nep-age New Economics Papers
on Economics of Ageing
Issue of 2016‒03‒23
twenty papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Forecasting Trends in Disability in a Super-Aging Society: Adapting the Future Elderly Model to Japan By Brian K. Chen; Hawre Jalal; Hideki Hashimoto; Sze-Chuan Suen; Karen Eggleston; Michael Hurley; Lena Schoemaker; Jay Bhattacharya
  2. Health Capacity to Work at Older Ages in Denmark By Paul Bingley; Nabanita Datta Gupta; Peder Pedersen
  3. Healthy, Happy and Idle: Estimating the Health Capacity to Work at Older Ages in Germany By Hendrik Jürges; Lars Thiel; Axel Börsch-Supan
  4. Health Capacity to Work at Older Ages: Evidence from the U.S. By Courtney Coile; Kevin S. Milligan; David A. Wise
  5. Health Capacity to Work at Older Ages in France By Didier Blanchet; Eve Caroli; Corinne Prost; Muriel Roger
  6. Work Capacity at Older Ages in the Netherlands By Adriaan Kalwij; Arie Kapteyn; Klaas de Vos
  7. Health Capacity to Work at Older Ages: Evidence from the United Kingdom By James Banks; Carl Emmerson; Gemma Tetlow
  8. Work Capacity and Longer Working Lives in Belgium By Alain Jousten; Mathieu Lefebvre
  9. Fertility, Retirement Age, and PAYG Pensions By Chen, Hung-Ju
  10. Aging and Health Financing in the US: A General Equilibrium Analysis By Juergen Jung; Chung Tran; Matthew Chambers
  11. Taxing pensions By Cremer, Helmuth; Pestieau, Pierre
  12. Simplifying Choices in Defined Contribution Retirement Plan Design By Donald B. Keim; Olivia S. Mitchell
  13. Medical care within an OLG economy with realistic demography By Frankovic, Ivan; Kuhn, Michael; Wrzaczek, Stefan
  14. State Initiatives to Cover Uncovered Private Sector Workers By Alicia H. Munnell; Anek Belbase; Geoffrey T. Sanzenbacher
  15. Retirement, pension eligibility and home production By Emanuele Ciani
  16. How the baby boomers' retirement wave distorts model-based output gap estimates By Wolters, Maik H.
  17. The potential effect of offering lump sums as retirement payments By Maurer, Raimond; Mitchell, Olivia S.; Rogalla, Ralph; Schimetschek, Tatjana
  18. Mandatory Retirement and the Consumption Puzzle: Prices Decline or Quantities Decline? By Yingying Dong; Dennis Yang
  19. Transitioning between ‘the old’ and ‘the new’ long-term care systems By Joan Costa-Font; José-Luis Fernández; Katherine Swartz
  20. Age of politicians and Regulatory Reform By Oasis Kodila-Tedika; Martin Mulunda Kabange

  1. By: Brian K. Chen; Hawre Jalal; Hideki Hashimoto; Sze-Chuan Suen; Karen Eggleston; Michael Hurley; Lena Schoemaker; Jay Bhattacharya
    Abstract: Japan has experienced pronounced population aging, and now has the highest proportion of elderly adults in the world. Yet few projections of Japan’s future demography go beyond estimating population by age and sex to forecast the complex evolution of the health and functioning of the future elderly. This study adapts to the Japanese population the Future Elderly Model (FEM), a demographic and economic state-transition microsimulation model that projects the health conditions and functional status of Japan’s elderly population in order to estimate disability, health, and need for long term care. Our FEM simulation suggests that by 2040, over 27 percent of Japan’s elderly will exhibit 3 or more limitations in IADLs and social functioning; almost one in 4 will experience difficulties with 3 or more ADLs; and approximately one in 5 will suffer limitations in cognitive or intellectual functioning. Since the majority of the increase in disability arises from the aging of the Japanese population, prevention efforts that reduce age-specific disability (or future compression of morbidity among middle-aged Japanese) may have only a limited impact on reducing the overall prevalence of disability among Japanese elderly.
    JEL: I1 J1 J11 J14
    Date: 2016–01
  2. By: Paul Bingley; Nabanita Datta Gupta; Peder Pedersen
    Abstract: Longevity is increasing and many people are spending a greater proportion of their lives reliant on pensions to support consumption. In response to this, several countries have mandated delays to age of first entitlement to pension benefits in order to reduce incentives to retire early. However, it is unknown to what extent older individuals have the health capacity to sustain the longer working lives that delayed pension benefits may encourage. We estimate the health capacity to work longer in Denmark by comparing how much older individuals work today with how much those with similar mortality rates worked in the past, and how much younger individuals today with similar self-assessed health work. We find substantial health capacity for longer working lives among those currently aged 55 and above. We also find significant heterogeneity by education and gender. Those with a high school degree have the greatest additional work capacity, women have more additional capacity than men, especially women with a college degree.
