nep-age New Economics Papers
on Economics of Ageing
Issue of 2015‒11‒21
fourteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. YOLO: Mortality Beliefs and Household Finance Puzzles By Rawley Z. Heimer; Kristian Ove R. Myrseth; Raphael S. Schoenle
  2. Gradual retirement, financial incentives, and labour supply of older workers: Evidence from a stated preference analysis By Elsayed A.E.A.; Grip A. de; Fouarge D.; Montizaan R.M.
  3. Indirect fiscal effects of long-term care insurance By Geyer, Johannes; Haan, Peter; Korfhage, Thorben
  4. Labor Supply Responses to New Rural Pension Insurances in China: A Regression Discontinuity Approach By Chen, Zeyuan; Bengtsson, Tommy; Helgertz, Jonas
  5. Interactions between state pension and long-term care reforms: an overview By John Adams; Chris Curry; Ferran Espuny-Pujol; Ruth Hancock; Bo Hu; Derek King; Sarah Luheshi; Marcello Morciano; Timothy Pike; Shamill Popat; Raphael Wittenberg
  6. La tasa de actividad en España: resistencia cíclica, determinantes y perspectivas futuras. By José Manuel Montero; Ana Regil
  7. Fiscal effects of the Norwegian pension reform. A micro-macro assessment By Dennis Fredriksen; Erling Holmøy; Birger Strøm; Nils Martin Stølen
  8. Consumption smoothing at retirement: average and quantile treatment effects in the regression discontinuity design By Daniel Burkhard
  9. Benefit or Burden? On the Intergenerational Inequity of Teacher Pension Plans By Ben Backes; Dan Goldhaberb; Cyrus Grout; Cory Koedel; Shawn Ni; Michael Podgursky; P. Brett Xiang; Zeyu Xu
  10. The grand divergence: global and European current account surpluses By Zsolt Darvas
  11. Job Loss, Firm-Level Heterogeneity and Mortality: Evidence from Administrative Data By Hans Bloemen; Stefan Hochguertel; Jochem Zweerink
  12. Declining Wages for College-Educated Workers in Mexico: Are Younger or Older Cohorts Hurt the Most? By Raymundo M. Campos-Vazquez; Luis F. Lopez-Calva; Nora Lustig
  13. Forecasting Life Expectancy: Evidence from a New Survival Function By Wong, Chi Heem; Tsui, Albert K
  14. Pension systems and financial constraints in a three-country OLG model of intra-EMU and global trade imbalances By Karl Farmer; Bogdan Mihaiescu

  1. By: Rawley Z. Heimer (Federal Reserve Bank of Cleveland); Kristian Ove R. Myrseth (University of St. Andrews); Raphael S. Schoenle (Brandeis University)
    Abstract: Subjective mortality beliefs aect 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 a 82.4% chance of living that long. The formation of these beliefs across age cohorts can be attributed to overweighting the most salient causes-of-death, which change over the life-cycle. This bias matters empirically: Survival expectations correlate with heterogeneity in nancial education and investment behavior. Embedded in a run-of-the-mill life-cycle model, these beliefs cause the young to under-save (they have 10% less saved upon retirement) and retirees to not fully draw down their assets (they consume 12% less during retirement). 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: 2015–11
  2. By: Elsayed A.E.A.; Grip A. de; Fouarge D.; Montizaan R.M. (GSBE)
    Abstract: Using data from a stated preferences experiment in the Netherlands, we find that replacing full-time pension schemes with schemes that offer gradual retirement opportunities induce workers to retire one year later on average. Total life-time labour supply, however, decreases with 3.4 months because the positive effect of delayed retirement on labour supply is cancelled out by the reduction in working hours before full retirement. The impact of gradual retirement schemes is, however, heterogeneous across groups of workers. Workers with non-routine job tasks retire at a later age when they can gradually retire. Financial incentives, either in terms of changing pension income or the price of leisure, also affect the expected retirement age, but the impact of these financial incentives does not differ with the possibility of gradual retirement. Finally, we find that gradual retirement is not a preferred option among workers as the large majority still prefers full retirement. This especially holds for workers with a lower wage and those with higher life expectancy.
