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on Economics of Ageing |
| By: | Luciano Fanti |
| Abstract: | In this paper we study the effects of a boost of the mandatory retirement age, which is largely advocated in most countries facing with both the decline in the labour force participation of elderly workers and the increasing population ageing. It is shown, in the basic two-period overlapping generations model of growth (Diamond, 1965), that the postponement of the retirement age may be harmful for long run income and when the capital’s share is sufficiently high even PAYG pensions are reduced. In conclusion, since it is shown that the age of retirement might be reduced obtaining a higher income and even higher pension benefits, then our results suggest that the idea that a higher mandatory age of retirement is always beneficial in the long run for income and pension payments is theoretically controversial. |
| Keywords: | Retirement age; Pensions; OLG model |
| JEL: | J26 O41 |
| Date: | 2012–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:pie:dsedps:2012/149&r=age |
| By: | Luciano Fanti |
| Abstract: | Since in many countries - plagued by low fertility - significant increases of the mandatory retirement age have been recently introduced with the declared objective to sustain PAYG pension budgets, then in this paper we investigate whether and how such boosts are effective. It is shown - in the basic two-period overlapping generations model of endogenous growth, which is maybe the toy-model most used for pension policy analyses - that the postponement of the retirement age is always harmful for growth and even for pension payments. Therefore this result suggests that the effects of boosts of mandatory retirement ages for sustaining PAYG pension budgets may not be warranted. |
| Keywords: | Retirement age; Pensions; OLG model |
| JEL: | J26 O41 |
| Date: | 2012–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:pie:dsedps:2012/153&r=age |
| By: | SHIMIZUTANI Satoshi; OSHIO Takashi |
| Abstract: | This paper explores the public pension claiming behavior of the Japanese. First, we perform financial simulations and estimate the expected utility, depicting the typical patterns of pension benefits in a lifecycle model. We show that the optimal retirement age depends on the beneficiaries' mortality risk, discount rate, initial wealth, and risk attitude. Second, we use individual-level data from the Japanese Study on Aging and Retirement to examine empirically the determinants of the take-up timing. We find supportive evidence that most of the factors examined in the simulation are indeed significantly associated with early claiming of pension benefits for wage earners. |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:12068&r=age |
| By: | T. BUYSE; F. HEYLEN; R. VAN DE KERCKHOVE |
| Abstract: | We study the effects of pension reform in a four-period OLG model for an open economy where hours worked by three active generations, education of the young, the retirement decision of older workers, and aggregate growth, are all endogenous. Within each generation we distinguish individuals with high, medium or low ability to build human capital. This extension allows to investigate also the effects of pension reform on the income and welfare levels of different ability groups. Particular attention goes to the income at old-age and the welfare level of low-ability individuals. Our simulation results prefer an intelligent pay-as-you-go pension system above a fully-funded private system. When it comes to promoting employment, human capital, growth, and aggregate welfare, positive effects in a pay-as-you-go system are the strongest when it includes a tight link between individual labor income (and contributions) and the pension, and when it attaches a high weight to labor income earned as an older worker to compute the pension assessment base. Such a regime does, however, imply welfare losses for the current low-ability generations, and rising inequality in welfare. Complementing or replacing this ‘intelligent’ pay-as-you-go system by basic and/or minimum pension components is negative for aggregate welfare, employment and growth. Better is to maintain the tight link between individual labor income and the pension also for low-ability individuals, but to strongly raise their replacement rate. |
| Keywords: | employment by age; endogenous growth; retirement; pension reform; heterogeneous abilities; overlapping generations |
| JEL: | E62 H55 J22 J24 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:12/810&r=age |
| By: | Edgar Vogel (European Central Bank); Alexander Ludwig (CMR, Department of Economics and Social Sciences, University of Cologne); Axel Börsch-Supan (Max Planck Institute for Social Law and Social Policy, Munich Center for the Economics of Aging) |
| Abstract: | Projected demographic changes in industrialized countries will reduce the share of the working-age population. Analyses based on standard OLG models predict that these changes will increase the capital- labor ratio. Hence, rates of return to capital decrease and wages increase with adverse welfare consequences for current middle aged asset rich agents. This paper addresses three important adjustments channels to dampen these detrimental effects of demographic change: investing abroad, endogenous human capital formation and increasing the retirement age. Our quantitative finding is that openness has a relatively mild effect. In contrast, endogenous human capital formation in combination with an increase in the retirement age has strong effects. Under these adjustments maximum welfare losses of demographic change for households alive in 2010 are reduced by about 3 percentage points. JEL Classification: C68, E17, E25, J11, J24 |
| Keywords: | Population aging, human capital, welfare, pension reform, retirement age, open economy |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20121476&r=age |
| By: | Luciano Fanti |
| Abstract: | Motivated by the recent population aging process as well as the tendency towards the substitution of PAYG with Fully Funded pension systems, we analyze the different features of both funded and unfunded pensions under the pressure of population aging. While virtually all previous work in this literature has predicted a reduction in pension benefits as well as a greater relative immunization of FF systems in the face of population aging, this paper shows that the former prediction only holds for specific assumptions relating to technology (i.e. sufficiently low capital shares), while the latter prediction is more likely to be reverted (i.e. the current dramatic aging could be more harmful (less beneficial) for FF pension systems than for PAYG pension systems). |
| Keywords: | Demographic change; unfunded and funded pensions; OLG model. |
| JEL: | J14 J18 O41 |
