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on Economics of Ageing |
| By: | John Burnett (Towers Watson); Kevin Davis (Australian Centre for Financial Studies; Department of Finance, Monash University; and Department of Finance, The University of Melbourne); Carsten Murawski (Department of Finance, The University of Melbourne); Roger Wilkins (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne); Nicholas Wilkinson (Towers Watson) |
| Abstract: | This article introduces four metrics quantifying the adequacy of retirement savings taking into account all major sources of retirement income. The metrics are applied to a representative sample of the Australian population aged 40 and above. Employers in Australia currently make compulsory contributions of 9.25 per cent of wages and salaries to tax-advantaged defined-contribution employee retirement savings accounts. Our analysis reveals that compulsory retirement savings, even when supplemented by the means-tested government pension and private wealth accumulation, are not in general sufficient to fund a comfortable lifestyle during retirement. We further find that omitting one or more ‘pillars’ of saving will significantly bias estimates of retirement savings adequacy. Our analysis also points to several shortcomings of the widely-used income replacement ratio as an indicator of savings adequacy. |
| Keywords: | Retirement savings, financial literacy, life-cycle consumption and savings, household finance |
| JEL: | D14 D91 P46 |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:iae:iaewps:wp2014n05&r=age |
| By: | Lucie Vidoviæová |
| Abstract: | In this paper we present a general assessment of the labour market situation of older workers in the Czech Republic, starting with a more general overview of the demographic situation and emphasizing the generational differences among the young-old and older cohorts, underlying a number of different problems as well as solutions. Further in the paper we address the impact of the recent economic situation on employment levels, showing that the recovery in terms of employment has not yet begun and that the impact on older workers is (at least) two-fold: firstly, for older workers it is very difficult to find a new job once unemployed; secondly, if employed, the pressure on workability and the increasing demands of workplaces may be harder to bear for the older the worker. We describe a National Action Plan Supporting Positive Ageing (2013-2017) and other examples of good and transferable praxes which address some of the active ageing issues in an innovative way. The second part of this report examinethe issues of employability, workability and age-managementas perceived by some of the key actors. We go into greater detail on the topic of paid work after retirement, which is considered an important part of the Czech economy, despite the fact that the employment of sizable groups of older workers after retirement is undeclared. Self-entrepreneurship and independent work in later life are another realm of employment that is increasing in importance in the Czech economy; however, as consulted experts argue, it is not to be taken as an unproblematic solution to late-life careers. In the last chapter we turn our attention to the lifelong learning of older workers and to their up-skilling/retraining. In the concluding remarks, we reemphasize the need to address the heterogeneity of the older workforce, in the sense of age/generational affiliation, health, socio-economic and other characteristics. |
| Keywords: | Older workers, Labour market, Lifelong learning, Active ageing, Good practice, Czech Republic, Paid work after retirement, Self-entrepreneurship, Trade unions, Focus groups |
| JEL: | H55 H75 M12 M50 |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:sec:cnstan:0469&r=age |
| By: | Hairault, Jean-Olivier (University of Paris 1 Panthéon-Sorbonne); Langot, François (University of Le Mans); Sopraseuth, Thepthida (University of Cergy-Pontoise) |
| Abstract: | Since the last recession, it is usually argued that older workers are less affected by the economic downturn because their unemployment rate rose less than the one of prime-age workers. This view is a myth: older workers are more sensitive to the business cycle. We document volatilities of worker flows and hourly wage across age groups on CPS data. We find that old worker's job flows are characterized by a higher responsiveness to business cycles than their younger counterparts. In contrast, their wage cyclicality is lower than prime-age workers'. Beyond this empirical contribution, we show that a life-cycle Mortensen & Pissarides (1994) model is well suited to explain these facts: older workers' shorter work-life expectancy endogenously reduces their outside options and leads their wages to be less sensitive to the business cycle. Thus, in a market where wage adjustments are small, quantities vary a lot: this is the case for older workers, whereas the youngest behave like infinitively-lived agents. Our theoretical results point out that Shimer (2005)'s view on the MP model is consistent with prime-age workers' labor market while aging endogenously introduces real wage rigidities, allowing to match what we observe for old workers, without specific assumptions as in Hagendorn & Manovskii (2008). |
