nep-age New Economics Papers
on Economics of Ageing
Issue of 2015‒11‒01
fourteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. YOLO: Mortality Beliefs and Household Finance Puzzles By Heimer, Rawley; Myrseth, Ove R.; Schoenle, Raphael
  2. Poverty Transitions Among Older Households By Leah Achdut; Liema Davidovich; Rita Troitski
  3. Narrating the generational self By Penny Curtis
  4. An Increase in the Retirement Age in China: The Regional Economic Effects By Nicolaas Groenewold; Anping Chen
  5. Stability of participation in collective pension schemes: An option pricing approach By Damiaan Chen; Roel Beetsma; Dirk Broeders
  6. Population Aging, Migration Spillovers and the Decline in Interstate Migration By Serena Rhee; Fatih Karahan
  7. Creation and Development of Corporate Retirement Systems in the Russian Federation By Maleva, Tatyana Mikhailovna; Gorlin, Yury Mikhailovich; Nazarov, Vladimir; Grishina, Elena E.; Kirillova, M. K.; Fedorov, Valery V.
  8. Pension coverage for parents and educational investment in children: evidence from urban China By Mu,Ren; Du,Yang
  9. An empirical example of spatial process of productivity growth in NUTS 2 regions By Alicja Olejnik; Jakub Olejnik
  10. The Forecasting of Farmland Values for the Settlement of Farmland Pension System By Deokho Cho
  11. Life expectancy and education: Evidence from the cardiovascular revolution By Hansen, Casper Worm; Strulik, Holger
  12. Public hospital spending in England: evidence from National Health Service administrative records By Elaine Kelly; George Stoye; Marcos Vera-Hernandez
  13. Ageing by feet? Regional migration, neighbourhood choice and local demographic change in German cities By Uwe Neumann
  14. The Challenge of an Aged Population: Lessons to be drawn from Japan's Experience By Heller, Peter S.

  1. By: Heimer, Rawley (Federal Reserve Bank of Cleveland); Myrseth, Ove R. (University of St. Andrews); Schoenle, Raphael (Brandeis University)
    Abstract: Subjective mortality beliefs affect pre- and post-retirement consumption and savings decisions, as well as portfolio allocation. New survey evidence shows that individuals overestimate their mortality at short horizons and survival rate at long horizons. For example, a 28-year-old male with a 99.4% chance of surviving beyond 5 years believes he will do so with 92.8% probability. A 68 year old with a 71.4% probability of living to 78 believes he has an 82.4% chance of living that long. The formation of these beliefs across age cohorts can be attributed to overweighting salient causes-of-death. This bias matters empirically: Survival expectations correlate with heterogeneity in financial education and investment behavior. Embedded in a run-of-the-mill life-cycle model, these beliefs cause the young to under-save and retirees to not fully draw down their assets. In addition, for reasonable levels of risk-tolerance, the required excess rate of return on equity is in line with historical averages once subjective beliefs are accounted for.
    Date: 2015–10–21
  2. By: Leah Achdut (Ruppin Academic Center); Liema Davidovich (Ruppin Academic Center); Rita Troitski (Shamoon College of Engineering)
    Abstract: The study examines the dynamics of economic well-being and poverty among Israelis at older ages and their households, using both objective and subjective measures of well-being. It also provides an explanatory analysis of the factors associated with poverty status transitions over time. The study takes advantage of a unique and multidisciplinary longitudinal survey on people aged 50 and older in Israel, conducted as part of the SHARE project (Survey of Health, Aging and Retirement in Europe). A multinomial logistic regression - the model most frequently used for multinomial outcomes - is used to examine the impact of sociodemographic characteristics, health state and economic resources on poverty transitions between 2005 and 2010. The dependent variable consists of four outcomes: remaining persistently poor, managed to escape from poverty, fell into poverty, and remaining persistently non-poor. Poverty line is defined as 50% of the household's median (equivalent) disposable income.The findings indicate that poverty rate among old households remained high, albeit stable over time (25%). However, high mobility among poverty states was observed: 41% of the poor households in 2005 managed to escape from poverty in 2010, whilst 17% of the non-poor households in 2005 fell into poverty in 2010. The results of the multinomial logistic model emphasize the role of human capital factors on the likelihood of being in persistent poverty or on falling into poverty. Having less education and poorer health are associated with higher probability of remaining persistently poor or of falling into poverty over time. Employment status is a strong predictor as well: people who were out of the labor force are more likely to remain poor at both periods. The probability of a household being in chronic poverty decreases with the age, but the effect of gender was found to be insignificant. Finally, the likelihood of remaining persistently poor is higher for minorities.Examining the dynamics of well-being and poverty among older households has the potential to make an important contribution to our understanding of the impact of population ageing, and to shape of appropriate policy responses. The findings emphasize the importance of the income maintenance programs in ensuring the older households adequate benefits as well as of the importance of encouraging the participation of adults in the labor market.
