nep-age New Economics Papers
on Economics of Ageing
Issue of 2016‒07‒09
23 papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Old-Age Pension and Extended Families: How is Adult Children's Internal Migration Affected? By Chen, Xi
  2. How Well Does the Australian Aged Pension Provide Social Insurance? By Emily Dabbs; Cagri Kumru
  3. Policy Variation, Labor Supply Elasticities, and a Structural Model of Retirement By Mullen, Kathleen J.; Manoli, Day; Wagner, Mathis
  4. Ageing in the Caribbean and the human rights of older persons: Twin imperatives for action By Jones, Francis
  5. What are the Health effects of postponing retirement? An instrumental variable approach By Hagen, Johannes
  6. Pension Incentives and the Retirement Decisions of Couples By Atalay, Kadir; Barrett, Garry
  7. Sustainability of pension schemes : building a smooth automatic balance mechanism with an application to tu US social security By Frédéric Gannon; Florence Legros; Vincent Touzé
  8. Means Testing of Public Pensions: The Case of Australia By George Kudrna
  9. Impacts from Delaying Access to Retirement Benefits on Welfare Receipt and Expenditure: Evidence from a Natural Experiment By Oguzoglu, Umut; Polidano, Cain; Vu, Ha
  10. How Work & Marriage Trends Affect Social Security’s Family Benefits By Steven A. Sass
  11. Informal parental care and female labor supply in Japan By Oshio, Takashi; Usui, Emiko
  12. The Effect of Population Aging on Economic Growth By Maestas, Nicole; Mullen, Kathleen J.; Powell, David
  13. The Political Economy of Underfunded Municipal Pension By Brinkman, Jeffrey; Coen-Pirani, Daniele; Sieg, Holger
  14. Is Childcare Bad for the Mental Health of Grandparents? Evidence from SHARE By Brunello, Giorgio; Rocco, Lorenzo
  15. Grandparental Availability for Child Care and Maternal Employment: Pension Reform Evidence from Italy By Massimiliano Bratti; Tommaso Frattini; Francesco Scervini
  16. The Funding of State and Local Pensions: 2015-2020 By Alicia H. Munnell; Jean-Pierre Aubry
  17. Which Should the Government Subsidize: Child Care or Elderly Care? By Atsushi Miyake; Masaya Yasuoka
  18. Genetic Health Risks: The Case for Universal Public Health Insurance By Vicky Barham; Rose Anne Devlin; Olga Milliken
  19. Saving and Bequest in China: An Analysis of Intergenerational Exchange. By Almås, Ingvild; Freddi, Eleonora; Thøgersen, Øystein
  20. Ageing and Literacy Skills: Evidence from IALS, ALL and PIAAC By Barrett, Garry; Riddell, W. Craig
  21. Participación laboral de la población de 60 años de edad o más en Colombia By Martha Alicia Yánez Contreras; Cristian David Maldonado Pedroza; Katherin Paola Del Risco Serje
  22. The Intimate Link between Income Levels and Life Expectancy: Global Evidence from 213 Years By Jetter, Michael; Laudage, Sabine; Stadelmann, David
  23. Long-term care social insurance. How to avoid big losses? By Klimaviciute, Justina; Pestieau, Pierre

  1. By: Chen, Xi (Yale University)
    Abstract: This paper makes use of the most recent social pension reform in rural China to examine whether receipt of the pension payment equips adult children of pensioners to migrate. Employing a regression discontinuity (hereafter RD) design to a primary longitudinal survey, this paper overcomes challenges in the literature that households eligible for pension payment might be systematically different from ineligible households and that it is difficult to separate the effect of pension from that of age or cohort heterogeneity. Around the pension eligibility age cut-off, results reveal large and significant increase among adult sons (but not daughters) to migrate out of their home county. Meanwhile, adult children are more likely to migrate out if their parents are healthy. Our Fuzzy RD estimations survive a standard set of key placebo tests and robustness checks.
