nep-age New Economics Papers
on Economics of Ageing
Issue of 2012‒07‒29
thirteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. The Graying of the Median Voter By Hollanders, D.A.; Koster, F.
  2. Labor supply on the eve of retirement. Disparate effects of immediate and postponed rewards to working By Christian N. Brinch, Erik Hernæs and Zhiyang Jia
  3. World Bank support for pensions and social security By Dorfman, Mark; Palacios, Robert
  4. Does consumption decline at retirement? Evidence from repeated cross-section data for Germany By Beznoska, Martin; Steiner, Viktor
  5. Pension coverage in Latin America : trends and determinants By Rofman, Rafael; Oliveri, Maria Laura
  6. 401(k) Plans in 2010: An Update from the SCF By Alicia H. Munnell
  7. The Impact of Public Pensions on State and Local Budgets By Alicia H. Munnell; Jean-Pierre Aubry; Laura Quinby
  8. Policy perspectives of grandparenting in Europe By Valeria Bordone; Bruno Arpino; Arnstein Aassve
  9. Heterogeneity in the relationship between happiness and age: Evidence from the German Socio-Economic Panel By Gregori Baetschmann
  10. Are firms willing to employ a greying and feminizing workforce? By Vincent VANDENBERGHE
  11. Health Status Determinants in the OECD Countries. A Panel Data Approach with Endogenous Regressors. By Ana Pocas; Elias Soukiazis
  12. The joint effect of demographic change on growth and agglomeration By Theresa Grafeneder-Weissteiner
  13. Economic policy, does It help life expectancy? an african evidence of the role of economic policy on longevity. By Ojeaga, Paul

  1. By: Hollanders, D.A.; Koster, F. (Tilburg University, Center for Economic Research)
    Abstract: Abstract: Analyzing 30 OECD-countries in 1980-2005, this paper documents the effect of an aging electorate on pension expenditure. The first outcome is that an increase in the age of the median voter leads to less generous pension benefits. The second outcome is that an older median voter is not significantly associated with an increase in pension expenditure relative to GDP. These results do not change when health care costs are considered instead of pension expenditure. The results contradict the main prediction of median voter models that an older median voter will successfully push for higher individual benefits. An alternative specification with the dependency ratio as the operationalization of aging, does show a positive and significant effect of aging on pension expenditure. A positive effect of aging on the generosity of pensions can however also not be found in this case.
    Keywords: aging;retirement;political economy.
    JEL: C23 H55 J18
    Date: 2012
  2. By: Christian N. Brinch, Erik Hernæs and Zhiyang Jia (Statistics Norway)
    Abstract: We study two recent changes in incentives to work facing 67-69 year old workers in Norway: an earnings test reform which increases current earnings from work, and a pension system maturation which removes pension accrual from work. Within a difference-in-differences framework, we exploit these changes to investigate the effects of economic incentives. We find the earnings test reform has large effects, while the pension system maturation has no significant effects. The findings confirm that 67-69 year olds can adjust their work efforts to economic incentives, but do so only to thoses related to current income and not to future pensions.
    Keywords: labor supply; retirement earnings test; social security wealth; difference-indifferences
    JEL: J14 H55
    Date: 2012–07
  3. By: Dorfman, Mark; Palacios, Robert
    Abstract: Pension and social insurance programs that prevent a substantial loss in consumption resulting from old age, disability, or death are an integral part of any social protection system. The dual objectives of such programs are to allow for the prevention of a sharp decline in income when these life-cycle events take place and protection against poverty in old age. This background paper reviews the World Bank's conceptual framework for the analysis of pension programs and defines the major challenges facing low and middle income countries, namely, coverage, adequacy and sustainability. The paper proposes a broad, forward-looking strategy to help address these challenges.
