nep-age New Economics Papers
on Economics of Ageing
Issue of 2014‒02‒02
twenty papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Assessing the economic and budgetary impact of linking retirement ages and pension benefits to increases in longevity By Alexander Schwan; Etienne Sail
  2. How sensitive are individual retirement expectations to raising the retirement age? By Fouarge D.; Grip A. de; Montizaan R.M.
  3. Measuring active aging for government policy planning: a case of Russia By Liudmila Zasimova; Maria Sheluntcova
  4. Old age pensions in Mexico: Toward universal coverage By Willmore, Larry
  5. How individuals react to defined benefit pension risk By Salamanca N.; Sleijpen O.C.H.M.; Grip A. de
  6. Labor demand for senior employees in the context of early retirement By Marczok, Yvonne Maria; Amann, Erwin
  7. The impact of worker’s age on the consequences of occupational accidents: empirical evidence using Spanish data By Bande, Roberto; López-Mourelo, Elva
  8. Child-care Policies and Pension in an Endogenous Fertility Model By Masaya Yasuoka
  9. Equilibrium Health Spending and Population Aging in a Model of Endogenous Growth - Will the GDP Share of Health Spending Keep Rising? By Isaac Ehrlich; Yong Yin
  10. Relative Sectoral Prices and Population Ageing: A Common Trend By Max Groneck; Christoph Kaufmann
  11. Productivity and age: Evidence from work teams at the assembly line By Weiss M.; B?rsch-Supan A.
  12. Subjective Life Expectancy and Private Pensions By Bucher-Koenen, Tabea; Kluth, Sebastian
  13. The Intergenerational Distribution of Demographic Fluctuations in Unfunded and Funded Pension Systems By Knell, Markus
  14. A Study of Pension System Efficiency In the Presence of Natural Resource Economy By Alexey Chernulich
  15. How does end of life costs and increases in life expectancy affect projections of future hospital spending? By Melberg, Hans Olav; Sørensen, Jan
  16. Workshop on Integrating Omics and Policy for Healthy Ageing: Synthesis Report By OECD
  17. Ambiguous Survival Beliefs and Hyperbolic Discounting in a Life-Cycle Model By Groneck, Max; Ludwig, Alexander; Zimper, Alexander
  18. Aging workforce and firm growth in the context of "extreme" employment growth events By Schimke, Antje
  19. Population Contributions to Global Income Inequality: A Fuller Account By ELOUNDOU-ENYEGUE Parfait; TENIKUE Michel; KANDIWA Vongai M.
  20. Hospital expenditures and the red herring hypothesis: Evidence from a complete national registry By Gregersen, Fredrik Alexander; Godager, Geir

  1. By: Alexander Schwan; Etienne Sail
    Abstract: This paper focuses on potential public pension expenditure, pension adequacy and fiscal sustainability effects when linking retirement ages and pension benefits with future increases in longevity. Simulation results show that the expected increases in public pension expenditures as a share of GDP could almost be halved, when fully linking retirement ages to life expectancy gains in the future. The expected decrease in the benefit ratio due to recent pension reforms could be diminished. Even higher reductions in future pension spending would materialize with a rule that links pension benefits to longevity gains without adapting statutory retirement ages. However, if people do not extend their working lives in order to maintain the level of pension benefits, serious adequacy problems may arise. To fully stabilize public pension expenditures, further reform measures on top of a retirement age or pension benefit link to gains in life expectancy need to be considered in most Member States.