    Keywords: rural pension, RD Design, adult children, migration
    JEL: H55 I38 J14 J22
    Date: 2016–06
  2. By: Emily Dabbs (Research School of Economics, Australian National University); Cagri Kumru (Research School of Economics, Australian National University)
    Abstract: Social security plays an essential role in an economy, but if designed incorrectly can distort the labor supply and savings behavior of individuals in the economy. We explore how well the Australian means-tested pension system provides social insurance by calculating possible welfare gains from changing the settings in the current means-tested pension system. This work has been explored by other researchers both in Australia and in other pension-providing economies. However, most research ignores the fact that welfare gains can be found by reducing the cost of the program. To exclude these welfare costs, this paper fixes the cost of the system. We find that the means-tested pension system is welfare reducing, but does provide a better outcome than an equivalent-costing PAYG system. We also find that if the benefit amount is held constant, and hence the cost of the pension program is allowed to vary, a taper rate of 1.0 is optimal. However, once we fix this cost, a universal benefit scheme provides the best welfare outcome.
    Date: 2015–11
  3. By: Mullen, Kathleen J.; Manoli, Day; Wagner, Mathis
    Abstract: This paper exploits a combination of policy variation from multiple pension reforms in Austria and administrative data from the Austrian Social Security Database. Using the policy changes for identiï¬ cation, we estimate social security wealth and accrual elasticities in individuals’ retirement decisions. Next, we use these elasticities to es-timate a dynamic programming model of retirement decisions. Finally, we use the estimated model to examine the labor supply and welfare consequences of potential social security reforms.
    Keywords: policy variation, retirement, labor supply elasticities
    JEL: J26 H55
    Date: 2014–11
  4. By: Jones, Francis
    Abstract: This study addresses the ageing of the Caribbean population and the situation with respect to the human rights of older persons. It considers the implications for public policy of these ‘twin imperatives for action’. The first chapter describes and explains the changing age structure of the Caribbean population. Important features of the ageing dynamic, such as differential regional and national trends and the growing number of ‘older old’ persons, are also analysed. The study then describes the progress that has been made in advancing and clarifying the human rights of older persons in international law. The core of the study then consists of an assessment of the current situation of older persons in the Caribbean and the extent to which their human rights are realised in practice. The thematic areas of economic security, health, and enabling environments – which roughly correspond to the three priority areas of the Madrid International Plan of Action on Ageing – are each addressed in individual chapters. These chapters evaluate national policies and programmes for older persons and make public policy recommendations intended to protect and fulfil the human rights of older persons. The report concludes by summarising the priorities for future action both through the establishment of new international human rights instruments as well as national policies and programmes.
    Date: 2016–01
  5. By: Hagen, Johannes (Department of economics, Uppsala university)
    Abstract: This essay estimates the causal effect of postponing retirement on a wide range of health outcomes using Swedish administrative data on cause-specific mortality, hospitalizations and drug prescriptions. Exogenous variation in retirement timing comes from a reform which raised the age at which broad categories of Swedish local government workers were entitled to retire with full pension benefits from 63 to 65. Instrumental variable estimation results show no evidence that postponing retirement impacts mortality or health care utilization.
    Keywords: Health; mortality; Health care; pension reform; retirement
    JEL: I18 J22 J26
    Date: 2016–06–15
  6. By: Atalay, Kadir (University of Sydney); Barrett, Garry (University of Sydney)
    Abstract: Recent reforms to social security in many countries have sought to delay retirement. Given the family context in which retirement decisions are made, social security reforms have potentially important spill-over effects on the participation of spouses. This paper analyses the impact of women's pension incentives on the retirement decision of their husband. The 1993 Age Pension reform in Australia increased the eligibility age for Age Pension benefits for women. This reform caused an increase in participation of men married to women in the affected cohorts. The behavioral responses are due to wealth effects and preferences for shared leisure.
