nep-age New Economics Papers
on Economics of Ageing
Issue of 2013‒08‒05
sixteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Defined Benefit Pension Plans and Job Lock: Evidence from the Education Sector By Cory Koedel; Shawn Ni; Michael Podgursky; Jason A. Grissom
  2. New Brunswick’s New Shared Risk Pension Plan By Alicia H. Munnell; Steven A. Sass
  3. Positive Effects of Ageing and Age-Diversity in Innovative Companies Ð Large Scale Evidence on Company Productivity By Uschi Backes-Gellner; Stephan Veen
  5. Systematic and non-systematic mortality risk in pension portfolios By Helena Aro
  6. Living Forever: Entrepreneurial Overconfidence at Older Ages By Rietveld, C.A.; Groenen, P.J.F.; Koellinger, Ph.D.; Loos, M.J.H.M. van der; Thurik, A.R.
  7. Productivity and age: Evidence from work teams at the assembly line By Weiss M.; Börsch-Supan A.
  8. How Does Women Working Affect Social Security Replacement Rates? By Alicia Munnell; April Yanyuan Wu; Nadia Karamcheva; Patrick Purcell
  9. Unmet Aspirations as an Explanation for the Age U-Shape in Human Wellbeing By Hannes Schwandt
  10. Intra-Family Migration Decisions and Elderly Left Behind By Tobias Stoehr
  11. Evidence for Significant Compression of Morbidity In the Elderly U.S. Population By David M. Cutler; Kaushik Ghosh; Mary Beth Landrum
  12. Dementia risk and financial decision making by older households: the impact of information By Joanne W. Hsu; Robert J. Willis
  13. Dissatisfaction withdwelling environments in an aging society: An empirical analysisof theKanto area in Japan By Noriko Ishikaawa; Mototsugu Fukushige
  14. Two-Period Comparison of Healthcare Demand with Income Growth and Population Aging in Rural China: Implications for Adjustment of the Healthcare Supply and Development By Martine Audibert; Yong He; Jacky Mathonnat
  15. The Socio-Economic Module of the Berlin Aging Study II (SOEP-BASE): Description, Structure, and Questionnaire By Anke Böckenhoff; Denise Sassenroth; Martin Kroh; Thomas Siedler; Peter Eibich; Gert G. Wagner
  16. Labour’s Record on Cash Transfers, Poverty, Inequality and the Lifecycle 1997 - 2010 By John Hills

  1. By: Cory Koedel (Department of Economics, University of Missouri-Columbia); Shawn Ni (Department of Economics, University of Missouri-Columbia); Michael Podgursky (Department of Economics, University of Missouri-Columbia); Jason A. Grissom
    Abstract: Despite their declining presence in the private sector, defined benefit (DB) pension plans still cover most public-sector workers. A distinguishing feature of these plans is that they impose severe penalties on worker mobility. We use administrative panel data from the largest public-sector occupation in the United States – teaching – to empirically examine the job-lock effects of DB pension plans. Our findings indicate that worker mobility is significantly reduced by pension borders. As expected, the effects are largest for individuals who face the steepest mobility penalties.
    Keywords: public pensions, defined benefit pensions, retirement benefits, job lock, pension job lock
    JEL: H75 J45 I20
    Date: 2013–07–29
  2. By: Alicia H. Munnell; Steven A. Sass
    Abstract: Employer defined benefit pension plans have long been an important component of the U.S. retirement system. Although these plans are disappearing in the private sector – replaced by 401(k)s – they remain the prevalent retirement plan arrangement in the public sector. But these public sector defined benefit plans are currently under financial pressure, as two financial crises since the turn of the century have caused liabilities to soar and assets to plummet. The response so far among state and local plan sponsors has been to suspend or eliminate cost-of-living adjustments, cut back sharply on benefits for new employees, and raise employee contributions. Some states have also introduced a defined contribution component. While the cutbacks have sharply reduced future costs, they have been ad hoc and unexpected. The question is whether a more orderly and predictable way can be devised to share risks, and perhaps head off trouble in advance. The Netherlands certainly offers one model of risk sharing; this brief discusses an adaptation of the Dutch approach closer to home –namely New Brunswick’s Shared Risk Pension Plan introduced in May 2012. The discussion proceeds as follows. The first section reviews the problem of risk in employer defined benefit plans. The second section describes New Brunswick’s response – the Shared Risk design and the regulatory framework for supervising such plans. The third section discusses the response of union representatives of workers covered by the new program. The fourth section considers what lessons U.S. plans can draw from the New Brunswick approach. The final section concludes that the Shared Risk approach is an important evolutionary step, and potentially an attractive alternative to the traditional defined benefit plan design.
