nep-age New Economics Papers
on Economics of Ageing
Issue of 2016‒07‒16
fifteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Long-Term Care and Births Timing By Pestieau, Pierre; Ponthiere, Gregory
  2. Labor Force Transitions at Older Ages : Burnout, Recovery, and Reverse Retirement By Jacobs, Lindsay; Piyapromdee, Suphanit
  3. Means Testing Social Security: Modeling and Policy Analysis By Rafal Chomik; John Piggott; Alan D. Woodland; George Kudrna; Cagri Kumru
  4. Optimal Consumption, Investment and Housing with Means-tested Public Pension in Retirement By Johan G. Andreasson; Pavel V. Shevchenko; Alex Novikov
  5. Strengthening Public Pension Systems in Asia: Conference Proceedings By Asian Development Bank (ADB); Asian Development Bank (ADB); Asian Development Bank (ADB); Asian Development Bank (ADB)
  6. The Joint Distribution of Net Worth and Pension Wealth in Germany By Timm Bönke; Markus M. Grabka; Carsten Schröder; Edward N. Wolff; Lennard Zyska
  7. Social Security’s Financial Outlook: The 2016 Update in Perspective By Alicia H. Munnell
  8. Aging, trade, and migration By Chisik,Richard Asher; Onder,Harun; Qirjo,Dhimitri
  9. Commitment in the Household: Evidence from the Effect of Inheritances on the Labor Supply of Older Married Couples By Blau, David M.; Goodstein, Ryan
  10. Demographic Change in the Asian Century: Implications for Australia and the Region By Peter McDonald
  11. Does Money Relieve Depression? Evidence from Social Pension Eligibility By Chen, Xi; Wang, Tianyu
  12. This paper studies the link between demographic factors and labour shares as well as tries to answer the question whether population ageing is responsible for the global decline in labour shares. We found that the link depends on the elasticity of substitution between labour and capital as production factors. Given the empirical estimates of this parameter, we conclude that population ageing is not responsible for the global decline in labour shares. On the contrary, it reduces the speed of this decline. By Igor Fedotenkov
  13. The public economics of long term care By Pestieau, Pierre; Ponthiere, Gregory
  14. Previdência para as Mulheres no Brasil: reflexos da inserção no mercado de trabalho By Milko Matijascic
  15. The effect of demographics on payment behavior: panel data with sample selection By Stavins, Joanna

  1. By: Pestieau, Pierre; Ponthiere, Gregory
    Abstract: Due to the ageing process, the provision of long-term care (LTC) to the dependent elderly has become a major challenge of our epoch. But our societies are also characterized, since the 1970s, by a postponement of births, which, by raising the intergenerational age gap, can a¤ect the provision of LTC by children. In order to examine the impact of those demographic trends on the optimal policy, we develop a four-period OLG model where individuals, who receive children’s informal LTC at the old age, must choose, when being young, how to allocate births along their life cycle. It is shown that, in line with empirical evidence, early children provide more LTC to their elderly parents than late children, because of the lower opportunity cost of providing LTC when being retired. When comparing the laissez-faire with the long-run social optimum, it appears that individuals have, at the laissez-faire, too few early births, and too many late births. We then study, in …rst-best and second-best settings, how the social optimum can be decentralized by encourageing early births, in such a way as to reduce the social burden of LTC provision.
    Keywords: birth timing; childbearing age; family pol- icy; long term care; OLG models.
    JEL: E13 J13 J14
    Date: 2016–07
  2. By: Jacobs, Lindsay; Piyapromdee, Suphanit
    Abstract: Partial and reverse retirement are two key behaviors characterizing labor force dynamics for individuals at older ages, with half working part-time and over a third leaving and later re-entering the labor force. The high rate of exit and re-entry is especially surprising given the declining wage profile at older ages and opportunities for re-entry in the future being uncertain. In this paper we study the effects of wage and health transition processes as well as the role of accrues work-related strain on the labor force participation on older males. We find that a model incorporating a work burnout-recovery process can account for such reverse retirement behavior that cannot be generated by health and wealth shocks alone, suggesting re-entry patterns result in large part from planned behavior. We first present descriptive statistics of the frequency and timing of re-entry and characteristics of those who re-enter using Health and Retirement Study (HRS) panel data. We then develop and estimate a dynamic model of retirement that captures the occurrence and timing of re-entry decisions observed in the data-as well as the transition to part-time work-while incorporating uncertainty in earnings, health, and stress accumulation. The burnout-recovery process allows us to account for about 40 percent of re-entry, and one-quarter of the shifts to part-time work with age. We also consider the lower exit and re-entry rates after 2008, and attribute this to high option values of work in an environment where future re-entry is less certain. Consistent with our burnout-recovery model, we see that respondents are more likely to report high levels of job stress as they continue to work when they would have otherwise stopped working, recovered, and re-entered. This offers us some information about the relative option value of work versus the burnout-recovery process.
