nep-age New Economics Papers
on Economics of Ageing
Issue of 2013‒04‒27
thirteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Extended Unemployment Benefits and Early Retirement: Program Complementarity and Program Substitution By Lukas Inderbitzin; Stefan Staubli; Josef Zweimüller
  2. Australia’s Retirement System: Strengths, Weaknesses, and Reforms By Julie Agnew
  3. Does Experience Rating Reduce Disability Inflow? By Kyyrä, Tomi; Tuomala, Juha
  4. Shrouded Costs of Government: The Political Economy of State and Local Public Pensions By Edward L. Glaeser; Giacomo A. M. Ponzetto
  5. Pomorskie Region: Responding to Demographic Transitions Towards 2035 By Iwona Sagan; Cristina Martinez-Fernandez; Tamara Weyman
  6. Is there an optimal pension fund size? A scale-economy analysis of administrative and investment costs By Jacob A. Bikker
  7. Demographic Transition and an Ageing Society: Implications for Local Labour Markets in Poland By Cristina Martinez-Fernandez; Tamara Weyman; Jolanta Perek-Białas; Iwona Sagan; Piotr Szukalski; Piotr Stronkowski
  8. Towards an Age-Friendly City: The Constraints Preventing the Elderly's Participation in Community Programs in Akita City By Yoshihiko Kadoya
  9. Malopolska Region Demographic Transition: Working for the Future By Jolanta Perek-Białas; Cristina Martinez-Fernandez; Tamara Weyman
  10. Social Expenditure in New Zealand: Stochastic Projections By John Creedy; Kathleen Makale
  11. The heterogeneous effects of workforce diversity on productivity, wages and profits By Andrea Garnero; François Rycx
  12. Healthy life expectancy in Europe By Jean-Marie Robine; Emmanuelle Cambois
  13. Lódzkie Region: Demographic Challenges Within an Ideal Location By Piotr Szukalski; Cristina Martinez-Fernandez; Tamara Weyman

  1. 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
  2. By: Julie Agnew
    Abstract: Australia’s retirement income system is regarded by some as among the best in the world. It has achieved high individual saving rates and broad coverage at reasonably low cost to the government. Australia’s system does have shortcomings. It is heavily dependent on defined contribution plans and is vulnerable to weaknesses in such programs. Its government old-age pension is a means-tested benefit, which creates potentially troublesome incentives for workers with defined contribution accounts. This brief provides an overview of the system and recent reforms. The first section presents the Australian system. The second section reviews recent reforms, which have focused on the individual account component of the system. The third section discusses outstanding issues. The fourth section offers some potential lessons for the U.S. retirement system. The final section concludes that the recent reforms should strengthen Australia’s system and provide lessons to other nations that increasingly depend on 401(k)-type individual accounts.
    Date: 2013–04
  3. By: Kyyrä, Tomi (VATT, Helsinki); Tuomala, Juha (VATT, Helsinki)
    Abstract: This study explores whether the experience rating of employers' disability insurance premiums affects the inflow of older employees to disability benefits in Finland. To identify the causal effect of experience rating, we exploit a pension reform that extended the coverage of the experience-rated premiums. The results show that a new disability benefit claim can cause substantial cost to the former employer through an increased premium. Nonetheless, we find no evidence of the significant effects of experience rating on the disability inflow. The lack of the behavioral effects may be due to the complexity of experience rating calculations and/or limited employer awareness.