    Keywords: Safety Nets and Transfers,Pensions&Retirement Systems,Emerging Markets,Debt Markets,Banks&Banking Reform
    Date: 2012–03–01
  4. By: Beznoska, Martin; Steiner, Viktor
    Abstract: The life-cycle hypothesis implies that consumption would not decline at retirement. However, several studies found relevant declines in food consumption after retirement for the United States. Others concluded that this contradiction of the life-cycle hypothesis is solved by allowing for broader measures of consumption than food. Using repeated crosssection data for Germany, this paper analyzes the retirement consumption puzzle for the German case. For our broadest consumption measure, which includes the flow of durables' consumption, we find, on average, no significant consumption decline at retirement. This also holds if the potential endogeneity of indidual retirement is controlled for in instrumental variable regressions. We also find heterogeneity in retirement effects among birth cohorts, the level of household wealth, and the level of consumption, but these effects do not support the hypothesis that retirement is associated with a strong reduction of consumption among poorer households. --
    JEL: D12 D91 H31 H55
    Date: 2012
  5. By: Rofman, Rafael; Oliveri, Maria Laura
    Abstract: This document presents an analysis of pension coverage trends in Latin America for the past decades. Its preparation involved the collection, revision, and processing of household surveys in over 18 countries in the region, spanning a period of almost 40 years in some cases. The main goal of this document is to offer comparable data on pension coverage among the economically active population and the elderly, considering the relevance of several demographic, social, and economic variables on these coverage levels. By producing this large and comparable regional dataset, the document supports the discussion of several stylized facts on pension coverage in Latin America. The results show that coverage among active workers is low in most countries, although there has been a relative improvement since the early 1990s. The situation is still distressing among workers in the primary sector or employed by small enterprises as well as for women, primarily because of their persistent lower rates of labor market participation. In recent years coverage of some of the most vulnerable groups has increased, but it still presents very low rates. Among the elderly, regional averages have been very stable since the early 1990s, although this average hides important differences among countries.
    Keywords: Population Policies,Insurance&Risk Mitigation,Pensions&Retirement Systems,Debt Markets,Insurance Law
    Date: 2012–06–01
  6. By: Alicia H. Munnell
    Abstract: The release of the Federal Reserve’s 2010 Survey of Consumer Finances (SCF) is a great opportunity to assess how conflicting forces – the maturation of the system and the Pension Protection Act of 2006 on the one hand and the devastating effects of the 2008 financial collapse and Great Recession on the other hand – have affected workers’ 401(k) accounts. The SCF is a triennial survey of a nationally representative sample of U.S. households, which collects detailed information on their assets, liabilities, and demographic characteristics. The 2001, 2004, and 2007 surveys showed some improvement in terms of 401(k)participation, contribution levels, investment choices, and cashing out. But median holdings of those approaching retirement remained low even at the peak of the market in 2007. This brief explores the extent to which the positive trends in 401(k) behavior have persisted in the weak economy and how balances have fared in the wake of the financial collapse. The discussion proceeds as follows. The first section describes the importance of 401(k) plans in the retirement income system. The second section assesses the impact of the Pension Protection Act of 2006, which was designed to make 401(k)s easier and more automatic, on plan provisions and 401(k)outcomes. The third section documents the trend in individual decisions regarding 401(k)s. The fourth section reports on 401(k) balances. The fifth section describes emerging issues regarding the 401(k) system – namely, the risks associated with the decumulation of 401(k) plan assets in retirement and the migration of assets from 401(k)s to Individual Retirement Accounts (IRAs). The final section concludes that the Pension Protection Act has had only a limited impact on plan provisions, financial pressures have reversed some of the positive trends in individual behavior, and 401(k)s have been battered by the financial markets. As a result, median 401(k)/IRA balances for households approaching retirement remain at $120,000, roughly the same as in 2007. Median balances for younger households have actually declined. The low balances are a serious problem because 401(k)s have become the only supplement to Social Security for most private sector workers.
