nep-age New Economics Papers
on Economics of Ageing
Issue of 2015‒04‒25
seventeen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. The Evolution of Retirement Wealth By Devlin-Foltz, Sebastian; Henriques, Alice M.; Sabelhaus, John
  2. The Causal Effect of Retirement on Mortality - Evidence from Targeted Incentives to retire early By Hans Bloemen; Stefan Hochguertel; Jochem Zweerink
  3. An Increase in the Retirement Age in China: The Regional Economic Effects By Anping Chen; Nicolaas Groenewold
  4. Joint Retirement of Couples: Evidence from a Natural Experiment By Hans Bloemen; Stefan Hochguertel; Jochem Zweerink
  6. Do Early Life and Contemporaneous Macro-conditions explain Health at Older Ages? By France Portrait; Rob Alessie; Dorly Deeg
  7. Participation Constraints in Pension Systems By Roel Beetsma; Ward Romp
  8. Borrowing from the Future: 401(k) Plan Loans and Loan Defaults By Timothy (Jun) Lu; Olivia S. Mitchell; Stephen P. Utkus; Jean A. Young
  9. Education, Health and Subjective Wellbeing in Europe By Leonardo Becchetti; Pierluigi Conzo; Fabio Pisani
  10. Government Policy and Labor Supply with Myopic or Targeted Savings Decisions By Louis Kaplow
  11. Insurance, Entrepreneurial Start-Up, and Performance By Mette Ejrnæs; Stefan Hochguertel
  12. The political economy of (in)formal long term care transfers By De Donder, Philippe; Leroux, Marie-Louise
  13. Infant Health and Longevity: Evidence from a Historical Trial in Sweden By Bhalotra, Sonia R.; Karlsson, Martin; Nilsson, Therese
  14. Long Run Returns to Education: Does Schooling Lead to an Extended Old Age? By Hans van Kippersluis; Owen O'Donnell; Eddy van Doorslaer
  15. Childhood Intelligence and Adult Mortality, and the Role of Socio-Economic Status By Jan S. Cramer
  16. Social insurance and the marriage market By Persson, Petra
  17. Wealth, Pensions, Debt, and Savings: Considerations for a Panel Survey By Bucks, Brian K.; Pence, Karen M.

  1. By: Devlin-Foltz, Sebastian (Board of Governors of the Federal Reserve System (U.S.)); Henriques, Alice M. (Board of Governors of the Federal Reserve System (U.S.)); Sabelhaus, John (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: Is the current mix of tax preferences for employer-sponsored pensions and individual retirement saving in the U.S. delivering the best possible retirement-preparedness across and within generations? Using data from the triennial Survey of Consumer Finances for 1989 through 2013, cohort-based analysis of life-cycle trajectories shows that (1) overall retirement plan participation was relatively stable or even rising through 2007, though participation fell noticeably in the wake of the Great Recession and has remained lower, (2) participation is strongly correlated with income, and the shift in the type of pension coverage occurred within--not just across--income groups, (3) relative to previous cohorts and a counterfactual lifecycle benchmark, the recent decline in retirement plan participation and defined contribution (DC) retirement account balance-to-income ratios is concentrated among younger families and lower-income families.
    Keywords: Lifecycle; pension; retirement
    JEL: D14 H55 J32
    Date: 2015–02–11
  2. By: Hans Bloemen (VU University Amsterdam, Netspar, IZA); Stefan Hochguertel (VU University Amsterdam, Netspar); Jochem Zweerink (VU University Amsterdam, Netspar)
    Abstract: This paper identifies and estimates the impact of early retirement on the probability to die within five years, using administrative micro panel data covering the entire population of the Netherlands. Among the older workers we focus on, a group of civil servants became eligible for retirement earlier than expected during a short time window. This exogenous policy change is used to instrument the retirement choice in a model that explains the probability to die within five years. Exploiting the panel structure of our data, we allow for unobserved heterogeneity by way of individual fixed effects in modeling the retirement choice and the probability to die. We find for men that early retirement, induced by the temporary decrease in the age of eligibility for retirement benefits, decreased the probability to die within five years by 2.5 percentage points. This is a strong effect. We find that our results are robust to several specification changes.
