nep-age New Economics Papers
on Economics of Ageing
Issue of 2016‒08‒14
thirteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Distributional Effects of Means Testing Social Security: Income Versus Wealth By Alan Gustman; Thomas Steinmeier; Nahid Tabatabai
  2. Time Discounting and Economic Decision-making Among the Elderly By David Huffman; Raimond Maurer; Olivia S. Mitchell
  3. The Effect of Population Aging on Economic Growth, the Labor Force and Productivity By Nicole Maestas; Kathleen J. Mullen; David Powell
  4. Pension Participation, Wealth, and Income: 1992-2010 By Alicia H. Munnell; Wenliang Hou; Anthony Webb; Yinji Li
  5. How Can We Realize the Value That Annuities Offer in a 401(k) World? By Steven A. Sass
  6. How Japan and the US Can Reduce the Stress of Aging By Claudia Goldin
  7. Are Early Claimers Making a Mistake? By Alicia H. Munnell; Geoffrey T. Sanzenbacher; Anthony Webb; Christopher M. Gillis
  8. Marital Histories, Gender, and Financial Security in Late Mid-Life: Evidence from Four Cohorts in the Health and Retirement Study By Amelia Karraker; Cassandra Dorius
  9. Disability Benefit Generosity and Labor Force Withdrawal By Kathleen Mullen; Stefan Staubli
  10. Labor Force Dynamics in the Great Recession and its Aftermath: Implications for Older Workers By Gary Burtless
  11. A clash of generations? Increase in Retirement Age and Labor Demand for Youth By Boeri, Tito; Garibaldi, Pietro; Moen, Espen R
  12. Maybe "honor thy father and thy mother": uncertainfamily aid and the design of social long term care insurance By Canta, Chiara; Cremer, Helmuth; Gahvari, Firouz
  13. Evolutions démographiques et marché de l’immobilier neuf By Hippolyte D’Albis; Elodie Djemai

  1. By: Alan Gustman; Thomas Steinmeier; Nahid Tabatabai
    Abstract: This paper compares Social Security means tests that would reduce benefits for recipients who fall in the top quarter of the income distribution with means tests aimed at those in the top quarter of the wealth distribution. Both means tests would reduce the average benefits for the affected groups by about $5,000. The analysis is based on data from the Health and Retirement Study and covers individuals aged 69 to 79 in 2010. About 14.5 percent of retirees in this age group are both in the top quarter of income recipients and in the top quarter of wealth holders. Another 10.5 percent are top quarter income recipients, but not top quarter wealth holders; with an additional 10.5 percent top quarter wealth holders, but not top quarter income recipients. We find that a means test of Social Security based on income has substantially different distributional effects from a means test based on wealth. Moreover, there are substantial differences when a Social Security means test based on income is evaluated in terms of its effects on individuals arrayed by their wealth rather than their income. Similarly, a means test based on wealth will be evaluated quite differently by policy makers who believe that income is the appropriate basis for a means test than by those who believe that means tests should be based on wealth.
    JEL: D04 D31 D63 H55 I3 J14 J18 J32
    Date: 2016–07
  2. By: David Huffman; Raimond Maurer; Olivia S. Mitchell
    Abstract: This paper evaluates the extent of heterogeneity in time discounting among elderly Americans, as well as its role in explaining older peoples’ key behaviors. We first show how older Americans evaluate simple (hypothetical) intertemporal choices in which payments now are compared with payments in the future. This adds to the literature on time horizon experiments by focusing on a nationally representative sample of persons age 70+. Using the indicators derived from this experiment, we show how differences in discounting patterns are associated with characteristics of particular importance in elderly populations, such as serious health and mental conditions. We then relate our discounting measure to key outcome variables including wealth, the timing of retirement, investments in health, and decisions about end of life care.
    JEL: D01 D03 D12 D14 E21 G11 I12 J26
    Date: 2016–07
  3. By: Nicole Maestas; Kathleen J. Mullen; David Powell
    Abstract: Population aging is widely assumed to have detrimental effects on economic growth yet there is little empirical evidence about the magnitude of its effects. This paper starts from the observation that many U.S. states have already experienced substantial growth in the size of their older population and much of this growth was predetermined by historical trends in fertility. We use predicted variation in the rate of population aging across U.S. states over the period 1980-2010 to estimate the economic impact of aging on state output per capita. We find that a 10% increase in the fraction of the population ages 60+ decreases the growth rate of GDP per capita by 5.5%. Two-thirds of the reduction is due to slower growth in the labor productivity of workers across the age distribution, while one-third arises from slower labor force growth. Our results imply annual GDP growth will slow by 1.2 percentage points this decade and 0.6 percentage points next decade due to population aging.
