nep-age New Economics Papers
on Economics of Ageing
Issue of 2014‒12‒29
sixteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Modeling health and mortality dynamics, and their effects on public finance By Yang, Y.
  2. Das Rentenpaket der Bundesregierung: Politökonomisch geschickt - ökonomisch falsch By Kallweit, Manuel; Kohlmeier, Anabell
  3. Pensions and fertility: a simple proposal for reform By TIM BUYSE
  4. Lifetime Job Demands, Work Capacity at Older Ages, and Social Security Benefit Claiming Decisions By Lauren Hersch Nicholas
  5. Training and wages of older workers in Europe By Michele Belloni; Claudia Villosio
  6. The Effect of Population Aging on Economic Growth By Nicole Maestas; Kathleen Mullen; David Powell
  7. The determinants of annuitization: evidence from Sweden By Hagen, Johannes
  8. Individual Survival Curves Comparing Subjective and Observed Mortality Risks By Bissonnette, Luc; Hurd, Michael D.; Michaud, Pierre-Carl
  9. Demographics and Entrepreneurship By Edward Lazear; James Liang; Hui Wang
  10. Demography and unemployment in East Germany : how close are the ties? By Fuchs, Michaela; Weyh, Antje
  11. Essays in applied microeconomics By Bernal Lobato, N.
  12. Impact Evaluation of the Brazilian Social Programs on Family Welfare. By Ana lucia Kassouf; Pedro Oliveira
  13. Aging and Deflation from a Fiscal Perspective By Mitsuru Katagiri; Hideki Konishi; Kozo Ueda
  14. Impacto Macroeconómico de la Reforma de Pensiones en México By Alejandro Villagómez; Arturo Antón-Sarabia
  15. Overlapping Political Budget Cycles in the Legislative and the Executive By Dirk Foremny; Ronny Freier; Marc-Daniel Moessinger; Mustafa Yeter
  16. The Impact of Health Insurance on Stockholding: A Regression Discontinuity Approach By Christelis, Dimitris; Georgarakos, Dimitris; Sanz-de-Galdeano, Anna

  1. By: Yang, Y. (Tilburg University, School of Economics and Management)
    Abstract: The primary motivation of this dissertation is to provide insights into the future developments of mortality and population health, and the associated effects on public finance in the United States. The U.S. has experienced increases in life expectancy and the accompanying population ageing over the past century. Saving sufficiently for retirement, being able to face higher pension expenses, efficiently allocating healthcare resources are significant challenges for individuals, public and private pension funds, insurance companies, and the government. The complexity of changes in public finance associated with ageing is not only caused by people's longer lifetimes, but also by the future development of people's health. Therefore, the first essay in this dissertation models the future developments of population health and quantifies the degree of uncertainty in the future developments. The second essay further investigates the association between the developments of life expectancy and healthy life expectancy, taking into account dependence between developments of mortality and health. The third essay estimates the effects on (healthy) life expectancy of a policy that links the retirement age to life expectancy by considering the dependence between male and female mortality and health. The last essay studies another important issue of public finance, the growth of healthcare expenditure. The essay investigates the dynamic relationship between the growth of healthcare cost and a relatively large set of its determinants, with special attention to the effect of people's health on the growing healthcare cost.
    Date: 2014
  2. By: Kallweit, Manuel; Kohlmeier, Anabell
    Abstract: Just a few months after the federal elections in Germany, the so called pension package entered into force. It mainly contains three measures: higher pensions for mothers with children born before 1992 ("mother pension"), a reduced retirement age for persons who contributed to the pension system for at least 45 years ("pension with 63") and boost pensions of people who cannot work due to disability ("disability pensions augmentation"). In this paper, we derive the effects of these measures in a computable general equilibrium model on the contribution and replacement rates, as well as on employment, the capital stock and GDP. Furthermore, we analyse the welfare effects of these three measures. Our results indicate that the reforms induce a higher contribution rate, a lower replacement rate, as well as negative, but small employment, capital and GDP effects. Moreover, the strongest beneficiaries will be already retired persons, people between 50 and 65 years, who contributed to the pension system for at least 45 years, and people who will receive a disability pension in the future.