    JEL: H55 J14 J26
    Date: 2013–12
  2. By: Fouarge D.; Grip A. de; Montizaan R.M. (ROA)
    Abstract: This paper investigates the causal effects of the announcement of an increase in the statutory pension age on employee retirement expectations. In June 2010, the Dutch government signed a new pension agreement with the employer and employee organizations that entailed an increase in the statutory pension age from 65 currently to 66 in 2020 for all inhabitants born after 1954. Given the expected increase in average life expectancy, it was also decided that in 2025 the pension age would be further increased to 67 for those born after 1959. This new pension agreement received huge media coverage. Using representative matched administrative and survey data of public sector employees, we find that the proposed policy reform increased the expected retirement age by 3.6 months for employees born between 1954 and 1959 and by 10.8 months for those born after 1959. This increase is reflected in a clear shift in the retirement peak from age 65 to ages 66 and 67 for the respective treated cohorts. Men respond less strongly to the policy reform than women, but within couples we find no evidence that the retirement expectations of one spouse are affected by an increase in the statutory pension age of the other. Furthermore, we show that treatment effects are largely driven by highly educated individuals but are lower for employees whose job involves physically demanding tasks or managerial and supervisory tasks.
    Keywords: Economics of the Elderly; Economics of the Handicapped; Non-labor Market Discrimination; Retirement; Retirement Policies;
    JEL: J14 J26
    Date: 2013
  3. By: Liudmila Zasimova (National Research University Higher School of Economics); Maria Sheluntcova (National Research University Higher School of Economics)
    Abstract: Rising life expectancy and an aging population highlight the need for appropriate government policies to transform of the role of the elderly from a dependent part of the population to an economically active one. This paper aims to measure active aging of the elderly in Russia. We review definitions of active aging and base our research on the concept of the World Health Organization. Active aging is characterized by three components: health, participation, and security. We select indicators for these components and aggregate them into three sub-indexes which become the outcome index of active aging. As a result, the sample is divided into two groups of elderly people in Russia, “actively aging” and “inactively aging”. The empirical research is based on the Study of Global Ageing and Adult Health (SAGE). Our findings show that 70% of the elderly population are at the intersection of “health” and “participation in social activities”; 61,2% between “health” and “security”; 73,5% between “security” and “participation in social activities”. Overall, 58,5% of Russian senior citizens meet all three criteria of active aging, thus creating a great challenge for policy response
    Keywords: active aging, public policy, the elderly, health, participation, security, Russia
    JEL: J14 J18
    Date: 2014
  4. By: Willmore, Larry
    Abstract: This paper chronicles the rise of social pensions in Mexico. First it summarizes the pension system prior to introduction of social pensions. Next it describes how Mexico City, the federal government, and seventeen of Mexico’s 31 states initiated social pensions, a policy supported eventually by each of the three major political parties. It concludes with thoughts on what remains to be done.
    Keywords: government transfers, non-contributory pensions, universal pensions, social pensions, pension reform, social security, Mexico
    JEL: H55 J14 J18
    Date: 2014–01–23
  5. By: Salamanca N.; Sleijpen O.C.H.M.; Grip A. de (GSBE)
    Abstract: We develop a measure of hybrid defined benefit DB pension risk and show how this pension risk affects individual portfolio decisions. We find that people in riskier DB plans are, on average, not only less likely to hold equity but also hold a smaller share of their wealth in equity. This relation is stronger for people who are better informed about their pension plan risk, and for retirees. We also check whether pension risk is related to retirement decisions but find no evidence to support this hypothesis. Our main results are robust to a number of model specifications and alternative explanations. Our findings suggest that properly funded DB pension plans can increase participants welfare by allowing them to seek higher returns in their individual portfolios while at the same time relieving less sophisticated participants from the decisions required by a defined contribution plan.