    Date: 2012–07
  7. By: Alicia H. Munnell; Jean-Pierre Aubry; Laura Quinby
    Abstract: State and local pensions have been headline news since the financial collapse reduced the value of their assets, leaving a substantial unfunded liability. The magnitude of that liability depends on the interest rate used to discount future benefit promises but, regardless of the assumptions, states and localities are going to have to come up with more money. This brief looks at the size of the additional funding relative to state budgets. The brief proceeds as follows. The first section provides an overview of state and local plans and in­troduces our sample of six states: California, Florida, Georgia, Illinois, Massachusetts, and New Jersey. The second section presents data on pension expendi­tures relative to budget totals for states and localities in the aggregate and for our sample of plans. The third section develops baseline budgets for the period 2010-2043 for all states and localities and for the six individual states. It then projects annual required pension contributions beginning in 2014 under three scenarios: 1) amortizing the unfunded liability valued at an 8-percent discount rate over the next 30 years; 2) amortizing the unfunded liability valued at 5 per­cent over the next 30 years; and 3) continuing to pay contributions at current levels until the trust fund is exhausted and then paying benefits on a pay-as-you-go basis. The final section concludes that whereas public plans are substantially underfunded, in the aggregate they currently account for only 3.8 percent of state and local spending. Assuming 30-year amortization beginning in 2014, this share would rise to only 5.0 percent and, even assuming a 5-percent discount rate, to only 9.1 percent. Aggregate data, however, hide substantial variation. States that have seriously underfunded plans and/or generous benefits, such as California, Illinois, and New Jersey, would see contributions rise to about 8 percent of budgets with an 8-percent discount rate and 12.5 percent with a 5-percent discount rate.
    Keywords: State and Local Pensions
    Date: 2010–10
  8. By: Valeria Bordone; Bruno Arpino; Arnstein Aassve
    Abstract: Large variation exists in the frequency of informal childcare provided by grandparents across Europe. At the same time, a wide North-South divide characterizes European social policies. Do welfare policy arrangements shape the role of grandparents? If yes, to what extent do grandparenting depend on the availability of public services offered for child care, parental leave regulation and legal obligations of family support? Combining micro-data from the Survey of Health, Ageing and Retirement in Europe and macro-indicators from the Multilinks database, this study aims to answer these questions and to further clarify the link between welfare provision and use of grandparents’ resources for working mothers. By implementing country-specific regression models, we find a clear association between the policy context of the country of residence and (daily) grandparenting.
    Keywords: Grandparental childcare, intergenerational relationships, policies, multilinks database
    Date: 2012–06
  9. By: Gregori Baetschmann
    Abstract: This paper studies the evolution of life satisfaction over the life course in Germany. It clarifies the causal interpretation of the econometric model by discussing the choice of control variables and the underidentification between age, cohort and time effects. The empirical part analyzes the distribution of life satisfaction over the life course at the aggregated, subgroup and individual level. To the findings: On average, life satisfaction is mildly decreasing up to age fifty-five followed by a hump shape with a maximum at seventy. The analysis at the lower levels suggests that people differ in their life satisfaction trends, whereas the hump shape after age fifty-five is robust. No important differences between men and women are found. In contrast, education groups differ in their trends: highly educated people become happier over the life cycle, where life satisfaction decreases for less educated people.
    Keywords: Aging, life satisfaction, well-being, happiness methodology
    JEL: C23 I31 D91
    Date: 2011–11
  10. By: Vincent VANDENBERGHE (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES), Economics School of Louvain (ESL),)
    Abstract: Are employers willing to employ more older individuals, in particular older women? Higher employment among the older segments of the population will only materialise if firms are willing to employ them. Although several economists have started considering the demand side of the labour market for older individuals, few have considered its gender dimension properly; despite evidence that lifting the overall senior employment rate in the EU requires significantly raising that of women older than 50. In this paper, we posit that labour demand and employability depend to a large extent on how the age/gender composition of the workforce affects firm’s profits. Using unique firm-level panel data we produce robust evidence on the causal effect of age/gender on productivity (value added per worker), total labour costs and gross profits. 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 firm’s age-gender mix choices in the short run) by combining first differences with i) the structural approach suggested by Ackerberg, Caves & Frazer (2006), ii) alongside more traditional IV-GMM methods (Blundell & Bond, 1998) where lagged values of labour inputs are used as instruments. Results suggest no negative impact of rising shares of older men on firm’s gross profits, but a large negative effect of larger shares of older women. Another interesting result is that the vast and highly feminized services industry does not seem to offer working conditions that mitigate older women’s productivity and employability disadvantage, on the contrary. This is not good news for older women’s employability and calls for policy interventions in the Belgian private economy aimed at combating women’s decline of productivity with age and/or better adapting labour costs to age-gender productivity profiles.
