nep-age New Economics Papers
on Economics of Ageing
Issue of 2014‒12‒03
24 papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Work Capacity of Older Adults in Japan By Usui, Emiko; Shimizutani, Satoshi; Oshio, Takashi
  2. Have We Finally Achieved Actuarial Fairness of Social Security Retirement Benefits and Will It Last? By Frank W. Heiland; Na Yin
  3. The effects of a multi-pillar pension reform: The case of Peru By Javier Olivera
  4. A simple model of aggregate pension expenditure By Ángel de la Fuente
  5. Is Japan’s Population Aging Deflationary? By Derek Anderson; Dennis P. J. Botman; Ben Hunt
  6. Working Paper 06-14 - Structurele determinanten van de publieke gezondheidszorguitgaven By Peter Willemé
  7. Analiza pozycji otwartych funduszy emerytalnych w latach 2007-2011 By Buła, Rafał
  8. The Causes and Consequences of Financial Fraud Among Older Americans By Keith Jacks Gamble; Patricia Boyle; Lei Yu; David Bennett
  9. Early Retirement and Financial Incentives: Differences Between High and Low Wage Earners By Euwals, Rob; Trevisan, Elisabetta
  10. The Great Recession, Decline and Rebound in Household Wealth for the Near Retirement Population By Alan L. Gustman; Thomas L. Steinmeier; Nahid Tabatabai
  11. Do Wages Continue Increasing at Older Ages? Evidence on the Wage Cushion in the Netherlands By Deelen, Anja; Euwals, Rob
  12. The Determinants of the Propensity to Receive Publicly Funded Home Care Services for the Elderly in Canada By Gustavo Mery; Walter Wodchis; Audrey Laporte
  13. Seesaws and Social Security Benefits Indexing By Matthew Weinzierl
  14. Workplace health promotion and labour market performance of employees By Martin Huber; Michael Lechner; Conny Wunsch
  15. Distributional Effects of Means Testing Social Security: An Exploratory Analysis By Alan Gustman; Thomas Steinmeier; Nahid Tabatabai
  16. Demographics and Entrepreneurship By James Liang; Hui Wang; Edward P. Lazear
  17. Annuitized Wealth and Post-Retirement Saving By John Laitner; Daniel Silverman; Dmitriy Stolyarov
  18. Does Marriage Make You Healthier? By Nezih Guner; Yuliya Kulikova; Joan Llull
  19. Deterministic and stochastic trends in the Lee-Carter mortality model By Laurent Callot; Niels Haldrup; Malene Kallestrup Lamb
  20. Longevity and technological change By Gehringer, Agnieszka; Prettner, Klaus
  21. The Price of Experience By Hyeok Jeong; Yong Kim; Iourii Manovskii
  22. Smart home care platforms: Where is the added value? By Vannieuwenborg, Frederic; Van Auwermeulen, Thomas; Van Ooteghem, Jan; Jacobs, An; Verbrugge, Sofie; Colle, Didier; Pickavet, Mario
  23. Fertility and Financial Development: Evidence from U.S. Counties in the 19th Century By Alberto Basso; Howard Bodenhorn; David Cuberes
  24. Long-Term Care Insurance and Carers' Labor Supply: A Structural Model By Johannes Geyer; Thorben Korfhage

  1. By: Usui, Emiko; Shimizutani, Satoshi; Oshio, Takashi
    Abstract: This study examines the work capacity of older adults in Japan. First, we estimate the relationship between a variety of health indicators and work status.Work status is divided into full-time work, part-time work, and retired for those in their 50s who are not yet age-eligible for public pension benefits. Then, we simulate work capacity for those in their pension-eligible 60s and the first half of the 70s. The simulation results indicate a large work capacity. The health status of those in their 60s suggests that their labor force participation rate could be increased substantially by reforming social security programs.