    Keywords: retirement, age pension, joint retirement, spousal effect
    JEL: D91 I38 J26
    Date: 2016–06
  7. By: Frédéric Gannon (University of Le Havre-EDEHN); Florence Legros (ICN Business School & University Paris-Dauphine); Vincent Touzé (OFCE, Sciences Po)
    Abstract: We build a "smooth" automatic balance mechanism (S–ABM) which would result from an optimal tradeoff between increasing the receipts and reducing the pension expenditures. The S- ABM obtains from minimizing an intertemporal discounted quadratic loss function under an intertemporal budget balance constraint. The main advantage of our model of "optimal" adjustment is its ability to analyse various configurations in terms of automatic balance mechanisms (ABM) by controlling the adjustment pace. This S-ABM permits to identify two limit cases: the “flat Swedish-type ABM” and the “fiscal-cliff US- type ABM”. These cases are obtained by assuming very high adjustment costs on revenue (implying only pension benefit adjustment) and by choosing particular sequences of publicdiscount rates. We then apply this ABM to the case of the United States Social Security to evaluate the adjustments necessary to ensure financial solvency. These assessments are made under various assumptions about forecast time horizon, public discount factorand weighting of social costs associated with increased receipts or lower expenditures
    Keywords: Pensions scheme sustainability, automatic balance mechanisms, dynamic programming
    JEL: C61 H55 H68
    Date: 2016–05
  8. By: George Kudrna (University of New South Wales)
    Abstract: The Australian age pension is noncontributory, funded through general tax revenues and means tested against pensioners?private resources, including labour earnings. This paper constructs an overlapping generations (OLG) model of the Australian economy to examine the economy wide implications of several counterfactual experiments in the means testing of the age pension. These experiments include policy changes that both relax and tighten the existing mean test. We also consider a policy change that only exempts labour earnings from the means testing. Our simulation results indicate that tightening the existing means test combined with lower income tax rates leads to higher labour supply, domestic assets and consumption per capita, as well as to welfare gains in the long run, while labour earnings exemptions from the means testing have largely positive e¤ects on labour supply at older ages. Population ageing is shown to further strengthen the case for the pension means testing.
    Date: 2015–10
  9. By: Oguzoglu, Umut (University of Manitoba); Polidano, Cain (Melbourne Institute of Applied Economic and Social Research); Vu, Ha (Deakin University)
    Abstract: Governments are responding to fiscal pressures associated with aging populations by increasing the eligibility age for publicly-funded retirement benefits. However, recent studies show large resulting increases in the receipt of alternative payments, which raises concern that welfare savings are offset by increased inflows into alternative payments. Using administrative data to examine the impacts of female eligibility age increases in Australia, we find little evidence of this. Instead, most of the increase in receipt is because the delay mechanically extends the receipt time of people already on alternative payments. The implication is that fiscal savings are not being jeopardized by opportunistic behaviour.
    Keywords: welfare substitution, retirement, aging population
    JEL: H53 J26 J01
    Date: 2016–06
  10. By: Steven A. Sass
    Abstract: Social Security aims to provide retirees a basic oldage income after a lifetime of work. Monthly benefits were designed to replace a greater share of the earnings of low-wage workers, who spend a greater share of their income on necessities than high-wage workers. Social Security likewise includes spousal and survivor benefits. These “family benefits” were designed for the standard family unit when the program was created in the 1930s – a married couple in which the husband was the breadwinner and the wife a homemaker. The family unit today has changed dramatically in two important ways relevant to spousal and survivor benefit design. First, most married women have significant wage employment and earn Social Security benefits on their own earnings record. Second, many women have children but never marry, and divorce rates are high among those who do marry. This brief reviews studies by the Social Security Administration’s Retirement Research Consortium that assess the implications of these changing work and marriage patterns on Social Security’s effectiveness in providing families a basic old-age income. The discussion proceeds as follows. The first section provides a primer on Social Security spousal and survivor benefits. The second section reviews the erosion of these benefits due to the increased employment of married women. The third section discusses how changing marital patterns have increased the share of families not covered by Social Security’s family benefits, potentially leaving them with insufficient incomes in retirement. The fourth section assesses two family benefit alternatives – earnings sharing and caregiving credits – that could boost retirement incomes for divorced and never-married mothers. The final section concludes that the structure of family benefits could be enhanced to improve the retirement security of today’s families.
    Date: 2016–06
  11. By: Oshio, Takashi; Usui, Emiko
    Abstract: Using the Japanese Study of Aging and Retirement (JSTAR), Japan's first globally comparable panel survey of the elderly, we estimate the effect on female employment in Japan due to the provision of informal parental care. We observe that informal parental care has little impact on female employment, after controlling for endogeneity of informal care or individual unobserved time-invariant heterogeneity. This finding is consistent with those observed in Europe and the U.S., underscoring a limited association between care and work in Japan, which is facing aging at the fastest pace among advanced economies.