    Keywords: Personal Finance; Portfolio Choice; Investment Decisions;
    JEL: D14 G11
    Date: 2013
  6. By: Marczok, Yvonne Maria; Amann, Erwin
    Abstract: With respect to the labor market participation of the elderly in welfare states, the economic literature focuses on the incentives to the worker in the light of generous early retirement opportunities. The sociological literature on the other hand addresses the problem of low productivity of elderly in the context of occupational disability and workplace design. The economic link between supply and demand is hardly taken into account. This paper focuses on the labor demand for elderly in the context of necessary speci c investment. According to this paper, due to better perspectives on the labor market following a decrease of the incentives to retire early, e.g. by a raise in the average e ective retirement age, need not necessarily harm the elderly people. The paper thus helps to close the gap in the evaluation of pension reforms. --
    JEL: D33 J26 J32
    Date: 2013
  7. By: Bande, Roberto; López-Mourelo, Elva
    Abstract: This paper examines the impact of worker’s age on the consequences of occupational injuries. Using data from the Spanish Statistics on Accidents at Work for 2004-2010, a multinomial model is estimated in order to analyse the impact of the age on the probability of suffering a severe or fatal accident. Further, a duration model is used to assess the effect of worker’s age on the length of sick leave caused by occupational injuries. The analysis shows that the probability of suffering a severe or fatal accident, as well as the duration of the sick leave, increases with the worker’s age once personal, job, and accident characteristics are controlled for. From a policy perspective, the results point out that decisions about delaying the retirement age require additional measures, such as the occupational reallocation of these older workers towards tasks with lower incidence rates, in order to minimise these effects
    Keywords: occupational accidents, ageing, sick leave
    JEL: J14 J28 J81
    Date: 2014
  8. By: Masaya Yasuoka (School of Economics, Kwansei Gakuin University)
    Abstract: Some economically developed countries are suffering from an aging society with fewer children, which has brought about greater burdens imposed by social security. A child allowance and child-care services are provided by the governments in these countries to raise fertility. An increase in fertility pulls up the future labor population. An increase in labor population can subsequently provide sufficient social security benefits in terms of pensions and other transfers. This paper presents consideration of three child-care policies. The first is child allowances. The second is a subsidy for child-care services. The third is a subsidy for child care in the home. These three policies can raise fertility and the future labor population. This paper presents results of a derivation showing that child allowances can raise both the demand for child-care services and child care in the home. Therefore, fertility can always rise. However, a decrease in labor supply time has the effect of reducing the pension benefit. With large substitution between child-care services and child care in the home, the subsidy for child-care services or child care in the home can reduce fertility. Then, the pension benefit can not always increase.
    Keywords: Aging society, Child-care service, Fertility, Labor supply, Pay-as-you-go pension
    JEL: H51 H55 J14
    Date: 2014–01
  9. By: Isaac Ehrlich; Yong Yin
    Abstract: The apparently unrelenting growth in the GDP-share of health spending (SHS) has been a perennial issue of policy concern. Does an equilibrium limit exist? The issue has been left open in recent dynamic models which take income growth and population aging as given. We view these variables as endogenously determined within an overlapping-generations, human-capital-based endogenous-growth model, where a representative parent makes all life-cycle consumption and investment decisions, and life and health protection are subject to diminishing returns. Our prototype model, allowing for both quantity and quality of life as desired goods, yields equilibrium upper bounds for SHS. Our calibrated simulations also account for observed trends in reproductive choices, population aging, life expectancy, and economic growth. The analysis offers new insights about factors that drive long-term trends in aging and health spending and establishes a direct relation between health investments at young age and the equilibrium, steady-state rate of economic growth.
    JEL: I1 I15 J11 J17 J24 O4
    Date: 2014–01
  10. By: Max Groneck; Christoph Kaufmann
    Abstract: Demographic change raises demand for non-tradable old-age related services relative to tradable commodities. This demand shift increases the relative price of non-tradables and thereby causes real exchange rates to appreciate. We claim that the change in demand affects prices via imperfect intersectoral factor mobility. Using a sample of 15 OECD countries between 1970 and 2009, we estimate a robust increase of relative prices due to population ageing. Further findings confirm the relevance of imperfect factor mobility: Countries with more rigid labour markets experience stronger price effects.
