nep-age New Economics Papers
on Economics of Ageing
Issue of 2012‒11‒11
nineteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Does Schooling Improve Cognitive Functioning at Older Ages? By Schneeweis, Nicole; Skirbekk, Vegard; Winter-Ebmer, Rudolf
  2. The Role of Funded Pensions in Retirement Income Systems: Issues for the Russian Federation By Juan Yermo
  3. Demographic Patterns and Household Saving in China By Steven Lugauer; Nelson Mark
  4. Communicating Pension Risk to DC Plan Members: The Chilean Case of a Pension Risk Simulator By Pablo Antolin; Olga Fuentes
  5. The effect of age-targeted tax credits on retirement behavior By Laun, Lisa
  6. Filipino Elderly Living Arrangements, Work Activity, and Labor Income as Old-age Support By Salas, J.M. Ian S.; Abrigo, Michael Ralph M.; Racelis, Rachel H.
  7. The Effects of Employment Uncertainty and Wealth Shocks on the Labor Supply and Claiming Behavior of Older American Workers By Hugo Benitez-Silva; J. Ignacio Garcia-Perez; Sergi Jimenez-Martin Author-Email:
  8. Retirement Pay and Officer Retention By Jeffrey S. Smith; James E. West
  9. Negative Reciprocity and Retrenched Pension Rights By Montizaan, Raymond; Cörvers, Frank; de Grip, Andries; Dohmen, Thomas
  10. Philippines 2007 National Transfer Accounts: Financing Consumption and Lifecycle Deficit by Income Group By Salas, J.M. Ian S.; Abrigo, Michael Ralph M.; Racelis, Rachel H.
  11. Stochastic modeling of financing longevity risk in pension insurance By Ronkainen , Vesa
  12. Implications of Projected Philippine Population Growth, Age Structure Change, and Aging: Using National Transfer Accounts Results By Salas, J.M. Ian S.; Abrigo, Michael Ralph M.; Racelis, Rachel H.
  13. Harsh occupations, health status and social security By Maria Racionero; Pierre Pestieau
  14. Philippines 2007 National Transfer Accounts: Consumption, Income, and Intergenerational Reallocation of Resources - Revised Estimates By Salas, J.M. Ian S.; Abrigo, Michael Ralph M.; Racelis, Rachel H.
  15. The Active Welfare State Revisited By Frank Vandenbroucke
  16. Behavioral Biases and Long Term Care Annuities: A Political Economy Approach By De Donder, Philippe; Leroux, Marie-Louise
  17. The Mean Lifetime of Famous People from Hammurabi to Einstein By David de la Croix; Omar Licandro
  18. Impact of Population on Environment in Madurai District By T., MAHESWARI
  19. Estimating Population Dynamics without Population Data By Robert Chambers; Vangelis Tzouvelekas

  1. By: Schneeweis, Nicole (University of Linz); Skirbekk, Vegard (University of Rostock); Winter-Ebmer, Rudolf (University of Linz)
    Abstract: We study the relationship between education and cognitive functioning at older ages by exploiting compulsory schooling reforms, implemented in six European countries during the 1950s and 1960s. Using data of individuals aged 50+ from the Survey of Health, Aging and Retirement in Europe (SHARE), we assess the causal effect of education on old-age memory, fluency, numeracy, orientation and dementia. We find a positive impact of schooling on memory. One year of education increases the delayed memory score by about 0.3, which amounts to 16% of the standard deviation. Furthermore, for women, we find that more education reduces the risk of dementia.