    Keywords: Well-being,Poverty transitions, Old-age, SHARE
  3. By: Penny Curtis (University of Sheffield)
    Abstract: The world’s population is ageing rapidly: by the year 2050, more than one in five people are expected to be aged over 60. Social changes that intersect with this ageing demographic have resulted in the expansion of intergenerational relationships both vertically and horizontally. Opportunities for multigenerational intra-familial contact are increasing, as are opportunities for multiple, more transient, social encounters between generational actors in the broader population. Not surprisingly, therefore, intergenerational relationships constitute an emerging policy priority at an international level, with the United Nations’ Report of the Second World Assembly on Ageing emphasising “the need to strengthen solidarity among generations”. However, key to the actualisation of such policy drivers is the need to understand generational identification within particular socio-historical contexts. Drawing upon Alanen’s (2001, Explorations in generational analysis. In L. Alanen & B Mayall (Eds) Conceptualising child-adult relations. Ch.2: 11-22 RoutledgeFalmer. London) relational development of a Mannheimian approach to understanding generations, this paper explores processes of generational identification through the narratives of older people living in a post-industrial northern city in the UK. Paying particular attention to older people’s articulation of similarities and differences in the values and behaviours of differently positioned actors, the paper highlights the significance, as the older people recursively construct their own generational identities, of a familial generational frame.
    Keywords: Intergenerational relations. Identity. Older People.
    JEL: I31
  4. By: Nicolaas Groenewold; Anping Chen
    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. We construct a small theoretical model of two regions (coast and interior) having some Chinese characteristics. We distinguish between an informal sector in which workers have no pension coverage and a formal sector in which some workers are covered. In addition we distinguish between skilled and unskilled workers. There are two levels of government: a central government and two regional governments. Behaviour is based on utility maximisation by households and profit-maximisation by firms, with governments being exogenous. The model is solved numerically with parameter values based on recent Chinese data. Within this framework we model the effects of various shocks to the retirement age, the initial effects of which are changes in the labour supplied by skilled households. In the base case we find that in the short run an equi-proportionate increase in the retirement age in the two regions elicits substantially different labour supply responses in the two regions. These differences flow through to relative wage changes, output changes and, eventually, welfare changes. Effects through the budgets of the two regional governments are also important transmission channels. We find that welfare increases in both regions, with the improvement being substantially greater in the interior than in the coast, reflecting the greater relative importance of SOE and government employment in inland provinces. In the long run skilled labour is allowed to migrate from one region to another with the result that inter-regional differences are generally ameliorated.
    Keywords: China; pension system; retirement age; regional impacts
    JEL: R10 R23 R28 H70 H75
    Date: 2015–10
  5. By: Damiaan Chen; Roel Beetsma; Dirk Broeders
    Abstract: This paper contributes to the discussion about mandatory participation in collective funded pension schemes. It explores under what circumstances individual participants exercise the option to exit such scheme if participation is voluntary. First, we show how the willingness to participate increases when there are more future exercise dates. Then, we show how the pension fund's set of policy instruments can be designed to minimise the likelihood that cohorts exit the pension scheme. The instruments consist of contribution and indexation policies. Recovery of the funding ratio (ratio of assets over liabilities) to its regulatory target level may be based on uniform contributions or age-dependent contributions which are actuarially fair in expectation. Specifically, while the value of the exit-option deters younger workers from exiting the pension fund, a uniform contribution policy encourages older workers to stay in the pension scheme.
