nep-age New Economics Papers
on Economics of Ageing
Issue of 2016‒02‒29
eleven papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. The Retirement and Social Security Benefit Claiming of U.S. Military Retirees By David Knapp; Beth Asch; Jim Hosek; Michael G. Mattock
  2. Lehren aus den Rentenreformen seit 1972 By Börsch-Supan, Axel
  3. Note on the Myth that Older Workers Delaying Retirement Creates Unemployment for the Young By Börsch-Supan, Axel; Murray, Alan
  4. The transfer paradox in a pay-as-you-go pension system By Kojun Hamada; Akihiko Kaneko; Mitsuyoshi Yanagihara
  5. Après nous le déluge? Direct democracy and intergenerational conflicts in aging societies By Gabriel M. Ahlfeldt; Wolfgang Maennig; Malte Steeenbeck
  6. A Historical Welfare Analysis of Social Security: Whom Did the Program Benefit? By Peterman, William B.; Sommer, Kamila
  7. Labour shortages and replacement demand in Germany : The (non)-consequences of demographic change By Garloff, Alfred; Wapler, Rüdiger
  8. Public Expenditure, Demography and Growth: Theory and Evidence from India By Das, Pranab Kumar; Kar, Saibal
  9. Trajectories of functional disability for the elderly in Britain By Robert French; Fiona Steele
  10. The political choice of social long term care transfers when family gives time and money By Philippe De Donder De Donder; Marie-Louise Leroux
  11. Projections de l'état de santé de la population québécoise et impacts sur le risque de longévité d'un régime de retraite à prestations déterminées By Aurélie Côté-Sergent; Jean-Yves Duclos; Alexandre Lekina; Steeve Marchand; Pierre-Carl Michaud

  1. By: David Knapp (RAND); Beth Asch (RAND); Jim Hosek (RAND); Michael G. Mattock (RAND)
    Abstract: After serving 20 years in the active component of the U.S. military, service members can retire from the military, as young as age 38, and begin collecting a monthly pension benefit for the remainder of their life. In this paper, we ask: do active duty military retirees exit the labor force earlier or later because of their access to military retirement benefits? Do they alter their Social Security claiming decisions? We theorize that access to a consistent source of income may encourage earlier retirement through a standard income effect, but the military pension may also increase a retiree’s post-military job search, allowing for a greater wage and improved job satisfaction due to a better employer-employee match. Access to a steady source of pension income may also reduce short-term liquidity constraints, encouraging military retirees to delay claiming their Social Security benefit in order to benefit from delayed retirement. We estimate the impact of military retiree pension income on retirement empirically using the 1992 Health and Retirement Study cohort. We identify the military pension effect in a difference-in-difference model by exploiting a surprise change in military-retiree benefits in 2001 that extended Tricare health benefits to Medicare eligible military retirees and their spouses through the end of their lives. TFL eliminated the need to purchase Medigap coverage, thereby eliminating a cost that could cut into disposable income from their military annuity. A key limitation of the analysis is that the HRS includes relatively few military retirees.
    Date: 2016–02
  2. By: Börsch-Supan, Axel (Munich Center for the Economics of Aging (MEA))
    Abstract: Thanks to the reform process between 1992 and 2007, Germany was in a very good position to master demographic change. These reforms were farsighted, stabilized the public pension system and significantly increased employment, the foundation of every old-age provision. The “Pension Package 2014â€, however, is putting this position in jeopardy by focusing on the older generation at the expense of the young which needs more education and better health, areas in which Germany exhibits only mediocre performance. If a demography strat-egy wants to be farsighted, its core cannot be reductions in retirement age and similar ex-pensive steps backwards but will require investments into Germany’s youth.
    Date: 2015–01–24
  3. By: Börsch-Supan, Axel; Murray, Alan (Munich Center for the Economics of Aging (MEA))
    Abstract: A common concern when raising the retirement age is that the delayed retirement of older workers will crowd out younger workers from the labour market causing an increase in youth unemployment. This note shows that there is little empirical evidence to support this concern. Rather, the opposite is more likely to be true and older workers delaying their retirement may actually improve the employment opportunities for the young.
    Date: 2014–10–01
  4. By: Kojun Hamada (Faculty of Economics, Niigata University); Akihiko Kaneko (Faculty of Political Science and Economics, Waseda University); Mitsuyoshi Yanagihara (Graduate School of Economics, Nagoya University)
    Abstract: We examine how international transfer affects welfare levels of a donor with a higher marginal propensity to save and a recipient with a lower marginal propensity to save, when both countries adopt a pay-as-you-go (PAYG) pension system using a one-sector overlapping generations model. A PAYG pension scheme is found to lead to impairment of the donor and of the recipient as a result of the transfer under the dynamic efficiency condition. This is because the transfer increases the divergence in the rate of return between PAYG and private savings.