    JEL: C68 H55 J20
    Date: 2014
  3. By: TIM BUYSE (-)
    Abstract: This paper evaluates the effects of a parametric adjustment to an earnings-related PAYG pension system. We show that a simple but ‘intelligent’ reform, in which the calculation of the pension base is changed, may result not only in more employment and growth, but also in an increase in fertility. Such an ‘intelligent’ pension design would maintain a strong link between own labor income and the future pension, while putting more (less) weight on the labor income earned as an older (young) worker in the calculation of the pension base. The higher (lower) marginal utility from work when older (young) following this reform makes it interesting to shift work from the first to later periods of active life. Part of the available time that arises during youth is spent on education. Another part can be spent on raising offspring. By contrast, a shift to a fully-funded system might even reduce fertility.
    Keywords: demographic change,fertility,retirement, pension reform, overlapping generations
    JEL: E62 H55 J13 J22
    Date: 2014–08
  4. By: Lauren Hersch Nicholas
    Abstract: We use Health and Retirement Study data linked to the Department of Labor’s O*Net classification system to examine the relationship between lifetime exposure to occupational demands and retirement behavior. We consistently found that both non-routine cognitive analytic and non-routine physical demands were associated with worse health, earlier labor force exit, and increased use of Social Security Disability Insurance. The growing share of workers in jobs with high levels of cognitive demand may contribute to growth in DI use.
    Date: 2014–11
  5. By: Michele Belloni; Claudia Villosio
    Abstract: The financial deficits of many social security systems caused by ageing populations and stagnating economies are forcing workers to retire later from the labour market. An extended working life combined with rapid technological progress in many sectors, is likely making older workers’ skills obtained in school obsolete. In this context, lifelong investment in training is widely recognized among the international research and policy community as a key element to increase or at least limit the decline in productivity of older workers. This paper investigates the relationship between training undertaken by European older workers and their wages, relying on the Survey of Health, Ageing and Retirement in Europe. Undertaking training activities is associated with 6.3% higher wages. This premium is sizeable and is similar to that of attaining an upper or post-secondary degree instead of a primary or lower-secondary degree. Training wage premiums are highly heterogeneous across countries: they are highest in Austria, Germany, Greece, and Italy and are about half that in France and Spain. No premium is found for Denmark, Sweden, Belgium, the Netherlands, and Switzerland. Training premiums of the first group of countries can be overestimated due to training endogeneity and sample selection bias.
    Keywords: Older workers, Training, Wages, Cognitive abilities, Sample selection bias, Attrition
    JEL: J14 J24 J31
    Date: 2014
  6. By: Nicole Maestas (RAND Economics); Kathleen Mullen (RAND Economics); David Powell (RAND Economics)
    Abstract: Population aging is widely expected to have detrimental effects on aggregate economic growth. However, we have little empirical evidence about the actual existence or magnitude of such effects. In this paper, we exploit differential aging patterns at the state level in the United States between 1980 and 2010. Many states have already experienced high growth rates of the 60+ population, comparable to the predicted national growth rate over the next several decades. Furthermore, these differential growth rates occur partially for reasons unrelated to economic growth, providing a natural approach to isolate the impact of aging on growth. We predict the magnitude of population aging at the state-level given the state’s age structure in an initial period and exploit this predictable differential growth to estimate the impact of population aging on Gross Domestic Product (GDP) growth, and its constituent parts, labor force and productivity growth. We estimate that a 10% increase in the fraction of the population ages 60+ decreases GDP per capita by 5.7%. We find that this reduction in economic growth caused by population aging is primarily due to a decrease in growth in the supply of labor. To a lesser extent, it is also due to a reduction in productivity growth. We present evidence of ownward adjustment of earnings growth to reflect the reduction in productivity.
    Keywords: population aging, GDP growth, demographic transitions
    JEL: J11 J14 J23 J26 O47
    Date: 2014–11
  7. By: Hagen, Johannes (Uppsala Center for Fiscal Studies)
    Abstract: This paper uses unique micro data from a Swedish occupational pension plan to study the determinants of annuitization. The data is merged with national administrative data to create a large data set with rich individual background characteristics. The pension can either be withdrawn as a life annuity or during a fixed number of years with a minimum of five years. Low accumulation of assets is strongly associated with the choice of the 5-year payout. Consistent with the predictions of a life-cycle model, retirees who choose the 5-year payout are in worse health and exhibit higher ex-post mortality rates than annuitants. I also find that the parents of annuitants live longer than the parents of those who choose the 5- year payout. This suggests that individuals form expectations about how long they are likely to live based on the life-span patterns of their parents and take this into account when they decide whether to annuitize or not.