    Keywords: defined-benefit and collective defined-contribution pension funds; participation decision; actuarially fair, uniform and age-dependent contribution; European, Bermuda and American option; Least Squares Monte Carlo simulations; stability
    JEL: C61 G23 J32
    Date: 2015–10
  6. By: Serena Rhee (University of Hawaii at Manoa); Fatih Karahan (Federal Reserve Bank of New York)
    Abstract: Interstate migration in the United States has declined by 50 percent since the mid-1980s. This paper studies the role of the aging population in this long-run decline. We argue that demographic changes trigger a general equilibrium effect in the labor market, which affects the migration rate of all workers. We document that an increase in the share of middle-aged workers (40-60) in the working age population in one state causes a large fall in the migration rate of all workers in that state, regardless of their age. To understand this finding, we develop an equilibrium search model of many locations populated by workers whose moving costs differ. Firms prefer hiring local workers with high moving costs as they command lower wages due to their lower outside option. An increase in the share of middle-aged workers causes firms to recruit more from the local labor market instead of hiring from other locations, which increases the local job-finding rate and reduces everyone's migration rate ('migration spillovers'). Our model reproduces remarkably well several cross-sectional facts between population flows and the age structure of the labor force. Our quantitative analysis suggests that population aging accounts for about half of the observed decline, of which 75 percent is attributable to the general equilibrium effect.
    Date: 2015
  7. By: Maleva, Tatyana Mikhailovna (Russian presidental academy of national economy and public administration (RANEPA)); Gorlin, Yury Mikhailovich (Russian presidental academy of national economy and public administration (RANEPA)); Nazarov, Vladimir (Russian presidental academy of national economy and public administration (RANEPA)); Grishina, Elena E. (Russian presidental academy of national economy and public administration (RANEPA)); Kirillova, M. K. (Russian presidental academy of national economy and public administration (RANEPA)); Fedorov, Valery V. (Russian presidental academy of national economy and public administration (RANEPA))
    Abstract: This paper focused on the analysis of the following tasks: 1. An overview of legislation in terms of the functioning of the corporate pension system in the Russian Federation was performed; 2. The basic terms and definitions used in corporate pension schemes were overviewed; 3. Review of corporate pension schemes in countries such as USA, UK, Germany, France, Belgium, Ireland, New Zealand, South Korea, China, Hong Kong, Taiwan, Japan, Mexico and Brazil were analyzed; 4. Review of key global trends in the development of corporate pension systems were highlighted and addressed; 5. Analysis of the corporate pension system in the Russian Federation in 1990-2000-s was performed, including the change of the basic characteristics; 6. Analysis of the corporate pension system in the Russian Federation; 7. Analysis os issues hindering the development of the corporate pension system in the Russian Federation; 8. Provide key proposals for the development of the corporate pension system in the Russian Federation, taking into account international experience and recommendations of international organizations such as the Organization for Economic Cooperation and Development, the International Organization for Standardization, International Association of Insurance Supervisors and others. 9. Main results of this work will be used in the formation of proposals for the establishment of mechanisms and incentives for the creation and development of the corporate pension system in the Russian Federation.
    Keywords: pension reform, retirement age, corporate retirement systems, Russian economy
    Date: 2014–08–09
  8. By: Mu,Ren; Du,Yang
    Abstract: When social security is established to provide pensions to parents, their reliance upon children for future financial support decreases, and their need to save for retirement also falls. In this study, the expansion of pension coverage from the state sector to the non-state sector in urban China is used as a quasi-experiment to analyze the intergenerational impact of social security on education investments in children. In a difference-in-differences framework, a significant increase in the total education expenditure is found to be attributable to pension expansion. The results are unlikely to be driven by other observable trends. They are robust to the inclusion of a large set of control variables and to different specifications, including one based on the instrumental variable method.