    Date: 2013–07
  3. By: Uschi Backes-Gellner (Department of Business Administration, University of Zurich); Stephan Veen (Disney Research Zurich)
    Abstract: This paper investigates how age diversity within a companyÕs workforce affects company productivity. It introduces a theoretical framework that helps to integrate results from a broad disciplinary spectrum of ageing and diversity research to derive empirically testable hypotheses on the effects of age diversity on company productivity. It argues that first the balance between costs and benefits of diversity determines the effect of age diversity on company productivity and that second the type of task performed acts as a moderator. To test these hypotheses, it uses a large-scale employer-employee panel data set (the LIAB.) Results show that increasing age diversity has a positive effect on company productivity if and only if a company engages in creative rather than routine tasks.
    Keywords: Age Diversity, Company Performance, Productivity in Innovative Industries, Aging Societies
    Date: 2013–08
  4. By: Argesanu, Nicolae Razvan
    Abstract: Through this article has attempted to submit the main policy measures aiming to ensure the sustainability of pension systems in the EU Member States taking into account disequilibriums that accumulate between the allocation resources between different generations and within the same generation. Although national pension systems have a wide range of composition and structure of pension funds, public and private, most largely depended on the social model, the history and extent of state involvement to ensure development in this area, due to the reorientation of European Union level of the policy of pensions insurance towards "adequacy, sustainability and safety" it develop a convergence in their forms reformed systems in which public pension complementarity with other categories of income - the private pension and / or active aging - remain a constant, a fundamental restriction.
    Keywords: redistribution, insurance, savings, sustainability, adequacy, convergence
    JEL: G38 I38 J48
    Date: 2013–06–20
  5. By: Helena Aro
    Abstract: We study the effects of non-systematic and systematic mortality risks on the required initial capital in a pension plan, in the presence of financial risks. We discover that for a pension plan with few members the impact of pooling on the required capital per person is strong, but non-systematic risk diminishes rapidly as the number of members increases. Systematic mortality risk, on the other hand, is a significant source of risk is a pension portfolio.
    Date: 2013–07
  6. By: Rietveld, C.A.; Groenen, P.J.F.; Koellinger, Ph.D.; Loos, M.J.H.M. van der; Thurik, A.R.
    Abstract: Overconfidence has been proposed as an explanation for excess market entry by entrepreneurs and low returns in entrepreneurial activities. However, establishing that entrepreneurs are more overconfident than non-entrepreneurs requires the use of representative population samples; in addition, econometric endogeneity issues in survey data must be addressed. To overcome these methodological challenges, we use a measure of overconfidence that employs self-reports of life expectancy. These self-reports are compared to actual life spans in a large sample of the US population. We show that entrepreneurs are indeed more overconfident than non-entrepreneurs. By using fixed-effects panel regression—and thus by exploiting the longitudinal nature of our data—we provide evidence that changes in entrepreneurial status are not associated with changes in subjective life expectancy. These two findings in combination offer evidence that overconfident individuals self- select into entrepreneurship.
    Keywords: entrepreneurship;selection;life expectancy;self-employment;overconfidence
    Date: 2013–07–23
  7. By: Weiss M.; Börsch-Supan A. (ROA)
    Abstract: We study the relation between workers age and their productivity in work teams, based on a new and unique data set that combines data on errors occurring in the production process of a large car manufacturer with detailed information on the personal characteristics of workers related to the errors. We correct for non-random sample selection and the potential endogeneity of the age-composition in work teams. Our results suggest that productivity in this plant which is typical for large-scale manufacturing does not decline at least up to age 60.