    Keywords: instruments, mortality, retirement
    JEL: C26 I1 J26
    Date: 2013–08–19
  3. By: Anping Chen (School of Economics, Jinan University,Guangzhou, China); Nicolaas Groenewold (Business School, University of Western Australia)
    Abstract: China’s pension system is in need of comprehensive reform in that it is fragmented in its coverage and significantly under-funded. Attempts to improve the coverage will likely exacerbate the financial strains. Thus it is urgent to improve the financial sustainability of the system and one policy which has been proposed is to increase the retirement age. There have been similar proposals in many other countries and they are in line with improved health and life-expectancy. In China’s case the partial coverage of the system is related to industry structure with much the best coverage being for government and SOE employees. Since this structure differs considerably across the regions in China, it is likely that a change in retirement age will have significantly different effects across China’s regions. Inter-regional disparities are already very substantial in China and it will be important to know whether changes in pension arrangements will widen or narrow these disparities. It is the object of the research reported in this paper to throw light on this question. To do this we construct a small theoretical model having some Chinese characteristics. The model has two regions (coast and interior), two sectors (formal and informal) two types of labour (skilled and unskilled), two levels of government (central and regional) and captures some features of the Chinese tax-expenditure system. Pension coverage is limited to skilled workers in the formal sector and pensions are assumed to be paid by regional governments. We linearise the model and solve it numerically using parameter values derived from average Chinese data for the period 2008-2013. We run two experiments, both involving a shocks designed to mimic an increase in the retirement age from 60 to 61. The first assumes that the regional governments use the extra net revenue resulting which results from the increase in retirement age for the provision of a government- provided consumption good while in the second case it is assumed that the government uses the revenue to reduce pension premia (or increase pension payments). In both cases the increase in retirement age increases the supply of skilled workers and depresses the relative skilled wage in both regions but by more in the interior than in the coast. Output of each good increases in each region but formal-sector output increases by more (since only the formal sector uses skilled labour); the income of skilled households falls but that of unskilled households rises; welfare increases in both regions for both household types but by more for unskilled than skilled and by more in the interior than in the coast. In addition, the welfare disparity between the coast and the interior is reduced. The results are similar in sign across the two experiments but the magnitude of the effects is generally larger in the second, i.e., where the regional governments use the additional net revenue to increase pension payments or reduce pension premia rather than simply producing more government output.
    Date: 2015
  4. By: Hans Bloemen (VU University Amsterdam, the Netherlands); Stefan Hochguertel (VU University Amsterdam, the Netherlands); Jochem Zweerink (Utrecht University, the Netherlands)
    Abstract: We estimate and explain the impact of early retirement of husbands on their wives’ probability to retire within one year, using administrative micro panel data that cover the whole Dutch population. We employ an instrumental variable approach in which the retirement choice of husbands is instrumented with eligibility rules for generous early retirement benefits that were temporarily and unexpectedly available to them. We find that early retirement opportunities of husbands increased the wives’ probability to retire by 24.6 percentage points. This is a strong, and robust effect. Partly, wives respond to husbands’ choices at ages when they are themselves likely eligible for early retirement programs.
    Keywords: instruments, retirement, couples
    JEL: C26 J26 J12 J14
    Date: 2015–02–24
  5. By: Andrea Albanese; Bart Cockx (-)
    Abstract: In several OECD countries age-targeted wage subsidies have been introduced to increase the employment of older workers, but evidence on their effectiveness is scarce. This paper examines the effects of a permanent wage cost subsidy in Belgium on the employment rate, working time and hourly wage. We estimate these effects by integrating Inverse Probability Weighting in a, possibly trend-adjusted, Difference-in- Differences of endogenously sampled repeated cross sections. We find small positive short-run impacts on working time and larger ones on the employment rate, but only for employees at high risk of leaving to early retirement. The wage is not affected.