    Keywords: Annuity puzzle; Longevity insurance; Occupational pension; Adverse selection
    JEL: D91 H55 J26 J32
    Date: 2014–11–14
  8. By: Bissonnette, Luc (Laval University); Hurd, Michael D. (RAND); Michaud, Pierre-Carl (University of Québec at Montréal)
    Abstract: In this paper, we compare individual survival curves constructed from objective (actual mortality) and elicited subjective information (probability of survival to a given target age). We develop a methodology to estimate jointly subjective and objective individual-survival curves accounting for rounding on subjective reports of perceived mortality risk. We make use of the long follow-up period in the Health and Retirement Study and the high quality of mortality data to estimate individual survival curves which feature both observed and unobserved heterogeneity. This allows us to compare objective and subjective estimates of remaining life expectancy for various groups, evaluate subjective expectations of joint survival and widowhood by household, and compare objective and subjective mortality with standard life-cycle models of consumption.
    Keywords: subjective probabilities, old age mortality, joint survival of couples
    JEL: C81 D84 I10
    Date: 2014–11
  9. By: Edward Lazear (Stanford University); James Liang (Peking University); Hui Wang (Peking University)
    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
  10. By: Fuchs, Michaela (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Weyh, Antje (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany])
    Abstract: "We analyze the relation between population aging and the decline of unemployment in East Germany for the years from 1996 to 2012. To this we scrutinize both a direct and an indirect effect of aging on unemployment. The direct effect includes a decomposition of the East German unemployment rate into three components considering changes in the workforce's age structure, labor market participation, and age-specific unemployment rates. Results show that changes in the age structure of the workforce counteracted unemployment decline since 2005. Spatial panel regressions on the small-scale regional level, however, point towards an indirect effect of aging on unemployment that works through the increasing competition for labor. Overall results show that the declining unemployment rate in East Germany is indeed affected by aging as evidenced by a declining youth share and an increasing old-age share. This indicates that a reversed cohort crowding effect has taken place." (Author's abstract, IAB-Doku) ((en))
    Keywords: Bevölkerungsentwicklung, demografischer Wandel - Auswirkungen, Arbeitslosigkeitsentwicklung, Beschäftigungseffekte, Erwerbsbevölkerung, Altersstruktur, Arbeitslosenquote, Ostdeutschland
    JEL: C33 J11 J64 O18
    Date: 2014–11–27
  11. By: Bernal Lobato, N. (Tilburg University, School of Economics and Management)
    Abstract: This thesis consists of three chapters dealing with important topics for the well-being of individuals: retirement, health and happiness. All together are micro studies that deal with policy relevant research questions. The first chapter focuses on whether a pension reform has effects on income smoothing and labor supply of older single individuals in the Netherlands, in the presence of uncertainty about income, health and life expectancy. The second one is about the effects of health insurance on individuals' behavior. It evaluates the impact of access to a very popular Health Insurance program in Peru for individuals who work outside the formal labor market on a variety of measures for health care utilization, expenditure and health indicators. Finally, the third chapter explores individuals’ behavior from a different perspective: happiness. It investigates whether reported happiness and utility measures are correlated. The former can be obtained from questions about individual life satisfaction, happiness or well-being that are available in social surveys nowadays. But the latter are not available and have to be constructed. That is exactly what this chapter does and, afterwards, it explores whether there is any correlation between both types of measures. By doing so, the chapter shows that it is possible to link utility economic theory to data on happiness.
    Date: 2014
  12. By: Ana lucia Kassouf; Pedro Oliveira
    Abstract: Impact Evaluation of the Brazilian Social Programs on Family Welfare Key‐words: impact evaluation; cash transfer; public policy; labor supply; child labor; school attendance. This study uses an impact evaluation methodology to analyze the non-contributory pension program BPC on family welfare. The program provides a minimum wage to individuals 65 years-old or more with a per capita family income no greater than 25% of the current minimum wage. It means that the grant is addressed to very poor households and it is well targeted. We also verified that the amount transferred can be considered large when compared to other Brazilian social programs. Therefore, we expect important shifts in life quality of recipients and their families. Primarily we looked for changes in the living arrangements in recipients' households. We found some evidence of increased probability of elders living alone. We considered elders living with the spouse as living alone as well. Some authors argue that old-age pensions could be associated to more independence from the offspring, the spouse, and relatives which could influence their decisions. As our estimates are short run effects, future studies with longitudinal data can pick this effect up if it really exists. When we look at the number of co-residents, we found an increased number of members between 30 and 49 years-old in beneficiaries' households. The results show decreases in the co-residents' labor force participation due to the pension. There is a large decrease in the elderly labor force participation just above the cutoff age and some decrease for adults of more than 30 years of age, but no effect for young adults between 18 and 29 years-old. People with more than 30 years old are very likely to be the adult sons of the beneficiary who may be in charge of the elder. This sort of relationship may be one explanation of this decrease in the labor force participation at that age. Also there could be some intergenerational human capital transfer. Beneficiaries could become more supportive of their grandsons' studies, implying a better school attendance rate of their grandsons and less child labor. We found no effect for school attendance, but we found significant effects for reducing child labor, especially for the younger ones. In this study we could only evaluate the effect upon children co-residing with beneficiaries, but possibly there is a spillover for households of relatives, what lead us to think that the benefit is actually larger than the one we have estimated.