    Keywords: Work capacity, health, retirement, simulation, JSTAR
    JEL: J26 I10 H55
    Date: 2014–10
  2. By: Frank W. Heiland (City University of New York, Baruch College); Na Yin (City University of New York, Baruch College)
    Abstract: This paper develops a framework to analyze the actuarial adjustments faced by American workers who claim Social Security benefits before or after their Full Retirement Age (FRA). We derive the conditions under which these adjustments are “actuarially fair” (or “neutral”) and develop measures to characterize the devi- ation from the fair form. Fair adjustment schedules are increasing at an increasing rate in take-up age and become flatter as longevity rises. We document that the actuarial fit has improved across generations. Our baseline 3% discount rate scenario estimates that the current schedule deviates from its fair form by less than 1% for average-mortality beneficiaries, compared to 5.1% and 4.0% for male and female beneficiaries in 1980, respectively. The improvement is largely due to the increases in the Delayed Retirement Credit. For men, gains in life expectancy combined with the increase in the FRA also contributed to the improved fit. We predict that the designated increase in the FRA to age 67 will have little effect on the actuarial fit. We investi- gate schedules reflecting (further) increases in the retirement ages, as recommended by the President’s 2010 Fiscal Commission, and propose alternatives. We also discuss results from the analysis of the adjustments to spousal and widow(er) benefits.
    Date: 2014–04
  3. By: Javier Olivera (University of Luxembourg)
    Abstract: In this paper we study the consequences of a hypothetical multi-pillar pension system in Peru. We use unique administrative records of workers to estimate distributions of future pensions for the actual and multi-pillar system and assess the effects on pension inequality, pension liability and overall welfare for the insured population. Our results show that the large pension inequality and liability of the actual pension system can be substantially reduced with welfare preserving policies. As we consider different types of social welfare functions, our simulations illustrates, that when one considers welfare, it is important to define the implied value judgments, which are not universally agreed upon. Thus, the goal of this study is not to advice for a particular scenario of reform, but highlight the trade-offs that have to be made explicit in order to take the best possible option, which can be useful for policy-makers who intend to carry out a next generation of pension reforms in Latin America in the near future.
    Keywords: Pension reform, pension inequality, social security, Latin America, Peru, economic policy
    JEL: H55 H63 I30 G23
    Date: 2014–11
  4. By: Ángel de la Fuente
    Abstract: This paper develops a simple model that can be used to analyze the long-term sustainability of the contributive pension system and the steady-state response of pension expenditure to changes in some key demographic and economic variables, in the characteristics of the average pensioner and in the parameters that describe how pensions are calculated in Spain as a function of workers' Social Security contribution histories.
    Date: 2014–11
  5. By: Derek Anderson; Dennis P. J. Botman; Ben Hunt
    Abstract: Japan has the most rapidly aging population in the world. This affects growth and fiscal sustainability, but the potential impact on inflation has been studied less. We use the IMF’s Global Integrated Fiscal and Monetary Model (GIMF) and find substantial deflationary pressures from aging, mainly from declining growth and falling land prices. Dissaving by the elderly makes matters worse as it leads to real exchange rate appreciation from the repatriation of foreign assets. The deflationary effects from aging are magnified by the large fiscal consolidation need. Many of these factors will beset other advanced countries as well, but we find that deflation risk from aging is not inevitable as ambitious structural reforms and an aggressive monetary policy reaction can provide the offset.
    Keywords: Aging;Japan;Deflation;Inflation;Age-related spending;Health care spending;Fiscal policy;Monetary policy;Demographic transition;Population aging, deflation, Abenomics
    Date: 2014–08–04
  6. By: Peter Willemé
    Abstract: This paper presents the models developed at the FPB to project public spending on curative care and long-term care in the medium and long term. The variables explaining curative care spending are income, the age composition of the population, the unemployment rate and technological and medical progress. This variable is approximated using two indicators, the number of new drug approvals (Farmanet data) and the approvals for non-pharmaceutical products (Food and Drug Administration data). With the exception of the latter, all drivers mentioned above increase the cost of curative care. As for long-term care spending, it is explained by income, the proportion of older people in the population and their life expectancy. Long-term care spending is positively impacted by income and ageing. Yet, due to the increase in life expectancy, the impact of ageing shifts gradually towards the oldest age group.
    JEL: I10 H51
    Date: 2014–09–30
  7. By: Buła, Rafał
    Abstract: In the article the stability of pension funds market in Poland in 2007-2011 is appraised. Using the Hellwig method it is proved that main factors influencing ranks of pension funds are net assets and rate of return.
