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on Economics of Ageing |
| By: | Vogel, Edgar; Ludwig, Alexander; Börsch-Supan, Axel |
| Abstract: | Projected demographic changes in industrialized and developing countries vary in extent and timing but will reduce the share of the population in working age everywhere. Conventional wisdom suggests that this will increase capital intensity with falling rates of return to capital and increasing wages. This decreases welfare for middle aged asset rich households. This paper takes the perspective of the three demographically oldest European nations - France, Germany and Italy - to address three important adjustment channels to dampen these detrimental effects of aging in these countries: investing abroad, endogenous human capital formation and increasing the retirement age. Our quantitative finding is that endogenous human capital formation in combination with an increase in the retirement age has strong implications for economic aggregates and welfare, in particular in the open economy. These adjustments reduce the maximum welfare losses of demographic change for households alive in 2010 by about 2.2 percentage points in terms of a consumption equivalent variation. |
| Keywords: | population aging,human capital,welfare,pension reform,retirement age,open economy |
| JEL: | C68 E17 E25 J11 J24 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:82&r=age |
| By: | KITAO Sagiri |
| Abstract: | This paper quantifies the fiscal cost of the demographic transition that Japan is projected to experience over the next several decades, in a life-cycle model with endogenous saving, consumption, and labor supply in both intensive and extensive margins. Retirement waves of baby-boom generations, combined with a rise in longevity and low fertility rates, will raise the old-age dependency ratio to 85% by 2050, the highest among major developed countries. The demographic shift will generate a significant budget imbalance as the government faces rising costs for public pension and health and long-term care insurance. In the long run, the labor income tax rate needs to rise by 13.5% or the consumption tax rate by 14.3% to balance the budget, assuming no other change in policies. The transition, however, involves more significant adjustments, and we simulate alternative pension reforms that can mitigate fiscal pressures. |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:15013&r=age |
| By: | Kluth, Sebastian |
| Abstract: | This paper provides a two-part empirical analysis on how actuarial reduction rates for early retirement affect current pension payments in Germany and to what extent the existence and the magnitude of these reduction rates influence people s retirement planning. First, by evaluating a large dataset of administrative records it becomes evident that early retirement shows a high prevalence at the extensive and at the intensive margin, in particular for women and those with a medium income. Second, a special question in the 2011 SAVE survey is exploited where respondents are offered a hypothetical deal for early retirement if in turn they were willing to accept an actuarial reduction on their pension. It becomes evident that the maximum reduction rate people would be willing to accept is widely dispersed and on average approximately double the current legal rate. Furthermore, respondents seem to make consistent choices and high endowment of financial assets plus additional old age provision, high subjective life expectancy, bad health as well as being a man are positively correlated with the actuarial reduction rate the respondents would accept at most. Given that policymakers aim to raise the average retirement age, the results emphasize the need for a simultaneous increase of not only the statutory retirement age but the minimum early retirement age as well. This becomes necessary since actuarial reduction rates cannot be expected to change the retirement behavior of workers with a strong preference for early retirement or those who rely on social benefits. |
| JEL: | H55 D84 D91 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc14:100413&r=age |
| By: | Lüthen, Holger |
| Abstract: | To counteract aging populations, statutory pay-as-you-go pension systems are subject to fundamental reforms in many Western societies. Starting with cohort 1937, Germany introduced permanent pension deductions for early retirement. This paper examines the evolution of the profitability of pension contributions against the background of this reform for cohorts 1935-1945. I measure the profitability with the internal rate of return (IRR) and use high quality administrative data. For men the IRR declines from 2.4% to 1.19% and for women from 5.15% to 3.72%. The results suggest that the deductions introduced by the reform only cause some part of this trend, with a major part caused by increases in contributions. |
| JEL: | D04 D14 H55 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc14:100544&r=age |
| By: | Wunsch, Conny; Huber, Martin; Lechner, Michael |
| Abstract: | In this paper, we assess the impact of firms introducing part-time work schemes for gradual labour market exit of elderly workers on their employees labour market outcomes. The analysis is based on unique linked employer-employee data that combine high-quality survey and administrative data. Our results suggest that partial or gradual retirement options offered by firms are an important tool to alleviate the negative effects of low labour market attachment of elderly workers in ageing societies. |
| JEL: | J14 J26 C21 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc14:100355&r=age |
| By: | Hernaes, Erik (Ragnar Frisch Centre for Economic Research); Markussen, Simen (Ragnar Frisch Centre for Economic Research); Piggott, John (University of New South Wales); Røed, Knut (Ragnar Frisch Centre for Economic Research) |
| Abstract: | We exploit a comprehensive restructuring of the early retirement system in Norway in 2011 to examine labor supply responses to alternative pension reform strategies relying on improved work incentives (flexibility) or increased access ages (prescription), respectively. We find that increasing the returns to work is a powerful policy tool: The removal of the earnings test at age 63 led to an immediate increase in average annual labor earnings among the affected mature workers by around $14,700 (NOK 90,000). The implied uncompensated labor earnings elasticity (the percentage change in average gross earnings relative to the percentage change in average work-incentives) is around 0.25. |
