nep-age New Economics Papers
on Economics of Ageing
Issue of 2012‒09‒09
six papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. The Genesis of the Golden Age - Accounting for the Rise in Health and Leisure By Carl-Johan Dalgaard; Holger Strulik
  2. Adult Longevity and Growth Takeoff By Daishin Yasui
  3. Less is More? 20 years of changing minimum income protection for old Europe’s elderly By Tim Goedemé
  4. Revisiting wage, earnings, and hours profiles By Rupert, Peter; Zanella, Giulio
  5. Accrued Pension Rights in Belgium: Micro-Simulation of Reforms By alain Jousten; Sergio Perelman; Fabio Sigismondi; Ekaterina Tarantchenko
  6. Time constraints, saving and old age By Davoine, Thomas

  1. By: Carl-Johan Dalgaard (Department of Economics, University of Copenhagen); Holger Strulik (University of Goettingen, Department of Economics)
    Abstract: We develop a life cycle model featuring an optimal retirement decision in the presence of physiological aging. In modeling the aging process we draw on recent advances within the fields of biology and medicine. In the model individuals decide on optimal consumption during life, the age of retirement, and (via health investments) the timing of their death. Accordingly, "years in retirement" is fully endogenously determined. Using the model we can account for the evolution of age of retirement and longevity across cohorts born between 1850 and 1940 in the US. Our analysis indicates that 2/3 of the observed increase in longevity can be accounted for by wage growth, whereas the driver behind the observed rising age of retirement appears to have been technological change in health care. Both technology and income contribute to the rise in years in retirement, but the contribution from income is slightly greater.
    Keywords: Aging, Longevity, Retirement, Health, Health Technology
    JEL: D91 I15 J17 J26
    Date: 2012–08
  2. By: Daishin Yasui (Graduate School of Economics, Kobe University)
    Abstract: This paper develops an overlapping generations model in which agents make educational and fertility decisions under life-cycle considerations, and retirement from work is distinguished from death. This model sheds light on a novel mechanism that links life expectancy, retirement, education, fertility, and growth. Gains in adult longevity induce agents to save more for retirement, reduce fertility, invest in education, and achieve sustained growth. Even if the length of working life is shortened by early retirement, this mechanism works as long as adult longevity increases sufficiently. Our model replicates the stylized facts of the transition from stagnation to growth in terms of longevity, time in retirement, fertility, education, and income, as well as reconciles the theory that gains in life expectancy trigger a growth takeoff by increasing education with the observation that the length of working life is not substantially prolonged because of retirement. This study provides a framework for considering the joint determination of education, fertility, and retirement.
    Keywords: Fertility; Growth; Human capital; Life expectancy; Retirement
    JEL: J13 O11
    Date: 2012–08
  3. By: Tim Goedemé
    Abstract: Over the past two decades, pension reforms have been at the top of the agenda of social policy makers in Europe. In many countries, these reforms have resulted in less generous public pensions. At the same time, minimum income protection for the elderly has received attention from policy makers, but much less so from social policy researchers. Therefore, in this paper, I explore how benefit levels of non-contributory minimum income schemes for the elderly have evolved between 1990 and 2009 in 13 ‘old’ EU member states. Building on two new cross-national and cross-temporary comparable datasets on minimum income protection in Europe, it is shown that over the past 20 years the erosion of the principal safety net of last resort for elderly persons has been limited. Moreover, in a substantial number of European countries a deliberate policy of large increases in minimum income benefits has been pursued, leading to a remarkable convergence of relative benefit levels.
    Keywords: basic pension, benefit level, conditional basic pension, convergence, elderly, European Unio,n minimum benefit, minimum income protection, minimum pension, social assistance, social pension
    JEL: H55 I38 J26
    Date: 2012–08
  4. By: Rupert, Peter; Zanella, Giulio
    Abstract: We document empirical life cycle profiles of wages, earnings, and hours of work for pay from the Panel Study of Income Dynamics, following the same workers for up to four decades along the intensive margin of labor supply. For six of the eight cohorts we analyze the wage profile does not decline with age, while the earnings profile always does. The discrepancy is explained by a sharp drop of the hours profile beginning shortly after age 50, when many workers start a smooth transition into retirement by working progressively fewer hours. This pattern is not an artifact of staggered abrupt retirement, and is robust to attrition- and selection correction (i.e., to taking into account that the composition of our sample, for a given cohort, changes over time). We explore the nontrivial restrictions on dynamic models of the aggregate economy that this evidence suggests, and we provide numerical profiles that can be readily used in quantitative macroeconomic analysis.
    Keywords: Economics, General, Economics, Other, International Economics, life cycle, wage profile, labor supply, intensive margin human capital, preretirement
    Date: 2012–08–29
  5. By: alain Jousten; Sergio Perelman; Fabio Sigismondi; Ekaterina Tarantchenko
    Abstract: We simulate different reform scenarios of the Belgian pension system using a micro-simulation approach. Using a rich administrative dataset with extensive information on individual earnings histories, we evaluate the impact of the scenarios for the individuals as well as the system as a whole. Our main metric for these analysis is the notion of accrued to date pension rights, i.e. the pensions rights that would be due if the system were shut down today and all accrued rights under current legislation were honored. Our analysis illustrates that partial reforms have limited effects, both in distributional and in fiscal terms. To achieve more substantial effects, a more comprehensive approach is needed. Regional differences within the country are mostly due to differences in regional GDP rather than the pension system itself.
    Date: 2012
  6. By: Davoine, Thomas
    Abstract: Abstract I take seriously the hypothesis that the wealthy lack time to consume to explain empirical evidence on old age asset decumulation and rich savings rates. Basic life-cycle theory predicts that households run down their assets toward the end of their life but evidence shows they do it at a very low rate. Under homothetic preferences, this theory also predicts that rich and poor save at the same rate, inconsistent with empirical evidence. Other existing models are also inconsistent with both evidence at the same time. Integrating a Becker home production model in Ramsey growth theory, I show that time constraints can explain the evidence on savings rate and asset decumulation, as well as some other evidence difficult to rationalize.
    Keywords: Time constraints, home production, neoclassical growth theory, savings rate, old age asset decumulation
    JEL: E21 D9 J14 J22
    Date: 2012–08

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.