    Keywords: Economics of the Elderly; Economics of the Handicapped; Non-labor Market Discrimination; Retirement; Retirement Policies;
    JEL: J14 J26
    Date: 2015
  3. By: Geyer, Johannes; Haan, Peter; Korfhage, Thorben
    Abstract: Informal care by close family members is the main pillar of most long-term care systems. However, due to demographic ageing the need for long-term care is expected to increase while the informal care potential is expected to decline. From a budgetary perspective, informal care is often viewed as a cost-saving alternative to subsidized formal care. This view, however neglects that many family carers are of working age and face the difficulty to reconcile care and paid work which might entail sizable indirect fiscal effects related to forgone tax revenues, lower social security contributions and higher transfer payments. In this paper we use a structural model of labor supply and the choice of care arrangement to quantify these indirect fiscal effects of informal care. Moreover, based on the model we discuss the fiscal effects related to non-take-up of formal care.
    Abstract: Die Organisation der Altenpflege stützt sich in vielen Ländern auf die Bereitstellung informeller Pflege durch Familienangehörige. In alternden Gesellschaften gerät dieses System jedoch zunehmend unter Druck, da die Nachfrage nach Pflege steigt und gleichzeitig das Potenzial für Familienpflege sinkt. Die informelle Pflege wird aus fiskalpolitischer Sicht häufig als die kostengünstigste Variante der Altenpflege wahrgenommen. Die Bestimmung der gesamten fiskalischen Kosten erfordert jedoch eine Berücksichtigung von indirekte Kosten der informellen Pflege. Diese entstehen dadurch, dass viele pflegende Angehörige ihr Arbeitsangebot reduzieren, um auf die Doppelbelastung aus Pflege und Lohnarbeit zu reagieren. Dies führt zu geringeren Steuereinnahmen, reduzierten Sozialversicherungsbeiträgen und höheren Transferzahlungen. In dieser Studie nutzen wir ein strukturelles Modell des Arbeitsangebots und der Pflegearrangements, um diese indirekten fiskalischen Kosten zu quantifizieren. Darüber hinaus nutzen wir das Modell, um zusätzliche fiskalischen Effekte zu diskutieren, die durch eine Nichtinanspruchnahme (non-take up) von formeller ambulanter Pflege entstehen können.
    Keywords: labor supply,fiscal effects,long-term care insurance,structural model
    JEL: J22 H31 I13
    Date: 2015
  4. By: Chen, Zeyuan (Department of Economic History, Lund University); Bengtsson, Tommy (Department of Economic History, Lund University); Helgertz, Jonas (Department of Economic History, Lund University)
    Abstract: Transitioning into retirement is an under-researched phenomenon in developing countries. Largely, this is linked to a predominance of contexts where – in particular – the rural population remains outside the coverage of any formal pension system. In 2008, China introduced the New Rural Social Pension (NRSP), a program which by now covers the majority of the Chinese rural elderly. This paper examines the effects of the NRSP on the labor supply of the elderly in rural China. As pension benefit eligibility at the time of its implementation is conditional on age, a regression discontinuity design is applied to investigate the casual effect of the receipt of pension benefits on labor supply. Furthermore, as the NRSP is neither means-tested nor conditions on retirement, it induces a pure income effect on employment. Using data from the China Health and Retirement Longitudinal Study, a nationally representative data set, we find that the receipt of pension benefits increases the probability of retirement among the rural elderly by around 15%.
    Keywords: China; New Rural Social Pension; Labor supply; Regression discontinuity; Retirement
    JEL: H55 J26
    Date: 2015–10–20
  5. By: John Adams; Chris Curry; Ferran Espuny-Pujol; Ruth Hancock; Bo Hu; Derek King; Sarah Luheshi; Marcello Morciano; Timothy Pike; Shamill Popat; Raphael Wittenberg
    Abstract: In April 2016 major reforms to state pensions and long-term care will be implemented in Great Britain and England respectively. Their combined effects have received little attention despite interactions between the two systems. The long-term effects of both sets of reforms will depend on how details of the systems are set in the intervening years, and on how policies in other parts of the welfare system evolve. We will investigate the long-term impacts of alternative ways in which current pensions and long-term care financing reforms may evolve over the next 40 years to ensure that that there is widespread appreciation of the implications of any changes which may have significant long-term effects.