    Keywords: compulsory schooling, instrumental variables, education, cognitive functioning, memory, aging, dementia
    JEL: I21 J14
    Date: 2012–10
  2. By: Juan Yermo
    Abstract: This paper reviews the recent development of the funded pension system in the Russian Federation and considers it role in the context of the overall retirement income system. By describing current OECD practices and policy recommendations and comparing them with the current Russian pension system, the report aims to facilitate ongoing discussions between the OECD and the Russian Federation regarding the latter’s pension system.<P> The report is based to a large extent on existing OECD published material, in particular the latest edition of OECD Pensions at a Glance (2011) and the OECD Pensions Outlook 2012. It also draws on the OECD review of labour and social policy published in December 2011.</P><P>Le rôle des régimes de pension privés dans les systèmes de retraite : les enjeux pour la Fédération de Russie<BR>Cette publication analyse l’évolution récente des régimes de pension privés dans la Fédération de Russie et examine leur rôle dans le contexte du système de retraite du pays. Elle met en regard le système de retraite russe et les pratiques en vigueur dans les pays de l’OCDE ainsi que les recommandations stratégiques formulées par l’Organisation. Ce rapport a pour objectif de faciliter les discussions en cours entre l’OCDE et la Fédération de Russie sur le système de retraite du pays. Ce document s’inspire largement de publications de l’OCDE, et notamment des dernières éditions du Panorama des pensions 2011 et des Perspectives de l’OCDE sur les pensions privées 2012. Il fait également fond sur l’examen de l’OCDE du marché du travail et des politiques sociales dans la Fédération de Russie, publié en décembre 2011.
    Keywords: investment, regulation, supervision, social security, public pensions, funded pensions, investissement, supervision, sécurité sociale, pensions privées, régulations, pensions publiques
    JEL: G18 G23 G28 H55
    Date: 2012–10–19
  3. By: Steven Lugauer (Department of Economics, University of Notre Dame); Nelson Mark (Department of Economics, University of Notre Dame)
    Abstract: This paper studies how changing demographics can explain much of the evolution of China's household saving rate from 1955 to 2009. We undertake a quantitative investigation using an overlapping generations model in which agents live for 85 years. Agents begin to exercise decision making when they are 20. From age 20 to 63, they work. From age 20 to 49, they also provide for children. Dependent children's consumption enters into the parent's utility, and parents choose the consumption level of the young until they leave the household. Working agents transfer a portion of their labor income to their retired parents and save for their own retirement. Retirees live of of their accumulated assets and support from current workers. We present agents in the parameterized model with the future time-path of the demographics, interest rates and wages as given by the data and analyze their saving decisions. The simulated model accounts for nearly all the observed increase in the household saving rate from 1955 to 2009.
    Keywords: Saving Rate, Life-Cycle, China, Demographics, Overlapping Generations
    JEL: E2 J1
    Date: 2010–12
  4. By: Pablo Antolin; Olga Fuentes
    Abstract: The purpose of this paper is to discuss a few issues related to how best to communicate uncertainty about projections of future pension benefits to members of DC plans, and especially to present a pension risk simulator developed by the Chilean regulator (Superintendencia de Pensiones, SP) that addresses directly how to convey that uncertainty and aims at eliciting a pro-active response from individuals in terms of contributing more and for longer.<P>Communiquer le risque de retraite aux adhérents des plans à cotisations définies : Le cas chilien d'un simulateur de risque de retraite<BR>L’objectif de ce document est de discuter de quelques questions liées à la manière de communiquer l’incertitude autour des projections des futures prestations de retraite aux adhérents des plans de retraite à cotisations définies. En particulier, le but est de présenter un simulateur de risque de retraite développé par le régulateur chilien (Superintendencia de Pensiones, SP) qui aborde directement la manière de transmettre cette incertitude et vise à susciter une réponse proactive de la part des individus pour qu’ils cotisent d’avantage et pendant plus longtemps.
    Keywords: pensions, uncertainty, pension benefit, projections, financial education, communication, defined contribution pension plans, pension risk simulator
    JEL: D14 D18 G23 G28 I28 J26 O16 O19
    Date: 2012–10–18
  5. By: Laun, Lisa (IFAU - Institute for Evaluation of Labour Market and Education Policy)
    Abstract: This paper analyzes the effect of two age-targeted policy initiatives to delay retirement that were simultaneously implemented in Sweden in 2007: an earned income tax credit and a payroll tax credit. Both policies were targeted at workers aged 65 or above at the beginning of the tax year. The paper exploits that the special rules for elderly were governed by the year of birth while the social security system is governed by age retirement,i.e., the day of birth, in analyzing the effect of the new policies. The results suggest that the age-targeted tax credits increased employment in the year following the 65th birthday by 1.5 percentage points among individuals with annual earnings above the 2007 tax liability threshold three to five years earlier. An analysis of fiscal implications indicates, however, that the increase in employment was not large enough to offset the implied decrease in tax revenues.
