nep-age New Economics Papers
on Economics of Ageing
Issue of 2013‒12‒29
nineteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Social Security’s Real Retirement Age Is 70 By Alicia H. Munnell
  2. Retirement Decisions of Couples: The Impact of Spousal Characteristics and Preferences on the Timing of Retirement By Diana Warren
  3. Population Ageing and Productivity: Implications and Policy Options for New Zealand By Ross Guest
  4. Ageing of skills and complementary immigration in the EU, 2010-2025 By Ashley McCormick
  5. Between goals and expectations. Essays on pensions and retirement. By Bresser, J.R. de
  6. Retirement Income Policy and National Savings By David Law
  7. The multiplying risks of public employee pensions to state and local government budgets By Andrew G. Biggs
  8. The Effects of Political Competition on the Funding and Generosity of Public-Sector Pension Plans By Sutirtha Bagchi
  9. Exploration of Wisdom Ages: Firm survival By Backman, Mikaela; Karlsson, Charlie
  10. Too Old to Work, Too Young to Retire? Revised Version of Working Paper 220, Economics Series, October 2007 By Ichino, Andrea; Schwerdt, Guido; Winter-Ebmer, Rudolf; Zweimüller, Josef
  11. The Challenge of Public Pension Reform in Advanced and Emerging Economies By Benedict J. Clements; David Coady; Frank Eich; Sanjeev Gupta; Alvar Kangur; Baoping Shang; Mauricio Soto
  12. Testing the Tunnel Effect: Comparison, Age and Happiness in UK and German Panels By Felix, FitzRoy; Michael, Nolan; Max, Steinhardt; David, Ulph
  13. Impact of the Great Recession on Retirement Trends in Industrialized Countries By Gary Burtless; Barry P. Bosworth
  14. Informal Care and intergenerational transfers in European Countries By Sergi Jiménez-Martín; Cristina Vilaplana Prieto
  15. Can Automatic Tax Increases Pay for the Public Spending Effects of Population Ageing in New Zealand? By John Creedy; Norman Gemmell
  16. Long Term Care and Longevity By Christian Gourieroux; Yang Lu
  17. The Wealth, Health and Wellbeing of Ireland's Older People Before and During the Economic Crisis By Barrett, Alan; O'Sullivan, Vincent
  18. On government-subsidized training programs for older workers By Singer, Christine; Toomet, Ott-Siim
  19. How to Combine the Entry of Young People in the Labour Market with the Retention of Older Workers? By Eichhorst, Werner; Boeri, Tito; De Coen, An; Galasso, Vincenzo; Kendzia, Michael J.; Steiber, Nadia

  1. By: Alicia H. Munnell
    Abstract: Social Security was designed to replace income once people could no longer work. In the 1930s, the retirement age was set at 65, which coincided with the age used by many private and public pension plans. In the late 1950s and early 1960s, Congress changed the law to enable workers to claim benefits as early as 62. But benefits claimed before 65 were actuarially reduced, so that those who claimed at 62 and those who claimed at 65 could expect to receive about the same total amount in benefits over their lifetimes. In the early 1970s, Congress introduced the Delayed Retirement Credit, which increased monthly benefits for those who claimed after the so-called Full Retirement Age of 65. That credit, which was modest at first, now fully compensates for delayed claiming. As a result, lifetime benefits are roughly equal for any claiming age between 62 and 70, and the highest monthly benefits are available at 70. In that regard, 70 has become the new 65. Moreover, the level of monthly benefits at 70 appears appropriate given the increased deductions for Medicare premiums, the greater taxation of benefits, the declining importance of the spouses’ benefit, and the diminished sources of other retirement income. This brief aims to clarify Social Security’s current benefit structure. The discussion proceeds as follows. The first section describes how 70 became Social Security’s new retirement age. The second section explores whether 70 is the “right” age by looking at “equivalency” to 65, the increasing dispersion in life expectancy by socioeconomic status, and actual retirement patterns. The third section looks at the Social Security replacement rates that workers will face at different retirement ages. The fourth section clarifies that with the maturation of the Delayed Retirement Credit, the “Full Retirement Age” no longer describes the benefit structure; further increases in this benchmark simply reduce replacement rates for everyone. The final section presents a threefold conclusion. First, the shift to age 70 may be appropriate given the increase in life expectancy, health, and education for the majority of workers, but will lead to low replacement rates for the many workers who retire early. Second, further cuts in benefits by extending the Full Retirement Age will lead to very low benefits for early retirees. Third, policymakers need to inform those who can work that 70 is the new retirement age and devise ways to protect those who cannot work.