    JEL: I14 J26
    Date: 2016–02
  3. By: Hendrik Jürges; Lars Thiel; Axel Börsch-Supan
    Abstract: After two decades of reforms that have tightened eligibility for early retirement and the generosity of social security payments, the German government has begun to turn back time and re-introduce more generous disability and early retirement benefits. Often, poor health is cited as the main reason why workers cannot work until the regular retirement age. In this chapter, we try to answer a seemingly simple question: what is the proportion of older individuals who could work in the labor market if they wanted to and if they were not limited by poor health? To answer this question, we follow two different empirical approaches with a similar logic: we estimate the link between health and labor force participation in a population whose employment patterns are or were hardly affected by the current (early) retirement incentives. Using these “pure health effects” on labor force participation to extrapolate to a population that is currently strongly affected by legislation informs us how many could not work for health reasons and how many could work. We find substantial capacity to work among the older population. We estimate that two thirds of the population would be capable of working in the labor market until they turn 70 if they wanted to.
    JEL: H31 H55 I19 J14 J26
    Date: 2016–02
  4. By: Courtney Coile; Kevin S. Milligan; David A. Wise
    Abstract: Public programs that benefit older individuals, such as Social Security and Medicare, may be changed in the future in ways that reflect an expectation of longer work lives. But do older Americans have the health capacity to work longer? This paper explores this question by asking how much older individuals could work if they worked as much as those with the same mortality rate in the past or as much as their younger counterparts in similar health. Using both methods, we estimate that there is significant additional capacity to work at older ages. We also explore whether there are differences in health capacity across education groups and whether health has improved more over time for the highly educated, using education quartiles to surmount the challenge of changing levels of education over time.
    JEL: I19 J14 J26
    Date: 2016–01
  5. By: Didier Blanchet; Eve Caroli; Corinne Prost; Muriel Roger
    Abstract: France stands out as a country with a low labor force attachment of older workers. A reversal in the trend of French labor participation rates over 50 is under way, partly due to the pension reforms that took place since 1993. The French ageing process is driven by large gains in life expectancy and Pension reforms allocate part of these gains to work rather than to retirement. The implicit assumptions guiding the reforms have been that additional years of life are years with a health status that can be considered reasonably compatible with work. If this is not the case, the idea of sharing these additional years of life between work and retirement is questionable. Considering mortality and health status, we question the fact that the reforms may have gone too far in increasing the retirement age. To tackle these issues, we rely on two different methodological approaches developed in the economic literature: one based on the gap in employment rates across time for given mortality rates; the other using the work/health relationship measured at certain ages to predict the health-related work capacity of older age groups at the same period of time. Both methods aim at providing measures of additional work capacity. This capacity may be defined as a measure of the distance between current retirement ages and what we call the “health barrier”, i.e. the age at which health prevents people from working longer. Both methods predict high average levels of additional work capacity. However, the picture becomes somewhat different when disaggregating the results by social groups or education. Our results emphasize the idea that policies aiming at activating any estimated additional work capacity should take into account, when possible, the heterogeneity of health conditions in the population. Moreover, additional work capacity cannot be a general indicator of how much seniors should work. The methods used here indeed leave aside many factors that determine the employment rate of older workers.
    JEL: I10 J14 J21 J26
    Date: 2016–02
  6. By: Adriaan Kalwij; Arie Kapteyn; Klaas de Vos
    Abstract: Over the last two decades policy reforms in the Netherlands have increased work incentives, resulting in rising employment rates at older ages. Over the same period health of the population has increased as well. A natural question is how much people could work taking into account their health status. As the other chapters in this volume, we use two approaches to answering this question. The first approach takes the relation between mortality and employment in 1981 as a base and then estimates what employment rates could be in 2010 if the relation between mortality and employment were the same in 1981 and 2010. The estimated additional work capacity based on this approach is about 50 percentage points for males at age 65. A second approach estimates the relation between health and employment in the age interval 50-54 and then predicts employment at later ages using health at these later ages. This leads to an estimated additional work capacity in 2010 of more than 75 percentage points for males aged 65-74. When including mortality as an additional health indicator to control for unobserved health differences in the latter approach, the estimated work capacities are more in line with those from the former approach: about 53 percentage points for males aged 65-69 and 44 percentage points for males aged 70-74.
