nep-age New Economics Papers
on Economics of Ageing
Issue of 2013‒04‒20
fifteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. How best to measure pension adequacy By Grech, Aaron George
  2. Reform of ill-health retirement of police in England and Wales: impact on pension liabilities and the role of local finance By Rowena Crawford; Richard Disney
  3. Housing wealth decumulation, portfolio composition and financial literacy among the European elderly By Agnese Romiti; Mariacristina Rossi
  4. Extended unemployment benefits and early retirement: program complementarity and program substitution By Lukas Inderbitzin; Stefan Staubli; Josef Zweimüller
  5. Age Biased Technical and Organisational Change, Training and Employment Prospects of Older Workers. By Behaghel, L.; Caroli, E.; Roger, M.
  6. Does Mental Productivity Decline with Age? Evidence from Chess Players By Bertoni, Marco; Brunello, Giorgio; Rocco, Lorenzo
  7. Evidence on Individual Preferences for Longevity Risk By Delprat, Gaëtan; Leroux, Marie-Louise; Michaud, Pierre-Carl
  8. Projections of dynamic generational tables and longevity risk in Chile By Javier Alonso; David Tuesta; Diego Torres; Begona Villamide
  9. O uso das taxas de crescimento por idade para identificação das principais etapas da transição demográfica no Brasil By Luana Junqueira Dias Myrrha; Gabriela Pamila Cristina Lima Siviero; Cassio M. Turra; Simone Wajnman
  10. Pension funds and Stock Market Volatility: An Empirical Analysis of OECD countries By Ashok Thomas; Luca Spataro; Nanditha Mathew
  11. The Impact of Health Problems on Income of the Elderly in Japan By Hamaaki, Junya; Noguchi, Haruko
  12. Adequacy of Singapore's Central Provident Fund Payouts: Income Replacement Rates of Entrant Workers By Chia Ngee Choon; Albert Tsui
  13. Evolution, Fertility and the Ageing Population By Jason Collins; Oliver Richards
  14. How Does Subjective Well-Being Evolve with Age? A Literature Review By López Ulloa, Beatriz Fabiola; Moller, Valerie; Sousa-Poza, Alfonso
  15. Endogenous altruism, redistribution, and long term care By Cremer, Helmuth; Gahvari, Firouz; Pestieau, Pierre

  1. By: Grech, Aaron George
    Abstract: Though the main benchmark used to assess pension reforms continues to be the expected resulting fall in future government spending, the impact of policy changes on pension adequacy is increasingly coming to the fore. As yet, there does not seem to be a broad consensus in policymaking circles and academic literature on what constitutes the best measure of pension adequacy. While various indicators have been developed and utilised, no single measure appears to offer a clear indication of the extent to which reforms will impact on the achievement of pension system goals. Many indicators appear ill-suited to study the effective impact of reforms, particularly those that change the nature of the pension system from defined benefit to defined contribution. Existing measures are frequently hard to interpret as they do not have an underlying benchmark which allows their current or projected value to be assessed as adequate or inadequate. Currently used pension adequacy indicators tend to be point-in-time measures which ignore the impact of benefit indexation rules. They also are unaffected by very important factors, such as changes in the pension age and in life expectancy. This tends to make existing indicators minimise the impact of systemic reforms on the poverty alleviation and income replacement functions of pension systems. The emphasis on assumptions which are very unrepresentative of real-life labour market conditions also makes current indicators deceptive, particularly in relation to outcomes for women and those on low incomes. This paper posits that these defects can be remedied by using adequacy indicators based on estimates of pension wealth (i.e. the total projected flow of pension benefits through retirement) calculated using more realistic labour market assumptions. These measures are used to give a better indication of the effective impact of pension reforms enacted since the 1990s in ten major European countries. They suggest that these reforms have decreased generosity significantly, but that the poverty alleviation function remains strong in those countries where minimum pensions were improved. However, moves to link benefits to contributions have raised clear adequacy concerns for women and for those on low incomes which policymakers should consider and tackle.
    Keywords: Social Security and Public Pensions; Retirement; Poverty; Retirement Policies
    JEL: H55 I38 J26
    Date: 2013–04
  2. By: Rowena Crawford (Institute for Fiscal Studies); Richard Disney (Institute for Fiscal Studies)
    Abstract: We examine ill-health retirement of police officers in England and Wales between 2002-3 and 2009-10. Differences in ill-health retirement rates across forces are statistically related to area-specific stresses of policing and force-specific differences in human resources policies. Reforms to police pensions plans- in particular a shift in the incidence of financing ill-health retirement from central government to local police authorities- impacted on the level of ill-health retirement, especially among forces with above-average rates of retirement. We find that residual differences in post-2006 ill-health retirement rates across forces are related to their differential capacities to raise revenue from local property taxes. We quantify the impact of these reforms on overal pension plan liabilities.