    Keywords: Labor supply ; Retirement
    JEL: J26 J14 D91
    Date: 2016–04–29
  3. By: Rafal Chomik (University of New South Wales); John Piggott (University of New South Wales); Alan D. Woodland (University of New South Wales); George Kudrna (University of New South Wales); Cagri Kumru (Australian National University and University of New South Wales)
    Abstract: The aging demographic has brought retirement income reform to the center of the policymaking arena. This project has deployed cutting edge modeling techniques to examine the economic impacts of means-testing in the Australian and U.S. contexts. Since 1909, the mainstay of Australia’s retirement policy has been a flat-rate, means-tested age pension. Since the 1990s, this has been supplemented by a mandatory prefunded Defined Contribution type pension plan. Contrary to conventional wisdom, our analysis has found that means testing delivers fewer overall distortions and increased welfare compared to a universal pension offering the same maximum benefit level. It also shows that all means-tested programs generate higher welfare benefits than Pay-As-You-Go (PAYG) pension programs. The channels through which these outcomes are delivered are complex, but most importantly, for a given individual pension payment, means testing reduces the revenue requirement, thus lowering tax rates on workers. Compared to an OECD average of 9.5% of GDP allocated to retirement payouts, Australia’s annual payouts sit at 2.9% of GDP. Hence, the comparison with many OECD countries reveals that Australian pension arrangements are cheaper both at present and based on future projections. Means-testing can also increase incentives for self-provision. Reduced or zero public benefits payable to the richest groups of retirees improve labor-force participation. Modeling shows that aggregate labor supply can be 1.4% higher with means testing than with a universal pension. The standard means test in Australia applies to both labor earnings and capital income. But eliminating the means test on earnings further enhances mature labor force participation. Mature (65+) labor force participation improves by 24.6% when labor earnings are fully exempted, from a low base. Overall, the study suggests that means testing is an important potential policy reform that has been undersold in past literature.
    Date: 2015–11
  4. By: Johan G. Andreasson; Pavel V. Shevchenko; Alex Novikov
    Abstract: In this paper, we develop an expected utility model for the retirement behavior in the decumulation phase of Australian retirees with sequential family status subject to consumption, housing, investment, bequest and government provided means-tested Age Pension. We account for mortality risk and risky investment assets, and introduce a health proxy to capture the decreasing level of consumption for older retirees. Then we find optimal housing at retirement, and optimal consumption and optimal risky asset allocation depending on age and wealth. The model is solved numerically as a stochastic control problem, and is calibrated using the maximum likelihood method on empirical data of consumption and housing from the Australian Bureau of Statistics 2009-2010 Survey. The model fits the characteristics of the data well to explain the behavior of Australian retirees. The key findings are the following: First, the optimal policy is highly sensitive to means-tested Age Pension early in retirement but this sensitivity fades with age. Secondly, the allocation to risky assets shows a complex relationship with the means-tested Age Pension that disappears once minimum withdrawal rules are enforced. As a general rule, when wealth decreases the proportion allocated to risky assets increases, due to the Age Pension working as a buffer against investment losses. Finally, couples can be more aggressive with risky allocations due to their longer life expectancy compared with singles.
    Date: 2016–06
  5. By: Asian Development Bank (ADB); Asian Development Bank (ADB) (Economic Research and Regional Cooperation Department, ADB); Asian Development Bank (ADB) (Economic Research and Regional Cooperation Department, ADB); Asian Development Bank (ADB)
    Abstract: Asia’s population is aging and old-age income support and social services is an emerging challenge. Strengthening pension systems in Asia is therefore a key concern for inclusive development in the region. In many Asian countries, pension systems are still inadequate in terms of both coverage and delivery of stipulated benefits. This is particularly so for smaller economies of Cambodia, Lao People’s Democratic Republic, Myanmar, Thailand, and Viet Nam—or commonly referred to as CLMVT economies. A number of structural issues such as governance, regulation, and institutional and administrative capacities hinder their development. Well-designed, well-functioning, and sustainable pension systems will promote inclusive growth by supporting old-age income and providing the much-needed social safety net. These issues and challenges are discussed in these summary proceedings of the Conference on “Strengthening Public Pension Systems in Asia”, which focused on CLMVT economies organized by the Asian Development Bank and the Pacific Pension & Investment Institute on 3–4 September 2015 in Bangkok.