| Date: | 2012–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:pie:dsedps:2012/147&r=age |
| By: | Robert L. Clark; Melinda S. Morrill; David Vanderweide |
| Abstract: | Studies examining pension distribution choices have found that the tendency of private-sector workers is to select lump sum distributions instead of life annuities. In the public sector, defined benefit pensions usually offer lump sum distributions equal to employee contributions, not the present value of the annuity. Using administrative data from the North Carolina state and local government retirement systems, we find that over two-thirds of public sector workers under age 50 separating prior to retirement from public plans in North Carolina left their accounts open and did not request a cash distribution from the pension system within one year of separation. Furthermore, the evidence suggests many separating workers, particularly those with short tenure, may be forgoing important benefits due to lack of knowledge, understanding, or accessibility of benefits. In contrast to prior research in the private sector, we find no evidence of a bias toward cash distributions for public employees in North Carolina. |
| JEL: | H75 J45 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18488&r=age |
| By: | Robert Novy-Marx; Joshua D. Rauh |
| Abstract: | This paper calculates the effect that introducing risk-sharing during either retirement or the working life would have on public sector pension liabilities. We begin by considering the introduction of a variable annuity for the retirement phase, modeled on the Wisconsin Retirement System, in which positive benefit adjustments are granted only if asset returns surpass 5% but benefits cannot fall below their initial levels. This change would reduce unfunded accrued liabilities by around 25%, and would lower the annual contribution increases required to target full funding in 30 years by 11%. If there is no minimum benefit guarantee, the impact of introducing variable annuities is substantially larger: the unfunded liability would fall by over half and required annual contribution increases would fall by 44%. Alternative measures that have similar effects on costs include increasing employee contributions by 10.3% of pay while keeping benefits unchanged; or giving employees a collective DC plan with an employer contribution of 10% of pay for future service. We discuss these results in the context of models of lifecycle portfolio choice, which suggest that employees should generally prefer to take risk earlier in their lives rather than later. |
| JEL: | G11 G18 H31 H55 H70 H74 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18491&r=age |
| By: | Luciano Fanti |
| Abstract: | In a simple OLG small open economy with endogenous fertility, endogenous labour supply and intra-family old-age support, we show, in contrast with the preceding literature, that the saving rate is always reduced by an increasing longevity, while fertility is unaffected. As a consequence population ageing lead to an unambiguous increase in the long-run per capita foreign debt. Moreover transfers from children to parents are increasing (decreasing) for low (high) longevity rates. |
| Keywords: | Intra-family old-age support; Overlapping generations; Longevity; Labour supply. |
| JEL: | H52 J13 O41 |
| Date: | 2012–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:pie:dsedps:2012/144&r=age |
| By: | Peter Broer |
| Abstract: | <p>This paper studies the interaction between macro-economic risk and paygo social security. For this, it uses an applied general equilibrium model with overlapping generations of risk-averse households. </p><p>The sources of risk are productivity shocks and depreciation shocks. The risk profile of pensions differs from that of financial assets because pensions are linked partially to future wage rates and productivity. The model is used to discuss the effects of changes in the social security system on labor supply, private saving, and welfare in a closed economy. The author finds that switching from Defined Benefit to Defined Contribution is generally welfare improving, if current generations are compensated, while a switch from a wage-indexed Defined Benefit system to a price-indexed system is generally welfare deteriorating. A reduction in the size of the pay-as-you-go system does not yield clear results: if current generations are compensated, some future generations lose, and others gain.</p> |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:221&r=age |
| By: | Arnab Mukherji (Centre for Public Policy, Indian Institute of Management Bangalore); Satrajit Roychowdhury (Expert Statistical Methodologist, Novartis Pharmaceutical Company); Pulak Ghosh (Department of QM & IS, Indian Institute of Management Bangalore); Sarah Brown (Department of Economics, The University of Sheffield) |
| Abstract: | In this paper, we analyse two frequently used measures of the demand for health care, namely hospital visits and out-of-pocket health care expenditure, which have been analysed separately in the existing literature. Given that these two measures of healthcare demand are highly likely to be closely correlated, we propose a framework to jointly model hospital visits and out-of-pocket medical expenditure. Furthermore, the joint framework allows for the presence of non-linear effects of covariates using splines to capture the effects of aging on healthcare demand. Sample heterogeneity is modelled robustly with the random effects following Dirichlet process priors with explicit cross-part correlation. The findings of our empirical analysis of the U.S. Health and Retirement Survey indicate that the demand for healthcare varies with age and gender and exhibits significant cross-part correlation that provides a rich understanding of how aging affects health care demand, which is of particular policy relevance in the context of an aging population. |
| Keywords: | aging; Bayesian methods; healthcare demand; joint model; splines |
| JEL: | C11 C14 I10 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:shf:wpaper:2012027&r=age |
| By: | Luciano Fanti |
| Abstract: | This paper explores whether the common belief that the currently observed fertility drop is a threat (or, conversely, the invoked fertility recovery is beneficial) for PAYG pensions is really always validated by the basic accounting of the PAYG pension budget. It is shown, through a simple arithmetic, that, rather surprisingly, in the long run a fertility drop may be beneficial, while, conversely, a fertility recovery may be harmful for pensions, under rather realistic conditions as regards both fertility changes and time costs of childrearing. Furthermore, this result also holds a fortiori in the short run. |
| Keywords: | Fertility; PAYG pension; OLG model. |
| JEL: | J26 O41 |
| Date: | 2012–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:pie:dsedps:2012/146&r=age |