    Keywords: ageing workforce, gender, productivity, profitability, linked employer-employee data, endogeneity and simultaneity bias
    JEL: J11 J14 J21
    Date: 2012–07–18
  11. By: Ana Pocas; Elias Soukiazis
    Abstract: The purpose of this study is to analyse the determinants of life expectancy as proxy for health status of the OECD countries’ population. A production function of health is used to explain expectancy life at birth for total and ageing population and according to gender. Socio-economic factors, health resources and lifestyles are defined as the main determinants of heath status. The estimation approach assumes that income and education are endogenous and a panel data approach is used to control for this problem. Our evidence shows that income, education and efficiency of health resources of the health system are important factors affecting positively life expectancy and risky lifestyles (tobacco and alcohol consumption) are harmful to health. However there are differences between males and females. Income and lifestyles are the major determinants affecting man’s health while for women education and better use of health services (through consultations) explain mostly life expectancy both at birth and late age.
    Date: 2011–09
  12. By: Theresa Grafeneder-Weissteiner
    Abstract: Recently, there has been wide interest in the “economics” of population aging. Demographic change has crucial consequences for economic behavior; it e.g. implies that consumption and investment decisions vary over the life-cycle. The latter has important implications for economic growth, whereas the former is decisive for the location of economic activity as emphasized in the New Economic Geography (NEG) literature. Both growth and agglomeration processes are, however, themselves interlinked, since technological spillovers, being the engines of endogenous growth, are often localized. This linkage has inspired the development of frameworks that combine (endogenous) growth features with NEG models to study the joint process of creation and location of economic activity. All these models focus, however, on the consequences of increased economic integration while ignoring any potential effect of demographic change. This paper closes the gap by incorporating an overlapping generation structure into Baldwin (2001) 's NEG model with learning spillovers and thus allows to investigate how lifetime uncertainty impacts upon growth and agglomeration. The main results are twofold. First, nonzero mortality rates support a more equal distribution of productive factors by introducing an additional dispersion force that countervails the agglomeration tendencies resulting from endogenous growth through localized knowledge spillovers. For sufficiently high interregional knowledge spillovers, the turnover of generations can even prevent regions from unequal development. Moreover, lifetime uncertainty considerably reduces the possibility of agglomeration being the result of a self-fulfilling prophecy. Second, nonzero mortality rates lower both the symmetric equilibrium's as well as the core-periphery's growth rate. As long as learning spillovers are not purely localized, this decrease is, however, more pronounced for the core-periphery outcome. Thus, in sharp contrast to standard NEG findings, agglomeration is not necessarily conducive to growth. This also implies that there might not be any trade-off between fostering an equal distribution of productive factors and high economic growth which would result from e.g. increased economic integration if agglomeration were unambiguously pro-growth. Baldwin, R. E., Martin, P., and Ottaviano, G. I. P. (2001). Global income divergence, trade, and industrialization: The geography of growth take-offs. Journal of Economic Growth, 6:5-37.
    Date: 2011–09
  13. By: Ojeaga, Paul
    Abstract: This paper evaluates some factors that affect longevity in Africa, with the aim of offering an insight on how government economic policy and consumption spending affect the lives of people in developing countries. Government economic policy was found to be contributing in a negative manner to life expectancy in the countries in our sample. It was also found that apathy between the civil service (the embodiment of institutions) and political office holders to be the greatest stumbling block against the success of governmental economic policy, this creates a hole in institutions since they remain the pipe through which revenue is disbursed and policies are implemented for the general good of the populace. After interacting institution with economic policy economic policy had significant effect on life expectancy it was likely that institutions were either circumvented or ignored, leading to possible short comings on the overall effect that government economic policy would have had on life expectancy.
    Keywords: Corruption; life expectancy; economic policy; institutions; government spending
    JEL: I18 H5 I38 I28
    Date: 2012–07–20

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