| Keywords: | search, matching, business cycle, life-cycle |
| JEL: | E32 J11 J23 |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp8076&r=age |
| By: | Battistin, Erich (Queen Mary, University of London); De Nadai, Michele (University of Padova); Padula, Mario (Ca' Foscari University of Venice) |
| Abstract: | This paper investigates the role of childcare provided by grandparents for the fertility decisions of their offspring. We exploit a decade of pension reforms in Italy that mandated the grandparental generation to a working horizon longer than they would have had otherwise. We argue that the rise in retirement age meant a negative shock to the supply of informal childcare for the next generation. Our results show that one additional grandparent available in the early child-bearing years increases by about five percent the number of children. We show that the fertility effects of delayed retirement are limited to close-knits with a strong familistic structure. The result is not just the mechanical consequence of delayed exit from parental home, of more investment in education or of more attachment to the labour market. In light of the Italian lowest low fertility we conclude that pension reforms may have had unintended inter-generational effects. This conclusion is consistent with the sharp drop in total fertility documented by official statistics for the most conservative areas of the country. |
| Keywords: | fertility, informal child care, pension reforms |
| JEL: | J08 J13 H42 |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp8071&r=age |
| By: | Connelly, Rachel (Bowdoin College); Maurer-Fazio, Margaret (Bates College); Zhang, Dandan (Peking University) |
| Abstract: | Over the course of China's economic reforms, a pronounced divergence in the labor force participation patterns of rural and urban elders emerged – rural elders increased their rates of participation while urban elders reduced theirs. In this project, based on the data of the Chinese population censuses of 1982 and 2000, we employ a two-stage procedure to take into account the endogeneity of the residency and labor force participation decisions of older persons. We find that the effect of coresidency with adult children on the labor force participation of older adult differs by urban vs. rural residence. In 1982, the LFPR of urban elders who coresided with their adult children were significantly higher than those who did not coreside. By 2000, this effect completely disappeared. In contrast, in rural areas, coresidency with adult children had a large and significant negative effect on the labor force participation of both male and female elders. This effect diminished only slightly over the reform period. Finally, we decompose the changes over time in elders' labor force participation decisions and find that the response effect for all groups (male and female, urban and rural) is positive, such that, holding the levels of demographic and economic variables constant, each group of elders would have had higher rates of participation in 2000 than in 1982. The remarkable divergence in urban and rural elders' labor force participation trends are due to differences in the relative sizes of their attribute and response effects. |
| Keywords: | labor force participation, elders, China, retirement, coresidency, rural and urban, living arrangements |
| JEL: | J14 J26 J11 J12 J13 J16 J22 O15 O53 P23 R23 |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp8068&r=age |
| By: | Daniel Harenberg; Alexander Ludwig |
| Abstract: | We ask whether a PAYG-financed social security system is welfare improving in an economy with idiosyncratic and aggregate risk. We argue that interactions between the two risks are important for this question. One is a direct interaction in the form of a countercyclical variance of idiosyncratic income risk. The other indirectly emerges over a household's life-cycle because retirement savings contain the history of idiosyncratic and aggregate shocks. We show that this leads to risk interactions, even when risks are statistically independent. In our quantitative analysis, we find that introducing social security with a contribution rate of two percent leads to welfare gains of 2.2% of lifetime consumption in expectation, despite substantial crowding out of capital. This welfare gain stands in contrast to the welfare losses documented in the previous literature, which studies one risk in isolation. We show that jointly modeling both risks is crucial: 60% of the welfare benefits from insurance result from the interactions of risks. |
| Keywords: | social security, idiosyncratic risk, aggregate risk, welfare |
| JEL: | C68 E27 E62 G12 H55 |
| Date: | 2014–03–20 |
| URL: | http://d.repec.org/n?u=RePEc:kls:series:0071&r=age |
| By: | Ning Li (Melbourne Institute of Applied Economic and Social Research) |
