nep-age New Economics Papers
on Economics of Ageing
Issue of 2013‒10‒02
twelve papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Subsidies for Elderly Care in Pay-As-You-Go Pension By Masaya Yasuoka
  2. From Family Culture to Welfare State Design By Vincenzo Galasso; Paola Profeta
  3. Are Gender Differences Emerging in the Retirement Patterns of the Early Boomers? By Kevin E. Cahill,; Michael D. Giandrea,; Joseph F. Quinn
  4. How Sensitive is Public Pension Funding to Investment Returns? By Alicia H. Munnell; Jean-Pierre Aubry; Josh Hurwitz
  5. Who says life is over after 55? Entrepreneurship and an aging population By Backman, Mikaela; Karlsson, Charlie
  6. Efficiency of the pension reform: the welfare effects of various fiscal closures By Jan Hagemejer; Krzysztof Makarski; Joanna Tyrowicz
  7. To give or not to give: bequest estimate and wealth impact based on a CGE model with realistic demography in Japan By Miguel Sánchez Romero; Naohiro Ogawa; Rikiya Matsukura
  8. Grandchild Care, Intergenerational Transfers, and Grandparents’ Labor Supply By Christine Ho
  9. Who Pays the High Health Costs of Older Workers? Evidence from Prostate Cancer Screening Mandates By James Bailey
  10. Shock from Graying: Is the Demographic Shift Weakening Monetary Policy Effectiveness By Patrick A. Imam
  11. Demography and Low Frequency Capital Flows By David Backus; Thomas Cooley; Espen Henriksen
  12. Active Ageing and the Labour Market. Country report in Italy By Sandro Turcio; Paolo Calza Bini

  1. By: Masaya Yasuoka (School of Economics, Kwansei Gakuin University)
    Abstract: In economically developed countries, aging of the population with fewer children is progressing. Social security benefits such as pensions and elderly care are increasing. In a society with fewer children, it is difficult for a government to provide sufficient pension benefits for older people if pay-as-you-go pensions are adopted because a decrease in the working population reduces tax revenues to provide pension benefits. Therefore, the pension contribution rate must be increased to provide sufficient pension benefits. This paper demonstrates that an increase in the pension contribution rate can not always raise pension benefits. However, if a government provides a subsidy for elderly care services and if aggregate demand for elderly care services increases, then the pension benefit can always increase because younger people purchase elderly care services and increase the labor supply instead of performing elderly care with their time. Moreover, this paper presents an examination of whether a subsidy for elderly care can raise the level of social welfare or not and shows that the subsidy can raise the social welfare level thanks to an increase in pension benefits.
    Keywords: Aging society, Elderly care service, Pay-as-you-go pension
    JEL: H51 H55 J14
    Date: 2013–09
  2. By: Vincenzo Galasso; Paola Profeta
    Abstract: We study how family culture affected the initial welfare state design. Our theoretical framework shows that pre-existing institutions — namely inheritance rules — shaped the within family intergenerational transmission of resources. This organization is embedded in the family culture that later affected the design of pension systems. Countries with equalitarian inheritance rules acquired a non-individualistic family culture that induced the adoption of generous Bismarckian pension systems, whereas non-equalitarian inheritance rules nurtured family independence and led to Beveridgean (safety net) pension systems. Cross countries analyses using historical inheritance rules support these predictions, and results are robust to controlling for alternative legal, religious, demographic, economic and political explanations. Evidence from individual data confirm these findings: US citizens whose ancestors came from countries featuring equal inheritance rules prefer to rely on the government as a provider of old age security through generous retirement benefits.
    Keywords: culture; inheritance rules, pension design. JEL Classifications: Z10; Z13; N30; H10; H55.
    Date: 2013
  3. By: Kevin E. Cahill, (Sloan Center on Aging & Work at Boston College); Michael D. Giandrea, (U.S. Bureau of Labor Statistics); Joseph F. Quinn (Boston College)
    Abstract: Controlling for career employment later in life, the retirement patterns of men and women in America have resembled one another for much of the past two decades. Is this relationship coming to an end? Recent research suggests that the retirement patterns of the Early Boomers – those born between 1948 and 1953 – have diverged from those of earlier cohorts. Gender differences appear to be emerging as well in the way that career men and women exit the labor force, after nearly two decades of similarities. This paper explores these gender differences in detail to help determine whether we are witnessing a break in trend or merely a short-term occurrence. We use data on three cohorts of older Americans from the nationally-representative, longitudinal Health and Retirement Study (HRS) that began in 1992. We explore by gender the types of job transitions that occur later in life and explore, in particular, the role of four potentially relevant determinants: the presence of dependent children; a parent in need of caregiving assistance; occupational status on the career job; and self-employment status. We find that, among career men and women, child and parental caregiving are not significant drivers of the retirement transitions of the Early Boomers, all else equal. Gender differences that may exist with respect to these characteristics are therefore unlikely to lead to persistent gender differences in retirement patterns. In contrast, self employment continues to be a statistically significant determinant of bridge job transitions and phased retirement. This finding, combined with the fact that men are much more likely than women to be self employed later in life, could lead to some differences by gender going forward, though the impact is likely to be limited given that the large majority of older workers are in wage-and-salary employment. Older Americans – both men and women – are responding to their economic environment by working later in life and exiting the labor force gradually. While some determinants of these decisions likely impact men and women differently, gender differences with respect to the retirement patterns of the Early Boomers appear to be the result of broader macroeconomic forces. The evidence to date suggests that gender differences may dissipate as the recovery ensues.