    Keywords: pension funds, Hellwig method
    JEL: G23
    Date: 2014
  8. By: Keith Jacks Gamble; Patricia Boyle; Lei Yu; David Bennett
    Abstract: Financial fraud is a major threat to older Americans, and this problem is expected to grow as the baby boom generation retires and more retirees manage their own retirement accounts. We use a unique dataset to examine the causes and consequences of financial fraud among older Americans. First, we find that decreasing cognition is associated with higher scam susceptibility scores and is predictive of fraud victimization. Second, overconfidence in one’s financial knowledge is associated with fraud victimization. Third, fraud victims increase their willingness to take financial risks relative to propensity-matched non-victims.
    Date: 2014–10
  9. By: Euwals, Rob (CPB Netherlands Bureau for Economic Policy Analysis); Trevisan, Elisabetta (University of Padua)
    Abstract: This paper investigates the impact of financial incentives on early retirement behaviour for high and low wage earners. Using a stylized life-cycle model, we derive hypotheses on the behaviour of the two types. We use administrative data and employ a linear random effects model to test the predictions. We exploit exogenous variation in the replacement rate over birth cohorts of workers who are eligible to a transitional early retirement scheme. The empirical results show that low wage earners are, as predicted by the model, more sensitive to financial incentives. This implies that low wage earners will experience a stronger incentive to continue working in an early retirement scheme with a low implicit tax rate.
    Keywords: pensions, early retirement, labour market behaviour
    JEL: J16 J22 J61
    Date: 2014–09
  10. By: Alan L. Gustman; Thomas L. Steinmeier; Nahid Tabatabai
    Abstract: This paper uses data from the Health and Retirement Study to examine the effects of the Great Recession on the wealth held by the near retirement age population from 2006 to 2012. For the Early Boomer cohort (ages 51 to 56 in 2004), real wealth in 2012 remained 3.6 percent below its 2006 value. This is a modest decline considering the fall in asset values during the Great Recession. Much of the decline in wealth over the 2006 to 2010 period was cushioned by wealth originating from Social Security and defined benefit pensions. For the most part, these are stable sums that ensured a major fraction of total wealth did not decline as a result of the recession. The rebound in asset values observed between 2010 and 2012 mitigated, but did not erase, the asset losses experienced in the first years of the Great Recession. Effects of the Great Recession varied with the household's initial wealth. Those who were in the highest wealth deciles typically had a larger share of their assets subject to the influence of declining markets, and were hurt most severely. Unlike those falling in lower wealth deciles, they have yet to regain all the wealth they lost during the recession. Recovering losses in assets is only part of the story. The assets held by members of the cohort nearing retirement at the onset of the recession would normally have grown over ensuing years. Members of older HRS cohorts accumulated assets rapidly in the years just before retirement. Those on the cusp of retiring at the onset of the recession would be much better off had they had enjoyed similar growth in assets as experienced by members of older cohorts. The bottom line is that the losses in assets imposed by the Great Recession were relatively modest. The recovery has helped. But much of the remaining penalty due to the Great Recession is in the failure of assets to grow beyond their initial levels.
    JEL: D31 D91 E21 H55 I3 J14 J26 J32
    Date: 2014–10
  11. By: Deelen, Anja (CPB Netherlands Bureau for Economic Policy Analysis); Euwals, Rob (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: In this study, we investigate the anatomy of older workers' wages. The central question is whether the wage cushion – i.e., the difference between actual wages and collectively agreed-upon (maximum) contractual wages – contributes to the fact that wages continue increasing at older ages. We follow the wages of individual workers in twenty-two sectors of industry in the Netherlands using administrative data for the period 2006–2010. In the public sector, we find no evidence of a wage cushion. Wage scale ceilings set in collective agreements are guiding for older workers' wages, and workers earning a contractual wage equal to a wage scale ceiling are not compensated with higher additional wages. In the private sector, we do find evidence of a wage cushion. Wage scale ceilings are less restrictive and workers earning a contractual wage exceeding the highest wage scale ceiling experience higher contractual wage growth. The private sector wage cushion enhances wage differentiation and allows for wages that continue increasing at older ages.