| Abstract: | In social and economic analysis of longitudinal data, the socio-economic variables that are statistically significant in pooled data regressions sometimes become insignificant after individual fixed effects are controlled for. This phenomenon has been observed in the analysis of the relationship between age and happiness. The discrepancy in results between regressions with and without controlling for individual fixed effects is sometimes known as a mystery in the research of age and happiness. This paper points out that cross-sectional information and longitudinal information reflect distinct aspects of the phenomenon under study. In age-happiness studies, cross-sectional information describes whether, in a particular year, people of a certain age are happier than people of other ages. Longitudinal information describes whether people become happier or less happy over the life cycle. The former compares happiness between different people, and the later compares happiness within the same person. Average happiness is U-shaped in age among different cohorts, and simultaneously decreases with age in the life cycle within individuals. Using data on happiness from the Household, Income and Labour Dynamics in Australia (HILDA) Survey, this paper explains what “individual fixed effects are controlled for” means in the context of FE regression, gives insight into the age-happiness puzzle and raises awareness of the multidimensionality of longitudinal data. |
| Keywords: | Life satisfaction, cohort, ageing, OLS, individual fixed effects, between-person variation, within-person variation, HILDA |
| JEL: | I31 C10 C80 |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:iae:iaewps:wp2014n04&r=age |
| By: | Aase, Knut K. (Dept. of Business and Management Science, Norwegian School of Economics) |
| Abstract: | We analyze optimal consumption in the life cycle model by introducing life and pension insurance contracts. The model contains a credit market with biometric risk, and market risk via risky securities. This idealized framework enables us to clarify important aspects life insurance and pension contracts. We find optimal pension plans and life insurance contracts where the benefits are state dependent. We compare these solutions both to the ones of standard actuarial theory, and to policies offered in practice. Implications of this include what role the insurance industry may play to improve welfare. The relationship between substitution of consumption and risk aversion is highlighted in the presence of a consumption puzzle. One problem related portfolio choice is discussed - the horizon problem. Finally, we present some comments on longevity risk and cohort risk. |
| Keywords: | The life cycle model; pension insurance; optimal life insurance; longevity risk; the horizon problem; consumption puzzle |
| JEL: | D91 |
| Date: | 2014–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2014_013&r=age |
| By: | Delaney, Liam (University of Stirling); Fink, Günther (Harvard School of Public Health); Harmon, Colm P. (University of Sydney) |
| Abstract: | The ways in which preferences respond to the varying stress of economic environments is a key question for behavioral economics and public policy. We conducted a laboratory experiment to investigate the effects of stress on financial decision making among individuals aged 50 and older. Using the cold pressor task as a physiological stressor, and a series of intelligence tests as cognitive stressors, we find that stress increases subjective discounting rates, has no effect on the degree of risk-aversion, and substantially lowers the effort individuals make to learn about financial decisions. |
| Keywords: | stress, financial decisions, discounting, risk aversion, learning |
| JEL: | D91 I31 |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp8060&r=age |
| By: | AÌlvaro Bustos; Tonja Jacobi |
| Abstract: | Even justices who have already decided to retire may not wish to make that information public immediately. Strategically shaping perceptions of their own retirement possibilities can maximize justices’ chances of leaving behind a Court with an ideology aligned with their own ideologies. An obvious mechanism to achieve this is to influence the President and the Senate to choose an ideologically compatible replacement. More specifically, a retiring justice can manipulate his perceived probability of retirement in a way that exploits the fact that case votes of relatively new members of the Court shape how their own ideologies are perceived; influencing the expression of preferences of newer justices can in turn induce the President and the Senate to fill the vacancy with a nominee whose ideology is preferred by the retiring justice. We show that "strong messages" (indicating a high probability of retirement) are more likely when relatively new members of the Court engage in untruthful voting and the ideologies of the retiring justice and the new members are aligned. In contrast, "weak messages" (indicating a low probability of retirement) are more likely when the relatively new members of the Court vote sincerely or, if they do vote untruthfully, the ideologies of the retiring justice and the new members are not aligned. |
