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on Economics of Ageing |
| 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. |
| Keywords: | population aging, human capital, welfare, pension reform, retirement age, open economy |
| JEL: | C68 E17 E25 J11 J24 |
| Date: | 2013–02–06 |
| URL: | http://d.repec.org/n?u=RePEc:kls:series:0059&r=age |
| By: | Fernando Perera-Tallo (Universidad de La Laguna) |
| Abstract: | Over recent decades, most developed countries have experienced a fall in fertility and an increase in longevity which have led to a significant increase in the weight of elderly on the population and a decrease in the number of working-age people per elderly population. Economists and politicians are concerned about the aging population process and the need to introduce policy reforms such as fertility enhancing programs and delaying the legal retirement age. This paper introduces a model which determines the optimal retirement age and analyzes the effects of population aging on it. What is revealed is the different role that the drop in the fertility rate and the increase in longevity play in determining the optimal retirement age. While an increase in longevity always implies an increase in the optimal retirement age, a drop in the fertility rate does not. The reason is that a drop in fertility involves three offsetting mechanisms: first, it raises the weight of elders on population increasing the dependency ratio (defined as non working population, children and retirees, over working population), which involves a larger optimal retirement age. Second, it also diminishes the weight of children, and this reduces the dependency ratio, decreasing the optimal retirement age. Finally, a drop in fertility rate increases the weight of older workers in the labor force. If these are more productive than the average, then the drop in the fertility increases the productivity of the labor force and reduces the optimal retirement age. In spite of these counterweighing mechanisms, this paper provides a clear measure to determine the sign of the effect of a drop in the fertility rate over per capita labor and the optimal retirement age. Such measure may be easily obtained from the data an establishes a precise criterion for clarifying the aging population debate |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed012:728&r=age |
| By: | Laun, Tobias (Uppsala Center for Fiscal Studies); Wallenius, Johanna (Department of Economics, Stockholm School of Economics) |
| Abstract: | In this paper we study the role of social insurance, namely old-age pensions, disability insurance and healthcare, in accounting for the differing labor supply patterns of older individuals across OECD countries. To this end, we develop a life cycle model of labor supply and health with heterogeneous agents. The key features of the framework are: (1) people choose when to stop working, and when/if to apply for disability and pension benefits, (2) the awarding of disability insurance benefits is imperfectly correlated with health, and (3) people can partially insure against health shocks by investing in health, the cost of which is dependent on health insurance coverage. We find that the incentives faced by older workers differ hugely across countries. In fact, based solely on differences in social insurance programs, the model predicts even more cross-country variation in the employment rates of people aged 55-64 than we observe in the data. |
| Keywords: | Life cycle; Retirement; Disability insurance; Health |
| JEL: | E24 J22 J26 |
| Date: | 2013–05–03 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:uufswp:2013_006&r=age |
| By: | Alessie, Rob (University of Groningen and Netspar); Angelini, Viola (University of Groningen and Netspar); van Santen, Peter (Research Department, Central Bank of Sweden) |
| Abstract: | We use recently collected retrospective survey data to estimate the displacement effect of pension wealth on household savings. The third wave of the Survey of Health, Ageing and Retirement in Europe, SHARELIFE, collects information on the entire job history of the respondent, a feature missing in most previous studies. We show that addressing measurement error problems is crucial to estimate the displacement effect when using survey data. We find that each euro of pension wealth is associated with a 47 (61) cent decline in non–pension wealth using robust (median) regression. In the presence of biases from measurement errors and omitted (unobserved) variables, we estimate a lower bound to the true offset between 17% and 30%, significantly different from zero. Instrumental variables regression estimates, although less precise, suggest full displacement. |
| Keywords: | Displacement effect; Lifetime income; Retrospective survey; Measurement error |
| JEL: | D31 D91 H55 |
| Date: | 2013–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0265&r=age |
| By: | Vandenberghe, Vincent |