    Keywords: Economics of Aging, Partial Retirement, Gradual Retirement
    JEL: J26 J14 J32 H55
    Date: 2013–09
  4. By: Alicia H. Munnell; Jean-Pierre Aubry; Josh Hurwitz
    Abstract: A recent Issue in Brief projected that, under the most likely scenario, the aggregate funded ratio for state and local pension plans will increase from 73 percent in 2012 to 81 percent in 2016. The “optimistic” and “pessimistic” scenarios assume higher or lower, but also constant, rates of return. While this type of deterministic analysis is useful, an analysis that takes into account the variability of investment returns from year to year provides a more complete picture of the risks of serious underfunding. Hence, this brief builds on the previous analysis by extending the projections of pension funding through 2042, using stochastically generated investment returns to quantify the probability that specific outcomes will occur. This exercise, for illustrative purposes, centers around the average real return adopted by plans themselves. The discussion proceeds as follows. The first section describes historical investment returns and the assumptions currently used by public plans. A key point is that the real return – the nominal return net of inflation – is the relevant concept for public plans because benefits are generally indexed for inflation both before (through salary increases) and after retirement (through cost-of-living adjustments). The second section presents a stochastic “Monte Carlo framework and explains why this model is more helpful than a deterministic model that uses constant rates of return. The third section projects pension funding through 2042 (30 years from the most recent plan data) using stochastically generated real investment returns under alternative assumptions regarding how much of the Annual Required Contribution (ARC) plans pay and what amortization methods they use. The final section concludes that – even if the median long-run return equals the assumed rate – the potential variability in returns, when combined with paying less than the full ARC and the funding procedures currently used by many plan sponsors, will produce less than full funding over the next 30 years.
    Date: 2013–09
  5. By: Backman, Mikaela (Centre for Entrepreneurship and Spatial Economics, Jönköping International Business School); Karlsson, Charlie (Centre of Excellence for Science and Innovation Studies (CESIS ), Jönköping International Business School)
    Abstract: Several studies confirm a positive inverted U-shaped relationship between age and entrepreneurship. This paper analyses if this statement is true also for Sweden. By focusing on those above the age of 50, this paper adds knowledge about how individuals close to their retirement act in terms of self-employment and to what extent they contribute as entrepreneurs to the overall society. First, it analyses at the regional level the propensity of older people to start firms with a focus on the relationship between different age cohorts and the rate of new firm formation. At the second stage, an individual perspective is taken where the probability to become self-employed is expected to increase as individuals be¬come older but at a decreasing rate. By decomposing the population in different age cohorts, it is possible to find differences in the probability of becoming self-employed. To increase and deepen the knowledge about the relationship between age and entrepreneurship this paper further adds to existing literature by separating regions into different categories along the urban-rural hierarchy. The results in this paper confirm that the rate of entrepreneurship first increases and then decreases with age. Individuals above both 55 and 64 have a positive influence on the rate of entrepreneurship at both the regional as well as the individual level. The impact is stronger in locations that are more rural.
    Keywords: Ageing; new firm formation; self-employment; age cohorts; micro data; urban-rural hierarchy
    JEL: L26 R12 R30
    Date: 2013–09–30
  6. By: Jan Hagemejer (National Bank of Poland; Faculty of Economic Sciences, University of Warsaw); Krzysztof Makarski (National Bank of Poland; Warsaw School of Economics); Joanna Tyrowicz (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland)
    Abstract: Pension system reforms involve fiscal consequences. In practice, a variety of fiscal closures may be implemented, while not all of them involve the same extent of distortions. This paper develops an overlapping generations model to analyze the case of a shift from pay-as-you-go defined benefit system to a partly funded defined contribution system. We calibrate the system to mimic the economy of Poland, which actually implemented such reform in 1999. We analyze the efficiency of the reform with two main closure types: public debt and taxes. Regardless of the fiscal closure scenario this particular reform seems to be efficient in terms of welfare and enhances economic performance. Comparing the welfare of various closures we find that while labor taxation yields relatively higher welfare gain, public debt closure involves least need for the redistribution if capital pillar is to be implemented.