    JEL: H55 I1 J26
    Date: 2016–02
  7. By: James Banks; Carl Emmerson; Gemma Tetlow
    Abstract: This paper estimates how much additional work capacity there might be among men and women aged between 55 and 74 in the United Kingdom, given their health, and how this has evolved over the last decade. The objective is not to suggest how much older people should work but rather to shed light on how much ill-health (as opposed to other constraints and preferences) constrains older individuals’ ability to work. We present two alternative methods, both of which rely on constructing a ‘counterfactual’ employment rate for older people based on the behaviour of other similarly healthy individuals. Both methods suggest that there is significant additional capacity to work among older men and women, but that this has been declining over recent years for women (and possibly also for men). This latter finding suggests that the increase in employment rates among older people seen over the last decade are more rapid than would have been expected based on the improvements seen in health alone.
    JEL: I14 J21 J22 J26
    Date: 2016–02
  8. By: Alain Jousten; Mathieu Lefebvre
    Abstract: We explore the link between health indicators and employment rates of the population aged 55 or more. Our focus lies on work capacity as a key determinant of employment. Using cohort mortality information as a proxy for overall health outcomes, we establish a substantial untapped work capacity in the population 55+. Even stronger results are obtained when relying on individual-level objective and subjective health and socioeconomic parameters as predictors.
    JEL: J14 J21 J26
    Date: 2016–02
  9. By: Chen, Hung-Ju
    Abstract: This paper develops an overlapping generations (OLG) model with exogenous and endogenous retirement age to examine the effects of fertility on long-run pay-as-you-go (PAYG) pensions. We find that in both cases, pensions may not necessarily increase with the fertility rate. In the case with exogenous retirement age, an increase in the fertility rate (retirement age) may raise pensions when the output elasticity of capital is low. When the output elasticity of capital is high, an increase in the fertility rate (retirement age) will reduce (raise) pensions if the tax rate is sufficiently high. In the case with endogenous retirement age, a higher fertility rate will reduce pensions if the fertility rate is sufficiently high, but such a change will raise pensions if the output elasticity of capital and the tax rate are sufficiently low. Our results indicate that raising the fertility rate is more likely to reduce pensions in developing countries than in developed countries, while such a change tends to raise pensions for countries with sufficiently low output elasticity of capital and tax rate.
    Keywords: Fertility; Retirement; OLG, PAYG pensions.
    JEL: H55 J13 J26
    Date: 2016–03–02
  10. By: Juergen Jung (Department of Economics, Towson University); Chung Tran (Research School of Economics, The Australian National University); Matthew Chambers (Department of Economics, Towson University)
    Abstract: We quantify the effects of population aging on the US healthcare system. Our analysis is based on a stochastic general equilibrium overlapping generations model of endogenous health accumulation calibrated to match pre-2010 U.S. data. We find that population aging not only leads to large increases in medical spending but also a large shift in the relative size of public vs. private insurance. Without the Affordable Care Act (ACA), aging itself leads to a 36.6 percent increase in health expenditures by 2060. The group based health insurance (GHI) market shrinks, while the individual based health insurance (IHI) market and Medicaid expand significantly. Additional funds equivalent to roughly 4 percent of GDP are required to finance Medicare in 2060 as the elderly dependency ratio increases. The introduction of the ACA increases the fraction of insured workers to 99 percent by 2060, compared to 81 percent without the ACA. This additional increase is mainly driven by the further expansion of Medicaid and the IHI market. Interestingly, the ACA reduces aggregate health care spending by enrolling uninsured workers into Medicaid which pays lower prices for medical services. Overall, the ACA adds to the fiscal cost of population aging mainly via the Medicare and Medicaid expansion.
    Keywords: Population aging, health expenditures, Medicare/Mediaid, Affordable Care Act 2010, Grossman model of health capital, endogenous health spending and financing, general equilibrium.
    JEL: H51 I13 J11 E21 H62
    Date: 2016–03
  11. By: Cremer, Helmuth; Pestieau, Pierre
    Abstract: There exists a wide variety of tax treatments of pensions across the world. And the reasons for such a range of regimes are not clear. This note reviews the general principles of pension taxes and analyses the theoretical foundations of why pension incomes ought to be taxed specifically. To do this, one has to distinguish between public and private pensions. The design of public pensions cannot be separated from the one of taxation. Regarding private pensions, the key issue is whether or not pension saving ought to be treated differently from other forms of saving.