| JEL: | K10 K30 K40 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:ioe:doctra:450&r=age |
| By: | Scholte, Robert (SEO Economic Research); van den Berg, Gerard J. (University of Mannheim); Lindeboom, Maarten (VU University Amsterdam); Deeg, Dorly J. H. (VU University Amsterdam) |
| Abstract: | This paper considers determinants of physical-functional limitations in daily-life activities at high ages. Specifically, we quantify the extent to which the impact of adverse life events on this outcome is larger in case of exposure to adverse economic conditions early in life. Adverse life events include bereavement, severe illness in the family, and the onset of chronic diseases. We use a longitudinal data set of individuals born in the first decades of the 20th century. The business cycle around birth is used as an indicator of economic conditions early in life. We find that the extent to which functional limitations suffer from the onset of chronic diseases is larger if the individual was born in a recession. The long-run effect of economic conditions early in life on functional limitations at high ages runs primarily via this life event. |
| Keywords: | functional limitations, long-run effects, business cycle, panel data, health, bereavement, chronic diseases |
| JEL: | I12 C33 J14 |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp8075&r=age |
| By: | Hiroyuki Yamada (Associate Professor, Osaka School of International Public Policy (OSIPP)); Satoshi Shimizutani (Research Fellow, Research Division, Gender Equality Bureau, Cabinet Office) |
| Abstract: | This paper examines the labor supply outcomes of family care provision for Japanese households in 2010, ten years after the introduction of the public long-term care insurance (LTCI) program. We found that family care provision for parents adversely affected labor market outcomes of main caregivers at home in terms of probability of working, employment status and hours worked. The adverse effect was found to be more serious for female caregivers than for male caregivers. Moreover, our results suggest that the public LTCI program seems to only partially mitigate the disadvantages of the main caregivers for both males and females. |
| Keywords: | Informal care, Caregiver, Long-term care insurance, Labor supply, Japan |
| JEL: | J22 I11 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:osp:wpaper:14e004&r=age |
| By: | Cécile Bourreau-Dubois (BETA); Agnès Gramain (Centre d'Economie de la Sorbonne); Helen Lim (BETA); Jingyue Xing (CMH) |
| Abstract: | In France, since 2001, home care for disabled elderly can be partially subsidized by a public allowance (allocation personnalisée d'autonomie - APA). For eligible elderly people, the amount to be paid for one hour of formal home care depends on their income, according to a national rule, but also on the rate charged by the chosen provider, and the type of provider, according to parameters fixed by local authorities. This specific institutional frame allows us to estimate the price- and income elasticity of the demand for formal home care by disabled elderly, using administrative data, collected in a local district in October 2010, on 11 040 APA beneficiaries and 13 providers. Our estimation results show that, in this district and for regulated long-term care providers, the price-elasticity of demand is slightly negative. An increase of the price charged by the provider by 10% induces a reduction of the number of care hours by 5.5%. |
| Keywords: | Price-elasticity, income-elasticity, long-term care. |
| JEL: | D12 I18 H42 H71 |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:14024&r=age |
| By: | Piraino, Patrizio (SALDRU, School of Economics, University of Cape Town); Muller, Sean (SALDRU, School of Economics, University of Cape Town); Cilliers, Jeanne (Stellenbosch University); Fourie, Johan (Stellenbosch University) |
| Abstract: | Evidence on long-term multigenerational dynamics is often inadequate as large datasets with multiple generations remain very uncommon. We posit that genealogical records can offer a valuable alternative. Rather than exploring the intergenerational transmission of socioeconomic status, we rely on birth and death dates of eighteenth and nineteenth century settlers in South Africa's Cape Colony to estimate the intergenerational transmission of longevity. We find that there is a positive and significant association between parents' and offspring's life duration, as well as between siblings. Although these correlations persist over time, the coefficients are relatively small. While the effect of grandparents' longevity on that of grandchildren is insignificant, the cousin correlations suggest that inequality in longevity might persist across more than two generations. We suggest that family and environmental factors shared by cousins, beyond grandparental longevity, can explain these results. |
| Keywords: | intergenerational mobility; longevity |
| JEL: | J62 N37 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:ldr:wpaper:113&r=age |