    Date: 2013–10
  2. By: Diana Warren (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)
    Abstract: This paper provides new evidence of coordination of retirement by mature age couples in Australia. Two complementary estimation approaches are used to highlight the importance of taking the household decision-making context into account when modeling the retirement behaviour of partnered men and women. First, a single risk hazard model provides insights into the influences of a spouse’s characteristics on the retirement decision of the individual. Second, a competing-risks framework is used to examine the retirement behaviour of couples exiting from a situation in which both are in paid employment. There is strong evidence of coordination of retirement by mature age couples in Australia due to complementarities in leisure and, for women, because of caring responsibilities. In particular, the results suggest that women may delay their own retirement if their partner has a financial incentive to continue in the labour force; or retire early to care for a partner who is in poor health.
    Keywords: Retirement, older workers, households, leisure, complementarity
    JEL: D13 J26
    Date: 2013–12
  3. By: Ross Guest (The Treasury)
    Abstract: This paper critically evaluates the effects of population ageing on labour productivity with particular reference to New Zealand. A number of potential long run mechanisms are considered: complementarity of workers by age, age-specific productivity of individuals, new technology discoveries and adoptions, fertility and human capital investments. Potential short run channels include: the ‘second demographic dividend’, changes in industry composition, incentives to seek labour saving technologies. Simulations tentatively suggest that workers could become more complimentary by age which would boost labour productivity. The magnitude of this effect on living standards could entirely offset the projected 12 per cent fall in the support ratio over the next 40 years. The most effective policies for mitigating the national economic burden of ageing are policies to boost labour participation of older workers and to boost immigration.
    Keywords: Population ageing; labour productivity; demographic dividend
    JEL: J11 E20 E62
    Date: 2013–12
  4. By: Ashley McCormick
    Abstract: This paper measures both population ageing and shrinking within the working age populations of all 27 European Union countries between 2010 and 2025, in the absence of any further migration. In this ‘no migration scenario’ it provides the levels of net migration that should be necessary to maintain the size of the young working age population (aged 15-44 years of age). This paper does not give analytic focus to wider non-demographic processes that can either offset or amplify the ageing of skills. For example, neither the introduction of life-long learning programmes nor the postponements to the legal age of retirement are factored into the model. Results highlight that without migrants shows the employed population aged below 45 in all EU member states will have significant levels of shortfall in maintaining the size of the 2010 labour force.
    Date: 2013–11–05
  5. By: Bresser, J.R. de (Tilburg University)
    Abstract: Abstract: This thesis looks at subjective ideas of individuals that are relevant to their retirement. The first chapter focuses on the relationship between expectations of the replacement rate of income at retirement and satisfaction with various aspects of one’s pension arrangements, such as the age at which one can retire and the level of pension income. Chapter two analyzes those same expectations and focuses on the way survey respondents answer such questions that ask them to think in terms of probabilities. For instance, respondents may round probabilities to the nearest multiple of five or ten percent. The third chapter investigates expectations held by individuals regarding their life expectancy. In particular, it proposes robust ways to analyze expectations that can take rounding into account. The penultimate chapter analyzes expenditure goals after retirement and combines those with forecasted pensions and current savings to assess whether the Dutch are sufficiently prepared to retire by their own standards. Finally, chapter five shows that participation in the household survey that elicited consumption goals after retirement changed the extent to which households saved during the year of the survey.