    Keywords: wages, economics of the elderly
    JEL: C23 J14 J31
    Date: 2014–09
  12. By: Gustavo Mery; Walter Wodchis; Audrey Laporte
    Abstract: Increases in Home Care (HC) services for the elderly have been a policy priority in recent decades. HC services include Home Health Care (HHC) and Homemaking/Personal Support (HM). We explored the interrelationship between receipt of publicly funded HM and HHC, and the determinants of the receipt of each type of services. A household home care decision model was extended, to develop an understanding of the demand for HHC and HM services separately and to include different household arrangements. Individual panel data for those aged 65 and over were derived from 9 biannual waves of the Canadian National Population Health Survey (1994-95 to 2010-11). A Panel Two-Stage Residual Inclusion method was used to estimate the likelihood of the receipt of HC services. Receipt of publicly funded HM is complementary with receipt of publicly funded HHC services after adjusting for functional and health status. Dependence on help with activities of daily living, health status, household arrangement, and income are determinants of the propensity to receive publicly funded HHC and HM services.
    Keywords: home care, elderly, long-term care, public provision, complementary effect, determinants
    JEL: I11 I12 I18
    Date: 2014–11
  13. By: Matthew Weinzierl
    Abstract: The price indexation of Social Security benefit payments has emerged in recent years as a flashpoint of debate in the United States. I characterize the direct effects that changes in that price index would have on retirees who differ in their initial wealth at retirement and mortality rates after retirement. I propose a simple but flexible theoretical framework that converts benefits reform first into changes to retirees' consumption paths and then into a net effect on social welfare. I calibrate that framework using recently-produced data on Social Security beneficiaries by lifetime income decile and both existing and new survey evidence on the normative priorities Americans have for Social Security. The results suggest that the value retirees place on protection against longevity risk is an important caveat to the widespread enthusiasm for a switch to a slower-growing price index such as the chained CPI-U.
    JEL: E31 H55
    Date: 2014–11
  14. By: Martin Huber; Michael Lechner; Conny Wunsch (University of Basel)
    Abstract: <p style="margin-bottom:12.0pt; line-height:150%"><span lang="EN-GB">This paper investigates the average effects of (firm-provided) workplace health promotion measures in form of the analysis of sickness absenteeism and </span><span lang="EN-GB">health circles/courses</span><span lang="EN-GB"> on labour market out­comes of the firms’ employees. Exploiting linked employer-employee panel data that consist of rich survey-based and administrative information on firms, workers and regions, we apply a flexible propensity score matching approach that controls for selection on observables as well as on time-constant unob­served fac­tors. While the effects of analysing sickness absenteeism appear to be rather limited, our results suggest that health circles/courses increase tenure and </span><span lang="EN-GB">decrease the number of job changes across various age groups. A key finding is that </span><span lang="EN-GB">health circles/courses</span><span lang="EN-GB"> strengthen the labour force attachment of elderly em­ployees (51-60), implying potential cost savings for public transfer schemes such as unemployment or early retirement benefits.  </span>
    Keywords: Firm health policies, health circles, health courses, analysis of sickness absenteeism, matching
    JEL: I10 I19 J32
    Date: 2014
  15. By: Alan Gustman; Thomas Steinmeier; Nahid Tabatabai
    Abstract: This paper examines the distributional implications of introducing additional means testing of Social Security benefits where proceeds are used to help balance Social Security's finances. Benefits of the top quarter of households ranked according to the relevant measure of means are reduced using a modified version of the Social Security Windfall Elimination Provision (WEP). The replacement rate in the first bracket of the benefit formula, determining the Primary Insurance Amount (PIA), would be reduced from 90 percent to 40 percent of Average Indexed Monthly Earnings (AIME). Four measures of means are considered: total wealth; an annualized measure of AIME; the wealth value of pensions; and a measure of average indexed lifetime W2 earnings. The empirical analysis is based on data from the Health and Retirement Study. These means tests would reduce total lifetime household benefits by 7 to 9 percentage points. We find that the basis for means testing Social Security makes a substantial difference as to which households have their benefits reduced, and that different means tests may have different effects on the benefits of families in similar circumstance. We also find that the measure of means used to evaluate the effects of a means test makes a considerable difference as to how one would view the effects of the means test on the distribution of benefits.