    Keywords: Labor supply; retirement; earned income tax credit; payroll taxes
    JEL: H24 J14 J18 J21
    Date: 2012–10–15
  6. By: Salas, J.M. Ian S.; Abrigo, Michael Ralph M.; Racelis, Rachel H.
    Abstract: <p>This paper explores how elderly labor income can be expanded as a financing source for elderly consumption in the future through increase in elderly work activity. It examines elderly living arrangements and other factors that may influence elderly participation in work activities. The prospects of increasing elderly work activity in the future is assessed based on past and possible future trends in the following three factors, among many others: elderly health status, household headship by the elderly, and employment opportunities for the elderly, particularly household entrepreneurial activities.</p><p>Alternative scenarios of increases in elderly labor force size (based on assumed changes in the factors) were used in simulations and results show that the higher the increase in labor force size (1) the higher the increase in aggregate labor income, (2) the higher the proportion of consumption that can be covered by own labor income, (3) the higher the elderly deficit age cut-off, and (4) the larger the decline in the aggregate lifecycle deficit of the elderly. What can government do to encourage more elderly to continue working? Government action can focus on two areas: elderly health and well-being, and elderly employment opportunities and enabling environment. The government can finance and fully implement provisions in existing laws and public programs that address the two areas such as those articulated in the Senior Citizen`s Acts (1992 Republic Act 7432 and 2003 RA 9257) and the Philippine Plans of Action for Senior Citizens (1999-2004 and 2006-2010).</p>
    Keywords: Philippines, National Transfer Accounts, lifecycle deficit, population aging, elderly work activity, old-age support
    Date: 2012
  7. By: Hugo Benitez-Silva (Department of Economics, Stony Brook University); J. Ignacio Garcia-Perez (Universidad Pablo de Olavide and FEDEA); Sergi Jimenez-Martin Author-Email: (Universitat Pompeu Fabra, Barcelona GSE and FEDEA)
    Abstract: Unemployment rates in developed countries have recently reached levels not seen in a generation, and workers of all ages are facing increasing probabilities of losing their jobs and considerable losses in accumulated assets. These events have increased the reliance that most (older) workers have on public social insurance programs, exactly at a time that public finances are suffering from a large drop in contributions. Using administrative and household level data we empirically characterize a Life- Cycle model of retirement and claiming decisions in terms of the employment, wage, health, and mortality uncertainty faced by individuals. We analyze the role of three intertwined factors in the recent evolution of work and retirement benefits claiming behavior in the United States; namely, higher unemployment uncertainty, higher unemployment benefits, and wealth shocks. We find that higher employment uncertainty reduces work and increases early claiming, while higher unemployment benefits mildly reduce work and reduce claiming at early ages. Finally, wealth shocks increase both early claiming and work. When all these factors are combined, the final outcome is a mild decline in labor supply and little variation in early claiming.
    JEL: J14 J26 J65
    Date: 2012–10
  8. By: Jeffrey S. Smith; James E. West
    Abstract: We use data from a natural experiment in which retirement benefits were reduced by congressional legislation and later restored to estimate the effect of future retirement benefit eligibility upon the decision of whether to remain in the U.S. military. We find that the generosity of retirement benefits is significantly correlated with the decision to remain in service until members qualify for benefits. The estimated effect of a 20 percent reduction in the generosity of retirement benefits upon the probability of remaining on active duty is equivalent to the effect of a 0.27 percentage point reduction in the unemployment rate, or approximately a 2 percent increase in the GDP growth rate.
    JEL: H3 H55
    Date: 2012–11
  9. By: Montizaan, Raymond (ROA, Maastricht University); Cörvers, Frank (ROA, Maastricht University); de Grip, Andries (ROA, Maastricht University); Dohmen, Thomas (ROA, Maastricht University)
    Abstract: We document the importance of negatively reciprocal inclinations in labor relationships by showing that a retrenchment of pension rights, which is perceived as unfair, causes a larger reduction in job motivation the stronger workers' negatively reciprocal inclinations are. We exploit unique matched survey and administrative data on male employees in the public sector in the Netherlands and compare the job motivation of employees born in 1950, who faced a substantial retrenchment of their pension rights resulting from a pension reform in 2006, to that of slightly older employees who remain entitled to more generous pension benefits. Job motivation is significantly lower among negatively reciprocal employees who were affected by the reform. The negative effect on job motivation is greater for negative reciprocal employees born very shortly after the cut-off date of January 1, 1950, as well as for those with many untreated colleagues, and who therefore arguably perceive the policy change as being more unfair. We also find that the treatment effect is stronger among workers who are more likely to hold their employer accountable for the drop in their pension rights, that is, those who work for the national government.
