nep-age New Economics Papers
on Economics of Ageing
Issue of 2014‒03‒22
sixteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Social security and economic integration By ARTIGE, Lionel; DEDRY, Antoine; PESTIEAU, Pierre
  2. Not so modest: Pension benefits for full-career state government employees By Andrew G. Biggs
  3. Helping Ontarians Save for Retirement: How the Province Could Adapt the Canada Supplementary Pension Plan By Keith Ambachtsheer
  4. Do Longevity Expectations Influence Retirement Plans? By Mashfiqur R. Khan; Matthew S. Rutledge; April Yanyuan Wu
  5. Subjective Life Expectancy By Nicky Nicholls; Alexander Zimper
  6. Health care and social care: complements, substitutes and attributes By Wildman, John; McMeekin, Peter
  7. A formal investigation of inequalities in health behaviours after the age 50 on the island of Ireland By Eibhlin Hudson; David Madden; Irene Mosca
  8. Optimal Redistributive Pensions and the Cost of Self-Control By Pier-André Bouchard St-Amant; Jean-Denis Garon
  9. The U.K.’s Ambitious New Retirement Savings Initiative By Steven A. Sass
  10. How Old Are the Teachers? By OECD
  11. The Consumption and Wealth Effects of an Unanticipated Change in Lifetime Resources By Tullio Jappelli; Mario Padula
  12. Critical illness insurance in life cycle portfolio problems By Schendel, Lorenz S.
  13. "Can Formal Elderly Care Stimulate Female Labor Supply? The Japanese Experience" By Shinya Sugawara; Jiro Nakamura
  14. Demographic transitions in Europe and the world By Frans J. Willekens
  15. The Share of Nonprofit and For-profit Organizations in the Quasi-market: An Analysis of the Long-term Care Services Market in Japan By Junyi Shen; Nobuko Kanaya; Hiromasa Takahashi
  16. Les enjeux du vieillissement de la force de travail By Vincent VANDENBERGHE

  1. By: ARTIGE, Lionel (HEC, Université de Liège, Belgium); DEDRY, Antoine (HEC, Université de Liège, Belgium); PESTIEAU, Pierre (CREPP, HEC, Université de Liège, Belgium; Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium; Toulouse School of Economics, France)
    Abstract: The purpose of this letter is to analyze the impact of economic integration on capital accumulation and capital flows when countries differ in their social security systems, especially as regards the degree of funding of pensions and the regulation of the retirement age. Funding and early retirement both foster capital accumulation relative to pay-as-you-go pensions with flexible retirement. In the case of economic integration, both imply capital outflow possibly resulting in utility losses.
    Keywords: economic union, pension, retirement age, social security
    JEL: H2 F42 J26
    Date: 2014–03–12
  2. By: Andrew G. Biggs (American Enterprise Institute)
    Abstract: City and state governments around the country are pursuing reforms to address the rising costs of public employee pension plans. In response, public employee unions and pension plans often portray these benefits as “modest.” Public employees should be willing to accept—and private-sector workers to demand—more equity in the generosity of their pension plans.
    Keywords: retirement income,pension reform,Pension plans,Government employees
    JEL: A H
    Date: 2014–03
  3. By: Keith Ambachtsheer
    Abstract: As Ontario pushes ahead with pension reform to improve retirement security for its citizens, it should consider a “middle-way” solution between current competing visions for reform, according to a report released today by the C.D. Howe institute. In “Helping Ontarians Save for Retirement: How the Province Could Adapt the Canada Supplementary Pension Plan,” author Keith Ambachtsheer recommends an approach that avoids the potential pitfalls of two existing options: an expanded Canada Pension Plan (CPP) on one hand, or reliance on Pooled Registered Pensions Plans (PRPPs), on the other.
    Keywords: Governance and Public Institutions, Pension Papers
    JEL: H55 H75 J32
  4. By: Mashfiqur R. Khan; Matthew S. Rutledge; April Yanyuan Wu
    Abstract: The brief’s key findings are: Workers who think they have excellent chances of living to ages 75 and 85 plan to work longer than those who think their chances are poor. These perceptions of life expectancy also influence workers’ actual retirement behavior, though to a lesser degree. These results are consistent with the notion that while workers who expect to live longer plan to retire later, actual behavior is influenced by unexpected shocks.
    Date: 2014–03
  5. By: Nicky Nicholls (Department of Economics, University of Pretoria); Alexander Zimper (Department of Economics, University of Pretoria)
    Abstract: Individuals' subjective life-expectancy, as elicited in large-scale surveys, shows underestimation of survival chances at young versus overestimation at old ages. These distorted perceptions of objective survival chances may cause young people to save too little and old people to accumulate too much wealth late in life with respect to the rational expectations benchmark model. Alternative explanations for these differences between perceived and objective survival chances include cognitive shortcomings or/and preference-based (motivational) reasons. To know the exact nature of these differences would be relevant for judging policy interventions that aim at influencing people’s savings behaviour.