    Date: 2013
  6. By: David Law (The Treasury)
    Abstract: This paper examines the implications for national savings of three retirement income policy options, designed to improve the fiscal sustainability of New Zealand Superannuation (NZS). A simple model is developed that employs population and longevity projections allowing estimation of the contributions that many overlapping age cohorts might make to national savings in response to policy change. Government contributions to national savings, resulting primarily from reduced NZS payments, are also considered. Results suggest that even seemingly modest changes to retirement income policies could lead to substantial cumulative changes in national savings by 2061.
    Keywords: National Savings; Household Saving; Fiscal Saving; Retirement Income; New Zealand Superannuation; New Zealand
    JEL: E21 D10 D91
    Date: 2013–12
  7. By: Andrew G. Biggs (American Enterprise Institute)
    Abstract: State and local government pensions tout their ability to couple generous, guaranteed benefits for public employees with low and stable contributions from taxpayers. In reality, the risks that public pensions pose to taxpayers and government budgets have multiplied by a factor of 10 over the past four decades.
    Keywords: retirement,public employee pension funds,pensions,AEI Economic Perspectives
    JEL: A H
    Date: 2013–12
  8. By: Sutirtha Bagchi
    Abstract: In politically competitive jurisdictions, there can be strong electoral incentives to underfund public pensions in order to keep current taxes low. I examine this hypothesis using panel data for 2,000 municipal pension plans from Pennsylvania. The results suggest that as a municipality becomes more politically competitive, it tends to have pension plans that are less funded, more generous, and use higher interest rates at which to discount future actuarial liabilities. An increase in the level of political competition by one standard deviation leads to a decline in the actuarial funded ratio of about 7â10 percent, an increase in the annual average retirement benefits of about $470â620 per retiree, and an increase in the interest rate for discounting actuarial liabilities of about 5 basis points. Instrumental Variable (IV) estimates generated using demographic characteristics of the population as instruments corroborate these findings.
    JEL: H75 J45
    Date: 2013–12–22
  9. By: Backman, Mikaela (Centre of Excellence for Science and Innovation Studies (CESIS), Jönköping International Business School, & Centre for Entrepreneurship and Spatial Economics (CEnSE)); Karlsson, Charlie (Centre of Excellence for Science and Innovation Studies (CESIS), Jönköping International Business School, & Centre for Entrepreneurship and Spatial Economics (CEnSE))
    Abstract: Studies confirm a tendency where elder individuals are more prone to become entre¬preneurs. Their motives are numerous ranging from feeling social included to maintain the same income level. Interesting as such, this paper contributes to the existing literature by taking this one step further and examine the surviving of new and existing firms that are run by elder individuals (one-em¬ployee firms) or have a high share of elderly individuals. Elderly individuals are defined as those above the age of 55 or 64. The results show that the average marginal effect on the prob-ability of survival from individuals above 55 and 64 differs across firm size. Elderly individuals negatively influence the survival of smaller firms (below ten employees). For larger firms the negative effect from elderly individuals is smaller, zero or even positive. Exploring the data, we find that “elderly firms”, defined as firms that have a majority of employees above the age of 55 or above the age of 64, have a lower survival rate and lower average number of employees but a higher value added per employee.
    Keywords: ageing; firm survival; employer-employee matched data
    JEL: J14 L26 R12 R30
    Date: 2013–12–18
  10. By: Ichino, Andrea (University Bologna); Schwerdt, Guido (Ifo Institute for Economic Research); Winter-Ebmer, Rudolf (Department of Economics, University of Linz, and Institute for Advanced Studies, Vienna); Zweimüller, Josef (Department of Economics, University of Zurich)
    Abstract: We study whether employment prospects of old and young workers differ after a plant closure. Using Austrian administrative data, we show that old and young workers face similar displacement costs in terms of employment in the long-run, but old workers lose considerably more initially and gain later. We interpret these findings using a search model with retirement as an absorbing state, that we calibrate to match the observed patterns. Our finding is that the dynamics of relative employment losses of old versus young workers after a displacement are mainly explained by different opportunities of transition into retirement. In contrast, differences in layoff rates and job offer arrival rates cannot explain these patterns. Our results support the idea that retirement incentives, more than weak labor demand, are responsible for the low employment rates of older workers.
