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

  1. Benefit-retirement age schedules and redistribution in public pension systems By András Simonovits
  2. The Effect of Public Pension Eligibility Age on Household Saving: Evidence from a New Zealand Natural Experiment By Talosaga Talosaga; Mark Vink
  3. Aging, social security design and capital accumulation By DEDRY, Antoine; ONDER, Arun; PESTIEAU, Pierre
  4. Risk, redistribution and retirement : The role of pension schemes By Bonenkamp, J.
  5. Older public sector workers’ retirement planning, participation, and preparedness By Robert Clark; Robert Hammond; Emma Hanson; Melinda Morrill
  6. Ageing in a Long-term Regeneration Neighbourhood: A Disruptive Experience or Successful Ageing in Place? By Kleinhans, Reinout; Veldboer, Lex; Jansen, Sylvia; van Ham, Maarten
  7. Predicting labor force participation of the older population By Michael Hurd; Susann Rohwedder
  8. The Health Effects of Retirement By Peter Eibich
  9. Aging and the governance of the healthcare system in Japan By Yukihiro Matsuyama
  10. Just the Facts: Demographic and Cross-Country Dimensions of the Employment Slump By Clemens, Jeffrey; Wither, Michael
  11. A Golden Rule of Health Care By Marias H. Gestsson; Henrique Gylfi Zoega
  12. The Relationships between Living Conditions and Life Satisfaction of Elderly People in Istanbul By Lale Berkoz
  13. It Pays to Set the Menu: Mutual Fund Investment Options in 401(k) plans By Pool, Veronika K.; Sialm, Clemens; Stefanescu, Irina
  14. On the Optimal Degree Of Funding Of Public Sector Pension Plans By Meijdam, A.C.; Ponds, E.H.M.
  15. Spatial Typology of the Ageing Process in the European Union on the Level NUTS 2 Regions By Ivan ?otkovský
  16. Changing Mortality Rates and Income Inequality among the U.S. Elderly By Gary Burtless
  17. Optimal asymmetric taxation in a two-sector model with population ageing By Igor Fedotenkov

  1. By: András Simonovits (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences also Department of Economics, Central European University and Mathematical Institute, Budapest University of Technology)
    Abstract: The dependence of benefit on the retirement age (the schedule) is an important feature in any public pension system. The nonfinancial defined contribution (NDC) pension system has recently become popular mainly because of its allegedly actuarial fairness. Using the framework of mechanism design with adverse selection, these systems have theoretically been criticized because they neglect the resulting regressive intracohort redistribution: longer lived workers retire later and are rewarded as if their life expectancies were average. We document such adverse selection on Hungarian data. The resulting redistribution can be diminished but not eliminated. Giving up mechanism design, we corroborate our earlier qualitative findings in a more realistic framework.
    Keywords: nonfinancial defined contributions, variable retirement, adverse selection, actuarial fairness
    JEL: C61 C63 D82 D91 H55
    Date: 2014–11
  2. By: Talosaga Talosaga; Mark Vink (The Treasury)
    Abstract: This paper examines the effect of the last increase in the eligibility age for New Zealand’s public pension, New Zealand Superannuation, on household saving rates. The age of eligibility was increased progressively from 60 to 65 years old between 1992 and 2001, with little forewarning. Drawing on Household Economic Survey data, the paper uses difference-in-difference regression analysis to compare the last cohorts to receive New Zealand Superannuation at the age of 60 years old with the first to face higher eligibility ages. The policy change is found to have increased average saving rates of affected households, particularly among middle-income and older households. The increase in saving rates is associated with higher household labour supply and income, and lower expenditure. The results suggest the policy change initially lifted the aggregate household saving rate by around 2.5 percentage points with the effect declining slightly over time.
    Keywords: Household Saving; Retirement Income; New Zealand Superannuation
    JEL: D14 D91 E21 H55 J26
    Date: 2014–11
  3. By: DEDRY, Antoine (University of Liège); ONDER, Arun (University of Liège); PESTIEAU, Pierre (University of Liège; Université catholique de Louvain, CORE, Belgium)
    Abstract: This paper analyzes the impact of aging on capital accumulation and welfare in a country with a sizable unfunded social security system. Using a two-period overlapping-generation model with endogenous retirement decisions, we show that both the type of aging and the type of unfunded social security system are important in understanding this impact. We consider two demographic changes, declining fertility and increasing longevity, and three types of pensions, defined contributions, defined benefits and defined annuities, to investigate the differences in implications of aging.