    Keywords: Police pensions, ill-health retirement, state and local finance
    JEL: H75 J26 J45
    Date: 2013–03
  3. By: Agnese Romiti; Mariacristina Rossi
    Abstract: This paper analyses the role played by financial literacy in savings decisions and wealth decumulation. The broad evidence shows that (elderly) households do not decumulate their assets as they age, contradicting the standard life-cycle theory, which predicts that households should decumulate their assets in order to keep their consumption smooth. In particular, older people seem to be very attached to illiquid assets, such as housing wealth, which is far more difficult to liquidate and use to face unexpected shocks and to smooth consumption. Using the SHARE (Survey of Health, Ageing, and Retirement in Europe) survey, we try to detect whether more financial literacy brings about more optimal behaviour from a life-cycle perspective, and we look at the impact of financial literacy on three different dimensions of savings decisions: an unbalanced portfolio with excessive weight assigned to illiquid assets, the optimal consumption path, and housing wealth decumulation. According to our findings, financial literacy substantially reduces the portfolio imbalance of people aged 50+ by reducing the weight of housing wealth over total net worth; at the same time, it is responsible for a more optimal consumption path and for housing wealth decumulation.
    Keywords: Financial literacy, savings, wealth decumulation, housing, portfolio
    JEL: D14 D91 G11
    Date: 2012
  4. By: Lukas Inderbitzin; Stefan Staubli; Josef Zweimüller
    Abstract: This paper explores how extended unemployment insurance (UI) benefits targeted to older workers affect early retirement and social welfare. The trade-off of optimal UI between consumption smoothing and moral hazard requires accounting for the entire early retirement system, which often includes extended UI and relaxed access to disability insurance (DI). We argue that extended UI generates program complementarity (increased take-up of UI followed by DI and/or regular retirement benefits) and program substitution (increased take-up of UI instead of DI). Exploiting Austria's regional extended benefit program, which extended regular UI benefits to up to 4 years, we find: (i) program complementarity is quantitatively important for workers aged 50+; and (ii) program substitution is quantitatively relevant for workers aged 55+. We derive a simple rule for optimal UI that accounts for program complementarity and program substitution. Using the sufficient statistics approach, we conclude that UI for older workers was too generous and the regional extended benefit program was a suboptimal policy.
    Keywords: Early retirement, unemployment, disability, policy reform, optimal benefits
    JEL: J14 J26 J65
    Date: 2013–04
  5. By: Behaghel, L.; Caroli, E.; Roger, M.
    Abstract: We analyze the role of training in mitigating the negative impact of technical and organizational changes on the employment of older workers. Using a panel of French firms in the late 1990s, our empirical analysis confirms that new technologies and some innovative workplace practices are biased against older workers. The use of the Internet and the adoption of computer networks tend to increase the wage share of middle-aged workers and to reduce the share of workers older than 50. By contrast, the reduction of the number of hierarchical layers is favourable to older workers. Training contributes to protect older workers in terms of employment and/or of wages.
    Keywords: Technical change; organizational change; training; older workers.
    JEL: J14 J24 J26 O30
    Date: 2013
  6. By: Bertoni, Marco (University of Padova); Brunello, Giorgio (University of Padova); Rocco, Lorenzo (University of Padova)
    Abstract: We use data on international chess tournaments to study the relationship between age and mental productivity in a brain-intensive profession. We show that less talented players tend to leave the game in the earliest phases of their career. When the effects of age on productivity vary with unobserved ability, commonly used fixed effects estimators applied to raw data do not guarantee consistent estimates of age-productivity profiles. In our data, this method strongly over-estimates the productivity of older players. We apply fixed effects to first-differenced data and show that productivity peaks in the early forties and smoothly declines thereafter. Because of this, players aged 60 are 11 percent less productive than players in their early forties.
    Keywords: aging, productivity, mental ability
    JEL: D83 J14 J24
    Date: 2013–03
  7. By: Delprat, Gaëtan (University of Québec at Montréal); Leroux, Marie-Louise (University of Québec at Montréal); Michaud, Pierre-Carl (University of Québec at Montréal)
    Abstract: The standard model of intertemporal choice assumes risk neutrality toward the length of life: due to additivity, agents are not sensitive to a mean preserving spread in the length of life. Using a survey fielded in the RAND American Life Panel (ALP), this paper provides empirical evidence on possible deviation from risk neutrality with respect to longevity in the U.S. population. The questions we ask allow to find the distribution as well as to quantify the degree of risk aversion with respect to the length of life in the population. We find evidence that roughly 75% of respondents were not neutral with respect to longevity risk. Higher income households are more likely to be risk averse. We do not find evidence that the degree of risk aversion varies with age or education.