    Keywords: PAYG, pension system reform, time inconsistency, welfare
    JEL: C68 E17 E25 J11 J24 H55 D72
    Date: 2013
  7. By: Miguel Sánchez Romero (Max Planck Institute for Demographic Research, Rostock, Germany); Naohiro Ogawa; Rikiya Matsukura
    Abstract: In Japan due to the rapid population aging and its large financial pressure on pay-as-you-go retirement systems, the economic impact of bequest wealth has been drawing a tremendous amount of attention. Despite that, there are neither official statistics on bequest for the whole population, nor analyses of the historical evolution of bequest. Our study fills this gap by offering an estimate of bequest in Japan from 1850 to 2100, based on a computable general equilibrium model with realistic demography. Our model shows that the historical evolution of the bequest-to-output ratio in Japan follows the same U-shaped pattern described by Piketty (2011) for France. Moreover, we estimate that the annual flow of bequest represented between 4% and 6% of the output in the year 2000 and that it will reach between 7% and 13% of the output by year 2100.
    Keywords: Japan, economic demography, inheritance, mortality
    JEL: J1 Z0
    Date: 2013–09
  8. By: Christine Ho (Singapore Management University)
    Abstract: One-fifth of children aged below five with employed mothers benefit from grandparent provided child care as their main source of daycare in the U.S. Using data from the Health and Retirement Study, we investigate how grandchild care needs relate to intergenerational transfers of time and money and grandparents’ labor supply behavior. We find that grandparents with a new born grandchild are more likely to provide grandchild care while married grandparents are also more likely to be employed and provide financial help. Grandparents with grandchildren living close by provided higher time transfers while married grandmothers with resident grandchildren also worked longer hours.
    Keywords: Grandchild care, Intergenerational Transfers, Grandparents’ Labor Supply
    JEL: D13 J13 J14 J22
    Date: 2013–09
  9. By: James Bailey (Department of Economics, Temple University)
    Abstract: Between 1992 and 2009, 30 US states adopted laws mandating that health insurance plans cover screenings for prostate cancer. Because prostate cancer screenings are used almost exclusively by men over age 50, these mandates raise the cost of insuring older men relative to other groups. This paper uses a triple-difference empirical strategy to take advantage of this quasi-random natural experiment in raising the cost of employing older workers. Using IPUMS data from the March Supplement of the Current Population Survey, this paper finds that the increased cost of insuring older workers results in their receiving 2.8% lower hourly wages, being 2% less likely to be employed, and being 0.7% less likely to have employer-sponsored health insurance.
    Keywords: Older Workers, Prostate Cancer Screening, Health Insurance, Mandated Benefits, Triple-Difference
    JEL: J20 J30 I13
    Date: 2013–09
  10. By: Patrick A. Imam
    Abstract: Abstract Empirical evidence is mounting that, in advanced economies, changes in monetary policy have a more benign impact on the economy—given better anchored inflation expectations and inflation being less responsive to variation in unemployment—compared to the past. We examine another aspect that could explain this empirical finding, namely the demographic shift to an older society. The paper first clarifies potential transmission channels that could explain why monetary policy effectiveness may moderate in graying societies. It then uses Bayesian estimation techniques for the U.S., Canada, Japan, U.K., and Germany to confirm a weakening of monetary policy effectiveness over time with regards to unemployment and inflation. After proving the existence of a panel co-integration relationship between ageing and a weakening of monetary policy, the study uses dynamic panel OLS techniques to attribute this weakening of monetary policy effectiveness to demographic changes. The paper concludes with policy implications.
    Keywords: Monetary policy;United States;Canada;Japan;United Kingdom;Germany;Developed countries;Aging;Population;Economic models;Cross country analysis;Demographic shift, monetary transmission mechanism, life-cycle model
    Date: 2013–09–06
  11. By: David Backus; Thomas Cooley; Espen Henriksen
    Abstract: We consider the causes of international capital flows. Since capital flows are extremely persistent, we argue that their drivers must be persistent, too. We think the most compelling candidates are demographic trends, tfp differences and financial frictions. In this paper we focus primarily on the role of demography in a multi-country overlapping generations model in which saving decisions are tied to agents' life expectancy. Capital flows reflect differences between saving and investment across countries. Demographic changes affect the aggregate accumulation of assets in two ways: by changing life expectancy which changes individual household saving behavior, and by changing the age distribution of the population by which individual household decisions are aggregated. The most important drivers turn out to be increases in life expectancy caused by decreases in adult mortality.We use a quantitative version of the model to illustrate the impact of demography on capital flows and net foreign assets in China, Germany, Japan, and the United States.
    JEL: J11
    Date: 2013–09
  12. By: Sandro Turcio; Paolo Calza Bini
    Abstract: Not available Non disponibile

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