evaluation the sustainability factor (that transform the Spanish system in a defined contribution scheme) that will start in 2027 due to the lack of details in the text of the Reform. Finally, we analyze the changes in average pensions by gender, skill, and nationality.
    Date: 2012–05
  7. By: Bratberg, Espen (University of Bergen); Nilsen, Øivind Anti (Dept. of Economics, Norwegian School of Economics and Business Administration); Vaage, Kjell (University of Bergen)
    Abstract: This paper addresses whether children’s exposure to parents receiving disability benefits induces a higher probability of receiving such benefits themselves. Most OECD countries experience an increasing proportion of the working-age population receiving permanent disability benefits. Using data from Norway, a country where around 10% of the working-age population rely on disability benefits, we find that the amount of time that children are exposed to their fathers receiving disability benefits affects their own likelihood of receiving benefits positively. This finding is robust to a range of different specifications, including family fixed effects.
    Keywords: Disability; intergenerational correlations; siblings fixed effects.
    JEL: H55 J62
    Date: 2012–04–20
  8. By: Andr s Simonovits (Institute of Economics Research Center for Economic and Regional Studies Hungarian Academy of Sciences Mathematical Institute of Budapest University of Technology Department of Economics of CEU)
    Abstract: In our model, the government operates a mandatory proportional (contributive) pension system to substitute for the low life-cycle savings of the low-paid myopes. The socially optimal contribution rate is high (equalizing young- and old-age consumption for them), while an appropriate cap on pension contributions makes room for the saving of high-paid far-sighted workers. In our parameterization (with a Pareto earning distribution), the optimal cap can be determined but its aggregate impact is negligible.
    Keywords: pensions, contribution rate, contribution cap, maximum for taxable earnings
    JEL: H53 H24
    Date: 2012–03
  9. By: Lei, Xiaoyan; Giles, John; Hu, Yuqing; Park, Albert; Strauss, John; Zhao, Yaohui
    Abstract: Using the China Health and Retirement Longitudinal Study 2008 pilot, this paper analyzes the patterns and correlates of intergenerational transfers between elderly parents and adult children in Zhejiang and Gansu Provinces. The pilot is a unique data source from China that provides information on the direction as well as amount of transfers between parents and each of their children, and clearly distinguishes transfers between parents and children from those among other relatives or friends. The paper shows that transfers flow predominantly from children to elderly parents, with transfers from children playing an important role in elderly support. Taking advantage of the rich information available in this survey, the authors find strong evidence that transfers are significantly affected by the financial capabilities of individual children. Educated and married children have a higher tendency to provide transfers to their parents; and oldest sons are less likely to provide transfers than their younger brothers. With future continued rapid economic growth in China, the income disadvantage of the elderly will persist and upward generational transfers will likely remain the most common form of private transfers. In the absence of some other source of elderly support (such as a public pension or own savings), the dwindling number of children implies that the financial burden associated with supporting the elderly is likely to increase.
    Keywords: Health Monitoring&Evaluation,Youth and Governance,Rural Poverty Reduction,Labor Policies,Population&Development
    Date: 2012–06–01
  10. By: Bennmarker, Helge (IFAU - Institute for Evaluation of Labour Market and Education Policy); Nordström Skans, Oskar (IFAU - Institute for Evaluation of Labour Market and Education Policy); Vikman, Ulrika (IFAU - Institute for Evaluation of Labour Market and Education Policy)
    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 exhausted 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
  11. By: Mariann RIGO (Department of Economics, Central European University, Budapest and UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Vincent VANDENBERGHE (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Fabio WALTENBERG (Departamento de Economia and Centro de Estudos sobre Desigualdade e Desenvolvimento (CEDE), Universidade Federal Fluminense (UFF), Brazil)
    Abstract: The Belgian population is ageing due to demographic changes; so does the workforce of firms active in the country. Such a trend is likely to remain for the foreseeable future. And it will be reinforced by the willingness of public authorities to expand employment among individuals aged 50 or more. But are older workers employable? The answer depends to a large extent on the gap between older workers’ productivity and their cost to employers. To address this question we use a production function that is modified to reflect the heterogeneity of labour with workers of different age potentially diverging in terms of marginal products. Using unique firm-level panel data we produce robust evidence on the causal effect of ageing on productivity (value added) and labour costs. We take advantage of the panel structure of data and resort to first-differences to deal with a potential time-invariant heterogeneity bias. Moreover, inspired by recent developments in the production function estimation literature, we also address the risk of simultaneity bias (endogeneity of firms’ age-mix choices in the short run) using i) the structural approach suggested by Ackerberg, Caves & Frazer (2006), ii) alongside more traditional system-GMM methods (Blundell & Bond, 1998) where lagged values of labour inputs are used as instruments. Our results indicate a negative impact of larger shares of older workers on productivity that is not compensated by lower labour costs, resulting in a lower productivity-labour costs gap. An increment of 10%-points of their share causes a 1.3-2.8% contraction of this gap. We conduct several robustness checks that largely confirm this result. This is not good news for older individuals’ employability and calls for interventions in the Belgian private economy aimed at combating the decline of productivity with age and/or better adapting labour costs to age-productivity profiles.