    Keywords: Informal care, Caregiving, Employment, Japan
    JEL: J22 J14 I12
    Date: 2016–06
  12. By: Maestas, Nicole; Mullen, Kathleen J.; Powell, David
    Abstract: Population aging is widely expected to have detrimental effects on aggregate economic growth. However, we have little empirical evidence about the actual existence or magnitude of such effects. In this paper, we exploit differential aging patterns at the state level in the United States between 1980 and 2010. Many states have already experienced high growth rates of the 60+ population, comparable to the predicted national growth rate over the next several decades. Furthermore, these differential growth rates occur partially for reasons unrelated to economic growth, providing a natural approach to isolate the impact of aging on growth. We predict the magnitude of population aging at the state-level given the state's age structure in an initial period and exploit this predictable differential growth to estimate the impact of population aging on Gross Domestic Product (GDP) growth, and its constituent parts, labor force and productivity growth. We estimate that a 10% increase in the fraction of the population ages 60+ decreases GDP per capita by 5.7%. We find that this reduction in economic growth caused by population aging is primarily due to a decrease in growth in the supply of labor. To a lesser extent, it is also due to a reduction in productivity growth. We present evidence of downward adjustment of earnings growth to reflect the reduction in productivity.
    Keywords: population aging, GDP growth, demographic transitions
    JEL: J11 J14 J23 J26 O47
    Date: 2014–10
  13. By: Brinkman, Jeffrey (Federal Reserve Bank of Philadelphia); Coen-Pirani, Daniele (University of Pittsburgh); Sieg, Holger (University of Pennsylvania and NBER)
    Abstract: This paper analyzes the determinants of underfunding of local government’s pension funds using a politico-economic overlapping generations model. We show that a binding down payment constraint in the housing market dampens capitalization of future taxes into current land prices. Thus, a local government’s pension funding policy matters for land prices and the utility of young households. Underfunding arises in equilibrium if the pension funding policy is set by the old generation. Young households instead favor a policy of full funding. Empirical results based on cross-city comparisons in the magnitude of unfunded liabilities are consistent with the predictions of the model.
    Keywords: Unfunded Liabilities; Political Economy; Land Prices; Capitalization
    JEL: E6 H3 H7 R5
    Date: 2016–05–27
  14. By: Brunello, Giorgio (University of Padova); Rocco, Lorenzo (University of Padova)
    Abstract: We estimate the causal effects of regular and occasional grandchild care on the depression of grandmothers and grandfathers, using data from the Survey on Health, Ageing and Retirement in Europe and an instrumental variables strategy which exploits the variation in the timing of interviews across individuals and the fact that childcare declines with the age of grandchildren. We find that 10 additional hours of childcare per month, a 31 percent increase with respect to the sample average, increases the probability of developing depressive symptoms by 3.0 to 3.2 percentage points for grandmothers and by 5.4 to 5.9 percentage points for grandfathers. These results suggest that policies that substitute informal with formal childcare can improve the mental wellbeing of grandparents.