    Keywords: Wage cost subsidies, older workers, Weighted Difference-in-Differences,endogenous sampling
    JEL: J14 C21 J18 J3
    Date: 2015–04
  6. By: France Portrait (VU University Amsterdam); Rob Alessie (Utrecht University, and Netspar); Dorly Deeg (VU University Amsterdam)
    Abstract: The paper presents an approach which thoroughly assesses the role of early life and contemporaneous macro-conditions in explaining health at older ages. In particular, we investigate the role of exposure to infectious diseases and economic conditions during infancy and childhood, as well as the effect of current health care facilities. Specific attention is paid to the impact of unobserved heterogeneity, selective attrition and omitted relevant macro-variables. We apply our approach to self-reports on functional limitations of Dutch older individuals. Our analysis is performed using data from the Longitudinal Aging Study Amsterdam. The prevalence of functional limitations is found to increase in the nineteen-nineties, in part due to restricted access to hospital care.
    Keywords: early life macro-conditions; contemporaneous macro-conditions,functional limitations; aging
    JEL: I12 J11 J17
  7. By: Roel Beetsma (University of Amsterdam); Ward Romp (University of Amsterdam)
    Abstract: We explore voluntary participation in pension arrangements. Individuals only participate when participation is more attractive than autarky. The bene􀏐it of participation is that risks can be shared with future generations. We apply our analysis to a pay-as-you-go system, a funded system without buffers and a funded system with buffers. Buffers play a particularly interesting role, because they raise the sensitivity of the contributions to the asset returns. In particular, compared to a system without buffer requirements, they require higher contributions when asset returns are low. Moreover, individual contributions may be increasing or decreasing in the size of the young cohort, depending on whether the fund has more or less reserves than required. We con􀏐ine ourselves to recursive settings and study equilibria characterised by thresholds on the contribution that young generations are prepared to make assuming that the future young apply the same threshold. For standard parameter settings two such equilibria exist, of which only the one with the higher threshold is consistent with the initial young being prepared to start the system. Finally, we explore the social welfare maximising policy parameter settings for various levels of uncertainty and risk aversion.
    Keywords: Participation constraints, pension funds, pay-as-you-go, buffers, risk-sharing
    JEL: E62 H55
    Date: 2013–09–23
  8. By: Timothy (Jun) Lu; Olivia S. Mitchell; Stephen P. Utkus; Jean A. Young
    Abstract: Tax-qualified retirement plans seek to promote saving for retirement, yet most employers permit pre- retirement access by letting 401(k) participants borrow plan assets. This paper examines who borrows and why, and who defaults on their loans. Our administrative dataset tracks several hundred plans over 5 years, showing that 20% borrow at any given time, and almost 40% do at some point over five years. Employer policies influence borrowing behavior, in that workers are more likely to borrow and borrow more in aggregate, when a plan permits multiple loans. We estimate loan default “leakage” at $6 billion annually, more than prior studies.
    JEL: D04 D14 H24 J26
    Date: 2015–04
  9. By: Leonardo Becchetti (DEDI & CEIS, University of Rome "Tor Vergata"); Pierluigi Conzo (Dept. of Economics and Statistics, University of Turin); Fabio Pisani (Faculty of Economics, University of Rome "Tor Vergata")
    Abstract: The productive and allocative theories predict that education has positive impact on health: the more educated adopt healthier life styles and use more efficiently health inputs and this explains why they live longer. We find partial support for these theories with an econometric analysis on a large sample of Europeans aged above 50 documenting a significant and positive correlation among education years, life styles, health outputs and functionalities. We however find confirmation for an anomaly already observed in the US, namely the more educated are more likely to contract cancer. Our results are robust when controlling for endogeneity and reverse causality in IV estimates with instrumental variables related to quarter of birth and neighbours’ cultural norms
    Keywords: health satisfaction, education, life satisfaction, public health costs
    JEL: I21 I12 I31
    Date: 2015–04–17
  10. By: Louis Kaplow
    Abstract: A central justification for social insurance and for other policies aimed at retirement savings is that individuals may fail to make adequate provision during their working years. Much research has focused on myopia and other behavioral limitations. Yet little attention has been devoted to how these infirmities, and government policies to rectify them, influence labor supply. This linkage could be extremely important in light of the large pre-existing distortion due to income and consumption taxation and income-based transfer programs. For example, might myopic individuals, as a first approximation, view payroll taxes and other withholding to fund retirement savings as akin to an income tax, while largely ignoring the distant future retirement benefits that they fund? If so, the distortion of labor supply may be many times higher than otherwise, making savings-promotion policies much more costly than appreciated. Or consider what may be the labor supply implications for an individual who is defaulted into higher savings and, as a consequence, sees concomitantly lower take-home pay. This essay offers a preliminary, conceptual exploration of these questions. In most of the cases considered, savings policies do not act purely like a tax despite individuals’ non-optimizing savings behavior, and in some cases labor supply actually is raised, not lowered, in which event policies that boost savings may be significantly more welfare-enhancing than recognized. Accordingly, there is a compelling need for empirical exploration of the interaction between nonoptimal savings behavior and labor supply.
