nep-age New Economics Papers
on Economics of Ageing
Issue of 2014‒04‒29
nine papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Longevity, Working Lives and Public Finances By Lassila, Jukka; Valkonen, Tarmo
  2. Divorcing Upon Retirement: A Regression Discontinuity Study By Stancanelli, Elena G. F.
  3. Disabled People’s Financial Histories: Uncovering the disability wealth-penalty By Abigail McKnight
  5. Revisiting wage, earnings, and hours profiles By P. Rupert; G. Zanella
  6. Mortality Decline, Impatience and Aggregate Wealth Accumulation with Risk-Sensitive Preferences By Antoine Bommier
  7. Equity risk versus retirement adequacy: Asset allocation solutions for KiwiSaver By Kirsten L MacDonald; Robert J Bianchi; Michael E Drew
  8. Income Inequality and Health: Evidence from Developed and Developing Countries By Herzer, Dierk; Nunnenkamo, Peter
  9. Longitudinal Evidence for a Midlife Nadir in Human Well-being: Results from Four Data Sets By Cheng, Terence C.; Powdthavee, Nattavudh; Oswald, Andrew J.

  1. By: Lassila, Jukka; Valkonen, Tarmo
    Abstract: Can longer working lives bring sufficient tax revenues to pay for the growing public health and care expenditure that longer lifetimes cause? We review studies concerning retirement decisions and pension policies, the role of mortality in health and long-term care costs, and errors in mortality projections. We combine key results into a numerical OLG model where changes in mortality have direct effects both on working careers and on per capita use of health and long-term care services. The model has been calibrated to the Finnish economy and demographics. Although there are huge uncertainties concerning future health and long-term care expenditure when people live longer, our simulations show that without policies directed to disability admission rules and old-age pension eligibility ages, working lives are unlikely to extend sufficiently. But, importantly, with such policies it seems quite possible that generations enjoying longer lifetimes can also pay for the full costs by working longer.
    Keywords: life expectancy, working careers, health and long-term care expenditure, fiscal sustainability
    JEL: H30 H63 H68 J11
    Date: 2014–04–09
  2. By: Stancanelli, Elena G. F. (CNRS, Sorbonne Economics Research Center (CES))
    Abstract: The many facets of retirement have been studied widely by economists. However, the effect of retirement on marriage stability has been ignored in the literature. Retirement represents a dramatic change in individual time allocation that may affect marriage stability. In particular, individuals that grew up in traditional households in which the father did little domestic work and both spouses worked very long hours such as farmer household may find their marriage especially proven by the transition into retirement. We study the effect of retirement on marriage outburst rates using observations on over 200 000 French men and over 166 000 French women aged 50 to 70, drawn from the French Labor Force Surveys over the period 1990 to 2002. Due to reverse causality concerns, we instrument retirement in our divorce model by exploiting legal retirement age in France and applying a regression discontinuity approach. We find a significant increase in divorce rates which soar and almost double upon retirement for individuals of either gender that grew up in a traditional family environment such as a farmer household.
    Keywords: ageing, retirement, regression discontinuity
    JEL: J14 C1 C36
    Date: 2014–04
  3. By: Abigail McKnight
    Abstract: It is well established that on average disabled people and the households in which they live face greater financial disadvantage in terms of income than their counterparts. What is less well understood is how they fare in terms of their wealth status. In this paper we use data from two large scale social surveys to examine the relationship between disability status and household wealth holdings. We find that overall disabled people have substantially lower household wealth and all components of wealth (property, financial, pension, physical) than non-disabled people but even these average differences mask important lifecycle patterns. The incidence of disability increases with age and the effect of this is that disabled people are on average older than non-disabled people. As wealth accumulation also increases with age up to retirement the effect is that average differences understate the true disability wealth-penalty. People who experience disability later in life have been in a stronger position to accumulate assets over their working lives than people who experience disability over the crucial wealth-accumulation stage (35-64 years) of the lifecycle. The full extent of the disability wealth-penalty can only be observed by looking at age or lifecycle profiles. We find evidence of cumulative disadvantage related to disability longevity and cumulative advantage to remaining disability free. Part of the disability wealth-penalty can be accounted for by lower average levels of education among disabled people and by their lower position in the socio-economic classification (NS-SEC) reflecting lower profiles of lifetime earnings and household income. The evidence points to a situation where disabled people have been unable to save and accumulate assets to anything like the extent of their non-disabled peers most likely through lower long term income and extra costs associated with disability. This puts them at a disadvantage in terms of being able to draw on an asset in times of need when expenditure needs exceed current levels of income, lower pension wealth on entering retirement and less likely to be in a position to benefit from the 'asset-effect' and more generally is a matter of concern in terms of equality and social mobility.