    Keywords: Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity; Economics of the Elderly; Economics of the Handicapped; Non-labor Market Discrimination; Human Capital; Skills; Occupational Choice; Labor Productivity;
    JEL: D24 J14 J24
    Date: 2013
  8. By: Alicia Munnell; April Yanyuan Wu; Nadia Karamcheva; Patrick Purcell
    Abstract: The Social Security Trustees Report states that replacement rates for the medium earner rose from about 30 percent in the 1970s to 40 percent in the 1980s, where they remain today. However, the focus on individual earners is often misleading as many people work and retire as part of a married couple, making the household a more appropriate unit of analysis. And replacement rates for households depend on more than Social Security provisions; they also depend on the labor force activity of each spouse. These dimensions have been changing dramatically with the increased labor force participation of women. This brief reports on a recent study that explores how the changing lives of women affect Social Security replacement rates for households across seven cohorts: Depression Era 1 (born 1931-35), Depression Era 2 (1936-41), War Baby (1942-47), Early Baby Boomers (1948-53), Middle Baby Boomers (1954-59), Late Baby Boomers (1960-65), and Generation Xers (1966-75). The analysis uses Modeling Income in the Near Term (MINT), a microsimulation model developed by the Social Security Administration (SSA). The discussion proceeds as follows. The first section describes how Social Security benefits and replacement rates are determined. The second section highlights the changing work force activity of women. The third section summarizes the trends in replacement rates across cohorts, focusing on married households. The fourth section decomposes the decline in replacement rates over the seven cohorts to compare the changing role of women with other factors, such as claiming behavior. The final section concludes that the changing role of women has led to a marked decline in replacement rates that will continue for future retirees.
    Date: 2013–07
  9. By: Hannes Schwandt
    Abstract: A large literature in behavioral and social sciences has found that human wellbeing follows a U-shape over age. Some theories have assumed that the U-shape is caused by unmet expectations that are felt painfully in midlife but beneficially abandoned and experienced with less regret during old age. In a unique panel of 132,609 life satisfaction expectations matched to subsequent realizations, I find people to err systematically in predicting their life satisfaction over the life cycle. They expect -- incorrectly -- increases in young adulthood and decreases during old age. These errors are large, ranging from 9.8% at age 21 to -4.5% at age 68, they are stable over time and observed across socio-economic groups. These findings support theories that unmet expectations drive the age U-shape in wellbeing.
    Keywords: Life satisfaction, expectations, aging
    JEL: A12 I30 D84
    Date: 2013–07
  10. By: Tobias Stoehr
    Abstract: In many poor countries with high emigration rates elderly people are left behind without care when their children migrate. Without a functioning market in private care migrants face a difficult trade-off between working their way out of poverty and providing informal care once their parents become frail or sick. I develop a non-cooperative model of siblings' interactions that explains how chain migration can lead to a breakdown of traditional caregiving structures while an opposing endogenous effect increases family members' incentives to specialize as caregiver. The model's predictions are tested using novel data from Moldova and found to perform better than predictions of some established migration models. The empirical analysis suggests that migration and staying in order to provide care are strategic complements for children of elderly parents in most families. This is evidence of a promising resilience of families' informal security arrangements to large-scale migration
    Keywords: migration, elderly care, remittances, intra-family allocation,informal security networks
    JEL: F22 J14 I19 D10
    Date: 2013–07
  11. By: David M. Cutler; Kaushik Ghosh; Mary Beth Landrum
    Abstract: The question of whether morbidity is being compressed into the period just before death has been at the center of health debates in the United States for some time. Compression of morbidity would lead to longer life but less rapid medical spending increases than if life extension were accompanied by expanding morbidity. Using nearly 20 years of data from the Medicare Current Beneficiary Survey, we examine how health is changing by time period until death. We show that functional measures of health are improving, and more so the farther away from death the person is surveyed. Disease rates are relatively constant at all times until death. On net, there is strong evidence for compression of morbidity based on measured disability, but less clear evidence based on disease-free survival.
    JEL: I1 J11
    Date: 2013–07
  12. By: Joanne W. Hsu; Robert J. Willis
    Abstract: The knowledge and reasoning ability needed to manage one's finances is a form of human capital. Alzheimer's disease and other dementias cause progressive declines in cognition that lead to a complete loss of functional capacities. In this paper we analyze the impact of information about cognitive decline on the choice of household financial decision-maker. Using longitudinal data on older married couples, we find that as the financial decision maker's cognition declines, the management of finances is eventually turned over to his cognitively intact spouse, often well after difficulties handling money have already emerged. However, a memory disease diagnosis increases the hazard of switching the financial respondent by over 200% for couples who control their retirement accounts (like 401ks) relative to those who passively receive retirement income. This is consistent with a model of the value of information: households with the most to gain financially from preparation are most responsive to information about cognitive decline.