    Keywords: reciprocity, job motivation, retrenchment of pension rights
    JEL: D63 J2
    Date: 2012–10
  10. By: Salas, J.M. Ian S.; Abrigo, Michael Ralph M.; Racelis, Rachel H.
    Abstract: <p>The NTA flow accounts for the Philippines for the year 2007 include not only national level estimates but also estimates by income group. Three income groups are defined, referred to as income terciles. This paper examines the financing of consumption by income group. One source of financing is own labor income. But for age groups whose labor income is not sufficient to cover their consumption, mainly the young and elderly, the difference or the lifecycle deficit is financed by resources reallocated between age groups. The income groups differ in the manner the lifecycle deficits are financed.</p><p>Some key findings include: (1) for the young dependent age group deficit is financed by public alongside private transfers for the bottom tercile while it is almost entirely private transfers for the top tercile; (2) for the young elderly (under 79 years old) financing of deficit is by asset reallocation and a small proportion by public transfers for the bottom and middle terciles, and by asset reallocation and private transfers for the top tercile; and (3) for the older elderly (age 79 or older) deficit is financed by public transfers (small proportion), private transfers, and asset reallocation for the bottom and middle terciles, and by private transfers and asset reallocation for the top tercile.</p>
    Keywords: Philippines, National Transfer Accounts, lifecycle deficit, consumption by income group, lifecycle deficit by income group, finance of consumption by income group
    Date: 2012
  11. By: Ronkainen , Vesa (Financial Supervisory Authority)
    Abstract: This work studies and develops tools to quantify and manage the risks and uncertainty relating to the pricing of annuities in the long run. To this end, an idealized Monte-Carlo simulation model is formulated, estimated and implemented, which enables one to investigate some typical pension and life insurance products. The main risks in pension insurance relate to investment performance and mortality/longevity development. We first develop stochastic models for equity and bond returns. The S&P 500 yearly total return is modeled by an uncorrelated and Normally distributed process to which exogenous Gamma distributed negative shocks arrive with Geometrically distributed interarrival times. This regime switching jump model takes into account the empirical observations of infrequent exceptionally large losses. The 5-year US government bond yearly total return is modeled as an ARMA(1,1) process after suitably log-transforming the returns. This model is able to generate long term interest rate cycles and allows rapid year-to-year corrections in the returns. We also address the parameter uncertainty in these models. <p> We then develop a stochastic model for mortality. The chosen mortality forecasting model is the well-known model of Lee and Carter (1992), in which we use the Bayesian MCMC methods in the inference concerning the time index. Our analysis with a local version of the model showed that the assumptions of the Lee-Carter model are not fully compatible with Finnish mortality data. In particular we found that mortality has been lower than average for the cohort born in wartime. However, because the forecasts of these two models were not significantly different, we chose the more parsimonious Lee-Carter model. Although our main focus is on the total population data, we also analysed the data for males and females separately. Finally we build a flexible model for the dependence structure that allows us to generate stochastic scenarios in which mortality and economic processes are either uncorrelated, correlated or shock-correlated. <p> By using the simulation model to generate stochastic pension cash-flows, we are then able to analyse the financing of longevity risk in pension insurance and the resulting risk management issues. This is accomplished via three case studies. Two of these concentrate on the pricing and solvency questions of a pension portfolio. The first study covers a single cohort of different sizes, and the second allows for multiple cohorts of annuitants. The final case study discusses individual pension insurance from the customer and long-term points of view. <p> Realistic statistical long-term risk measurement is the key theme of this work, and so we compare our simulation results with the Value-at-Risk or VaR approach. The results show that the limitations of basic VaR approach must be carefully accounted for in applications. The VaR approach is the most commonly used risk measurement methodology in insurance and finance applications. For instance, it underlies the solvency capital requirement in Solvency II, which we also discuss in this work.