    Keywords: Health Retirement Study, Undersaving, Oversaving, Cumulative Prospect Theory, Likelihood Insensitivity
    Date: 2014–03
  6. By: Wildman, John; McMeekin, Peter
    Abstract: Ageing populations are a major challenge for most developed countries, where social security systems were developed in the post war period. It has been suggested that the costs of caring for the ageing population places a considerable strain on individuals, as well as on the public purse, and many countries are looking for ways to reduce costs. One of the major issues is the relationship between health care and social care. This paper considers health care and social care as complements and substitutes through a household production framework. We demonstrate how health care and social care are attributes that are valued by individuals and how in the presence of a perfect market individuals would choose combinations of these attributes. We highlight how, even with technical efficiency, sub-optimal combinations of health and social care may be chosen. We also show, through the introduction of a new good, how there may be opportunities to alleviate the costs of the ageing population.
    Keywords: Ageing population, health production, attributes, complements and substitutes, market failure
    JEL: I1 I11 I12 J14
    Date: 2014–03–18
  7. By: Eibhlin Hudson (The Irish Longitudinal Study on Ageing, Trinity College Dublin); David Madden (University College Dublin); Irene Mosca (The Irish Longitudinal Study on Ageing, Trinity College Dublin)
    Abstract: Smoking, low physical activity and frequent alcohol consumption may have substantial health risks in terms of disease, quality of life and mortality. Understanding inequality in relation to these behaviours among older people is important in the context of a rapidly ageing population. In this study, we examine income-related inequality in relation to these three key health behaviours using data on older adults from both the Republic of Ireland and Northern Ireland. We employ concentration indices and decompose them to determine the factors which contribute most to inequality. We then examine whether differences exist between the two regions. We find that smoking and low physical activity are more concentrated among those with lower incomes in both regions. In relation to physical activity, the magnitude of the inequality is higher for Northern Ireland. Frequent alcohol consumption is more concentrated among those with higher incomes in both regions. Self-assessed health and age tend to feature prominently for all behaviours in terms of contribution to inequality. Marital status and labour market status tend to play a less pronounced role. In terms of Northern Ireland/Republic of Ireland comparisons with respect to the decompositions, probably the biggest difference is to be observed in the greater role accorded to labour market status in the Republic. For the other factors, the orders of magnitude are reasonably similar. This suggests that in many cases it may be the same underlying factors which lie behind income related inequalities.
    Keywords: inequality; health behaviours; older adults; Republic of Ireland; Northern Ireland
    JEL: I14 J14
    Date: 2014–03–13
  8. By: Pier-André Bouchard St-Amant; Jean-Denis Garon
    Abstract: We examine how the introduction of self-control preferences influence the trade-off between two fundamental components of a public pension system: the contribution rate and its degree of redistribution. The pension regime affects individuals’ welfare by altering how yielding to temptation (i.e. not saving, or saving less) is attractive. We show that proportional taxation increases the cost of self-control, and that this adverse effect is more acute when public pensions become more redistributive.
    Keywords: Taxation, Redistribution, Pensions, Self-control
    JEL: H55 H21 D03
    Date: 2014
  9. By: Steven A. Sass
    Abstract: The United Kingdom is rolling out a broad retirement savings initiative with an objective similar to Presi­dent Obama’s recently announced “myRA” program. Both aim to encourage retirement saving among workers who do not currently participate in employer plans, typically those with average to low incomes. Both also steer new participants initially into low-risk investments. The U.K. initiative, however, is far more ambitious. It requires all employers to “auto-enroll” their uncovered workers, with the right to “opt out.” And the government created a new non-profit entity, the National Employment Savings Trust (NEST), to provide employers with high-quality, low-cost plans. This brief reviews the U.K. initiative to date. The first section discusses the creation of the employer mandate. The second section reviews the develop­ment of NEST. The third section explores two issues that merit further consideration – the design of NEST’s default Target Date Funds and the govern­ment’s efforts to limit NEST’s market reach. The final section concludes that the U.K. initiative re­flects the best contemporary thinking on the design of 401(k)/IRA-type retirement savings plans, but its success in addressing a critical national retirement income challenge remains untested.
    Date: 2014–03
  10. By: OECD
    Abstract: More than one-third of male primary school teachers in OECD countries are now over 50 years old. Across OECD countries, the average age of secondary school teachers has increased by one month every year in the last decade. Only a few countries have managed to develop policies which lower the average age of teachers significantly. Increasing the numbers of female teachers no longer lowers the average age, as the female teaching workforce is ageing faster than its male counterpart.
    Date: 2014–03
  11. By: Tullio Jappelli (University of Naples Federico II, CSEF and CEPR); Mario Padula (University “Ca’ Foscari” of Venice and CSEF)
    Abstract: In 2000 Italy replaced its traditional system of severance pay for public employees with a new system. Under the old regime, severance pay was proportional to the final salary before retirement; under the new regime it is proportional to lifetime earnings. This reform entails substantial losses for future generations of public employees, in the range of €20,000-30,000, depending on seniority. Using a difference-in-difference framework, we estimate the impact of this unanticipated change in lifetime resources, on the current consumption and wealth accumulation of employees affected by the reform. In line with theoretical simulations, we find that each euro reduction in severance pay reduces the average propensity to consume by 3 cents and increases the wealth-income ratio by 0.32. The response is stronger for younger workers and for households where both spouses are public sector employees.