    Date: 2013
  13. By: Noriko Ishikaawa (Faculty of Economics, Konan University); Mototsugu Fukushige (Graduate School of Economics, Osaka University)
    Abstract: We conducted a questionnaire survey in the Kanto area regarding peoplefs dissatisfaction with various aspects of their dwelling environment. Dissatisfaction with access to transportation, shopping and medical facilities are important reasons for moving house. Probit model estimation implies that economic wealth improves satisfaction with transportation, shopping and medical facilities, but it does not reduce dissatisfaction with living costs whereas aging increases not only the satisfaction with transportation, shopping and medical facilities, but also with living costs and family and acquaintances. The results also imply that Japanfs aging population does not present crucial problems for housing in the Kanto area.
    Keywords: moving, dissatisfaction, dwelling environment
    JEL: R23 R21 D12
    Date: 2013–07
  14. By: Martine Audibert (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I); Yong He (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I); Jacky Mathonnat (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I)
    Abstract: We estimate the evolution of healthcare demand under the influence of income growth and population aging with two samples of patients surveyed in the same regions, but with an interval of 18 years in rural China and with mixed logit to deal with heterogeneity. In accordance with theoretical and inductive inferences, it is found that healthcare price effects decreased and became more heterogeneous. Aging impact overweighed income growth impact, resulting in increasing distance effect and patients' preference to proximity. In the face of this demand change, the adjustment of governmental supply should be to promote small and middle-sized healthcare providers. However during this period to cope with urbanization, the Chinese policy consisted of privileging large hospitals. This has led to a higher share of patients, especially the aging patients, to choose self-care and a higher share of poorer patients to suffer from catastrophic health expenditures. This finding carries broad implications for rural health policy-making on, along with income growth, population aging and urbanization, how to provide better coverage of rural areas by enough qualified and multifunctional small and middle-sized healthcare providers in the developing world.
    Keywords: Two-period healthcare demand comparison;mixed logit model;price and distance effects;heterogeneity;insurance;rural China
    Date: 2013–07–18
  15. By: Anke Böckenhoff; Denise Sassenroth; Martin Kroh; Thomas Siedler; Peter Eibich; Gert G. Wagner
    Abstract: The Berlin Aging Study II (BASE-II) is a multidisciplinary study that allows for the investigation of how a multitude of health status factors as well as many other social and economic outcomes interplay. The sample consists of 1,600 participants aged 60 to 80, and 600 participants aged 20 to 35. The socio-economic part of BASE-II, the so called SOEP-BASE, is conducted by the SOEP Group at the DIW Berlin. The surveyed socio-economic variables are fully comparable with the variables of the long running German Socio-Economic Panel Study (SOEP), which increases the analytical power of BASE-II. The socio-economic data collected on the individual and on the household level are enriched with geo-referenced context data (“neighbourhood data”) in order to disentangle the interplay between individual, societal and regional determinants on individuals’ health status and other outcome variables. Furthermore, as the BASE-II study is based on a convenience sample, the SOEP Group at the DIW provides weights for the BASE-II dataset that correct for selectivity bias.
    Keywords: Cohort Study, Berlin Aging Study, BASE-II, SOEP
    JEL: C81 C83 I12 I14 I24 I31 I32 J14 Y80 Z13
    Date: 2013
  16. By: John Hills
    Abstract: Cash transfers (benefits and tax credits) are crucial to the way that inequalities develop over time. This paper looks at how Labour's aims, policies and achievements on poverty and inequality related to its reforms of and spending on cash transfers. - Labour's aims for poverty and inequality were selective. 'Equality of opportunity' was the stated aim, rather than equality of outcome - with a focus on lifting the lowest incomes, not reducing the highest ones. - Labour gave priority to reducing child and pensioner poverty, addressing them through a series of reforms. It increased the share of national income provided through cash transfers to children and pensioners, and increased the value of their cash transfers relative to the poverty line. - By contrast, spending on other transfers to working-age adults fell as a share of national income from the level Labour inherited, while benefits for those without children fell further below the poverty line. - By the end of the period both child poverty and pensioner poverty had fallen considerably, in circumstances where child poverty would have risen without the reforms (and pensioner poverty would have fallen less far). However, poverty for working-age adults without children increased. - The risks of poverty converged between children, their parents, pensioners, and other working age adults. Being a child or a pensioner no longer carried a much greater risk of living in poverty than for other age groups. - Overall income inequality was broadly flat, comparing the start and end of Labour's term in office. But differences in net incomes between age groups were much lower. The smoothing of incomes that occurred across the life cycle could be seen as a striking, if unremarked, achievement.
    Keywords: social security, cash transfers, child poverty, pensioner poverty, New Labour, public spending, life cycle
    JEL: I38
    Date: 2013–07

This nep-age issue is ©2013 by Claudia Villosio. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.