    JEL: D11 D91 H21 H24 H31 H55 J22 J26
    Date: 2015–04
  11. By: Mette Ejrnæs (University of Copenhagen, Denmark); Stefan Hochguertel (VU University Amsterdam)
    Abstract: Availability of (partial) insurance mechanisms is arguably important for the decision of (riskaverse) workers to start up a risky entrepreneurial venture. Using administrative data from Denmark, where unemployment insurance (UI) is available to both wage earners and self-employed on a voluntary basis, we estimate the causal effect of UI cover on the self-employment choice of wage earners after instrumenting for the UI choice. The instruments we use are based on a series of policy variations that took place at three points in time during an observation period spanning three decades: only UI covered individuals could under certain conditions qualify for an early retirement (ER) program. Changes (reforms) in the eligibility conditions of the program that affected different age groups differentially at these three different points in time identify the UI choice process. Results show that the causal effect of insurance on the probability of starting up a venture is positive for would-be entrepreneurs, in contrast to correlations in the data or uninstrumented estimates. Using firm data, we also investigate how the newly insurance-induced entrepreneurs fare relative to their uninsured peers. Results suggest that they survive longer, but are not more likely to employ any workers or to make higher or lower profits.
    Keywords: self-employment, insurance, entrepreneurs, unemployment, panel data, early retirement
    JEL: C35 J26 J62 J65 L26
    Date: 2014–03–27
  12. By: De Donder, Philippe; Leroux, Marie-Louise
    Abstract: We develop a model where families consist of one parent and one child, with children differing in income and all agents having the same probability of becoming dependent when old. Young and old individuals vote over the size of a social long term care transfer program, which children complement with informal (time) or formal (money) help to their dependent parent. Dependent parents have an intrinsic preference over informal to monetary help. We first show that low (resp., high) income children provide informal (resp. formal) help, whose amount is decreasing (resp. increasing) with the child's income. The middle income class may give no family help at all, and its elderly members would be the main beneficiaries of the introduction of social LTC transfers. We then provide several reasons for the stylized fact that there are little social LTC transfers in most countries. First, social transfers are dominated by informal help when the intrinsic preference of dependent parents for informal help is large enough. Second, when the probability of becoming dependent is lower than one third, the children of autonomous parents are numerous enough to oppose democratically the introduction of social LTC transfers. Third, even when none of the first two conditions is satisfied, the majority voting equilibrium may entail no social transfers, especially if the probability of becoming dependent when old is not far above one third. This equilibrium may be local (meaning that it would be defeated by the introduction of a sufficiently large social program). This local majority equilibrium may be empirically relevant whenever new programs have to be introduced at a low scale before being eventually ramped up.
    Keywords: Majority Voting, local Condorcet winner, crowding out, intrinsic preference for informal help, tax reform.
    JEL: D91 H55 I13
    Date: 2015–04–18
  13. By: Bhalotra, Sonia R. (University of Essex); Karlsson, Martin (University of Duisburg-Essen); Nilsson, Therese (Lund University)
    Abstract: This paper investigates the potential of an infant intervention to improve life expectancy, contributing to emerging interest in the early life origins of chronic disease. We analyse a pioneering program trialled in Sweden in the 1930s, which provided information, support and monitoring of infant care. Using birth certificate data from parish records matched to death registers, we estimate that the average duration of program exposure in infancy led to a 1.54% point decline in the risk of infant death (23% of baseline risk) and a 2.37% decline in the risk of dying by age 75 (6.5% of baseline risk).