    Keywords: equities; stocks; jump model; bond; longevity; Lee-Carter model; stochastic mortality; cohort mortality; dependence model; asymmetric dependence; parameter uncertainty; stochastic annuity; pension; cohort size; solvency; internal model
    JEL: G12 J11
    Date: 2012–05–25
  12. By: Salas, J.M. Ian S.; Abrigo, Michael Ralph M.; Racelis, Rachel H.
    Abstract: Philippine population is projected to grow from about 88 million in 2007 to 142 million in 2040. The projected increase in population size will be accompanied by change in the age structure: increase in the percentages of elderly and working-age populations and decrease in the percentage of young population. Increase in population size by itself will drive aggregate consumption and labor income to increase. But this paper also shows that the projected change in the population age distribution will contribute additional increase in both aggregate consumption and labor income. The age structure change can potentially lead to some favorable outcomes: slower increase in aggregate consumption of the young deficit age groups; higher increase in aggregate labor income compared to aggregate consumption overall; and higher proportion of the lifecycle "deficits" that can be covered by "surplus." Still, the projected change in population age structure also presents challenges. One major challenge comes from the projected significant increase in the number of elderly and the fast increase in their aggregate consumption that will consequently follow. The practical challenge would be finding the means to finance this group`s growing consumption in the future.
    Keywords: Philippines, National Transfer Accounts, lifecycle deficit, financing consumption, population aging
    Date: 2012
  13. By: Maria Racionero; Pierre Pestieau
    Abstract: We study the optimal design of a social security system when individuals differ in health status and occupation. The health status is private information but is imperfectly correlated with occupation: individuals in harsh occupations have a higher probability of being in poor health. We explore the desirability of allowing the social security policy to differ by occupation and compare the results with those obtained if disability tests are used instead. We show that tagging by occupation is preferable to disability testing when the audit technology is relatively expensive and/or the ratio of disabled to healthy workers is significantly different across occupations. We also study the implications of imposing horizontal equity among disabled workers in different occupations and show that the disabled workers in harsher occupations may be induced to retire later.
    Keywords: health status, retirement are, tagging, disability tests
    JEL: H21 H55
    Date: 2012–11
  14. By: Salas, J.M. Ian S.; Abrigo, Michael Ralph M.; Racelis, Rachel H.
    Abstract: This paper describes the revised national level estimates of the 2007 Philippines NTA. The differences between the previous and the revised 2007 Philippines NTA Flow Accounts estimates are due to the change in the treatment of overseas Filipino workers` (OFW) remittances: treated as interhousehold transfers in the previous estimates; and treated mainly as labor income (earnings) in the revised estimates. The main changes in the estimates and results are those related to labor income and lifecycle deficit including: (1) the peak ages in per capita earnings and self-employment are both lower by one year at 28 years (previously 29 years) and 44 years (previously 45 years), respectively; (2) lifecycle deficit age cut-off are 24 years (previously 25 years) for the young and 59 years (previously 58 years) for the elderly; and (3) there is negative lifecycle deficit (i.e., there is surplus) for ages 25-58 years (previously 26-57 years).
    Keywords: Philippines, National Transfer Accounts, economic lifecycle, intergenerational transfer, consumption age profile, lifecycle deficit, labor income age profile
    Date: 2012
  15. By: Frank Vandenbroucke
    Abstract: This paper revisits social policy developments in Belgium in the decade 2000-2010 on the basis of stylized facts with regard to spending, employment, the social policy caseload, dependency rates and poverty. With regard to spending it focuses on the long-term evolution in Belgian public social spending and the extent to which the observed spending pattern accommodated the perceived emergence of new social risks. By means of ‘budgetary effort indicators’, the analysis disentangles the impact of demographic evolutions from deliberate shifts in broad policy priorities. In addition, the paper addresses some critical points in the performance of the Belgian welfare state, such as the rising number of children at risk of poverty, the need to anticipate long-term demographic ageing, and (briefly) the need for structural changes in parts of the health care system. I conclude that preparing the next wave of social reform is imperative for this country.