| Abstract: | The Belgian population is ageing due to demographic changes, so does the workforce of firms active in the country. Such a trend is likely to remain for the foreseeable future. And it will be reinforced by the willingness of public authorities to expand employment among individuals aged 50 or more. But are older workers employable? The answer depends to a large extent on the gap between older workers’ productivity and their cost to employers. To address this question we use a production function that is modified to reflect the heterogeneity of labour with workers of different age potentially diverging in terms of marginal products. Using unique firm-level panel data we produce robust evidence on the causal effect of ageing on productivity (value added) and labour costs. We take advantage of the panel structure of data and resort to first-differences to deal with a potential time-invariant heterogeneity bias. Moreover, inspired by recent developments in the production function estimation literature, we also address the risk of simultaneity bias (endogeneity of firm’s age-mix choices in the short run) using (1) the structural approach suggested by Ackerberg et al. Structural identification of production functions. Department of Economics, UCLA, (2006), (2) alongside more traditional system-GMM methods (Blundell and Bond in J Econom 87:115–143, 1998) where lagged values of labour inputs are used as instruments. Our results indicate a negative impact of larger shares of older workers on productivity that is not compensated by lower labour costs, resulting in a lower productivity-labour costs gap. An increment of 10 %-points of their share causes a 1.3–2.8 % contraction of this gap. We conduct several robustness checks that largely confirm this result. This is not good news for older individuals’ employability and calls for interventions in the Belgian private economy aimed at combating the decline of productivity with age and/or better adapting labour costs to age-productivity profiles. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ner:louvai:info:hdl:2078.1/118112&r=age |
| By: | Frank van Erp; Niels Vermeer; Daniel van Vuuren |
| Abstract: | This paper first confronts the observed aggregate retirement pattern in the Netherlands with predictions of traditional economic models of retirement. The retirement peaks observed in the data cannot entirely be reconciled with models putting financial incentives central to individual decision-making. After surveying different explanations from psychology and sociology, the paper concludes that social norms, default options, and reference-dependent utility are likely explanations for the observed individual propensity to retire at standard retirement ages. Most empirical evidence on these factors is, however, not related to the retirement age, so that a great deal of research remains to be done. |
| JEL: | J26 D01 D03 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:243&r=age |
| By: | Jacob 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 € 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 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:376&r=age |
| By: | Annamaria Lusardi (The George Washington University School of Business & NBER); Pierre-Carl Michaud (Université du Québec à Montréal & RAND); Olivia S. Mitchell (Wharton School & NBER) |
| Abstract: | While financial knowledge is strongly positively related to household wealth, there is also considerable cross-sectional variation in both financial knowledge and net asset levels. To explore these patterns, we develop a calibrated stochastic life cycle model featuring endogenous financial knowledge accumulation. The model generates substantial wealth inequality, over and above that of standard life cycle models; this is because higher earners typically have more hump-shaped labor income profiles and lower retirement benefits which, when interacted with precautionary saving motives, boost their need for private wealth accumulation and thus financial knowledge. Our simulations show that endogenous financial knowledge accumulation has the potential to account for a large proportion of wealth inequality. The fraction of the population which is rationally financially “ignorant” depends on the generosity of the retirement system and the level of means-tested benefits. Educational efforts to enhance financial savvy early in the life cycle so as to produce one percentage point excess return per year would be valued highly by people in all educational groups. |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:crp:wpaper:133&r=age |
| By: | Javier Olivera (UCD Geary Institute, University College Dublin) |
| Abstract: | We model intergenerational old-age support within the context of a developing country that faces demographic transition: declining fertility and increasing life expectancy. We attempt to answer if agents will be able to support their parents during the next generations and under what conditions. For this purpose we use a three period overlapping generations model and a cultural transmission process, in which agents may be socialized to different cultural family models (old-age supporters and non-supporters). As life expectancy increases, we find conditions under which a reduced fertility rate is compatible with the expectation to be supported during old-age. This offers an additional explanation for the persistency of family old-age support in developing countries facing demographic transsition. |
| Keywords: | Cultural transmission, intergenerational transfers, fertility |
| JEL: | J13 D10 E24 |
| Date: | 2013–05–09 |
| URL: | http://d.repec.org/n?u=RePEc:ucd:wpaper:201307&r=age |
| By: | Thierry Madiès (CREM - Centre de Recherche en Economie et Management - CNRS : UMR6211 - Université de Rennes 1 - Université de Caen Basse-Normandie); Marie-Claire Villeval (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure - Lyon); Malgorzata Wasmer (Department of Economics - University of Fribourg - University of Fribourg) |