    Keywords: risk aversion toward the length of life, intertemporal choice, stated-preference
    JEL: D12 D91 I10 J26
    Date: 2013–03
  8. By: Javier Alonso; David Tuesta; Diego Torres; Begona Villamide
    Abstract: The increase in longevity risk is leading to serious challenges for economies. Industries such as insurance and pensions, which are most closely related to the management of the risks of an aging population, have for a number of years experienced direct effects of this kind. To counterbalance this, they have developed techniques for constructing mortality tables in order to project the future trends of life expectancy at birth and thus reduce the level of uncertainty that this market by its nature involves. Developed countries have led technical improvements for constructing these tables, while Latin American countries have lagged behind significantly in this respect. Given that these countries cannot yet develop tables weighted by social and medical aspects, it is highly probable that this situation will continue. That is why this study aims to construct a forecast for mortality rates, based on projection models of the ARMA (p, q) type and non-parametric contrast methodology. The study is based on the case of Chile, which provides most information for constructing a model for a Latin American country. The estimates show that the official mortality tables in Chile could include significant lags by 2050, which will have major negative effects on the pension and insurance industry, in the hypothetical case that they were not updated. In another exercise, using the mortality table estimated in this work, we found that if pensions in Chile are not to lose their purchasing power, the contribution rate would have to be increased by 8 percentage points in the case of men and 4 in the case of women. Given that Chile is the best developed country in the region with respect to mortality tables, the negative effects on the rest of Latin America could be even more worrisome.
    Keywords: Pensions, insurance, longevity risk, mortality tables, Latin America, Chile
    JEL: G23 J32 G22
    Date: 2013–04
  9. By: Luana Junqueira Dias Myrrha (Cedeplar-UFMG); Gabriela Pamila Cristina Lima Siviero (Cedeplar-UFMG); Cassio M. Turra (Cedeplar-UFMG); Simone Wajnman (Cedeplar-UFMG)
    Abstract: The analysis of the set of age specific growth rates in a population, proposed by Horiuch and Preston (1988), is an alternative way to examine the process of changing age structure, and to examine potential "marks" left by the demographic history of each cohort. The objective of this study is to apply this methodology to the Brazilian population, discussing some of the main features of the demographic history in Brazil. Based on simulated patterns of age specific growth rates discussed by Horiuch and Preston (1988) we look at pertinent features of the Brazilian population´s demographic history that may be present in the current cohorts. The results presented here show that the information contained in current age specific growth rates are quite instructive about the effects of variations in demographic regimes and are very useful in populations where vital rates are not reliable or unavailable.
    Keywords: Age specific growth rates; population aging, Brazil, age structure
    JEL: J11
    Date: 2012–04
  10. By: Ashok Thomas; Luca Spataro; Nanditha Mathew
    Abstract: The paper explores the empirical relationship between the share of pension fund s’assets invested in stocks and stock market volatility in OECD markets. For this purpose, by using panel data of 34 OECD countries from 2000 to 2010, we estimate both a random effects panel model and a Prais-Winsten regression with panel corrected standard errors and autoregressive errors. The econometric estimation documents that there is a significant negative relationship between the share of pension funds assets invested in stocks and stock market volatility in OECD markets. The binary Probit and Logit models further validate the argument that pension funds as institutional investors can dampen stock market volatility.
    Keywords: Pension funds, Stock market volatility, Panel data.
    JEL: G23 G14 C23
    Date: 2013–04–01
  11. By: Hamaaki, Junya; Noguchi, Haruko
    Abstract: The aim of this chapter is to empirically examine the impact of health problems of the elderly on their own and their household’s income. Using micro panel data from the “Survey on Health and Retirement” focusing on the elderly, we estimate the effect on an individual’s income and his household’s income of the number of illnesses respondents suffered in the three years preceding the survey, of suffering from a lifestyle disease, and of suffering from one of the three major “killer diseases” in Japan (cancer or malignant growth, heart disease, stroke or cerebrovascular disease). In order to deal with endogeneity in the health indicators, we employ survey respondents’ body mass index at age 30 and their parents’ medical history as instruments in the estimation and, when focusing on suffering from at least one of the three killer diseases, use respondents’ body height as an additional instrument. In the estimation, we focus on male survey participants. The results suggest that an additional illness in the preceding years on average significantly reduced individuals’ income. On the other hand, although the estimated coefficients on the effect of lifestyle diseases on individuals’ income or household income were as expected negative, they were insignificant in both cases. Furthermore, when dividing observations into two subsamples ? men under the age of 60 and age 60 and over ? we find that in the case of the under 60s, a deterioration in health on average has no significant effect either on the individuals’ own income or their household income. Likely reasons are that, if at all possible, such individuals will continue to work, or that any decline in income is offset by the spouse starting to work and/or the receipt of insurance payments. On the other hand, for men aged 60 and over, a deterioration in health has a significant impact on their own income, but that on household income is limited. That such individuals’ own income declines is likely due to the fact that they are much more likely to stop working as a result of health problems, while the limited effect on household income may be due to the fact that the share of such individuals’ income in total household income is relatively small.