    Keywords: infant health, life expectancy, early life interventions, program evaluation
    JEL: I15 I18 H41
    Date: 2015–04
  14. By: Hans van Kippersluis (Erasmus University Rotterdam); Owen O'Donnell (Erasmus University Rotterdam, University of Macedonia, Thessaloniki, Greece); Eddy van Doorslaer (Erasmus University Rotterdam)
    Abstract: This discussion paper led to an article in the <I>Journal of Human Resources</I> (2011). Volume 46(4), pages 695-721.<P> While there is no doubt that health is strongly correlated with education, whether schooling exerts a causal impact on health is not yet firmly established. We exploit Dutch compulsory schooling laws in a Regression Discontinuity Design applied to linked data from health surveys, tax files and the mortality register to estimate the causal effect of education on mortality. The reform provides a powerful instrument, significantly raising years of schooling, which, in turn, has a large and significant effect on mortality even in old age. An extra year of schooling is estimated to reduce the probability of dying between ages of 81 and 88 by 2-3 percentage points relative to a baseline of 50 percent. High school graduation is estimated to reduce the probability of dying between the ages of 81 and 88 by a remarkable 17-26 percentage points but this does not appear to be due to any sheepskin effects of finishing high school on mortality beyond that predicted lin early by additional years of schooling.
    Keywords: Health, Mortality, Education, Causality, Regression Discontinuity
    JEL: D30 D31 I10 I12
  15. By: Jan S. Cramer (University of Amsterdam)
    Abstract: The initial purpose of this study was to establish the effect of childhood conditions on longevity from the Brabant data set. This data set combines information at ages 12, 43, 53 and mortality between 53 and 71 for a sample of some 3000 individuals born around 1940 in the Dutch province of North Brabant. Proportional hazard analysis confirms the known association of early intelligence or cognitive ability with longevity, with a standardized hazard ratio of .80; this is the only significant childhood influence. Among men, the effect of some elements of adult socio-economic status can also be ascertained: education, income and wealth are each found to contribute about as much to a longer life as intelligence. The joint effect of all four variables is dominated by childhood intelligence and adult wealth at the expense of education and income.
    Keywords: Cognitive ability, mortality, socio-economic status, proportional hazards
    JEL: C21 I14
    Date: 2012–07–17
  16. By: Persson, Petra (Stanford University, Department of Economics)
    Abstract: Social insurance is often linked to marriage. I model how such linkage affects the marriage market, and exploit Sweden’s elimination of survivors insurance to demonstrate economically important responses along several behavioral margins in this market. Entry into marriage reflects a demand for survivors insurance up to 50 years before expected payout, especially among couples with high husband mortality risks. Further, elimination of survivors insurance induces divorces and intra-household redistribution towards wives in pre-existing marriages. Because survivors insurance subsidizes couples with highly unequal earnings (capacities), its elimination also raises the long-run assortativeness of matching. These findings demonstrate that when social insurance is linked to marriage, marital behavior is an integral component of couples’ strategies to plan for financial security in old age. The magnitude of these marriage market responses influences the optimality of linking social insurance to marriage.
    Keywords: Marriage; Social insurance; Cohabitation; Matching; Long-term financial planning
    JEL: D13 H31 J12
    Date: 2015–03–10
  17. By: Bucks, Brian K. (Consumer Financial Protection Bureau); Pence, Karen M. (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: Several U.S. panel surveys measure household wealth. At the same time, many important questions about household wealth accumulation remain somewhat unresolved. We consider whether measurement error on the existing suite of longitudinal surveys hinders their usefulness for addressing these questions. We review the features of wealth data that make it difficult to collect and assess which assets and debts households are more likely to report accurately. We suggest several considerations in choosing between improving existing surveys and starting a new one.
    Keywords: Measurement error; survey methods; wealth
    Date: 2015–02–26

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