    Keywords: Ageing, Old Labour Productivity and Employability, Panel Data Analysis
    JEL: J24 C33 D24
    Date: 2012–06–04
  12. By: Thierry Madiès (Department of Economics - University of Fribourg - University of Fribourg); Marie-Claire Villeval (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure - Lyon); Malgorzata Wasmer (Department of Economics - University of Fribourg - University of Fribourg)
    Abstract: We study the attitudes of junior and senior employees towards strategic uncertainty and competition, by means of a market entry game inspired by Camerer and Lovallo (1999). Seniors exhibit higher entry rates compared to juniors, especially when earnings depend on relative performance. This difference persists after controlling for attitudes towards non-strategic uncertainty and for beliefs on others' competitiveness and ability. Social image matters, as evidenced by the fact that seniors enter more when they predict others enter more and when they are matched with a majority of juniors. This contradicts the stereotype of risk averse and less competitive older employees.
    Keywords: Aging; risk; ambiguity; competitiveness; self-image; confidence; experiment
    Date: 2012–05–30
  13. By: Timothy Halliday (Department of Economics, University of Hawaii at Manoa); Hui He (Department of Economics, University of Hawaii at Manoa); Hao Zhang (Department of Economics, University of Hawaii at Manoa)
    Abstract: We quantify what drives the rise in medical expenditures over the life- cycle. Three motives are considered. First, health delivers a flow of utility each period (the consumption motive). Second, better health enables people to allocate more time to productive or pleasurable activities (the investment motive). Third, better health improves survival prospects (the survival mo- tive). We calibrate an overlapping generations model with endogenous health accumulation to match key economic targets and then we gauge its perfor- mance by comparing key age-pro?les from the model to their counterparts in the data. We ?nd that the investment motive is more important than the consumption motive until about age 50. After that, the rise in medical ex- penditures is primarily driven by the value of health as a consumption good. The survival motive is quantitatively less important when compared to the other two motives. Finally, with our calibrated model, we conduct a series of counter-factual experiments to investigate how modi?cations to social security, government-run health insurance, and longevity impact the life-cycle behavior of medical expenditures as well as the aggregate medical expenditures-GDP ratio.
    Keywords: Health Investment Motive, Medical Expenditure, life Cycle
    JEL: E21 I12
    Date: 2012–06–01
  14. By: Schimke, Antje
    Abstract: This paper investigates empirical evidence on the linkage between entrepreneurial aging of the workforce and firm growth. More precisely, it aims to analyse the impact of aging on employment growth in the context of extreme growth events. Basically, the study is conducted to capture the overall impact of the average age structure and aging effect on employment growth. For the empirical estimation we apply a linked employer-employee dataset providing 2.100 German firms covering the time period from 2001 to 2006. Using quantile regression techniques, the specific quantiles θ of extremely growing (θ 0.90), medium growing (θ 0.50) or shrinking firms (θ 0.10) can be explicitly analysed. The results show, on average, that employment growth seems to decline as the workforce is getting older. Put differently, extreme growth events seem to be less likely when the average aging of the workforce rapidly accelerates. Firm-specific characteristics such as size, industry affiliation and location matter hereby. --
    Keywords: entrepreneurial aging,firm growth,employment growth,extreme growth events,age,workforce
    JEL: J11 J21 L26 O33
    Date: 2012
  15. By: Jaldell, Henrik (Dept. of Economics)
    Abstract: The risk of dying in fires in nursing homes is six times the risk of dying in fires at home in Sweden. The risk of being injured in nursing homes is even higher. The reason is that fire alarms do not help if people have problems moving around, or have dementia and do not understand what is going on. One way to reduce this risk is to install fire sprinklers. The benefits depend on the value we put on elderly people living in nursing homes. Their life expectancy is 3.2 years. This study measures the benefits and compares them in terms of the monetary value of full lives, life years and quality adjusted life years (QALYs) for deaths and injuries. The results show that sprinklers are cost-effective in newly built nursing homes no matter what value of life is used. However, if sprinklers are installed in already existing buildings, they are cost-effective only if the value of a statistical life is used.
    Keywords: QALY; value of statistical life; nursing home; fire safety; sprinklers; elderly
    JEL: H75 I11 J14 K32
    Date: 2012–06–04

This nep-age issue is ©2012 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.