    Keywords: Debt Markets,Youth and Government,Pensions&Retirement Systems,Population&Development,Primary Education
    Date: 2015–10–26
  9. By: Alicja Olejnik; Jakub Olejnik
    Abstract: This paper is an attempt to explain variations across EU regions in productivity growth and takes into consideration the important structure of the age-productivity relation of Human Capital. The study is fundamentally based on the theory of Fingleton?s model which analyses the spatial process of productivity growth on the on the foundations of the theory of New Economic Geography. The applied specification links manufacturing productivity growth to the growth of manufacturing output by the means of Verdoorn?s law. The model incorporates productivity-adjusted human capital understood as Total Human Capital Productivity corrected with age structure with the use of productivity as a function of age. Moreover, a new approach to defining the age-productivity curve has been introduced. Based on the previous studies found in the literature the age-productivity function has been interpolated by the means of Radial Basis Function method with thin-plate spline. The age-productivity function allows to describe how the work performance differs over the life period and thus allows for differences in age structure of employees in regions under research. This study covers 261 NUTS 2 regions of EU excluding some French, Portuguese and Spanish regions due to their isolated position and Croatia because of the lack of comparable data. All data used in the empirical part of this study are published by Eurostat and refer to the years 2000-2013. The regional productivity is explained by the quotient of regional GDP and the number of Economically Active Population. The productivity growth is approximated by the exponential change of regional productivity in these years to regional productivity in the year 2000. The regional GDP is expressed in millions of Euro in constant prices (year 2000), where Economically Active Population is in thousands of people 15 years or over. The Human capital is defined by the Employment in Technology and Knowledge-intensive Sectors as a percentage of Economically Active Population. The model has been tested through implemented methodology, namely a spatial panel model with fixed effects. The model presented provides evidence of the importance of increasing returns to scale for regional economic growth, which lead to divergence effects for EU regions. Similar implications can be observed in the case of regionally differentiated human capital. Furthermore, the country fixed effects turned out to be significant. The findings also suggest that productivity in jobs requiring problem solving and learning skills reaches a plateau for the 35-45 age bracket and has its peak around the age of 40. We suggest that the applied approach constitutes an innovation providing additional information hence a deeper analysis of the investigated problem.
    Keywords: spatial panel; productivity growth; Verdoorn?s law; age-productivity curve
    JEL: O40 J24 C21 C23
    Date: 2015–10
  10. By: Deokho Cho
    Abstract: The basic concept of a reverse mortgage is loan available to homeowners who are 65 years or older that enables them to convert part of the equity in their home into cash. The loan is called a reverse mortgage because the traditional mortgage payback stream is reversed. Instead of making monthly payments to a lender, as with a traditional mortgage, the lender makes payments to the borrower. You are not required to pay back the loan until the home is sold or otherwise vacated. As long as you live in the home, you are not required to make any monthly payments towards the loan balance, but you must remain current on your property taxes and homeowners insurance. The Korean government adopt the farmland reverse mortgage for the first time in the world, which is called as the Farmland Pension. She has utilized the publicly assessed land value in order to liquidate the farmland equity until now. However, this method is very arguable recently because this assessed value by government is relatively lower than appraisal or transaction values. It means that the monthly payment amount is relatively lower than that by any other farmland value such as the transaction and the monthly appraisal estimation value. This paper uses the monthly dryfield and ricefield data because the pension payment is implemented by the monthly base and to get the more robust estimate values instead of using the quarter or year base data even though the most previous researches used the quarter and year data. It also uses Three Year National Bond as the proxy variable of real interest instead of Company Bond because the transaction of farmland does not occur in real world. The goal of this study tries to figure out the appropriate land value in order to provide the more amount of the monthly payment for the rural elderly who join in the farmland pension system.