    Keywords: public pension systems, aging population, old-age income, social services, CLMVT, rapid aging
    Date: 2016–03
  6. By: Timm Bönke; Markus M. Grabka; Carsten Schröder; Edward N. Wolff; Lennard Zyska
    Abstract: Research on wealth inequality usually focuses on real and financial assets, while pension wealth – the present value of future pension entitlements from public and company pension schemes – receives little attention. This is astonishing, given that pension plans play an important role for material security and well‐being for an overwhelming part of the population and, thus, should be accounted for in peoples’ wealth portfolios. Using novel data from the Socio Economic Panel (SOEP), we show the incidence, relevance, and distribution of individual pension wealth, net worth, and augmented wealth (the sum of the two) in Germany. Further, we investigate age‐wealth‐profiles and differences between East and West Germany.
    Keywords: net worth, pension wealth, augmented wealth, SOEP, age wealth profiles
    JEL: D31 H55 J32
    Date: 2016
  7. By: Alicia H. Munnell
    Abstract: The 2016 Trustees Report contains no surprises. The program faces a 75-year deficit of 2.66 percent of taxable payrolls – virtually unchanged from last year – and the Old-Age, Survivors and Disability Insurance (OASDI) program trust funds continue to be scheduled for exhaustion in 2034. Largely because of the Bipartisan Budget Act of 2015, the life of the DI trust fund has been extended by seven years. As chair of the Social Security Advisory Board’s 2015 Technical Panel on Assumptions and Methods, I was particularly interested in the extent to which the Trustees adopted the Panel’s recommendations. They did reduce the long-run assumptions of inflation and real interest rates from last year and boosted the assumption on immigration, as the Panel recommended. Personally, I am delighted that the Trustees did not adopt our proposals on mortality improvement given the slowdown seen since 2009. This brief updates the numbers for 2016 and puts the current report in perspective. It also discusses the new mortality trends; the Bipartisan Budget Act of 2015; the growing enthusiasm for expanding Social Security; the importance of considering Social Security “legacy debt” separately when constructing financing packages; and the continuing absence of replacement rate data from the Trustees Report. The bottom line remains the same. Social Security faces a manageable financing shortfall over the next 75 years, which should be addressed soon to share the burden more equitably across cohorts, to restore confidence in the nation’s major retirement program, and to give people time to adjust to needed changes.
    Date: 2016–06
  8. By: Chisik,Richard Asher; Onder,Harun; Qirjo,Dhimitri
    Abstract: This study considers the role of demand-driven changes arising from population aging and how they affect the pattern of international trade as well as trade and immigration policy. An aging society can see a welfare-reducing reduction in its share of manufacturing output and this reduction is magnified by a decrease in trade costs (an increase in globalization). Immigration can ameliorate this outcome if it is directed toward younger immigrants. A unilateral tariff increase can also reduce firm delocation from an aging country, however, a reciprocated tariff increase will unambiguously harm the country with the older average population.
    Keywords: Debt Markets,Economic Theory&Research,Emerging Markets,Markets and Market Access,Population Policies
    Date: 2016–06–30
  9. By: Blau, David M. (Ohio State University); Goodstein, Ryan
    Abstract: We study the effect of receiving an inheritance on the labor force participation (LFP) of both the recipient and the recipient's spouse in a population of older married couples. An inheritance is not subject to laws governing division of marital property at divorce, because it is not acquired with income earned during marriage. Hence it plays the role of a "distribution factor" in the intrahousehold allocation of resources, increasing bargaining power of the recipient. Controlling for inheritance expectations, we interpret the receipt of an inheritance as a shock to wealth. Our results indicate that receiving an inheritance reduces LFP of the recipient by four percentage points, comparable in magnitude to the effect of a decline in health. However, an inheritance has little or no effect on LFP of the spouse. These estimates are inconsistent with a dynamic, collective model of the household in which spouses have the ability to commit to an ex ante efficient allocation. The results are consistent with a model of limited commitment in which a shock to household resources can alter bargaining power. We discuss the implications for reform of Social Security spouse and survivor benefits.
    Keywords: inheritances, commitment, labor force participation, retirement, collective model of household
    JEL: J22 J26
    Date: 2016–07
  10. By: Peter McDonald
    Abstract: Declining fertility and mortality rates in the second half of the twentieth century have led to the twenty-first century being characterised as the century of the aging population. Concurrently, the decline in the numbers of young people entering the labour force is exacerbating the problems arising from the aging population. Implications of these trends are analysed for a variety of Asian countries. Labour force growth in India and Pakistan will be sufficient to compensate for the shrinking labour forces in Europe and Asia excluding the massive fall in China; outsourcing labour to South Asia will be an increasing trend in the twenty-first century. The Asian countries with less problematic demographic structures are instead facing economic challenges and require education and training to improve labour productivity.