    JEL: D04 D31 D63 E21 H55 I3 J14 J18 J32
    Date: 2014–10
  16. By: James Liang; Hui Wang; Edward P. Lazear
    Abstract: Entrepreneurship requires creativity and business acumen. Creativity may decline with age, but business skills increase with experience in high level positions. Having too many older workers in society slows entrepreneurship. Not only are older workers less innovative, but more significant is that when older workers occupy key positions they block younger workers from acquiring business skills. A formal theoretical structure is presented and tested using the Global Entrepreneurship Monitor data. The results imply that a one-standard deviation decrease in the median age of a country increases the rate of new business formation by 2.5 percentage points, which is about forty percent of the mean rate. Furthermore, older societies have lower rates of entrepreneurship at every age.
    JEL: J11 L26 M51
    Date: 2014–09
  17. By: John Laitner; Daniel Silverman; Dmitriy Stolyarov
    Abstract: We introduce a tractable model of post-retirement saving behavior in which households have a precautionary motive arising from uninsured health status risks. The model distinguishes between annuitized and non-annuitized wealth, emphasizes the importance of asset composition in determining optimal household behavior, and includes an extension allowing late-in-life exchange transactions among relatives. We consider three puzzles in micro data - rising cohort average wealth of retirees, lack of demand for market annuities, and the relative scarcity of bequests - and show that our model can provide intuitive explanations for each.
    JEL: D91 E21 H55
    Date: 2014–10
  18. By: Nezih Guner; Yuliya Kulikova; Joan Llull
    Abstract: We use the Panel Study of Income Dynamics (PSID) and the Medical Expenditure Panel Survey (MEPS) to study the relationship between marriage and health for working-age (20 to 64) individuals. In both data sets married agents are healthier than unmarried ones, and the health gap between married and unmarried agents widens by age. After controlling for observables, a gap of about 12 percentage points in self-reported health persists for ages 55-59. We estimate the marriage health gap non-parametrically as a function of age. If we allow for unobserved heterogeneity in innate permanent health, potentially correlated with timing and likelihood of marriage, we find that the effect of marriage on health disappears at younger (20-39) ages, while about 6 percentage points difference between married and unmarried individuals, about half of the total gap, remains at older (55-59) ages. These results indicate that association between marriage and health is mainly driven by selection into marriage at younger ages, while there might be a protective effect of marriage at older ages. We analyze how selection and protective effects of marriage show up in the data.
    Keywords: health, marriage, selection
    JEL: I10 I12 J10
    Date: 2014–10
  19. By: Laurent Callot (VU University Amsterdam, the Tinbergen Institute and CREATES); Niels Haldrup (Aarhus University and CREATES); Malene Kallestrup Lamb (Aarhus University and CREATES)
    Abstract: The Lee and Carter (1992) model assumes that the deterministic and stochastic time series dynamics loads with identical weights when describing the development of age specific mortality rates. Effectively this means that the main characteristics of the model simplifies to a random walk model with age specific drift components. But restricting the adjustment mechanism of the stochastic and linear trend components to be identical may be a too strong simplification. In fact, the presence of a stochastic trend component may itself result from a bias induced by properly fitting the linear trend that characterizes mortality data. We find empirical evidence that this feature of the Lee-Carter model overly restricts the system dynamics and we suggest to separate the deterministic and stochastic time series components at the benefit of improved fit and forecasting performance. In fact, we find that the classical Lee-Carter model will otherwise over estimate the reduction of mortality for the younger age groups and will under estimate the reduction of mortality for the older age groups. In practice, our recommendation means that the Lee-Carter model instead of a one-factor model should be formulated as a two (or several)-factor model where one factor is deterministic and the other factors are stochastic. This feature generalizes to the range of models that extend the Lee-Carter model in various directions.