| Abstract: | With a market entry game inspired by Camerer and Lovallo (1999), we study the attitudes of junior and senior employees towards strategic uncertainty and competition. Seniors exhibit higher entry rates compared to juniors, especially when the market capacity is not too low or when earnings from entry depend on relative performance. This difference persists after controlling for attitudes towards non-strategic uncertainty and for beliefs on others' competitiveness and on relative ability. Seniors are more willing to compete when they predict a higher number of competitors. This contradicts the stereotype of less competitive older employees. |
| Keywords: | Aging; risk; ambiguity; competitiveness; confidence; experiment |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00807436&r=age |
| By: | Estelle James; Alejandra Cox Edwards; Rebeca Wong |
| Keywords: | Gender - Gender and Development Gender - Gender and Law Health, Nutrition and Population - Population Policies Population and Development Education - Primary Education Health Nutrition and Population |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:13046&r=age |
| By: | Wei Sun; Anthony Webb |
| Abstract: | The prospect of paying for nursing home care represents a significant financial risk for older Americans. Despite this risk, few individuals buy long-term care insurance and, since many lack the resources to pay out of pocket, they often turn to the means-tested Medicaid program. Concerned about growing Medicaid costs, many states have initiated “partnership” programs that offer a unique incentive for those who buy long-term care insurance: the state relaxes Medicaid’s asset test so that, if the private insurance benefits run out, individuals can retain more of their assets while still being eligible for Medicaid. This brief, which is based on a longer paper, estimates whether these enhanced insurance policies are likely to reduce Medicaid spending on single men and women. The brief is organized as follows. The first section describes the long-term care cost challenge and introduces the partnership programs. The second section explains the methodology for analyzing the programs’ impact on Medicaid outlays. The third section presents the results, which suggest that most of the buyers are those who would otherwise have purchased a traditional – unenhanced – policy. Thus, the final section concludes that, on balance, Medicaid will lose money on the partnership programs. |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:crr:issbrf:ib2013-6&r=age |
| By: | World Bank |
| Keywords: | Health, Nutrition and Population - Population Policies Social Protections and Labor - Labor Markets Social Protections and Labor - Labor Policies Health Monitoring and Evaluation Finance and Financial Sector Development - Access to Finance |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:12285&r=age |
| By: | Vandenberghe, Vincent |
| Abstract: | Are employers willing to employ more older individuals, in particular older women? Higher employment among the older segments of the population will only materialize if firms are willing to employ them. Although several economists have started considering the demand side of the labour market for older individuals, few have considered its gender dimension properly; despite evidence that lifting the overall senior employment rate in the EU requires significantly raising that of women older than 50. In this paper, we posit that labour demand and employability depend to a large extent on how the age/gender composition of the workforce affects firm's profits. Using unique firm-level panel data we produce robust evidence on the causal effect of age/gender on productivity (value added per worker), total labour costs and gross profits. We take advantage of the panel structure of data and resort to first differences to deal with a potential time-invariant heterogeneity bias. Moreover, inspired by recent developments in the production function estimation literature, we also address the risk of simultaneity bias (endogeneity of firm's age-gender mix choices in the short run) by combining first differences with i) the structural approach suggested by Ackerberg, Caves and Frazer (2006), ii) alongside more traditional IV-GMM methods (Blundell and Bond, 1998) where lagged values of labour inputs are used as instruments. Results suggest no negative impact of rising shares of older men on firm's gross profits, but a large negative effect of larger shares of older women. Another interesting result is that the vast and highly feminized services industry does not seem to offer working conditions that mitigate older women's productivity and employability disadvantage, on the contrary. This is not good news for older women's employability and calls for policy interventions in the Belgian private economy aimed at combating women's decline of productivity with age and/or better adapting labour costs to age-gender productivity profiles. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ner:louvai:info:hdl:2078.1/118119&r=age |
| By: | Tetsuo Ono (Graduate School of Economics, Osaka University) |
| Abstract: | This paper develops an overlapping-generations model with uncertain lifetimes and altruism towards children. The paper characterizes a Markov perfect political equilibrium of voting over two conflicting policy issues, public education for the young and social security for the elderly. The model derives multiple indeterminate political equilibria and demonstrates that the difference between the two equilibria in terms of policies and lifetime utility depends on longevity. In particular, the model prediction with respect to the differences in policies and longevity is consistent with the empirical evidence in developed countries. |