    Keywords: Aging, employability, plant closures, matching
    JEL: J14 J65
    Date: 2013–12
  11. By: Benedict J. Clements; David Coady; Frank Eich; Sanjeev Gupta; Alvar Kangur; Baoping Shang; Mauricio Soto
    Abstract: Pension reform is high on the policy agenda of many advanced and emerging market economies. In advanced economies the challenge is generally to contain future increases in public pension spending as the population ages. In emerging market economies, the challenges are often different. Where pension coverage is extensive, the issues are similar to those in advanced economies. Where pension coverage is low, the key challenge will be to expand coverage in a fiscally sustainable manner. This volume examines the outlook for public pension spending over the coming decades and the options for reform in 52 advanced and emerging market economies.
    Keywords: Pension reforms;Developed countries;Emerging markets;Pensions;Government expenditures;Cross country analysis;Pension Reform, reform, emerging market economies
    Date: 2013–01–25
  12. By: Felix, FitzRoy; Michael, Nolan; Max, Steinhardt; David, Ulph
    Abstract: In contrast to previous results combining all ages we find positive effects of comparison income on happiness for the under 45s, and negative effects for those over 45. In the BHPS these coefficients are several times the magnitude of own income effects. In GSOEP they cancel to give no effect of effect of comparison income on life satisfaction in the whole sample, when controlling for fixed effects, and time-in-panel, and with flexible, age-group dummies. The residual age-happiness relationship is hump-shaped in all three countries. Results are consistent with a simple life cycle model of relative income under uncertainty.
    Keywords: subjective life-satisfaction, comparison income, reference groups, age, welfare,
    Date: 2013
  13. By: Gary Burtless; Barry P. Bosworth
    Abstract: The Great Recession had a large impact on unemployment rates and growth in wealthy industrial countries. When the recession began most rich countries were experiencing an increase in labor force participation rates after age 60. This paper examines whether the downturn slowed or reversed the trend toward higher old-age participation rates. We use straightforward time series analysis to test for a break in labor force trends after 2007. Our results indicate that the average rate of increase in labor force participation slowed in only a handful of countries. Averaging across all 20 countries in our sample, we find that the average pace of labor force participation increase was faster after 2007 than before. Countries that experienced unusually severe downturns represent exceptions to this generalization. In most countries, however, the trend toward later retirement not only continued, it accelerated.
    Date: 2013–12
  14. By: Sergi Jiménez-Martín; Cristina Vilaplana Prieto
    Abstract: In a world in which the welfare state is under pressure, understanding the dynamic effects of money transfers from parents to adult children and their relationship with informal care can be relevant for policy purposes. We use the first two waves of the Survey of Health and Retirement in Europe (SHARE) to estimate a double-hurdle model for a parental decision to provide financial support for adult children and the amount involved, taking into account the potential endogeneity of informal caregiving. We find that informal caregivers receive less frequent transfers and less generous amounts than non-caregivers. This offers support for the idea of a form of sophisticated altruistic behavior, according to which caregiving costs are outweighed by the parent’s benefits. Regarding public policies, we find that while increased unemployment benefits would not generate any crowding-out effect in parental transfers, a reduction in long-term public care benefits has a negative multiplier effect on parental transfers.
    Date: 2013–12
  15. By: John Creedy; Norman Gemmell (The Treasury; Victoria University of Wellington)
    Abstract: This paper examines the extent to which projected aggregate tax revenue changes, in association with population ageing over the next 50 years, can be expected to finance expected increases in social welfare expenditures. It uses projections from two separate models, dealing with social expenditures and income tax and GST revenue. The results suggest that the modest increase required in the overall average tax rate over the next 50 years can be achieved automatically by adjusting income tax thresholds using an index of prices rather than wages. Based on evidence about the New Zealand tax system over the last 50 years, comparisons of average and marginal tax rates suggest that such an increase may be feasible and affordable. The paper discusses the range of considerations involved in deciding if this automatic increase in the aggregate average tax rate, via real fiscal drag of personal income taxes, is desirable compared with alternative fiscal policy changes.