    Date: 2013–03
  12. By: Chia Ngee Choon (Department of Economics, National University of Singapore); Albert Tsui (Department of Economics, National University of Singapore)
    Abstract: The study examines whether the Central Provident Fund (CPF) can provide adequate retirement savings for a young Singaporean joining the workforce today, using the Income Replacement Rate (IRR). The paper fills gaps in previous studies on Singapore’s IRR by incorporating unique institutional features of CPF. It also shows how IRRs vary with individuals’ decisions on their housing consumption and use of CPF savings. Assumptions used in the model are largely based on empirical data to remove subjective elements as far as possible. The study finds that CPF savings are able to support robust IRR outcomes comparable to OECD countries. Amongst entrants to the workforce today, the median male earner will be able to replace 70% of his wages when he retires. For the median female earner, the net IRR is slightly lower at 64%. If imputed rent on owner-occupied homes is taken into account, the net IRRs would be higher. For lower income earners, the Workfare Income Supplement boosts the IRRs significantly. The study affirms that for those who work consistently, the CPF system will be able to provide adequately for retirement, with prudent choice of housing and the wise use of withdrawn CPF savings.
    Date: 2013–03
  13. By: Jason Collins (Business School, University of Western Australia); Oliver Richards (Australian Treasury)
    Abstract: We propose that the recent rise in the fertility rate in developed countries is the beginning of a broad-based increase in fertility towards above-replacement levels. Environmental shocks that reduced fertility over the past 200 years changed the composition of fertility-related traits in the population and temporarily raised fertility heritability. As those with higher fertility are selected for, the “high-fertility” genotypes are expected to come to dominate the population, causing the fertility rate to return to its pre-shock level. We show that even with relatively low levels of genetically based variation in fertility, there can be a rapid return to a high-fertility state, with recovery to above-replacement levels usually occurring within a few generations. In the longer term, this implies that the proportion of elderly in the population will be lower than projected, reducing the fiscal burden of ageing on developed world governments. However, the rise in the fertility rate increases the population size and proportion of dependent young, presenting other fiscal and policy challenges.
    Date: 2013
  14. By: López Ulloa, Beatriz Fabiola (University of Hohenheim); Moller, Valerie (Rhodes University); Sousa-Poza, Alfonso (University of Hohenheim)
    Abstract: This literature review provides an overview of the theoretical and empirical research in several disciplines on the relation between ageing and subjective well-being, i.e., how subjective well-being evolves across the lifespan. Because of the different methodologies, data sets and samples used, comparison among disciplines and studies is difficult. However, extant studies do show either a U-shaped, inverted U-shaped or linear relation between ageing and subjective well-being.
    Keywords: life satisfaction, ageing, U-shape
    JEL: J14 J28
    Date: 2013–04
  15. By: Cremer, Helmuth (IDEI,TSE); Gahvari, Firouz (University Urbana); Pestieau, Pierre (CREPP, TSE, University of Liege)
    Abstract: This paper studies public provision of long term care insurance in a world in which family assistance is (i) uncertain and (ii) endogenous depending on the time parents spend raising their children. Public benefits will be paid in case of disability but cannot be combined with self-insurance or family aid. The benefits are provided equally to all recipients and financed by a proportional payroll tax. The paper shows that tax distortions imply that full insurance is undesirable. It characterizes the optimal tax and identifies the elements that determine its size. Of crucial importance are the extent of under-insurance, the effect of the tax on the probability of altruism, the distortionary effect of the tax, and, with wage heterogeneity, the covariance between the social mar- ginal utility of lifetime income and (i) earnings (positive effect) and (ii) the probability of altruism default (negative effect).
    Keywords: Long term care, uncertain altruism, endogenous probability, opting out,public insurance.
    JEL: H2 H5
    Date: 2013–03

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