| Keywords: | Public education; Social security; Intergenerational conflict |
| JEL: | H52 H55 I22 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1306&r=age |
| By: | Alexander Zimper (University of Pretoria); Alexander Ludwig (CMR, University of Cologne); Max Groneck (University of Cologne) |
| Abstract: | On average, "young" people underestimate whereas "old" people overestimate their chances to survive into the future. We parameterize a learning model of subjective survival beliefs with psychological biases such that we replicate these patterns. We then combine this learning model with an otherwise standard life-cycle model of consumption and savings. In line with empirical findings we show that our agents consume more at younger ages and dissave less at old age than agents who perfectly foresee their survival probabilities. We also show that our information driven model yields similar predictions as a preference based hyperbolic discounting model. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed012:693&r=age |
| By: | World Bank |
| Keywords: | Insurance and Risk Mitigation Finance and Financial Sector Development - Debt Markets Private Sector Development - Emerging Markets Finance and Financial Sector Development - Currencies and Exchange Rates Finance and Financial Sector Development - Non Bank Financial Institutions |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:13221&r=age |
| By: | Bernarda Zamora (European Commission – JRC - IPTS) |
| Abstract: | The report presents two different methodologies and indicators to assess the economic impact of eHealth technologies, with a focus on Integrated Personal Health Systems and telehealth. The first part, presents a cost-effectiveness indicator representing the break even between the market value of teleheath applications and the savings in hospitalisation they lead to. The break even thus measures the daily cost per monitored patient for which the telehealth monitoring costs equal the savings from reduced hospitalisation. The main contribution of this methodology, which is based on an extrapolation model, lies in the level of detail and the novelty of the international database constructed for clinical metrics and health expenditures in relation to three chronic conditions: chronic heart failure (CHF), chronic obstructive pulmonary disease (COPD), and diabetes. Furthermore, the assumption made on the parameters, prices and deployment levels used to measure typical levels of impact of telecare and teleheath treatments are based on documented evidence from the most recent and relevant projects in the field, such as the Whole System Demonstrator in England, and an ongoing telehealth project for cardiac patients in Lombardy, Italy. The saving in hospilatisation obtained, which are on the order of €2 per patient-day for several countries such as the UK, Luxembourg, Netherlands, and Belgium, suggest an acceptable price or reimbursement rate for providers, should the deployment level be sufficiently high and technologies capable of tackling co-morbidities so as to exploit economies of scale and scope. Secondly, the report presents projections to 2020 and 2030 for total health, public and hospital expenditures in the EU27 Member States. These projections result from the use of econometric models to measure the contribution of health technologies to the growth in real per capita health expenditure, taking into account country-specific supply-side effects. The projections presented contribute to recent studies, in particular to the model presented by DG ECFIN in The 2012 Ageing Report, by estimating the effect of eHealth, represented through several country-level indicators, on country-specific total supply-side effects. As a result, the impact of eHealth is quantified by comparing the projections from what we define as the baseline scenario (i.e. constant eHealth deployment level) and those from two different policy scenarios which assume two different levels of increase in eHealth deployment. Despite country heterogeneity, the expected results at EU27 level from a strong eHealth intervention - with increasing deployment at hospital level, broadband penetration and general ICT health expenditure – point out a decrease in the hospital spending-to-GDP ratio. This reduction can be very important in countries where the contribution of supply-side factors to the growth of health spending is high, such as Estonia, Poland, Romania, and Slovakia. In the case of total and public health spending, it is remarkable that countries leading the implementation of eHealth projects (i.e. UK and Ireland) can benefit from an expected reduction in real health expenditures. |
| Keywords: | Integrated Personal Health Systems, chronic diseases, telehealth, health expenditures, hospitalisation, Non-demographic Costs (NDC) |
| JEL: | H51 I12 I18 I19 J11 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc71183&r=age |
| By: | Penny Williams; Jennica Larrison; Victoria Strokova; Kathy Lindert |
| Keywords: | Social Protections and Labor - Safety Nets and Transfers Health, Nutrition and Population - Population Policies Social Protections and Labor - Labor Policies Social Protections and Assistance Social Protections and Labor - Labor Markets |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:10049&r=age |