    Keywords: Social welfare expenditures; income tax; GST; real fiscal drag; ageing population
    JEL: E62 H68
    Date: 2013–12
  16. By: Christian Gourieroux (Crest, University of Toronto); Yang Lu (SCOR and Crest)
    Abstract: The increase of the expected lifetime, that is the longevity phenomenon, is accompanied by an increase of the number of seniors with a severe disability. Because of the significant costs of long term care facilities, it is important to analyze the time spent in long term care, as well as the probability of entering into this state during its lifetime, and how they evolve with longevity. Our paper considers such questions, when lifetime data are available, but long term care data are either unavailable, or too aggregated, or unreliable, as it is usually the case. We specify a joint structural model of long term care and mortality, and explain why parameters of such models are identifiable from only the lifetime data. The methodology is applied to the mortality data of French males, first with a deterministic trend and then with a dynamic factor process. Prediction formulas are then provided and illustrated using the same data. We show in particular that the expected cost of the long term care is increasing less fast than the residual life expectancy at age 50
    Keywords: Longevity, Long term care (LTC), Semi-competing risks, Unobserved heterogeneity, Dynamic frailty, Affine process, Partial Observability, Identification, Markov chain Monte-Carlo
    Date: 2013–10
  17. By: Barrett, Alan (ESRI, Dublin); O'Sullivan, Vincent (Trinity College Dublin)
    Abstract: The economic crisis of 2008/9 was felt more acutely in Ireland relative to elsewhere and culminated in the international bailout in 2010. Given the economic collapse, Ireland provides an ideal case-study of the link between wealth collapses and movements in variables such as health and well-being. Using nationally-representative samples of older people collected before and during the crisis, we show that mean net assets fell by 45 percent between 2006/7 and 2012/13. In spite of this massive fall in wealth, measures of health and well-being remained broadly unchanged. However, expectations about future living standards became less optimistic. The results tend to support the findings of other recent studies that recessions do not have widespread negative effects on health and well-being.
    Keywords: recession, wealth, health, wellbeing
    JEL: D31 J14
    Date: 2013–12
  18. By: Singer, Christine (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Toomet, Ott-Siim
    Abstract: "We analyze the impact of the GermanWeGebAU programs, which are government-subsidized training measures for employed workers over 45 years old. We apply a dynamic matching approach similar to Crépon et al. (2009) and exploit novel information contained in rich German registry data. We focus on the effects on survival probability in original employment and estimate the effects separately by gender, age, job status, and program duration. We find that WeGebAU training improves the probability of remaining in paid employment by 1.0 to 2.5 percentage points in the two-year period following treatment. The effect is more pronounced for part-time workers and longer-duration program participants. Our analysis suggests that postponed labor market withdrawal is the main driver of the positive effects and that there is selection into treatment at the firm level." (Author's abstract, IAB-Doku) ((en))
    JEL: J18 J14 I21
    Date: 2013–12–17
  19. By: Eichhorst, Werner (IZA); Boeri, Tito (Bocconi University); De Coen, An (IDEA Consult); Galasso, Vincenzo (Bocconi University); Kendzia, Michael J. (IWSB); Steiber, Nadia (Vienna University of Economics and Business)
    Abstract: This paper provides an overview of the employment situation of young and old workers in the EU Member States, setting out the most recent development during the crisis and dealing with policies implemented to promote the employment of both groups. The evidence collected shows that there is no competition between young and older workers on the labour market. Structural or general policies to enhance the functioning of EU labour markets are crucial to improving the situation of both groups. However, the responsibility for employment policies still predominantly lies within Member States of the European Union, although initiatives taken at the EU level can provide added value, particularly through stimulating the exchange of experiences and facilitating regional and cross-border mobility throughout the EU.
    Keywords: youth unemployment, older workers, Europe, demographic change
    JEL: J11 J14 J18 J13 J63 J64
    Date: 2013–12

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