nep-age New Economics Papers
on Economics of Ageing
Issue of 2013‒03‒16
thirteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Aging and Pension Reform: Extending the Retirement Age and Human Capital Formation By Edgar Vogel; Alexander Ludwig; Axel Börsch-Supan
  2. Determinants of early retirement in Denmark. An empirical investigation using SHARE data By Gerke, Oke; Lauridsen, Jørgen T.
  3. Incentives, shocks or signals: labour supply effects of increasing the female state pension age in the UK By Jonathan Cribb; Carl Emmerson; Gemma Tetlow
  4. Ageing and fiscal sustainability in a small euro area economy By Gabriela Lopes de Castro; José R. Maria; Ricardo Mourinho Félix; Cláudia Braz
  5. Locally-Administered Pension Plans By Alicia H. Munnell; Jean-Pierre Aubry; Joshua Hurwitz
  6. The Development of Long-Term Care in Post-Socialist Member States of the EU By Stanislawa Golinowska; Agnieszka Sowa
  7. Optimal Social Security with Imperfect Tagging By Oliver Denk; Jean-Baptiste Michau
  8. The Effect of Compressed Demographic Transition and Demographic Gift on Economic Growth By Shin, Inyong
  9. Pension funds’allocations to hedge funds: an empirical analysis of US and Canadian defined benefit plans By Vincent Bouvatier; Sandra Rigot
  10. Labour-market outcomes of older workers in the Netherlands: Measuring job prospects using the occupational age structure By Nicole Bosch; Bas ter Weel
  11. Tax and Public Pension Reform Compatible with Economic Growth: Simulation analysis using macro-econometric model (Japanese) By IWATA Kazumasa; SARUYAMA Sumio
  12. Mortality beliefs distorted: Magnifying the risk of dying young By Peter Jarnebrant; Kristian Ove R. Myrseth
  13. Analysis on Russian Demographic Trends By Kumo, Kazuhiro

  1. By: Edgar Vogel; Alexander Ludwig; Axel Börsch-Supan
    Abstract: Projected demographic changes in industrialized and developing countries vary in extent and timing but will reduce the share of the population in working age everywhere. Conventional wisdom suggests that this will increase capital intensity with falling rates of return to capital and increasing wages. This decreases welfare for middle aged agents with assets accumulated for retirement. This paper addresses three important adjustments channels to dampen these detrimental effects of ageing: investing abroad, endogenous human capital formation and increasing the retirement age. Although non of these suggestions is new in itself, we examine their effects jointly in one coherent model. 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: C68 E17 E25 J11 J24
    Date: 2013–02
  2. By: Gerke, Oke (Department of Business and Economics); Lauridsen, Jørgen T. (Department of Business and Economics)
    Abstract: This study aimed at determining the factors of early retirement in Denmark by making use of longitudinal panel data from the Survey of Health, Ageing and Retirement in Europe (SHARE). The outcome variable of interest was the self-assessed employment situation at the time of the interview. The binary outcome retired/not retired was regressed on covariate data from the preceding wave, thereby modeling potential factors contributing to a later decision to retire. There were 651 eligible observations, of which 160 (24.6%) participants took early retirement. The strongest factors encouraging early retirement were unemployment, inadequate support in difficult work situations, the use of drugs the week before the interview (for high cholesterol, high blood pressure and other medical conditions), and the existence of grandchildren, whereas greater reluctance to retire early was found in participants who had a chronic illness or disability, a feeling of sadness or depression during the month before the interview, at least one natural parent still alive, higher expectations of the government raising the retirement age, and better grip strength.
    Keywords: Denmark; early retirement; working conditions; health; social networks; pensions
    JEL: C20 C23 J20 J21 J22 J26 J28
    Date: 2013–03–01
  3. By: Jonathan Cribb (Institute for Fiscal Studies); Carl Emmerson (Institute for Fiscal Studies); Gemma Tetlow (Institute for Fiscal Studies)
    Abstract: In 1995, the UK government legislated to increase the earliest age at which women could claim a state pension from 60 to 65 between April 2010 and March 2020. This paper uses data from the first two years of this change coming into effect to estimate the impact of increasing the state pension age from 60 to 61 on the employment of women and their partners using a difference-in-differences methodology. Our methodology controls in a flexible way for underlying differences between cohorts born at different times. We find that women's employment rates at age 60 increased by 7.3 percentage points when the state pension age was increased to 61 and their probability of unemployment increased by 1.3 percentage points. The employment rates of the male partners also increased by 4.2 percentage points. The magnitude of these effects, and the results from subgroup analysis, suggest they are more likely explained by the increase in the state pension age being a shock or through it having a signalling effect rather than them being due to either credit constraints or the effect of individuals responding to changes in their financial incentives to work. Taken together, our results suggest that the fiscal strengthening arising from a one-year increase in the female state pension age is 10% higher than a costing based on no behavioural change, due to additional direct and indirect tax revenues arising from increased earnings.