    Keywords: aging, public finance sustainability, social security
    JEL: H2 F42 H8
    Date: 2014–07–03
  4. By: Bonenkamp, J. (Tilburg University, School of Economics and Management)
    Abstract: One of the main conclusions of this thesis is that collective pension funds are potentially welfare improving, even if contributions are distortionary and even if individuals face positively correlated wage and equity risks. By disconnecting individual contributions and benefits, the pension fund is able to smooth shocks over and beyond the life cycle of single generations. By adapting its investment policy to the risk-bearing capacity of the participants, the fund can in principle ensure that labour-supply distortions are overcompensated by risk-sharing gains. The thesis also contributes to the existing economic literature on portfolio and retirement choice. This literature argues that flexible retirement may serve as a hedge against unforeseen outcomes, justifying more risky asset portfolios during working life. The conclusion that emerges from the thesis is that this positive relation between risk taking and flexible retirement is weakened once uncertainty about labour income is recognized. Apart from facilitating risk sharing, collective pensions can also exploit the benefits of redistribution. Indeed, this thesis shows that introducing a flexible pension take-up can increase welfare if the initial pension scheme contains within-cohort redistribution.
    Date: 2013
  5. By: Robert Clark (North Carolina State University and The National Bureau of Economic Research); Robert Hammond (North Carolina State University); Emma Hanson (North Carolina State University); Melinda Morrill (North Carolina State University)
    Abstract: Once retired from a career job, individuals must live off savings, Social Security, and pensions or earnings from post-retirement work. Those who have made adequate plans for retirement are more likely to be able to meet their desired levels of consumption once retired and are less likely to end up relying on public assistance or having to reenter the labor market. While much attention has been paid to participation in voluntary retirement saving plans, less is known about workers’ planning for retirement. Using administrative records linked to a large-scale survey, we explore what factors are associated with both objective and subjective measures of planning for retirement among public sector workers in North Carolina. We find that only about half our sample of workers ages 50-69 have made a retirement plan. We show that individuals who exhibit higher levels of time discounting, or impatience, are also less likely to plan for retirement and that financial literacy is associated with higher rates of planning. We also show that planning is related to wealth accumulation and retirement preparedness.
    Date: 2014–11
  6. By: Kleinhans, Reinout (Delft University of Technology); Veldboer, Lex (University of Amsterdam); Jansen, Sylvia (Delft University of Technology); van Ham, Maarten (Delft University of Technology)
    Abstract: The aging population of European cities raises enormous challenges with regard to employment, pensions, health care and other age-related services. The housing preferences of the aging population are changing rapidly where more and more people want to live independent lives for as long as possible. At the same time governments need to reduce the costs of expensive institutionalized care. A precondition for 'ageing in place' is that elderly people perceive their neighbourhoods as familiar and safe places. In the Netherlands, many neighbourhoods with a rapidly ageing population have been subject to urban regeneration policies. Hence, an important question is to what extent these policies affect the housing situation, social support networks and socioeconomic position of elderly people, because these factors strongly assist the ability of elderly people to live independently. We answer this question through the analysis of a small but unique panel data set with 2007 and 2012 measurements from Hoogvliet, a district of Rotterdam. Contrary to claims about large, disrupting impacts of urban regeneration, the results show that – even in times of economic crisis – regeneration in Hoogvliet has enabled 'ageing in place'. There appears no relationship between the Hoogvliet policies and changes in income of elderly people and their ability to get by financially. Those who have moved home often report regeneration benefits, mostly related to accessing better quality housing in the same area. Finally, we found no clear evidence of decreased social support or increased loneliness through regeneration-induced disruption of social networks.
    Keywords: ageing in place, urban regeneration, social networks, social support, loneliness, Rotterdam
    JEL: J14 O18 R23
    Date: 2014–11
  7. By: Michael Hurd (Rand Corporation); Susann Rohwedder (Rand Corporation)
    Abstract: Labor force participation (LFP) rates are changing—and, at least for some groups, changing dramatically. These trends have important societal implications. For the most part, they indicate longer stays in the labor force and later retirement. Such trends may allow for the accumulation of greater wealth by the time an individual reaches retirement age, allowing for higher levels of income replacement and less pressure for increases in Social Security benefits. These trends may also reduce the financial stress borne by the working generation in supporting the retiring generation. Given the importance of these and other potential effects of changing LFP rates, the ability to predict the future of such rates could be helpful to decision-makers. While LFP trends to date have been well documented, there have been few projections of trend lines that have instilled confidence. The purpose of this paper is to report on new LFP projections based on novel but rigorous methods taking advantage of panel data from the Health and Retirement Study. We begin with LFP rates based on the Current Population Survey, then move to two-year labor force retention rates and retirement hazards from HRS data. We then introduce the prediction tool, the HRS respondent’s subjective probability of retention in the labor force at age 62 (or 65). We show the trends in this measure over the course of the past two decades and demonstrate its favorable comparability with actual retention behavior. We present individual - and population - level predictions of LFP rates based on subjective probabilities. We conclude with some data about possible cause of the increased LFP rates.