    Keywords: active welfare state, social policy, poverty, employment, social spending, ageing
    JEL: I31 J18
    Date: 2012–10
  16. By: De Donder, Philippe; Leroux, Marie-Louise
    Abstract: We build a political economy model where individuals differ in the extent of the behavioral bias they exhibit when voting first over social long-term care (LTC) insurance and then choosing the amount of LTC annuities. LTC annuities provide a larger return if dependent than if healthy. We study the majority voting equilibrium under three types of behavioral biases: myopia, optimism and sophisticated procrastination. Optimists and myopics similarly under-estimate their own dependency risk both when voting and when buying LTC annuities. They differ in that optimists know the correct average dependency risk (that determines the return of both social and private insurance), while myopics also under-estimate this average risk (and thus over-estimate the insurance return). Sophisticated procrastinators act as if they under-estimated their own risk when buying annuities, but anticipate this bias at the time of voting. We obtain that the stylized observation of lack of LTC insurance is compatible with agents being optimistic or myopic, but not sophisticated procrastinators. Increasing the dfference in return across dependency states for the LTC annuity is detrimental to sophisticated voters and to very biased myopic and optimist voters. Finally, less myopic individuals may end up worse off, at the majority-voting equilibrium, than more myopic agents, casting some doubt on the usefulness of information campaigns.
    Keywords: Majority Voting, Myopia, Optimism, Sophisticated Procrastinators, Dependency Linked Annuity, Enhanced Life Annuity, Complementary Private Insurance.
    JEL: D91 H55
    Date: 2012–10
  17. By: David de la Croix; Omar Licandro
    Abstract: We build a unique dataset of 300,000 famous people born between Hammurabi's epoch and 1879, Einstein's birth year. It includes, among other variables, the vital dates, occupations, and locations of celebrities from the Index Bio-bibliographicus Notorum Hominum (IBN), a very comprehensive biographical tool. Our main contribution is fourfold. First, we show, using for the first time a worldwide, long-running, consistent database, that mortality displays no trend during the Malthusian era. Second, after correcting for selection and composition biases, we date the beginning of the steadily improvements in longevity to the cohort born in 1640-9, clearly preceding the Industrial Revolution. Third, we find that this timing of longevity improvements concerns most countries in Europe, as well as all types of skilled occupations. Finally, the reasons for this early rise in mean lifetime have to be found in age-dependent shifts in the survival law.
    Keywords: Longevity, Notoriety, Malthus, Gompertz-Makeham, Compensation Effect of Mortality
    JEL: J11 I12 N30 I20 J24
    Date: 2012–10
  18. By: T., MAHESWARI
    Abstract: The world has changed greatly since the 1960s and 1970s, when there existed a virtual consensus among Western experts that rapid population growth in the developing world represented a serious global crisis. One of the primary causes of environmental degradation in a country could be attributed to rapid growth of population, which adversely affects the natural resources and environment. This study, in general, makes an endeavor to demonstrate how the population growth in Madurai district in Tamilnadu State of India has been conducive to the environmental degradation. In all the decades the decadal growth rate of population of Madurai district is higher than that of State except in the decade 1991-2001. It can be concluded from the present study that there is a pressure of population on the environment in Madurai district. Population is an important source of development, yet it is a major source of environmental degradation when it exceeds the threshold limits of the support systems. Unless the relationship between the multiplying population and the life support system can be stabilized, development programs, howsoever, innovative are not likely to yield desired results.
    Keywords: Madurai; Population; Environment
    JEL: Q50
    Date: 2012–10–30
  19. By: Robert Chambers (University of Maryland); Vangelis Tzouvelekas (Department of Economics, University of Crete, Greece)
    Abstract: We develop a biologically correct cost system for production systems facing invasive pests that allows the estimation of population dynamics without a priori knowledge of their true values. We apply that model to a data set for olive producers in Crete and derive from it predictions about the underlying populations dynamics. Those dynamics are compared to information on population dynamics obtained from pest sampling with extremely favorable results.
    Keywords: separabale technologies, pest population, damage control, olive farms, Greece 1
    Date: 2012–11–03

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