    Keywords: intergenerational, demography, labour, Asian century, economic policy
    Date: 2016–07–01
  11. By: Chen, Xi (Yale University); Wang, Tianyu (Beijing Academy of Social Sciences)
    Abstract: We estimate the impact of receiving pension benefits on mental well-being using China's New Rural Pension Scheme launched in 2010, the largest pension program in the world. More than four hundred million Chinese have enrolled in the program, and the program on average amounts to one fifth of pensioners' earned income. We find a salient increase in pension benefits and poverty alleviation around the pension eligibility age cut-off. Employing an instrumental variable approach to a national sample of the China Family Panel Studies, our empirical strategy overcomes the endogeneity of pension receipt that prevents us from identifying the causal effect of income change on mental health as measured by the full version of CES-D and depressive symptoms. Results reveal a sizeable reduction in depression susceptibility due to pension income. The improvement in mental health is larger for vulnerable populations with financial and health constraints. We further discuss potential pathways through which pension may affect mental health.
    Keywords: pension income, depression, mental health, older populations
    JEL: H55 I18 I38 J14
    Date: 2016–07
  12. By: Igor Fedotenkov (Bank of Lithuania)
    Keywords: labour shares, population ageing, CES production function
    JEL: E25 C51 J14
    Date: 2016–07–01
  13. By: Pestieau, Pierre; Ponthiere, Gregory
    Abstract: With the rapid increase in LTC needs, the negligible role of the market and the declining role of informal family care, one would hope that the government would take a more proactive role in the support of dependent elderly, particularly those who cannot, whatever the reason, count on assistance from their family. The purpose of this paper is to analyze the possibility of designing a sustainable public LTC scheme integrating both the market and the family.
    Keywords: Dependence; family solidarity; long term care; Social Insurance
    JEL: I11 I12 I18 J14
    Date: 2016–06
  14. By: Milko Matijascic
    Abstract: Entre as mulheres ocupadas, a proporção de contribuintes para a previdência foi maior que a dos homens em 2014 e essa constatação é uma novidade no Brasil. A presença das mulheres aumentou em benefícios com maior densidade de contribuição, como as aposentadorias por tempo de contribuição, e perdeu força nas pensões por morte, pois o modelo baseado no homem provedor do lar perdeu força e novos arranjos familiares ganham espaço. Os benefícios de prestação temporária apresentam uma elevada participação de mulheres, pois as mulheres buscam adotar uma atitude mais preventiva e as pressões sofridas pelas mulheres com o mundo do trabalho em conjugação com as responsabilidades familiares parecem exercer pressões que afetam a sua saúde. Esse cenário indica que a forma de organizar a proteção social no Brasil, com ênfase em gastos com benefícios pagos em dinheiro e na menor importância conferida a serviços sociais, gera problemas para as mulheres. Among occupied women, the proportion of those who contribute to the public pension system was greater than for man in 2014, representing a new scenario for Brazil. The insertion of women among benefits that required a higher density of contribution raised and is reflected by a higher proportion among length of contribution pensions and a smaller one for survivor benefits, since the male breadwinner model looses ground and new family arrangements are present. Temporary benefits present a higher women incidence since they are more conscious about their situation and suffer bigger pressures to conciliate family duties and professional obligations that affect her health condition. This scenario shows that the option to emphasize cash transfer in detriment to social services may create serious constraints for Brazilian women.
    Date: 2016–06
  15. By: Stavins, Joanna (Federal Reserve Bank of Boston)
    Abstract: Connolly and Stavins (2015) showed that payment behavior is strongly correlated with consumers’ demographic and income attributes over the 2009–2013 period. In this paper, we apply a random effects panel data model with sample selection based on Wooldridge (1995) to estimate the effect of each attribute on payment-instrument adoption and use. We find that age, education, income, and race are significant in explaining payment behavior even after controlling for all the other attributes of consumers and for payment-instrument characteristics. Most notably, the lowest-income, lowest-education, and minority consumers adopt a very limited set of payment instruments compared with their counterparts even when education and age are controlled for. These consumers also have a significantly different pattern of payment use conditional on adoption; they rely significantly more on cash and less on credit cards for their transactions. The data do not allow us to isolate supply-side and demand-side factors to explain the causes of these discrepancies. Women use significantly less cash than men, but use more debit cards, checks, and online banking bill pay, even when we control for the degree of bill-paying responsibility they have for their households. Single people use more cash, while married people use more checks. Although characteristics of payment instruments, such as cost, convenience, and security, significantly affect payment behavior, consumers’ socio-demographic attributes explain most of the variation. Separating the effects of consumers’ age from the effects of birth cohorts indicates that in most cases age and birth-cohort trends move together.
    JEL: D12 D14 E41
    Date: 2016–06–07

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