    JEL: E6
    Date: 2015–11
  6. By: José Manuel Montero (Banco de España); Ana Regil (Banco de España)
    Abstract: The cyclical resilience of the labour force has been one of the most notable features of the Spanish labour market during the latest economic crisis, despite the depth and duration of the recession, and in contrast to its performance in previous recessionary periods. The behaviour of labour supply has been driven by the favourable trend of the aggregate participation rate. Thus, this paper firstly analyses the cyclical performance of the participation rate over time using data from the Labour Force Survey for different demographic groups (by sex, nationality, age and educational attainment). The analysis reveals that the lower cyclical sensitivity during the latest downturn was driven by the stronger relative performance of labour force participation by Spanish women, highly educated workers and middle-aged and older people. In the second part of the paper, we estimate an empirical relationship between the participation rate, broken down into sex and nationality, and some of its main determinants identified in the literature. The ensuing estimation results will serve as a basis for conducting a projection exercise for the aggregate participation rate over a 10-year horizon. Overall, our results show that factors such as educational attainment, the fertility rate, the minimum wage, the pension system or the unemployment insurance system all prove relevant for labour participation decisions by individuals. The future course of these variables can help mitigate the negative impact on the labour supply arising from the expected population ageing in Spain.
    Keywords: labour force, participation rate, cyclical resilience, fractional response models.
    JEL: J21 C25 E24
    Date: 2015–11
  7. By: Dennis Fredriksen; Erling Holmøy; Birger Strøm; Nils Martin Stølen (Statistics Norway)
    Abstract: The main goal of the Norwegian pension reform of 2011 is to improve long run fiscal sustainability, not least through stronger labour supply incentives. We assess to what extent the reform is likely to live up to these intentions. To this end we combine a dynamic microsimulation model, which includes a complete description of the Norwegian population and the pension system, with CGE-modelling of the effects on all government revenues and expenditures. We find that the reform is likely to make a great fiscal impact in the long run, and higher employment plays an important role in this respect. However, the pension reform alone is far from enough to solve the Norwegians long run problem of fiscal sustainability.
    Keywords: Pension reforms; Fiscal sustainability; Income distribution; Computable general equilibrium model; Dynamic microsimulation
    JEL: H30 H55 H62 H68 O15
    Date: 2015–10
  8. By: Daniel Burkhard
    Abstract: Abstract Standard economic models predict that individuals smooth consumption over the life cycle. In contrast, there exists controversial empirical evidence showing that consumption declines at retirement. This paper investigates whether there is evidence for this so-called Retirement Consumption Puzzle in Switzerland. Baseline regression discontinuity estimates of average treatment effects are complemented by quantile treatment effects, where all estimates take the potential endogeneity of retirement into account. The findings suggest that disposable income significantly decreases after retirement, although there is substantial treatment effect heterogeneity. The reduction in income transmits to a negative but considerably less pronounced effect on overall consumption expenditures, indicating that households simultaneously adjust their savings. The results further show that food consumption at home is not or even positively affected by retirement, whereas expenditures in restaurants and hotels significantly decline.
    Keywords: Retirement Consumption Puzzle; Consumption Smoothing; Household Expenditure; Regression Discontinuity; Quantile Treatment Effect
    JEL: C21 J14 J26
    Date: 2015–11
  9. By: Ben Backes (American Institutes for Research); Dan Goldhaberb (American Institutes for Research and University of Washington); Cyrus Grout (University of Washington); Cory Koedel (University of Missouri); Shawn Ni (University of Missouri); Michael Podgursky (University of Missouri); P. Brett Xiang (University of Missouri); Zeyu Xu (American Institutes for Research)
    Abstract: Most teachers are enrolled in defined benefit (DB) pension plans, which facilitate various types of resource transfers between workers. Using administrative micro data from four states, combined with national pension funding data, we examine a specific type of resource transfer permitted by educator pension plans: intergenerational transfers. We show that for new cohorts of teachers, DB pension plans are driving a transfer of compensation to previous cohorts of teachers. Across state plans in the United States, current teachers pay an average of approximately 10 percent of their earnings to cover previously-accrued pension liabilities. This amounts to a significant reduction in real operating spending per student. If current teachers were not required to cover these liabilities, their salaries could be increased substantially without increasing the total budget for teacher compensation.