| Keywords: | early retirement, labor supply, pension reform, program evaluation |
| JEL: | H55 J22 J26 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp8812&r=age |
| By: | Hubener, Andreas; Maurer, Raimond; Mitchell, Olivia S. |
| Abstract: | Social Security rules that determine retirement, spousal, and survivor benefits, along with benefit adjustments according to the age at which these are claimed, open up a complex set of financial options for household decisions. These rules influence optimal household asset allocation, insurance, and work decisions, subject to life cycle demographic shocks, such as marriage, divorce, and children. Our model-based research generates a wealth profile and a low and stable equity fraction consistent with empirical evidence. We confirm predictions that wives will claim retirement benefits earlier than husbands, while life insurance is mainly purchased by younger men. Our policy simulations imply that eliminating survivor benefits would sharply reduce claiming differences by sex while dramatically increasing men's life insurance purchases. |
| Keywords: | life-cycle models,household savings,investment decisions,life-cycle models,household savings,investment decisions |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safepl:26&r=age |
| By: | Daniel Smedberg (Kommunförbundet Skåne); Francisco Lupiañez-Villanueva (Open Evidence) |
| Abstract: | In 2012 the Swedish Association of Local Authorities and Regions made an agreement with the Swedish government to foster integrated care for elderly suffering from complex health conditions. It resulted in an initiative that aims at developing patient-centred health and social care services based on the specific needs of the elderly population. The Better Life for Most Sick Elderly (BLMSE) initiative strives to encourage, strengthen and intensify cooperation among municipalities and county councils by means of economic incentives and performance-based bonus schemes. The main target group is the sick, elderly population. However, the preventive measures applied within the framework of the initiative strive to avoid people from becoming part of this group. |
| Keywords: | SIMPHS, eHealth, Remote Monitoring, ageing, integrated care, independent living, case studies, facilitators, governance, impact, drivers, barriers, integration, organisation |
| JEL: | I11 I18 O33 O38 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc94489&r=age |
| By: | Stelter, Robert |
| Abstract: | This paper investigates the problem of an ``optimum population'' with respect to the age structure. Within a 3-period OLG model, with endogenous fertility and longevity, the optimal age structure, identified by number-dampened total utilitarianism, is generally failed in the laissez-faire economy. The individual decisions on the number of offspring as well as on health expenditures are biased. Tendencies concerning the distortions of the age structures are identified by decentralizing the first-best solution. A calibration of the model for 84 countries emphasizes that mean age in ``Golden Age'' always exceeds the observed, especially due to a very low fertility. Introducing a preference for the population stock increases the number of children. As optimal mean age shrinks, an over-aging of the laissez-faire economy becomes likely. To decentralize the optimal age structure, children are either taxed or subsided, whereas health expenditures are taxed. |
| JEL: | H20 I10 J18 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc14:100334&r=age |
| By: | Keith Jacks Gamble; Patricia A. Boyle; Lei Yu; David A. Bennett |
| Abstract: | The brief’s key findings are: *With the shift from traditional pensions to 401(k) plans, the welfare of retirees depends increasingly on their ability to make sound financial decisions. *Using a dataset that follows a group of older individuals in the Chicago area, the analysis examines how aging affects financial decision making. *Participants who suffer cognitive decline experience a reduction in their financial literacy but no change in their confidence in managing their money. *Perhaps not surprisingly then, while they are more likely to get help with financial decisions, more than half retain primary responsibility for managing their money. |
| URL: | http://d.repec.org/n?u=RePEc:crr:issbrf:ib2015-1&r=age |
| By: | Katagiri, Mitsuru (Bank of Japan); Konishi, Hideki (Waseda University); Ueda, Kozo (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. |
| JEL: | D72 E30 E62 E63 H60 |
| Date: | 2014–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:218&r=age |
| By: | Rohrbacher, Stefan; Heer, Burkhard; Scharrer, Christian |
| Abstract: | According to empirical studies, the life cycle of labor supply volatility exhibits a U-shaped pattern. This may lead to the conclusion that demographic change induces a drop in output volatility. We present an overlapping generations model that replicates the empirically observed pattern and study the impact of demographic transition on output volatility. We find that the change in age-composition itself has only a marginal influence on output volatility as the mitigating effect of lower labor supply volatility is compensated by higher labor supply. Instead, the driving force behind the Great Moderation in our model is the downward shift of the age-specific labor supply volatility curve. |
| JEL: | J10 E32 C68 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc14:100564&r=age |
| By: | Francisco Lupiañez-Villanueva (Open Evidence); Alexandra Theben (Open Evidence) |
| Abstract: | The ETXEAN ONDO pilot project is an integrated care approach which was implemented in the Basque Country. It aimed to provide adequate support and care for elderly people living at home or in nursing homes, for family members and care professionals. The key elements of this model were the provision of a single entry point, the adoption of a case management methodology and an individualised service plan that respected patients' dignity, rights, interests and preferences. The initiative was designed to provide highly patient-centered care to the elderly, including self-management strategies and tools for health prevention and promotion. The process started by profiling patients according to their risk factors in order to identify preventive measures adapted to their case and empower them to adopt a much more active role in managing their illness. This approach was expected to reduce patients' demands on the health service while improving their quality of life and that of their carers, contributing to the sustainability of the system. |