    Keywords: private pensions, deferred tax, social security, retirement
    JEL: H21 H55
    Date: 2016–03
  12. By: Donald B. Keim; Olivia S. Mitchell
    Abstract: In view of the growth and popularity of defined contribution pensions, along with the government’s growing attention to retirement plan costs and investment choices provided, it is important to understand how people select their retirement plan investments. This paper shows how employees in a large firm altered their fund allocations when the employer streamlined its pension fund menu and deleted nearly half of the offered funds. Using administrative data, we examine the changes in plan participant investment choices that resulted from the streamlining and how these changes might affect participants’ eventual retirement wellbeing. We show that streamlined participants’ new allocations exhibited significantly lower within-fund turnover rates and expense ratios, and we estimate this could lead to aggregate savings for these participants over a 20-year period of $20.2M, or in excess of $9,400 per participant. Moreover, after the reform, streamlined participants’ portfolios held significantly less equity and exhibited significantly lower risks by way of reduced exposures to most systematic risk factors, compared to their non-streamlined counterparts.
    JEL: D14 E21 G11 J32
    Date: 2016–01
  13. By: Frankovic, Ivan; Kuhn, Michael; Wrzaczek, Stefan
    Abstract: We study the role of health care within a continuous time economy of overlapping generations subject to endogenous mortality. The economy consists of two sectors: final goods production and a health care sector, selling medical services to individuals. Individuals demand health care with a view to lowering mortality over their life-cycle. We derive the age-specific individual demand for health care based on the value of life as well as the resulting aggregate demand for health care across the population. We then characterize the general equilibrium allocation of this economy, providing both an analytical and a numerical representation. We study the allocational impact of a medical innovation both in the presence and absence of anticipation; and a temporary baby boom. We place particular emphasis on disentangling general equilibrium from partial equilibrium impacts and identifying the relevant transmission channels.
    Keywords: demographic change,life-cycle model,health care,health policy,medical change,overlapping generations,value of life
    JEL: D91 I11 I12 I18 J11 J17 O31 O41
    Date: 2016
  14. By: Alicia H. Munnell; Anek Belbase; Geoffrey T. Sanzenbacher
    Abstract: At any given moment, only about half of private sector workers are covered by any sort of employer-spon­sored retirement plan. This lack of coverage has two implications. First, a substantial share of households – roughly one-third – end up with no coverage at all during their worklives and must rely exclusively on Social Security in retirement. And, even under cur­rent law, Social Security will provide less in the future relative to pre-retirement earnings than it has in the past. Second, with median job tenure of about four years, many employees move in and out of coverage so that they end up with inadequate 401(k) balances. Since most of those without coverage work for small employers, policymakers for decades have tried to solve the problem by introducing simplified retire­ment plans. But these initiatives have not improved coverage because plan administration costs are only one of several reasons that small businesses do not offer plans. Equally important considerations include too few employees, lack of employee interest, and unstable business income. Recognizing the difficulty in getting small businesses to adopt plans, the Obama Administration proposed “Automatic IRAs” in 2009 to cover the uncovered, and others have come up with alternative proposals. But no progress has been made in passing federal legislation. Into this breach have stepped the states. This brief provides an overview of retirement savings initiatives at the state level. The discussion proceeds as follows. The first section describes the nature of the coverage problem. The second section provides a summary of the state initiatives, separating the states into those moving ahead with a plan, those with legislation currently in play, and those where no legislation has been pro­posed or legislation has been rejected. It also de­scribes the two approaches that states have adopted to date – an employer mandate to auto-enroll their em­ployees in an IRA or the creation of a “marketplace” – as well as a third option, a state multiple employer plan, that some are considering. The third section pokes at the data to see if any systematic relationship exists between the initiatives and the characteristics of the states involved. The fourth section describes the U.S. Department of Labor’s efforts to clear away the regulatory underbrush, which should ease the path toward implementing the state programs. The final section concludes that, while the expansion of coverage could best be done at the federal – not the state – level, those states that require their employers to auto-enroll employees will significantly improve the retirement security of their citizens.