    Keywords: Pensions, teacher pensions, pension liabilities, pension debt, teacher quality
    JEL: I20 H55
    Date: 2015–11–01
  10. By: Zsolt Darvas (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences and Bruegel and Corvinus University of Budapest)
    Abstract: Highlights - Global current account imbalances widened before the 2007/2008 crisis and have narrowed since then. While the post-crisis adjustment of European current account deficits was in line with global developments (though more forceful), European current account surpluses defied global trends and increased. - We use panel econometric models to analyse the determinants of medium-term current account balances. Our results confirm that higher fiscal balances, higher GDP per capita, more rapidly aging populations, larger net foreign assets, larger oil rents and better legal systems increase the medium-term current account balance, while a larger growth differential and a higher old-age dependency ratio reduce it. - European current account surpluses became excessive during the past twelve years according to our estimates, while they were in line with model predictions in the preceding three decades. - Generally, the gap between the actual current account and its fitted value by the model has a strong predictive power for future current account changes. Excess deficits adjust more forcefully than excess surpluses. However, in the 2004-07 period, excess imbalances were amplified, which was followed by a forceful correction in 2008-15, with the exception of European surpluses.
    Keywords: Current account imbalances; Current account adjustment
    JEL: F32 F41
    Date: 2015–08
  11. By: Hans Bloemen (VU University Amsterdam); Stefan Hochguertel (VU University Amsterdam, the Netherlands); Jochem Zweerink (Utrecht University, the Netherlands)
    Abstract: This paper estimates the effect of job loss on mortality for older male workers with strong labor force attachment. Using Dutch administrative data, we find that job loss due to sudden firm closure increased the probability to die within five years by a sizable 0.60 percentage points. Importantly, this effect is estimated using a model that controls for firm-level worker characteristics, such as firm-level average mortality rates for mortality during the four years prior to the year of observation. On the mechanism driving the effect of job loss on mortality, we provide evidence for an effect running through stress and changes in life style.
    Keywords: job loss; mortality; treatment effect
    JEL: C21 I10 J63
    Date: 2015–11–16
  12. By: Raymundo M. Campos-Vazquez (Centro de Estudios Economicos, El Colegio de Mexico); Luis F. Lopez-Calva (Development Economics Vice Presidency, World Bank); Nora Lustig (Department of Economics, Tulane University)
    Abstract: Wage inequality has declined in Mexico since 2000. Using data from Mexican labor surveys for the period between 2000 and 2014, we investigate if the decline was driven by wages declining more sharply for younger or older workers. We find that wages of older workers declined and the decline was more pronounced in the older the cohort. This would seem to support the hypothesis that older workers' skills have become obsolete.
    Keywords: education, college, cohort, inequality, Mexico
    JEL: I24 I25 J20 J31 O54
    Date: 2015–11
  13. By: Wong, Chi Heem; Tsui, Albert K
    Abstract: We propose a new survival function to forecast life expectancies at various ages. The proposed model comprises the youth-to-adulthood component and the old-to-oldest-old component. It is able to closely fit adult survivorship of the US men and women in the period from 1950 to 2010. We find evidence that the forecasting performance of life expectancies by the proposed model compares favorably with those obtained from the popular Lee-Carter model (1992) and the shifting logistic model proposed by Bongaarts (2005).
    Keywords: Lee-Carter model, Life expectancy, Mortality, Survival probability
    Date: 2015–06
  14. By: Karl Farmer (University of Graz); Bogdan Mihaiescu (University of Graz)
    Abstract: Farmer and Ban (2014) find in a three-country OLG model (= basic model) that financial integration between both EMU core and periphery and between Asia and USA induce trade surpluses in EMU core and in Asia while in EMU periphery and in USA trade balances become negative when the global economy is dynamically inefficient. While exhibiting the right sign, model-generated steady-state trade balance to GDP ratios turn out, however, being too low compared to empirical counterparts. In order to address this problem we first extend the basic OLG model in line with Eugeni (2015) by introducing pay-as-you-go pension systems in EMU and US but not in Asia. Second, we introduce financial constraints following Coeurdacier et al. (2015) to achieve a better data fit compared to the basic model. Both extensions improve the empirical relevance of the basic model.
    Keywords: Trade Imbalances; European Economic and Monetary Union; Overlapping Generations; Three-Country Model; Global imbalances
    JEL: F36
    Date: 2015–11

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