    Keywords: Demographic change, relative price of non-tradables, real exchange rate
    JEL: J11 F41 E39
    Date: 2014–01–17
  11. By: Weiss M.; B?rsch-Supan A. (GSBE)
    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: J24 J14 D24
    Date: 2013
  12. By: Bucher-Koenen, Tabea; Kluth, Sebastian
    Abstract: One important parameter in the decision process when buying a private annuity is individuals' subjective life expectancy, because it directly infuences the expected rate of return. We examine the market for private annuities in Germany and evaluate potential selection e ects based on subjective life expectancy. First individuals are pessimistic about their life span compared to the o cial life tables. Second we nd a signi cant selection e ect based on subjective life expectancy for women invested in private annuity contracts|so-called Riester pensions. For men there seems to be no di erence in subjective life expectancy by Riester ownership. Comparing the size of this selection e ect with the underlying mark ups in life expectancy that are charged by the insurance industry shows that the latter appears to be in line for women but too high for men. Our ndings have strong policy implications. On the one hand miss-perceptions about longevity risk might prevent individuals from providing su ciently for retirement, on the other hand mandated unisex tari s appear to prevent men from investing in Riester pensions. --
    JEL: D12 D91 G11
    Date: 2013
  13. By: Knell, Markus
    Abstract: In this paper I use a multi-period OLG model to study how a demographic shock is distributed among different generations. In particular, I investigate whether a funded pension system allows for a smoother adjustment than an unfunded system. The results suggest that the answer to this question depends on the specific organization of the funded system. If the contributions are only invested into a non-accumulated asset in fixed supply (e.g. into "land") and if the investment decisions are guided by fixed rules then the intergenerational distribution of the demographic shock is almost identical in the two systems. Assuming optimal investment decisions, on the other hand, will increase or decrease the fluctuations of the funded pillar (depending on the degree of risk aversion). It is only for the case where all savings are invested into accumulable, productive capital that the funded system will dampen the distributional consequences of a demographic shock. --
    JEL: H55 J11 J26
    Date: 2013
  14. By: Alexey Chernulich (Department of Economics, European University at St. Petersburg)
    Abstract: In the face of changes in the demographic and economic situation, governments around the world are reviewing the existing models of pension provision with the prospect of reducing the share of the Pay-As-You-Go system and increasing the share the Fully Funded system. However, the country's specialization in natural resources can have an impact not only on economic development, but also on the functioning of the pension system, which makes research topic highly relevant for Russia. In this paper, a model of evaluating the effectiveness of both types of systems using historical macroeconomic data is presented. Calculations for different groups of countries show that in resource dependent countries Pay-As-You-Go system is relatively more effective than Fully Funded.
    Keywords: pension systems, resource dependent countries, pension reform, the profitability of pension investments
    JEL: H55
    Date: 2013–12–01
  15. By: Melberg, Hans Olav (Department of Health Management and Health Economics); Sørensen, Jan (University of Southern Denmark)
    Abstract: This article examines the extent to which differences in life-expectancy are associated with shifts in average hospital costs for different age groups. The size of the shift is important because it makes a large difference to the importance of demographic factors when projecting future health expenditures. The effect of increases in life expectancy on the cost curves is identified by comparing two countries with different life expectancies, but which are very similar on other variables like culture, technology and health systems (Norway and Denmark). Using data from the National Patient Registries the paper compares the ratio of average spending on individuals who die and individuals who survive in different age groups in these two countries. After controlling for cohort, the best fit between the age related cost curves is achieved when the cost curve in the country with a two year longer life expectancy is shifted by two years. For instance, seventy year olds in the country with the longest life expectancy have an everage cost ratio that is comparable to sixty-eight year olds in the country with the shorter life expectancy. This suggests that increases in life expectancy are associated with shifts in the cost curves and that the shift is proportional to the shift in life expectancy.
    Keywords: Hospital expenditures; ageing; life expectancy
    JEL: C13 H51 I12 I13
    Date: 2013–12–20
  16. By: OECD
    Abstract: The increase in the human life span is a testament to the economic, social and medical progress made over the course of the last century. However, an ageing population brings some new challenges both to healthcare systems and to medicine in terms of the increased manifestation of specific diseases primarily seen in the elderly. Biomedical innovation, and in particular research into “omics technologies”, offers the promise of new means of detection, prevention and treatment of age-related disabilities and diseases. But the development of these new technologies will not be without challenges, in particular with respect to the difficulty of translating technological advances into innovation in the clinical setting. This report provides a synthesis of a March 2013 workshop organised by the OECD and the Human Genome Organisation (HGO) which focused on latest advances in omics technologies for healthy ageing and the policies and practices needed to facilitate their responsible development and integration in medical research, innovation and health policy.