    Keywords: ay-as-you-go pension, Transfer paradox, Overlapping generations model
    JEL: D91 E21 F35 F43 H55
    Date: 2014–07
  5. By: Gabriel M. Ahlfeldt; Wolfgang Maennig; Malte Steeenbeck (Chair for Economic Policy, University of Hamburg)
    Abstract: To assess the likely effects of population ageing on the outcomes of direct democracy, we analyze the effect of age on voting decisions in public referenda. To this end, we provide the first quantitative review of the literature and a case study of the Stuttgart 21 referendum on one of the largest infrastructure projects in Germany. The evidence suggests that intergenerational conflicts arising from population ageing will likely be limited to areas in which the net present value differs particularly strongly across generations, such as education and health spending, green energy, and major transport projects. In such instances, however, the effect can be quantitatively relevant, raising the question of whether, as population ageing progresses, decisions should be based on social cost-benefit analyses, instead of referenda.
    Keywords: Aging, direct democracy, intergenerational conflict, NIMBY, referendum, Stuttgart 21, transport, voting
    JEL: D61 D62 H41 H71 L83 I18 R41 R58
    Date: 2016–02–11
  6. By: Peterman, William B. (Board of Governors of the Federal Reserve System (U.S.)); Sommer, Kamila (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: A well-established result in the literature is that Social Security tends to reduce steady state welfare in a standard life cycle model. However, less is known about the historical effects of the program on agents who were alive when the program was adopted. In a computational life cycle model that simulates the Great Depression and the enactment of Social Security, this paper quantifies the welfare effects of the program's enactment on the cohorts of agents who experienced it. In contrast to the standard steady state results, we find that the adoption of the original Social Security tended to improve these cohorts' welfare. In particular, we estimate that the original program benefited households alive at the time of the program's adoption with a likelihood of over 80 percent, and increased these agents' welfare by the equivalent of 5.9% of their expected future lifetime consumption. The welfare benefit was particularly large for poorer agents and agents who were near retirement age when the program was enacted. Through a series of counterfactual experiments we demonstrate that the difference between the steady state and transitional welfare effects is primarily driven by a slower adoption of payroll taxes and a quicker adoption of benefit payments during the program's phase-in. Overall, the opposite welfare effects experienced by agents in the steady state versus agents who experienced the program's adoption might offer one explanation for why a program that potentially reduces welfare in the steady state was originally adopted.
    Keywords: Social Security; Recessions; Great Depression; Overlapping Generations
    JEL: D91 E21 H55
    Date: 2015–09–24
  7. By: Garloff, Alfred (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Wapler, Rüdiger (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany])
    Abstract: "Two stylised facts of the German labour market are that first, the demand for highskilled labour has been growing rapidly for a number of years and second, the country is facing a particularly strong demographic change with the expected size of the population decreasing rapidly and the average age of the labour force increasing sharply. This has led to a widely discussed fear of 'labour shortages'. One of the reasons often stated in the public debate is that within a given time period many more old individuals are retiring than young individuals are entering the labour market. Although there is a certain logic in this argument, it is only prima facie convincing because firstly, a change in labour demand could counteract this effect and secondly, it is unclear whether - given labour demand for the occupations people retire from - people retiring from the labour market are normally 'replaced' by young cohorts entering the labour market. Thirdly, even if the size of a cohort differs between generations, it is by no means clear what the effects on labour supply are as, for example, the participation rates may also differ. We address these issues from a theoretical and empirical perspective. In the theoretical part we focus on the relationship between vacancies and unemployment (labour-market tightness) and show that it does not always increase with demographic change. In the empirical part, we analyse how employment is affected over time by different shares of different age cohorts. We find no evidence that a higher number of retirees in an occupation leads to a higher demand for younger workers. Instead, to a large extent, retirees seem to be 'replaced', if they are replaced at all, by middle-aged cohorts who change occupations. Thus, we conclude that the interaction between large retiring cohorts and small entering cohorts within occupations is less direct than is suggested in the public debate." (Author's abstract, IAB-Doku) ((en))
    Keywords: Arbeitskräftenachfrage, demografischer Wandel, Integrierte Arbeitsmarktbiografien, ältere Arbeitnehmer, junge Erwachsene, Berufsausstieg, Berufseinmündung, berufliche Integration, Stellenbesetzung
    JEL: F22 J11 J21 J22
    Date: 2016–02–16
  8. By: Das, Pranab Kumar (Centre for Studies in Social Sciences, Calcutta); Kar, Saibal (Centre for Studies in Social Sciences, Calcutta)
    Abstract: Many countries in the developed world are ageing in terms of their distribution of population. Conversely, a number of countries in the south have younger population. India for example, has 60% of its population in the age group of 15-59, with the mean age close to 27 years as of present times. The lower share of population in the higher and lower age brackets make the dependency ratio lower than that of the ageing countries. The economic growth such a large share of working age population can usher in lies at the core of the demographic dividends. However, low human capital, poor health and inadequate physical infrastructure seems to create significant hurdles in the potential growth path such countries can achieve. We investigate through an endogenous growth model applied to the Indian macroeconomic data, as to whether public expenditures in education, health and physical infrastructure are conducive to rapid economic growth commensurate with the projected demographic dividends for India. We deploy a Structural Vector Autoregressive Model on data for shares of public expenditure on education and health as the main pillars of growth of human capital in the country, on the per capita GDP growth rate, the working age population, etc. Importantly, we find that a rise in expenditure on health imparts a positive impact on the working age population through greater participation. However, higher allocations for education and training draws workers away from the labor market in a country with large share of unskilled workers and employment opportunities in the large informal sector.