    Keywords: Farmland Pension
    Date: 2015–10
  11. By: Hansen, Casper Worm; Strulik, Holger
    Abstract: This paper exploits the unexpected decline of deaths from cardiovascular diseases since the 1970s as a large positive health shock that affected predominantly old-age mortality; i.e., the fourth stage of the epidemiological transition. Using a differences-in-differences estimation strategy, we find that U.S. states with higher levels of cardiovascular-disease mortality prior the 1970s experienced greater increases in adultlife expectancy and higher education enrollment. Our estimates suggest that the cardiovascular revolution caused an increase in life expectancy of 1.5 years and an increase in education enrollment of 9 percentage points, i.e. 52 percent of the observed increase from 1960 to 2000.
    Keywords: adult life expectancy,higher education,cardiovascular diseases,differences-in-differences strategy
    JEL: I15 J24 N30 O10 O40
    Date: 2015
  12. By: Elaine Kelly (Institute for Fiscal Studies and Institute for Fiscal Studies); George Stoye (Institute for Fiscal Studies and Institute for Fiscal Studies); Marcos Vera-Hernandez (Institute for Fiscal Studies and University College London)
    Abstract: Health spending per capita in England has more than doubled since 1997, yet relatively little is known about how that spending is distributed across the population. This paper uses administrative National Health Service (NHS) hospital records to examine key features of public hospital spending in England. We describe how costs vary across the lifecycle, and the concentration of spending among people and over time. We find that costs per person start to increase after age 50 and escalate after age 70. Spending is highly concentrated in a small section of the population: with 32% of all hospital spending accounted for by 1% of the general population, and 18% of spending by 1% of all patients. There is persistence in spending over time with patients with high spending more likely to have spending in subsequent years, and those with zero expenditures more likely to remain out of hospital.
    Keywords: Health; public spending; hospitals
    JEL: H51 I10 I11
    Date: 2015–08
  13. By: Uwe Neumann
    Abstract: In the literature on the economics of demographic change so far the regional and neighbourhood-level consequences were out of the main focus. Yet, regional migration accentuates diversity in the progress of ageing. In fact, while households are known to ?vote with their feet? when they choose a residential location, neighbourhood populations may experience ?ageing by feet? as an outcome of a multitude of individual location decisions. This paper examines at what pace demographic change proceeds at the neighbourhood level in an ageing region and to what extent regional migration and neighbourhood choice during the past two decades reinforced or changed patterns of residential segregation among urban neighbourhoods. German cities differ from those in many other highly developed countries in that their population has stagnated or even begun to decline during the past decades. Apart from Eastern Germany, due to decades of net migration to more prosperous regions, the old-industrialised Ruhr in North Rhine-Westphalia is one of the German regions, which have already been affected by a severe loss in population and fundamental population change over the past decades. Drawing on municipal data at the sub-city level and microdata from a representative survey, this paper examines how change in the composition of neighbourhood populations relates to regional migration. The first step of the analysis focuses on the pace of neighbourhood-level demographic change during the period from 1998 to 2008. The second step examines household preferences relating to residential locations in the Ruhr, based on microdata from a representative survey carried out in 2010. The identification strategy is adopted from the recent literature on the microeconomics of discrete choice. In the Ruhr region, over the past decades out-migration and demographic ageing coincided with changes in intra-regional migration. After several decades of suburbanisation, in the 1990s net migration to suburban municipalities came to a halt. The micro-level analysis finds that among household preference apparently the desire for centrality took over from preference of low-density surroundings, which had dominated for decades. Within urban areas, migration now concentrates more on selected neighbourhoods in close vicinity to the city centres. In other neighbourhoods, due to low fertility and a comparatively low influx of young inhabitants, the average age has begun to increase. It is a specific characteristic of the Ruhr, which is an amalgam of neighbouring cities, to be less densely populated than other large urban agglomerations in Germany. Lower overall density here combines with a comparatively less pronounced agglomeration of working-age adults in central areas. As a whole, local demographic change implies new challenges for urban policy in many neighbourhoods, both in those not providing the characteristics favoured by most mobile households and in those with a high influx.
    Keywords: demographic change; neighbourhood choice; regional migration; segregation
    JEL: C21 C25 O18 R23
    Date: 2015–10
  14. By: Heller, Peter S.
    Date: 2015–10

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