    Keywords: experience rating, disability insurance, early retirement
    JEL: J14 J26 H32
    Date: 2013–04
  4. By: Edward L. Glaeser; Giacomo A. M. Ponzetto
    Abstract: Why are public-sector workers so heavily compensated with pensions and other non-pecuniary benefits? In this paper, we present a political economy model of shrouded compensation in which politicians compete for taxpayers' and public employees' votes by promising compensation packages, but some voters cannot evaluate every aspect of compensation. If pension packages are "shrouded," meaning that public-sector workers better understand their value than ordinary taxpayers, then compensation will be inefficiently back-loaded. In equilibrium, the welfare of public-sector workers could be improved, holding total public sector costs constant, if they received higher wages and lower pensions. Central control over dispersed municipal pensions has two offsetting effects on pension generosity: more state-level media attention helps taxpayers better understand pension costs, which reduces pension generosity; but a larger share of public sector workers will live within the jurisdiction, which increases pension generosity. We discuss pension arrangements in two decentralized states (California and Pennsylvania) and two centralized states (Massachusetts and Ohio) and find that in these cases, centralization appears to have modestly reduced pension arrangements; but, as the model suggests, this finding is unlikely to be universal.
    JEL: H55 H75
    Date: 2013–04
  5. By: Iwona Sagan; Cristina Martinez-Fernandez; Tamara Weyman
    Abstract: This paper outlines the findings of the Poland case study of the Pomorskie region for the international project, Local scenarios of demographic change. The Pomorskie region is located in the northern part of Poland on the coast of the Baltic Sea, regional boarders were established during the 1999 administrative reforms. Despite the region experiencing population growth, there is a growing share of elderly people in the social structure and the number of people in the pre-working age is decreasing. Although the authorities are aware of the demographic challenges, local and regional policy must be applied to manage the demographic transition, with emphasis being placed on infrastructure and services for the ageing population, developing the silver economy, encouraging life-long learning and examining the opportunities provided by being within the Baltic Sea region.
    Date: 2013–04–18
  6. By: Jacob A. Bikker
    Abstract: This paper investigates scale economies and the optimal scale of pension funds, estimating different cost functions with varying assumptions about the shape of the underlying average cost function: Ushaped versus monotonically declining. Using unique data for Dutch pension funds over 1992-2009, we find that unused scale economies for both administrative and investment activities are indeed large and concave, that is, huge for small pension funds and decreasing with pension fund size. For administrative activities, we observe a clear optimal scale of around 40 thousand participants during 1992-2000 (pointing to a U shaped average cost function), which increases sharply in subsequent years to size above the largest pension fund, pointing to monotonically decreasing average costs. As regards investment costs we observe an optimal scale for total assets of around euro 690 million and larger, without a clear shift over time and without diseconomies of scale for larger funds. The results are very sensitive to the correct functional form of the cost model. Consolidation among especially smaller and medium-sized pension funds would increase cost efficiency.
    Keywords: Pension funds; unit-costs function, administrative costs, investment costs, economies of scale, pension plan design, governance, defined benefits, defined contribution, outsourcing, reinsurance
    JEL: G23
    Date: 2013–04
  7. By: Cristina Martinez-Fernandez; Tamara Weyman; Jolanta Perek-Białas; Iwona Sagan; Piotr Szukalski; Piotr Stronkowski
    Abstract: This report outlines the findings of the Poland case study for the combined study regions of Lódzkie, Malopolska and Pomorskie for the international project, Local scenarios of demographic change. The demographic situation is changing significantly within Poland with two major trends occurring, population decline and population ageing, as a result of decreasing fertility rates and increased life expectancy. However, the Polish case study revealed the complexity of demographic challenges with each region experiencing different issues associated with socio-economic context such as: population ageing experienced in all three study regions; and population shrinkage in Lódzkie. These differences in demographic situations require a territorial, local and regional strategy co-ordinated policy response with national policy efforts. Policy themes and recommendations focus on sustainable economic development, family policy, ageing workforce, silver economy, and skills and education.
    Date: 2013–04–18
  8. By: Yoshihiko Kadoya
    Abstract: The inclusion of the elderly in community life is a major factor in achieving an age-friendly city. However, there has been little research investigating the constraints preventing the elderly's interaction with society. With that in mind, this paper is pioneering the investigation of such constraints using the results from the "Questionnaire towards an Age-Friendly City" by Akita City Government in Japan, a member of the World Health Organization (WHO)'s Global Network of Age-friendly Cities and Communities. This paper reveals two policy implications. First, living with someone encourages elderly to interact with society. Second, the elderly's ability to be mobile fosters their social participation.