    Date: 2016–03
  15. By: Emanuele Ciani (Bank of Italy)
    Abstract: I estimate the effect of retirement on housework by exploiting the discontinuity in pension eligibility generated by the Italian social security rules. Using microdata from the 2007 wave of the Survey on Income and Living Conditions (SILC), I show that women increase their time spent on home production by more than 400 minutes per week. For men, there is on average no evidence of a significant change, which differs from the results of studies in other countries. However, estimates are heterogeneous by marital status, suggesting that married men do not increase time spent on household production because they can rely on their spouses. I also discuss other possible explanations, in particular men dedicating their time to ‘semi-leisure chores’ that do not fall under the definition of housework used in SILC. Overall, results suggest that retirement does not lead to a more equal distribution of ‘core’ household chores between genders.
    Keywords: retirement, house work, regression discontinuity
    JEL: J22 J26 D1
    Date: 2016–02
  16. By: Wolters, Maik H.
    Abstract: Hours per capita measures based on the private sector as usually included in the set of observables for estimating macroeconomic models are affected by low-frequent demographic trends and sectoral shifts that cannot be explained by standard models. Further, model-based output gap estimates are closely linked to the observable hours per capita series. Hence, hours per capita that are not measured in concordance with the model assumptions can distort output gap estimates. This paper shows that sectoral shifts in hours and the changing share of prime age individuals in the working-age population lead indeed to erroneous output gap dynamics. Regarding the aftermath of the global financial crisis model-based output gaps estimated using standard hours per capita series are persistently negative for the US economy. This is not caused by a permanently depressed economy, but by the retirement wave of baby boomers which lowers aggregate hours per capita. After adjusting hours for changes in the age composition to bring them in line with the model assumptions, the estimated output gap gradually closes in the years following the global financial crisis.
    Keywords: output gap estimates,DSGE models,hours per capita measurement,demographic trends,Bayesian estimation
    JEL: C11 C54 E32 J11
    Date: 2016
  17. By: Maurer, Raimond; Mitchell, Olivia S.; Rogalla, Ralph; Schimetschek, Tatjana
    Abstract: The paper discusses an additional reform proposal for enhancing Social Security solvency which reframes the existing debate in a different light. In our research, we focus on incentives to prolong working years and to delay benefits claiming as a way of sustaining Social Security. Specifically, we analyze how the offer of a budget-neutral, actuarially fair lump sum payment - instead of the current delayed retirement credit - would encourage people to delay claiming their OASI benefits and work longer. The results of our research will be useful for policymakers, namely in (1) measuring who would delay claiming benefits if offered a lump sum instead of higher annuity payments, (2) examining how long they would wait, and (3) how much longer, if at all, they would continue working in the interim.
    Keywords: pension system,social security solvency
    Date: 2015
  18. By: Yingying Dong (University of California, Irvine); Dennis Yang (University of virginia)
    Abstract: This paper investigates household consumption changes at retirement by utilizing a comprehensive, diary-based household survey from China. The survey contains both consumption quantity and price information, which permits separating quantity changes from price changes. The mandatory retirement policy in China provides a quasi-experimental setting for identification of the true causal effects of fully anticipated retirement. Using regression discontinuity models, we show that food expenditure declines at retirement, particularly among the low-education group, and that the decline is driven by price declines instead of quantity declines. Shopping time for food increases at retirement, consistent with the price and quantity changes.
    Keywords: Retirement-consumption puzzle, Manadatory retirement, regression discontinuity, consumption vs. expenditure, time use, home production
    JEL: J26 C21
    Date: 2016–02
  19. By: Joan Costa-Font; José-Luis Fernández; Katherine Swartz
    Keywords: long-term care; long term care insurance; long term care systems
    JEL: J50
    Date: 2015–03
  20. By: Oasis Kodila-Tedika (Université de Kinshasa Département d’Eco); Martin Mulunda Kabange (University of KwaZulu-Natal)
    Abstract: This article discusses the relationship between the identity of the rulers of the executive and reform. Thus, we enrich the literature on the determinants of reform and the result of the executive. This is a new and very important literature, as these are the reforms that allow progress. We use a sample of 141 countries over the period 2003-2013 to investigate the link between the age of politicians and regulatory reforms. We created an ad hoc database for the age of politicians and for reform, we use micro-reform data. An econometric model is used to discover if the age of a political leader in office can be a driving force that is more or less likely to bring about regulatory reforms. Our results suggest that the age of politicians has a positive incidence on the reform that they bring about. The results are robust for the reform measures and techniques used. The results also indicate that older politicians implement more reforms than the young ones. More precisely, the paper found that older politicians who are in their sixties bring about the most regulatory reforms than politicians of any other age ranges.
    Keywords: Age of politicians, Regulation, Reforms
    JEL: P11 P16 K20 L51 D78
    Date: 2016–02

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