    Keywords: Mortality modelling, factor models, principal components, stochastic and deterministic trends
    JEL: C2 C23 J1 J11
    Date: 2014–11–19
  20. By: Gehringer, Agnieszka; Prettner, Klaus
    Abstract: We analyze the impact of increasing longevity on technological progress within an R&D-based endogenous growth framework and test the model's implications on OECD data from 1960 to 2011. The central hypothesis derived in the theoretical part is that - by raising the incentives of households to invest in physical capital and in R&D - decreasing mortality positively impacts upon technological progress and thereby also on productivity growth. The empirical results clearly confirm the theoretical prediction which implies that the ongoing demographic changes in industrialized economies are not necessarily detrimental to economic prosperity, at least as far as technological progress and productivity growth are concerned.
    Keywords: Demographic Change,Longevity,Productivity,Technological Progress,Economic Prosperity
    JEL: J11 O11 O40 O41
    Date: 2014
  21. By: Hyeok Jeong; Yong Kim; Iourii Manovskii
    Abstract: We identify a key role of factor supply, driven by demographic changes, in shaping several empirical regularities that are a focus of active research in macro and labor economics. In particular, demographic changes alone can account for the large movements of the return to experience over the last four decades, for the differential dynamics of the age premium across education groups emphasized by Katz and Murphy (1992), for the differential dynamics of the college premium across age groups emphasized by Card and Lemieux (2001), and for the changes in cross-sectional and cohort-based life-cycle profiles emphasized by Kambourov and Manovskii (2005).
    JEL: E24 E25 J24 J31
    Date: 2014–09
  22. By: Vannieuwenborg, Frederic; Van Auwermeulen, Thomas; Van Ooteghem, Jan; Jacobs, An; Verbrugge, Sofie; Colle, Didier; Pickavet, Mario
    Abstract: Due to changes in the demographic situation of most Western European countries, interest in ICT supported care services grows fast. eCare services that foster a better care information exchange, social involvement, lifestyle monitoring services, etc., offered via smart care platforms integrated in the homes of the elderly are believed to be cost-effective and could lead to an increased quality of life of both care receiver and (in)formal care giver. Currently adoption and integration of these smart care platforms is slowed down by several barriers such as an unclear added value, a lack of regulations or a sustainable financial model. In this work the added value of smart home care platforms is identified for the several involved key-actors such as the care receiver, the (in)formal care providers and the care organizations. In a second step several go to market strategies are formulated and are supported by the quantification of the potential impact on current care processes in terms of time and financial resources. Because the gap between the current way of providing home care and providing home care supported by a fully integrated smart care platform seems too big to bridge in one effort, a migration path is provided for stepwise adoption and integration of smart care platforms in the current way of home care provisioning.
    Keywords: smart care platform,multi-actor analysis,value network analysis,impact quantification
    Date: 2014
  23. By: Alberto Basso; Howard Bodenhorn; David Cuberes
    Abstract: The old-age security hypothesis establishes that one important reason why parents have a large offspring is to ensure that they will receive financial support from them in old age. In this paper we use data on fertility and financial development in 19th century U.S. to indirectly test this theory. In particular, we explore whether more developed local financial markets reduce the incentives for families to have a large offspring. After controlling for several factors likely to create cross-county variation in fertility levels and for potential spatial correlation, we find that the presence of a bank and the degree of financial development in a given county are strongly associated with lower children-to-women ratios. We find compelling evidence for the old-age security hypothesis.
    JEL: N21 N31 N91 R2
    Date: 2014–09
  24. By: Johannes Geyer; Thorben Korfhage
    Abstract: In Germany, individuals in need of long-term care receive support through benefits of the long-term care insurance. A central goal of the insurance is to support informal care provided by family members. Care recipients can choose between benefits in kind (formal home care services) and benefits in cash. From a budgetary perspective family care is a cost-saving alternative to formal home care and to stationary nursing care. However, the opportunity costs resulting from reduced labor supply of the carer are often overlooked. We focus on the labor supply decision of family carers and the incentives set by the long-term care insurance. We estimate a structural model of labor supply and the choice of benefits of family carers. We find that benefits in kind have small positive effects on labor supply. Labor supply elasticities of cash benefits are larger and negative. If both types of benefits increase, negative labor supply effects are offset to a large extent.
    Keywords: Labor supply, long-term care, long-term care insurance, structural model
    JEL: J22 H31 I13
    Date: 2014

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