    Keywords: human capital, health, endogenous growth, demographic dividend, public expenditure
    JEL: E24 E6 J2 N3
    Date: 2016–02
  9. By: Robert French; Fiona Steele
    Abstract: This study uses an innovative approach to characterise trajectories of functional disability over the final stages of the life course. We use data from the British Household Panel Survey (BHPS), an annual household survey of all adults in a representative sample of British households from 1991-2008. The analysis focuses on the sub-sample of elderly household members who were aged from 65 to 74 in any of the 18 waves of data, with a final sample of 3,671 individuals contributing a total of 13,982 person years. As in previous research, we estimate latent growth curves, but extend the standard model to incorporate a measurement model for the latent outcome variable ‘functional disability’. We identify accelerating trajectories of functional disability for a representative sample of elderly individuals separately by gender. We show that socio-occupational classification is associated with the level of initial functional disability and to a less extent the change in functional disability with age. The contribution of this paper is to explore the use of a measurement model to exploit the variation between items in discriminatory power for identifying an individual’s functional disability. Further we are able to explicitly test for temporal measurement invariance in functional disability i.e. to what extent the items consistently measure the latent variable as people age.
    Keywords: Ageing; Activities of daily living; Health trajectories; Britain; British Household Panel Survey (BHPS); Structural equation model (SEM); Growth model; Measurement model; Temporal measurement invariance
    JEL: C1
    Date: 2015
  10. By: Philippe De Donder De Donder; Marie-Louise Leroux
    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 help in time or money to their dependent parent. Dependent parents have an intrinsic preference for help in time by family members.   We first show that low (resp., high) income children provide help in time (resp. in money), 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 help in time by the family when the intrinsic preference of dependent parents for the latter 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: H55 I13 D91
    Date: 2015–06–11
  11. By: Aurélie Côté-Sergent; Jean-Yves Duclos; Alexandre Lekina; Steeve Marchand; Pierre-Carl Michaud
    Abstract: Nous nous intéressons au risque futur de longévité étant données l'augmentation de l'espérance de vie due au progrès technologique et la hausse de la prévalence de maladies liées à l'obésité et à la sédentarité. Nous utilisons dans un premier temps des techniques de microsimulation afin de projeter l'état de santé de la population québécoise, en incluant dans cette microsimulation une hypothèse d'amélioration exogène de la mortalité semblable à celle faite par la Régie des rentes du Québec (RRQ). Nous évaluons dans un deuxième temps les implications pour le ratio de financement de Régimes de retraite à prestations déterminées des tendances en santé fournies par cette microsimulation. Ce ratio se situe entre 0,24 et 0,74 en 2050 selon les scénarios retenus, indiquant ainsi que les régimes de retraite pourraient s'avérer fortement déficitaires dans le futur. Nous analysons dans un dernier temps les hypothèses de mortalité faites par la RRQ en considérant des scénarios alternatifs associées à des avancées médicales susceptibles de se produire dans les 10 prochaines années. Il s'avère selon cette analyse que les hypothèses de la RRQ pourraient surestimer significativement la croissance de l'espérance de vie future, en particulier celle des individus de 30 à 65 ans.
    Keywords: , santé, longévité et régimes de retraite
    Date: 2015–02–05

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