    Keywords: impact evaluation; regression discontinuity design; cash transfer; social assistance; public policy; labor supply; child labor; school attendance
    Date: 2014–11
  13. By: Mitsuru Katagiri (Bank of Japan); Hideki Konishi (School of Political Science and Economics, Waseda University); Kozo Ueda (School of Political Science and Economics, Waseda University)
    Abstract: Negative correlations between inflation and demographic aging were observed across developed nations recently. To understand the phenomenon from a politico-economic perspective, we embed the fiscal theory of the price level into an overlapping-generations model. In the model, successive short-lived governments choose income tax rates and bond issues considering the political influence of existing generations and the policy response of future governments. The model sheds new light on the traditional debate about the burden of national debt. Because of price adjustments, the accumulation of government debt does not become a burden on future generations. Our analysis reveals that the effects of aging depend on its causes. Aging is deflationary when caused by an increase in longevity but inflationary when caused by a decline in birth rate. Numerical simulation shows that aging over the past 40 years in Japan generated deflation of about 0.6 percentage points annually.
    Keywords: Deflation, Fiscal theory of the price level; Politico-economic equilibrium
    JEL: D72 E30 E62 E63 H60
    Date: 2014–11
  14. By: Alejandro Villagómez (Division of Economics, CIDE); Arturo Antón-Sarabia (Division of Economics, CIDE)
    Abstract: In this paper we estimate the macroeconomic impact of the 1997 Mexican pension reform, which substituted a pay-as-you-go for a fully- funded system with individual accounts. To analyze the impact of the reform on GDP growth, three main channels are considered: national savings and domestic investment; labor markets; and the development of capital markets. Our estimations suggest that the reform has contributed between 0.18 and 0.52 percentage points of the average GDP growth rate, which has been 2.4% in the last 15 years.
    Keywords: Mexican pension reform, fully-funded system.
    JEL: H55 I38 J26 O40
    Date: 2013–10
  15. By: Dirk Foremny; Ronny Freier; Marc-Daniel Moessinger; Mustafa Yeter
    Abstract: We advance the literature on political budget cycles by testing separately for cycles in expenditures for elections in the legislative and the executive. Using municipal data, we can separately identify these cycles and account for general year effects. For the executive branch, we show that it is important whether the incumbent re-runs. To account for the potential endogeneity associated with this decision, we apply a unique instrumental variables approach based on age and pension eligibility rules. We find sizable and significant effects in expenditures before council elections and before joint elections when the incumbent re-runs.
    Keywords: Election cycles, municipal expenditures, council and mayor elections, instrumental variables approach
    JEL: H11 H71 H72 H74
    Date: 2014
  16. By: Christelis, Dimitris (University of Naples Federico II); Georgarakos, Dimitris (Goethe University Frankfurt); Sanz-de-Galdeano, Anna (Universitat Autònoma de Barcelona)
    Abstract: Using data from the US Health and Retirement Study, we study the causal effect of increased health insurance coverage through Medicare and the associated reduction in health-related background risk on financial risk-taking. Given the onset of Medicare at age 65, we identify our effect of interest using a regression discontinuity approach. We find that getting Medicare coverage induces stockholding for those with at least some college education, but not for their less-educated counterparts. Hence, our results indicate that a reduction in background risk induces financial risk-taking in individuals for whom informational and pecuniary stock market participation costs are relatively low.
    Keywords: health insurance, Medicare, stockholding, regression discontinuity, household finance
    JEL: D14 I13 G11
    Date: 2014–11

This nep-age issue is ©2014 by Claudia Villosio. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.