    Keywords: Early retirement age; labour supply; policy reform; retirement
    JEL: H55 J21 J26
    Date: 2013–03
  4. By: Gabriela Lopes de Castro; José R. Maria; Ricardo Mourinho Félix; Cláudia Braz
    Abstract: Population ageing is a key trend in Western economies. The impact of this trend will be widespread, affecting investment and saving decisions over the next decades, and represents a major challenge to policymakers. Debt sustainability issues in euro area economies may (re)emerge, particularly given the pay-as-you-go nature of most public pension systems. In a decentralised fiscal policy framework, ageing and the respective policy response might intensify the latent macroeconomic imbalances that underlie the ongoing sovereign debt crisis. In this paper, we include a stylised pension system in an open economy New-Keynesian general equilibrium model with non-Ricardian agents. The model is used to assess the macroeconomic impacts of ageing in a small euro area economy. The results suggest that the impact can be significant, depending on the magnitude and pace of the ageing dynamics, the existing rules for social benefits and the policy response. It can be inferred from the results that supranational policy coordination at euro area level is crucial to foster economic and financial stability.
    JEL: E62 F41 H62 J11
    Date: 2013
  5. By: Alicia H. Munnell; Jean-Pierre Aubry; Joshua Hurwitz
    Abstract: Most of the attention in the wake of the financial crisis and ensuing recession has focused on state-administered pension plans. But cities often administer their own plans, and stories circulate about the perils facing Chicago, Philadelphia, Providence, and others. To assess the status of locally administered plans, this Issue in Brief reports on a survey of 128 locally-administered plans in 43 states. The sample is limited to local entities with plans of their own, because the goal is to compare the effect of local versus state administration. Such a focus, however, leaves out an important component of the local story. For example, the sample includes no city or town in Mississippi, Montana, or Nevada, because cities and towns in those states do not sponsor their own plans but rather participate in state plans. In fact, for the nation as a whole, only 42 percent of local pension contributions go to locally-administered plans, while 58 percent go to state-administered plans. Thus, an equally, or perhaps more, important question is the burden of local pension contributions – to both local and state plans – on local budgets. Because of the many dimensions of the local story, this brief, which reports just on localities with pension plans, is the first of three that will assess pensions from a local perspective. The second brief will analyze the burden of pensions on localities by doubling the sample to include localities without plans and calculating the impact of pension contributions on local budgets. The third brief will explore the bankruptcies that have occurred at the local level and see whether it is possible to identify the role of pensions among other common contributing factors.
    Date: 2013–02
  6. By: Stanislawa Golinowska; Agnieszka Sowa
    Abstract: Long-term care (LTC) in the new EU member states, which used to belong to the former socialist countries, is not yet a legally separated sector of social security. However, the ageing dynamics are more intensive in these states than in the old EU member states. This paper analyses the process of creating an LTC sector in the context of institutional reforms of social protection systems during the transition period. The authors explain LTC’s position straddling the health and social sectors, the underdevelopment of formal LTC, and the current policies regarding the risk of LTC dependency. The paper is based mainly on the analysis of information provided by country experts in the ANCIEN project.
    Keywords: Labor market, social policy and social services, Europe, long-term care, social sector reform, social policy
    JEL: I18 I31 J11 J18
    Date: 2013–01
  7. By: Oliver Denk (OECD - Economics Department and CEPII); Jean-Baptiste Michau (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X)
    Abstract: Workers are exposed to the risk of permanent disability. We rely on a dynamic mechanism design approach to determine how imperfect information on health should optimally be used to improve the trade-off between inducing the able to work and providing insurance against disability. After deriving the fi…rst-order conditions to this problem, we calibrate the model to the U.S. economy and run a numerical simulation. The government should offer back-loaded incentives and make strategic use of the difference between the age at which disability occurs and the age of eligibility to disability bene…ts. Also, the able who are (mistakenly) tagged as disabled should be encouraged to work until some early retirement age. This makes a decrease in the strictness of the disability test desirable which would reduce the number of disabled who are not awarded the tag and, hence, improve insurance. Finally, we show how the …first-best allocation of resources can asymptotically be implemented by making strategic use of the disability test.