    Keywords: childcare, grandparents, depression, Europe
    JEL: J13 I12
    Date: 2016–06
  15. By: Massimiliano Bratti; Tommaso Frattini; Francesco Scervini
    Abstract: In this paper, we exploit pension reform-induced changes in retirement eligibility requirements to assess the role of grandparental child care availability in the employment of women who have children under 15. We focus on Italy for two reasons: first, it has low rates of female employment and little formal child care provision, and second, it has undergone several pension reforms in a relatively short time span. Our analysis shows that, among the women studied, those whose own mothers are retirement eligible have a 13 percent higher probability of being employed than those whose mothers are ineligible. The pension eligibility of maternal grandfathers and paternal grandparents, however, has no significant effect on the womenÕs employment probability. We also demonstrate that the eligibility of maternal grandmothers mainly captures the effect of their availability for child care. Hence, pension reforms, by potentially robbing households of an important source of flexible, low-cost child care, could have unintended negative consequences for the employment rates of women with children. Length: 45 pages
    Keywords: grandparental child care, maternal employment, pension reform, retirement
    Date: 2016–06
  16. By: Alicia H. Munnell; Jean-Pierre Aubry
    Abstract: The funded status of state and local pension plans based on the Governmental Accounting Standards Board’s traditional rules (GASB 25) increased slightly in 2015. The main reason is that, despite the poor stock market performance in 2015, returns over the last five years have been strong. Conversely, the funded status based on the new GASB 67 rules, with assets at market value, showed a slight decline in the funded rate primarily due to the subpar 2015 returns. In 2015, most plan sponsors continued to maintain the traditional GASB rules (with smoothed assets and expected long-run returns for discounting) in their actuarial reports for the purposes of funding. For reporting in their financial documents, however, all plans adopted the new GASB rules of valuing assets at market, and 10 plans in the Public Plans Database also used a blended discount rate to account for a projected exhaustion of assets. This brief focuses more on the data in the actuarial reports used for funding purposes, because they provide the basis for historical comparisons and for funding decisions. The discussion is organized as follows. The first section reports that the ratio of assets to liabilities for the 160 plans in the Public Plans Database increased slightly from 73 percent in 2014 to 74 percent in 2015. The second section shows that the required contribution, for the sample as a whole, increased to 18.6 percent of payrolls, while the percentage of required contribution paid increased to 91 percent from 86 percent in 2014. Given the controversy about the appropriate discount rate, the third section revalues liabilities and recalculates funded ratios using a variety of discount rates. The fourth section briefly examines the plans that, for reporting purposes, use a blended discount rate under the new GASB standards. The fifth section projects reported funded ratios for our sample plans for 2016-20 under the assumption that plans meet their expected returns and under an alternative assumption that they realize the substantially lower returns projected by many investment firms. The final section concludes that, if plans realize their assumed returns, the public pension landscape should continue to improve over the next few years; but if returns fall short, funded levels will deteriorate.
    Date: 2016–06
  17. By: Atsushi Miyake (Faculty of Economics, Kobe Gakuin University); Masaya Yasuoka (School of Economics, Kwansei Gakuin University)
    Abstract: This paper presents an examination of how a government should provide subsidies for households. An elderly care subsidy for services can increase the purchase of elderly care services. Therefore, it can reduce the need for elderly care provision by adult children. This decrease implies an increase in the labor supply. The consequent increase in the labor supply raises the household income, making increased fertility a ordable: this paper presents derivation that the child care subsidy service cannot increase the fertility and labor supply if the productivity of elderly care services is high. However, the subsidy for older people has the e ect of preventing a decrease in the number of children. Therefore, the elderly care subsidy can alleviate social problems caused by fewer children.
    Keywords: Child care, Elderly care, Fertility
    JEL: H51 H21 J14
    Date: 2016–06
  18. By: Vicky Barham (Department of Economics, University of Ottawa, Ottawa, ON); Rose Anne Devlin (Department of Economics, University of Ottawa, Ottawa, ON); Olga Milliken (Department of Economics, University of Ottawa, Ottawa, ON)
    Abstract: This paper examines the role of the public sector in providing genetic insurance and health care when health risks are genetically determined at conception. We characterize the ex ante efficient outcome (where individuals are placed behind the veil of ignorance), and demonstrate that this outcome cannot be achieved by private health insurance markets or by a government which cannot commit to a once-and-for-all transfer policy. In contrast, the desired outcome can be attained through public provision of universal health (genetic) insurance and of genetic testing, coupled with a public pension scheme.
    Keywords: Public health insurance; Genetic insurance; Genetic testing; Ex ante efficiency; Time inconsistent policy
    JEL: H51 I18 G22
    Date: 2016
  19. By: Almås, Ingvild (Stockholm University and NHH); Freddi, Eleonora (Stockholm School of Economics); Thøgersen, Øystein (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: Particularly high saving rates among the elderly in both rural and urban China call for an investigation of the involved bequest motive. Utilizing unique survey data from a diverse group of Chinese households, we document that the magnitude of the bequest from parent to child is synchronized with the level of personal assistance from child to parent. Moreover, both bequest and assistance are increasing in the parent's income and decreasing in the child's income. Comparing with the prediction from a stylized overlapping generations model, these ndings are consistent with an exchange-based bequest motive. This conclusion has implications for how public policies and transfer schemes may be designed in order to contribute to the government objective of increased private consumption. Our results indicate that an important driver for our result is the housing wealth as part of the bequest.