    Keywords: wealth, disability, inequality, lifecycle
    JEL: D31 D63
    Date: 2014–04
  4. By: Alfredo Marvão Pereira (Department of Economics, The College of William and Mary); Jorge M. Andraz (Faculdade de Economia, Universidade do Algarve)
    Abstract: We estimate the long-term impact of changes in social security and social protection spending on economic performance in the USA. We estimate a VAR model relating GDP, unemployment rates, saving rates, and social spending. Our results suggest that social spending has significant distortionary effects in the labor markets as measured by its long term effects on the unemployment rate, which translate into a detrimental effect on long-term output, this despite a positive, albeit small, effect on the gross savings rate. There are important policy implications of these results. If one considers the systems as they are, any further expansion in their generosity would have detrimental long-term effects. These detrimental effects, however, are neither an indictment of social spending or evidence against extension of benefits. What they highlight is the need to carefully consider the financing mechanisms currently used and the need to align benefits and contributions in the pension component of social security and the need to find a taxrevenue mix that is less distortionary for the unfunded benefits.
    Keywords: Social spending, unemployment, saving, output
    JEL: C32 H55
    Date: 2014–04–12
  5. By: P. Rupert; G. Zanella
    Abstract: We document empirical life cycle profiles of wages, earnings, and hours of work for pay from the Panel Study of Income Dynamics, following the same workers for up to four decades. For six of the eight cohorts we analyze the wage profile does not decline with age (not before 65, at least), while the earnings profile always does. The discrepancy is explained by a sharp drop in the hours of work for pay profile beginning shortly after age 50, when many workers start a smooth transition into retirement by working progressively fewer hours. This pattern is not an artifact of staggered abrupt retirement, and is robust to attrition and selection-correction (i.e., taking into account that the composition of our sample, for a given cohort, changes over time). We explore the nontrivial restrictions on dynamic models of the aggregate economy that this evidence suggests, and we provide numerical profiles that can be readily used in quantitative macroeconomic analysis.
    JEL: E24 J13 J22 J24 J26
    Date: 2014–04
  6. By: Antoine Bommier (ETH Zurich, Switzerland)
    Abstract: The paper discusses the impact of longevity extension on aggregate wealth accumulation, accounting for changes in individual behaviors as well as changes in population age structure. It departs from the stan- dard literature by adopting risk-sensitive preferences. Human impatience is then closely related to mortality rates and aggregate wealth accumula- tion appears to be much more sensitive to demographic factors than usually found. Illustrations are provided using historical mortality data from dif- ferent countries.
    Keywords: longevity; life-cycle savings; wealth accumulation; risk-sensitive pref- erences; risk aversion.
    JEL: J1 E21 D91
    Date: 2014–04
  7. By: Kirsten L MacDonald; Robert J Bianchi; Michael E Drew
    Keywords: KiwiSaver, retirement outcomes, asset allocation
    JEL: G11 G18 J32 D14
    Date: 2014–02
  8. By: Herzer, Dierk (Helmut Schmidt University, Hamburg); Nunnenkamo, Peter (Kieler Institut für Weltwirtschaft)
    Abstract: We assess the effect of income inequality on life expectancy by performing separate estimations for developed and developing countries. Our empirical analysis challenges the widely held view that inequality matters more for health in richer countries than for health in poorer countries. Employing panel cointegration and conventional panel regressions, we find that income inequality increases life expectancy in developed countries. By contrast, the effect on life expectancy is significantly negative in developing countries. While the quantitative effects are small, the striking contrast between the two country groups proves to be robust to modifications in measurement, specification and methodological choices.
    Keywords: health; inequality; panel cointegration
    JEL: C23 I14
    Date: 2014–04–17
  9. By: Cheng, Terence C. (University of Melbourne); Powdthavee, Nattavudh (London School of Economics); Oswald, Andrew J. (University of Warwick and CAGE)
    Abstract: There is a large amount of cross-sectional evidence for a midlife low in the life cycle of human happiness and well-being (a ‘U shape’). Yet no genuinely longitudinal inquiry has uncovered evidence for a U-shaped pattern. Thus some researchers believe the U is a statistical artefact. We re-examine this fundamental cross-disciplinary question. We suggest a new test. Drawing on four data sets, and only within-person changes in well-being, we document powerful support for a U-shape in unadjusted longitudinal data without the need for regression equations. The paper’s methodological contribution is to exploit the first-derivative
    Keywords: Life-cycle happiness, subjective well-being, longitudinal study, U shape
    Date: 2014

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