    Date: 2014–01–24
  17. By: Groneck, Max; Ludwig, Alexander; Zimper, Alexander
    Abstract: On average, young people underestimate whereas old people overestimate their chances to survive into the future. We employ a subjective survival belief model proposed by Ludwig and Zimper (2013), which can replicate these patterns. The model is compared with hyperbolic discounting within a standard life-cycle setting of consumption and savings. We show theoretically that the first order conditions of our ambiguous survival belief model closely resemble the generalized Euler-equation from the hyperbolic discounting model with an additional adjustment factor. In the numerical section it is shown that the subjective survival belief model simultaneously leads to undersaving at younger ages and high asset holdings and little dissaving of the elderly. The model can thus replicate two important empirical facts of the life-cycle literature at once which is not possible with a hyperbolic discounting model. --
    JEL: D91 E21 D83
    Date: 2013
  18. By: Schimke, Antje
    Abstract: In recent years demographic aging and its consequences have been recognized and discussed on macroeconomic levels, such as health care system, infrastructure, housing and labour market. However, the consequences are not only present on the macroeconomic level but also affect microeconomic issues such as a firm's growth and workforce. This exploratory study realises a microeconomic issue and investigates the linkage between aging workers and employment growth. More precisely, it aims to analyse the potential effect that age composition of a firm's workforce may have on a firm's employment growth. The study applies a linked employer-employee dataset of 2100 German firms, covering the time period from 2001 to 2006. We used quantile regression techniques to address the aging effect in the context of extreme employment growth events. The empirical investigation shows that, on average, employment growth slows down as the average age of the workforce increases. --
    Keywords: workers aging,workforce,'extreme' employment growth events,demographic trends,age management
    JEL: J11 J21 L22 O40
    Date: 2014
  19. By: ELOUNDOU-ENYEGUE Parfait; TENIKUE Michel; KANDIWA Vongai M.
    Abstract: Population processes are expected to contribute to global income inequality but so far, studies have mostly documented the contributions of changing population size. Such studies typically decompose global inequality trends into population size vs. income effects. We expand decomposition to cover population size, age structure and worker productivity, thus giving a fuller account of demographic influences. This expansion reveals a larger influence of population factors than previously recognized. Further, age structure (not population size) wields the larger influence and its acknowledgment helps consider international differences in dependency ratios. The implications and extensions of these findings are discussed
    Keywords: Demographic transitions; population size; age structure; decomposition; global inequality; population growth
    Date: 2013–12
  20. By: Gregersen, Fredrik Alexander (Campus Akershus University Hospital, Institute of Clinical Medicine, University of Oslo); Godager, Geir (Department of Health Management and Health Economics)
    Abstract: The aim of this paper is to contribute to the debate on population aging and growth in health expenditures. The Red Herring hypothesis, i.e., that hospital expenditures are driven by the occurrence of mortal illnesses, and not patients’ age, forms the basis of the study. The data applied in the analysis are from a complete registry of in-patient hospital expenditures in Norway from the years 1998-2009. Since data registration is compulsory and all hospital admissions are recorded, there is no self-selection into the data. Mortality related hospital expenditures were identified by creating gender-cohort specific panels for each of the 430 Norwegian municipalities. We separated the impact of mortality on current hospital expenditures from the impact of patients’ age and gender. This approach contributes to the literature by applying sensible aggregation methods on a complete registry of inpatient hospital admissions. We apply model estimates to quantify the mortality related hospital expenditures for twenty age groups. The results show that mortality related hospital expenditures are a decreasing function of age. Further the results clearly support that, both age and mortalities should be included when predicting future health care expenditure. The estimation results suggest that 9.2 % of all hospital expenditure is associated with treating individuals in their last year of life.
    Keywords: mortality related expenditures; hospital expenditures; red herring hypothesis; ageing
    JEL: H51 I12 I19
    Date: 2013–05–08

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