    Date: 2013–04
  9. By: Jolanta Perek-Białas; Cristina Martinez-Fernandez; Tamara Weyman
    Abstract: This paper outlines the findings of the Poland case study of the Malopolska region for the international project, Local scenarios of demographic change. The Malopolska region is located in the southern part of Poland, boarding Slovakia, and was created in 1999 from voivodship amalgamations of Krakow, Nowy Sacz, and parts of Bielsko-Biala, Kielce, Katowice, Krosno and Tarnów. Although the population size will not change dramatically over the next few years, the consequences of population ageing are and will be challenging. The region has much potential in various sectors that can be exploited in preparation for the demographic transition. The paper presents various examples of initiatives and projects related to demographic issues (older workers, older persons, and families), however, awareness of demographic challenges and the need for better policy implementation are key priorities at the regional/local level.
    Date: 2013–04–18
  10. By: John Creedy; Kathleen Makale (The Treasury)
    Abstract: This paper presents stochastic projections for 13 categories of social spending in New Zealand over the period 2011-2061. These projections are based on detailed demographic estimates covering fertility, migration and mortality disaggregated by single year of age and gender. Distributional parameters are incorporated for all of the major variables, and are used to build up probabilistic projections for social expenditure as a share of GDP using simulation methods, following Creedy and Scobie (2005). Emphasis is placed on the considerable uncertainty involved in projecting future expenditure levels.
    Keywords: Population, projections, stochastic simulation, social expenditure, fiscal costs, New Zealand
    JEL: E61 H50 J11
    Date: 2013–03
  11. By: Andrea Garnero; François Rycx
    Abstract: We estimate the impact of workforce diversity on productivity, wages and productivity-wage gaps (i.e. profits) using detailed Belgian linked employer-employee panel data. Findings, robust to a large set of covariates, specifications and econometric issues, show that educational (age) diversity is beneficial (harmful) for firm productivity and wages. The consequences of gender diversity are found to depend on the technological/knowledge environment of firms. While gender diversity generates significant gains in high-tech/knowledge intensive sectors, the opposite result is obtained in more traditional industries. Overall, findings do not point to sizeable productivity-wage gaps except for age diversity.
    Keywords: Labour diversity; productivity; wages; linked panel data;; GMM
    JEL: D24 J24 J31 M12
    Date: 2013–04–17
  12. By: Jean-Marie Robine (INED); Emmanuelle Cambois (INED)
    Abstract: Each year since 2005, Eurostat has calculated life expectancy without activity limitations, known as"healthy life years". While life expectancy at age 65 increased by one year in the European Union between2005 and 2010, the years lived in poor perceived health decreased (by 0.5 years for men and 1.1 years for women)despite an increase in years with chronic morbidity (1.6 years for men, 1.3 years for women). Years withoutlimitation of activity remained unchanged. This paradoxcan be explained in part by more systematic detection and improved management of health problems, whoseprevalence may thus increase without necessarily producing an increase in reported activity limitations or innegative perceptions of health.
    Date: 2013
  13. By: Piotr Szukalski; Cristina Martinez-Fernandez; Tamara Weyman
    Abstract: This paper outlines the findings of the Poland case study of the Lódzkie region for the international project, Local scenarios of demographic change. The Lódzkie region is located in the central part of Poland, at the intersection of several major arterial roads; Berlin-Moscow and Gdansk-Vienna. Despite the excellent location, the region is affected by several demographic challenges, partly related to the region’s proximity to Warsaw, the Polish capital city. The official strategic documents for regional development have been focused on “hard” infrastructure development, with limited attention being paid to current or future demographic and social challenges, such as the declining and ageing population, which pose significant obstacles to future regional development. Profound public interest in demographic change, however, has resulted in the creation of a plan for 2013-2014 to forestall this predicted depopulation, and also, in the preparation of a demographic development strategy for the following years.
    Date: 2013–04–18

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