    Keywords: Severance Pay, Consumption, Wealth Accumulation
    JEL: D12 D91 E21
    Date: 2014–03–05
  12. By: Schendel, Lorenz S.
    Abstract: I analyze a critical illness insurance in a consumption-investment model over the life cycle. I solve a model with stochastic mortality risk and health shock risk numerically. These shocks are interpreted as critical illness and can negatively affect the expected remaining lifetime, the health expenses, and the income. In order to hedge the health expense effect of a shock, the agent has the possibility to contract a critical illness insurance. My results highlight that the critical illness insurance is strongly desired by the agents. With an insurance profit of 20%, nearly all agents contract the insurance in the working stage of the life cycle and more than 50% of the agents contract the insurance during retirement. With an insurance profit of 200%, still nearly all working agents contract the insurance, whereas there is little demand in the retirement stage. --
    Keywords: Health shocks,Health expenses,Labor income risk,Stochastic mortality risk,Portfolio choice
    JEL: D91 G11 I13
    Date: 2014
  13. By: Shinya Sugawara (Faculty of Economics, the University of Tokyo); Jiro Nakamura (Faculty of Economics, Nihon University)
    Abstract:    This study analyzes the impacts of the Japanese Long-Term Care Insurance (LTCI), a decade after its launch, with respect to the female labor supply in Japan. The radical program has caused the emergence of markets for various care services apart from permanent institutional care, which is only a major formal care sector in many developed countries. The availability of various formal care services can stimulate female labor supply through a reduction of the burden of informal caregiving. To investigate the impacts of the LTCI, we compare the labor market behavior of females who face requirements for elderly care in their household for three periods before the launch of the LTCI, four years after the launch, and ten years after the launch. Our empirical analysis indicates positive effects of the launch and diffusion of the LTCI on female labor supply. As a result of the LTCI, care for male elders is no longer an obstacle for female labor supply, but care for female elders is still burdensome. We also find that the care requirement reduces the probability of being a regular worker; however, regular workers are more likely to utilize formal care, whereas many nonregular workers provide informal care by themselves.
    Date: 2014–03
  14. By: Frans J. Willekens (Max Planck Institute for Demographic Research, Rostock, Germany)
    Abstract: The demographic transition is a universal phenomenon. All regions of the world experience a change from high levels of mortality and fertility to low levels. The onset and pace of the demographic transition vary between regions and countries because of differences in timing of events and conditions that trigger the transition. As a consequence, we observe diverging trends in population growth and ageing around the world. The paper shows that transitions in mortality, fertility and migration have several features in common. Demographic transitions are intertwined with science and technology, the economy, cultural change and social and political processes. The interaction between these processes take place at the level of the individual, not at the population level. The human desire for a long and fulfilling life is the main driver of demographic change. Science and technology provide instruments to control demographic processes but the use of these instruments is conditioned by economic and cultural change. Individuals are more likely to act if they are aware that they can influence the outcome of their action, the outcome is beneficial and they have the instruments to exercise control. The pace of a transition depends on (a) diffusion processes that govern the transmission of values, preferences, norms and practices and (b) inertia in a population due to its composition. Keywords: Demographic transition, path dependence, diffusion, agency, demographic dividends
    Keywords: demographic transition
    JEL: J1 Z0
    Date: 2014–03
  15. By: Junyi Shen (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan); Nobuko Kanaya (Hiroshima City University, Hiroshima, Japan); Hiromasa Takahashi (Hiroshima City University, Hiroshima, Japan)
    Abstract: This paper aims to examine the factors which affect the market shares of several nonprofit and for-profit providers in the long-term care insurance system. We focus on the impact of market size and growth, demand heterogeneity and philanthropic activities, using a prefectural panel data set. The results indicate, though not in all cases, that the market shares of 1) the market shares of nonprofit organizations are relatively larger in the areas with more unprofitable market conditions, 2) the market shares of citizen-driven nonprofit organizations are larger in the areas with more heterogeneous demand and 3) the market shares of citizen-driven nonprofit organizations are larger in the areas with more active civic voluntarism.
    Keywords: quasi market, long-term care insurance system, nonprofit organization(NPO), market competition, elderly care, voluntarism, panel analysis.
    Date: 2014–03
  16. By: Vincent VANDENBERGHE (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: A l'instar de la population dans son ensemble, la force de travail vieillit. Cette tendance devrait se renforcer du fait des politiques visant à augmenter le taux d'emploi au-delà de 50 ans. Mais les entreprises localisées en Belgique sont-elles disposées à employer plus de travailleurs âgés ? En l'état, probablement que non. Car l'accroissement de la part des âgés risque d'engendrer une baisse des profits. Il s'agit là d'un obstacle au relèvement du taux d'emploi, qui appelle des mesures visant à combattre le déclin de la productivité avec l'âge et/ou à mieux aligner le coût salarial sur la productivité.
    Date: 2014–03–13

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