| Keywords: | SIMPHS, eHealth, Remote Monitoring, ageing, integrated care, independent living, case studies, facilitators, governance, impact, drivers, barriers, integration, organisation |
| JEL: | I11 I18 O33 O38 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc94486&r=age |
| By: | Alicia H. Munnell; Anthony Webb |
| Abstract: | This paper summarizes what is known about leakages from existing studies and relates these results to detailed data on leakages in 2013 provided by Vanguard’s How America Saves. It then uses two data sets – the Survey of Consumer Finances (SCF) and the Survey of Income and Program Participation (SIPP) – to estimate the impact of leakages on wealth at retirement. The Vanguard data are a critical component because they provide a comprehensive picture of assets and participant flows, whereas the surveys on which earlier studies were based tended to focus on one component, such as loans. A key limitation is that Vanguard’s population is probably older and wealthier than the general population. The paper found that: *About 1.5 percent of assets leak out of the 401(k)/IRA system each year. *Of the different forms of leakages, in-service withdrawals and cashouts appear to represent the most significant source of leakages, while loans created a measurable but relatively small leakage. *Based on our estimates, aggregate 401(k) and IRA retirement wealth is at least 20 percent lower than it would have been without current leakage rules. The policy implications of the findings are: *Hardship withdrawals could be limited to serious, unpredictable hardships and the amounts distributed not subject to the 10-percent penalty. *The age for non-penalized withdrawals from both 401(k) and IRAs could be raised to at least Social Security’s Earliest Eligibility Age, which is currently 62. *The cash-out mechanism could be closed down entirely, by changing the law to prohibit lump-sum distributions upon termination. |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:crr:crrwps:wp2015-2&r=age |
| By: | Carsten Krabbe Nielsen (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore) |
| Abstract: | Is an assumption of bounded rationality needed to explain Social Security and other mandatory pension plans? In this contribution we argue that when rational agents hold inconsistent expectations such programs may be justified. Two of the features that distinguish Social Security and many other state mandated pension plans around the world are that (i) a minimum level of savings for retirement is imposed on most citizens and (ii) individuals cannot freely decide how their contributions are invested. Here, a rationale for these two features, based on rational overconfidence, is proposed. Rational overconfidence is present when equally informed agents hold diverse confident, rational beliefs. The fact that beliefs are diverse means that all of them cannot be correct, hence seen as a collective agents do not act optimally. In the face of rational overconfidence, Pareto efficiency is no longer the natural criterion for comparing policies and we suggest ex-post welfare optimality in stead. This criterion makes amends for the possible inconsistencies of agents' beliefs. Our results on social security are based on a methodology that places itself strictly between the traditional neoclassical approach and that championed by behavioral economics. This methodology does not deviate from the neoclassical assumption of rationality but only broadens it and can therefore readily be applied to many public policy issues. |
| Keywords: | Subjective Expectations, Rational Beliefs, Ex-post Welfare Optimality, Social Security, Rational Overconfidence, Portfolio Choice |
| JEL: | D01 D02 D63 D81 D84 H55 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:ctc:serie1:def021&r=age |
| By: | Friese, Max |
| Abstract: | The paper shows the effect of demographic change on per capita burden of financing a PAYG social security system in the standard OLG model with frictional labor markets. Rising longevity and decreasing fertility both induce a rise in the employment level via increased capital accumulation and job openings. Simulations of the theoretical model show that this labor market effect indirectly crowds out part of the initial demographic shock's direct impact on per capita financing burden. This holds true for the generation at the period of impact as well as for the following generations. |
| Keywords: | OLG,demographic change,frictional labor market,PAYG social security,per capita burden of financing social security |
| JEL: | E24 H55 J64 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:roswps:138&r=age |
| By: | Bernhard Boockmann; Tobias Brändle |
| Abstract: | Job search assistance and intensified counseling have been found to be effective for labor market integration by a large number of studies, but the evidence for older and hard-to-place unemployed individuals more specifically is mixed. In this paper we present key results from the evaluation of “Perspektive 50plus”, a large-scale active labor market program directed at the older unemployed in Germany. To identify the treatment effects, we exploit regional variation in program participation. Based on survey evidence, we argue that participation of regions is not endogenous in the vast majority of cases. We use a combination of different evaluation estimators to check the sensitivity of the results to selection, substitution and local labor market effects. We find large positive effects of the program in the range of five to ten percentage points on integration into unsubsidized employment. However, there are also substantial lock-in effects, such that program participants have a higher probability of remaining on public welfare benefit receipt for up to one year after commencing the program. |
| Keywords: | active labor market programs, evaluation, long-term unemployment, older unemployed |
| JEL: | J68 J14 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:iaw:iawdip:115&r=age |