    Keywords: Disability insurance, Imperfect tagging, Optimal policy, Social Security
    Date: 2013–03–04
  8. By: Shin, Inyong
    Abstract: In this paper, we examine the demographic transition and its effect on economic growth using a cross-country data. We use a threshold regression model to verify the transition and to confirm whether the demographic transitions are compressed or not in developing countries. We found out that in general, the demographic transitions, including the decreasing birth and death rate, in developing countries start in an earlier development stage compared to the demographic transitions in developed countries. These results suggest that the aging population and the decreasing working-age fraction in developing countries can also start in an earlier development stage than the experiences of developed countries and that the demographic gift in developing countries can also be lost in an early stage.
    Keywords: economic growth; compressed demographic transition; latecomer's advantage; aging population; threshold model.
    JEL: J11 J13 O11
    Date: 2013–03–13
  9. By: Vincent Bouvatier; Sandra Rigot
    Abstract: This paper investigates the characteristics of US and Canadian pension funds that allocate assets to hedge funds. The typical pension fund that invests in hedge funds is a large sophisticated pension fund that diversi…es its portfolio across numerous classes of investments, private equity in particular, uses a core-satellite organization and has access to low delegation costs for alternative assets. Moreover, we fi…nd that pension funds investing in hedge funds signifi…cantly obtained higher global returns.
    Keywords: pension funds, hedge funds, asset allocation, diversi…cation
    JEL: G23
    Date: 2013
  10. By: Nicole Bosch; Bas ter Weel
    Abstract: This paper analyses changes in job opportunities of older workers in the Netherlands in the period 1996-2010. The standard human capital model predicts that, as a result of human capital obsolescence, mobility becomes more costly when workers become older. We measure and interpret how changing job opportunities across 96 occupations affect different age and skill groups. Older workers end up in shrinking occupations, in occupations with a lower share of high-skilled workers, in occupations facing a higher threat of offshoring tasks abroad, more focus on routine-intensive tasks and less rewarding job content. This process is not only observed for the oldest group of workers, but for workers aged 40 and above. Observing older workers in declining occupations is to a large extent a market outcome, but declining job opportunities in terms of less satisfying working conditions and job tasks and content could potentially raise incentives to retire early.
    JEL: J24 J60
    Date: 2013–02
  11. By: IWATA Kazumasa; SARUYAMA Sumio
    Abstract: We propose a comprehensive public pension reform compatible with economic growth; the proposal combines partial privatization with full-tax financing of the basic pension scheme. Corporate tax reduction is included in view of invigorating firm activities. In order to keep government finance balanced, the consumption tax rate is raised by 1% every year over the medium term.<br />Reforms which emphasize tax burden increases may not only suppress the private initiatives, but also make fiscal consolidation more difficult. Our proposal aims at improving the supply side of the economy which facilitates growth-friendly public pension reform.<br />We examine its expected effects using our macro-econometric model. The simulation outcome of drastic reforms reveals that the real gross domestic product (GDP) would increase by nearly 4% from the baseline if the public pension is completely privatized; it encourages firms to boost investment, employment, and wages. Moreover, it enables Japan to extract from deflation. However, the government debt is expanded due to the need to avoid the double burden of the current working generation.<br />In addition, it might be possible to achieve both fiscal consolidation and economic growth acceleration by adopting only full-tax financing of the basic pension scheme-real GDP would increase while government debt is reduced.<br />The premium on the public pension is virtually identical to the wage tax, and its burden is destined to accumulate. We propose an urgent reform to reduce intergenerational inequality, thus enhancing the hopes of the younger generations.
    Date: 2013–01
  12. By: Peter Jarnebrant (ESMT European School of Management and Technology); Kristian Ove R. Myrseth (ESMT European School of Management and Technology)
    Abstract: We explore mortality beliefs by eliciting individual-level belief distributions for participants’ remaining lifespan. Across two independent samples, from Germany and the USA, we find that individuals—while accurately forecasting their life expectancy—substantially overestimate the likelihood of dying young (<50 years) and overestimate the likelihood of reaching very old age (>100 years). In other words, the modes of the belief distributions are relatively accurate, but the tails of the belief distributions are significantly ‘fatter’ than the corresponding tails of distributions obtained from demographic data. Our results are robust to variations in belief elicitation techniques, and to assumptions underlying normative longevity forecasts. The results have implications for a range of questions of economic behavior—including intertemporal choice, consumption smoothing, saving, and risk management.
    Keywords: mortality, beliefs, risk perception, judgment
    Date: 2013–02–28
  13. By: Kumo, Kazuhiro
    Date: 2013–01

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