    Date: 2014–11
  8. By: Peter Eibich
    Abstract: Retirement leads to changes in daily life that may affect health positively or negatively. Existing empirical evidence is inconclusive: While a few studies identify negative health effects, the majority of studies find no or positive effects of retirement on health. The mechanisms behind these effects remain unclear, as is the question of which parts of the population benefit most from retirement. Recent studies indicate that retirees use their increased leisure time for healthier behavior.
    Date: 2014
  9. By: Yukihiro Matsuyama
    Abstract: Japan is the most rapidly aging country in the world. This is evidence that the social security system, which consists of the pension system, healthcare system and other programmes, has been working well. The population is shrinking because of a falling birth rate. It is expected that the population will fall from 128 million in 2010 to 87 million in 2060. During this period, the ratio of people aged 65 or over will rise from 23 percent to 39.9 percent. Japanâ??s age dependency ratio was 62 in 2013, the highest among advanced nations. It is expected to rise sharply to 94 in 2050 (see Figure 1 on page 4). A total reform of the Japanese social security system, therefore, is inevitable. From the point of view of fiscal reconstruction, reform of the healthcare system is the most important issue. The biggest problem in the healthcare system is that both the funding system and the care-delivery system are extremely fragmented. The government is planning its reform of the healthcare system based on the principle of integration. Other advanced economies could learn from the Japanese experience.
    Date: 2014–12
  10. By: Clemens, Jeffrey; Wither, Michael
    Abstract: We present data characterizing the U.S. labor market during the Great Recession and subsequent recovery. U.S. employment declines were dramatic among young adults, substantial among prime-aged adults, and modest among those near retirement. The decline in employment among working-age adults generally exceeded those that occurred in other advanced economies. We assess the potential explanatory power of population aging and increases in educational attainment as factors underlying these developments. Recent analyses suggest that population aging can explain nearly one half of the decline in the labor force participation rate and one third of the decline in the employment to population ratio from 2007 to 2013. Our comparisons of employment developments across age groups and countries provide reason to view this one third as an upper bound on aging's plausible contribution. We conduct a more detailed analysis of changes in employment and school attendance across demographic sub-groups of the young adult population. Across sub-groups defined by age, gender, and race/ethnicity, changes in school enrollment predict very little of the variation in this period's employment changes. Taken together, aging and enrollment trends thus appear to underlie a modest to moderate fraction of the aggregate employment decline. We conclude by discussing a range of non-demographic factors that may have contributed to the decline, but on which existing research has yet to arrive at a consensus.
    Keywords: Great Recession, Employment Rate, Unemployment, Labor Force Participation
    JEL: E32 J0 J11
    Date: 2014–11–26
  11. By: Marias H. Gestsson (Department of Economics, University of Iceland); Henrique Gylfi Zoega (Department of Economics, University of Iceland; Department of Economics, Mathematics & Statistics, Birkbeck)
    Abstract: We derive a golden rule for the level of health care expenditures and find that the optimal level of life-extending health care expenditures should increase with rising productivity and retirement age, while the effects of improvement in medical technology are ambiguous.
    Keywords: Health care, golden rule, productivity.