    Keywords: equest; intergenerational exchange; housing wealth; Chinese saving.
    JEL: D14 D64 E21
    Date: 2016–06–27
  20. By: Barrett, Garry (University of Sydney); Riddell, W. Craig (University of British Columbia, Vancouver)
    Abstract: We study the relationship between age and literacy skills using data from the IALS, ALL and PIAAC surveys. In cross-sectional data there is a negative partial relationship between literacy skills and age that is statistically significant indicating that literacy declines with age, especially after age 45. However, this relationship could reflect some combination of age and birth cohort effects. In order to isolate age effects, we use the three international surveys to create synthetic cohorts. Our analysis shows that in most participating OECD countries the negative slope of the literacy-age profile in cross-sectional data arises from offsetting ageing and cohort effects. In these countries more recent birth cohorts have lower levels of literacy and individuals from a given birth cohort lose literacy skills after they leave school at a rate greater than indicated by cross-sectional estimates. Finland, Italy and the Netherlands are exceptions to this pattern; in these countries more recent cohorts have higher literacy levels and the cross-sectional estimates overstate the rate at which literacy declines with age. Our birth cohort results suggest that there is not a general tendency for literacy skills to decline from one generation to the next, but that the majority of the countries examined are doing a poorer job of developing literacy skills in successive generations.
    Keywords: human capital, ageing, cognitive skills, literacy, cohort effects
    JEL: I20 J14 J24
    Date: 2016–06
  21. By: Martha Alicia Yánez Contreras; Cristian David Maldonado Pedroza; Katherin Paola Del Risco Serje
    Abstract: En Colombia al igual que en muchos países en vías de desarrollo, las tendencias generales sobre la ocupación en la vejez muestran que las tasas de participación laboral se han incrementado en las últimas décadas. El objetivo de este estudio es identificar los factores relacionados con la participación en la actividad laboral de la población adulta de 60 años o más. Utilizando la Gran Encuesta Integrada de Hogares (GEIH) 2014, se estimó un modelo de regresión logística. La probabilidad de que un adulto de 60 años o más trabaje incrementa cuando éste posee características como ser hombre, ser jefe de hogar, o poseer educación universitaria, y se reduce considerablemente cuando recibe ingresos por concepto de jubilación.
    Keywords: Participación laboral, tercera edad, modelo de regresión logit.
    JEL: J14 J21
    Date: 2016–06–03
  22. By: Jetter, Michael (University of Western Australia); Laudage, Sabine (University of Bayreuth); Stadelmann, David (University of Bayreuth)
    Abstract: Contrary to previous findings, we find a systematic and economically sizeable relationship between income levels and life expectancy in a panel dataset of 197 countries over 213 years. By itself, GDP/capita explains more than 64 percent of the variation in life expectancy. The Preston curve prevails, even when accounting for country- and time-fixed effects, country-specific time trends, and alternative control variables. Quantile regressions and instrumental variable estimations suggest this link to be persistent across different levels of life expectancy and unaffected by reverse causality. If policymakers want to prolong people's lives, economic growth appears to be the predominant medicine.
    Keywords: historical panel data, income levels, life expectancy, quantile regression analysis
    JEL: I15 I31 J11 H51
    Date: 2016–06
  23. By: Klimaviciute, Justina; Pestieau, Pierre
    Abstract: Long-term care (LTC) needs are expected to rapidly increase in the next decades and at the same time the main provider of LTC, namely the family is stalling. This calls for more involvement of the state that today covers less than 20% of these needs and most often in an inconsistent way. Besides the need to help the poor dependent, there is a mounting concern in the middle class that a number of dependent people are incurring costs that could force them to sell all their assets. In this paper we study the design of a social insurance that meets this concern. Following Arrow (1963), we suggest a policy that is characterized by complete insurance above a deductible amount.
    Keywords: Arrow's theorem; capped spending; long-term care insurance; optimal taxation
    JEL: H21 I13 J14
    Date: 2016–07

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