    JEL: E62 I12
    Date: 2014–12
  12. By: Lale Berkoz
    Abstract: The Relationships between Living Conditions and life satisfaction of elderly people in Istanbul Lale BERKOZ, Funda YÃRMÃBESOGLU ITU, Faculty of Architecture Department of Urban and Regional Planning Taksim, Taþkýþla, 34437, Ãstanbul e-mail: The rate of the elderly population increases rapidly throughout the world. The growth rate of the elderly population in the world is 2.1%, whereas the overall population growth rate is over 1.2 % (Mandiraoglu, 2010). The elderly population rate in the United States varies between 15% and 20 %. However, the elderly population rate in Turkey has not reached the level of developed western countries. Although the population rate of those who are 60 and over in Turkey was 5.9% in 1950, it has risen to 7.0% in 1990 and 8.4% in 2000. Today this rate is about 10%. For the coming of aging society, the life satisfaction for the elderly people are very important. Satisfaction is the sense of fulfillment resulting from meeting the needs and demands. Life satisfaction refers to the individual's positive evaluation of his/her life as a whole. Life satisfaction, in other words, subjective quality of life, is a major element of quality aging (TSI, 2004). Along with the health issues that arise with old age, the elderly also encounter problems adapting to the changing urban space, which has not been constructed considering their needs. By creating livable spatial environments, it is especially important to provide the elderly and the disabled with suitable, comfortable and safe living spaces. In this sense, considering universal designing criteria in creating urban strategies can help form and maintain healthy cities. There are a few studies analyzing the life quality of the elderly in Turkey. This study is aimed at investigating the relationships between the living conditions and life satisfaction of the elderly in Istanbul. In the scope of this study 410 questionnaires have been made in face to face interviews of elderly people in residential areas in the districts of Bakýrkoy, Kadýkoy and Besiktas. While selecting these samples, questionnaire quota has been applied proportional to the population of each district and elderly people population. The reason why these districts were selected is the rate of the elderly population in the related areas which is twice as much as the average of Istanbul. Key Words: Life satisfaction, life quality, elderly people, Istanbul, H131
    Keywords: Life satisfaction; life quality; elderly people; Istanbul;
    Date: 2014–11
  13. By: Pool, Veronika K. (Indiana University); Sialm, Clemens (University of Texas at Austin); Stefanescu, Irina (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: This paper investigates whether mutual fund families acting as service providers in 401(k) plans display favoritism toward their own funds. Using a hand-collected dataset on retirement investment options, we show that poorly-performing funds are less likely to be removed from and more likely to be added to a 401(k) menu if they are affiliated with the plan trustee. We find no evidence that plan participants undo this affiliation bias through their investment choices. Finally, the subsequent performance of poorly-performing affiliated funds indicates that these trustee decisions are not information driven.
    Keywords: 401(k) pension plans; mutual funds; favoritism
    Date: 2014–08–27
  14. By: Meijdam, A.C. (Tilburg University, Center For Economic Research); Ponds, E.H.M. (Tilburg University, Center For Economic Research)
    Abstract: Abstract: This paper explores the optimal degree of funding of public sector pension plans. It is assumed that a benevolent social planner decides on the contribution of current taxpayers to the funding of public sector pensions next period, weighing the interests of current and future tax payers. Two elements play a role in the optimal funding decision: the optimal-portfolio choice (i.e. the tradeoff between the expected excess return and the additional risk of funding vis-à-vis pay-as-you-go) and intergenerational redistribution (i.e. whether the current generation of tax payers is willing and capable to prefund the pension obligations of current public sector workers or shifts the burden to future generations via a pay-as-you-go scheme). The optimal degree of funding appears to vary over time, depending not only on the relative weight given to the current generation, risk aversion, and the distribution of financial risk and human capital risk, but also on the actual state of the economy, i.e. on wage income, funding in the past and the realization of the excess return on this funding.
    Keywords: public sector pension plans; funding; implicit debt; portfolio approach
    JEL: H55 H75
    Date: 2013
  15. By: Ivan ?otkovský
    Abstract: The article is deal with the spatial differences of the demographic events between European Union regions. We are research spatial diferencies of ageing process between 272 NUTS 2 regions today. The analyses on this spatial level are working with the creation of cartogram method for processing of the demographical data. We can use ArcGIS 10.2 and his version ArcMap 10.2 as a complete system for authoring, serving, and using geographic informations for better processing the spatial data by the help of cartogram method. Our principal main is to group the all 272 EU NUTS 2 regions on the basis children and elderly substitution in population and evaluation of the ageing process. Therefore we are using the basic measurement methods for examination of the age structure. The spatial typology is carried out on the basis of a series of values of the following three basic demographical indices: the children ration, the eledrely ratio, the ageing index (IA) and the dynamic ageing index (DAI). The world's current ageing index is about 30. And only in Europe is more than 100 and in European Union actually 117. This mean, that in Europe we have more elderly people than children. Only eight countries has ageing index less than 100 in European Union now. Ageing index 125 and more has six countries yet.
    JEL: C46 J11 J13 J14 R23
    Date: 2014–11
  16. By: Gary Burtless (Brookings Institution)
    Date: 2014–11
  17. By: Igor Fedotenkov (Bank of Lithuania)
    Abstract: This paper presents a simple condition for optimal asymmetric labour (capital) taxation/subsidization in a two-sector model with logarithmic utilities and Cobb-Douglas production functions, linked to demographic factors: fertility rate and longevity. The paper shows that depending on parameter values, it may be optimal to tax or subsidize labour in the sectors. If it is optimal to tax the investment-goods sector, a Pareto-improving tax reform is possible. Larger output elasticities of capital in the sectors reduce the possibilities of a Pareto-improving reform, while population ageing in terms of higher longevity enhances the possibilities of welfare improvement for all generations. Fertility rates do not affect optimal taxation.
    Keywords: Two sectors, factor mobility, asymmetric taxation, optimality
    JEL: E62 H21 J10
    Date: 2014–10–21

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