    JEL: J11 J14 J23 J26 O47
    Date: 2016–07
  4. By: Alicia H. Munnell; Wenliang Hou; Anthony Webb; Yinji Li
    Abstract: Using data from the 1992, 1998, 2004, and 2010 waves of the Health and Retirement Study (HRS), this paper compares pension participation, pension wealth, projected retirement income, and replacement rates attributable to past service, by pension type for households ages 51-56. The analysis includes workers’ pension coverage during both current and past jobs. Defined contribution (DC) wealth is simply the current account balance. DC income is calculated by projecting current plan balances to retirement, assuming no further contributions, and assuming that households then annuitize. Defined benefit (DB) wealth and income are calculated by apportioning projected benefits to past and future service.
    Date: 2016–07
  5. By: Steven A. Sass
    Abstract: Annuities have long been the basic building blocks of the U.S. retirement income system. Both Social Security and traditional employer pensions are annuities, paying retirees a specified sum each month for as long as they live. But due to the decline in Social Security replacement rates, for any given retirement age, and the shift in employer plans from defined benefit pensions to 401(k)s, a growing number of workers are entering retirement with more financial savings and less annuity income. Economists generally agree that many retirees would benefit if they annuitized at least some of their 401(k) savings. This brief reviews studies by the U.S. Social Security Administration’s Retirement Research Consortium that assess how best to meet this goal. The discussion proceeds as follows. The first section presents the value that annuities offer. The second section explains how this value is affected by medical expense risk and bequest motives. The third section identifies key behavioral impediments to annuitization. The fourth section reviews initiatives that address these impediments. The fifth section concludes that accustoming 401(k) participants to focus on retirement income rather than accumulations and developing an effective default distribution for 401(k) assets are promising initiatives to explore.
    Date: 2016–07
  6. By: Claudia Goldin
    Abstract: The Japanese are becoming older. Americans are also becoming older. Demographic stress in Japan, measured by the dependency ratio (DR), is currently about 0.64. In the immediate pre-WWII era it was even higher because Japan’s total fertility rate (TFR) was in the 4 to 5 range. As the TFR began to decline in the post-WWII era, the DR fell and hit a nadir of 0.44 in 1990. But further declining fertility and rising life expectancy caused the DR to shoot up after 1995. In this short note I simulate the DR under various conditions and make comparisons with the US. Japan has experienced a large increase in its DR because its fertility rate is low, its people are long lived and it has little immigration. Fertility is the largest of the contributors in Japan. If there are no demographic changes in Japan, the DR will be 0.88 by 2050. I also assess the role of the “baby boom” of the late 1940s and show that it was compensatory, unlike that in the US. The good news is that healthier older longer-lived people will continue to be employed for many more years than previously and that is one way to reduce demographic stress.
    JEL: I10 J11 J14 J26
    Date: 2016–07
  7. By: Alicia H. Munnell; Geoffrey T. Sanzenbacher; Anthony Webb; Christopher M. Gillis
    Abstract: Using Health and Retirement Study (HRS) data and Latent Class Analysis for three cohorts (those born in 1931-1936, 1937-1941, and 1942-1947), this paper explores: 1) who claims Social Security benefits at age 62; 2) what percentage of households claiming at 62 are unprepared for retirement; and 3) whether the unprepared early claimers were pushed into claiming through job shocks and/or poor health or simply decided to take benefits early. Looking across three cohorts makes it possible to see whether these patterns have changed as the average claim age has increased and pension coverage has shifted away from defined benefit (DB) plans. That is, have those who have moved out of age-62 claiming been educated, financially prepared households or unprepared households that have recognized the need to delay claiming?
    Date: 2016–07
  8. By: Amelia Karraker; Cassandra Dorius
    Abstract: Marital status is an established predictor of financial well-being in later life, with continuously married people enjoying considerable economic benefits that accumulate over the life course, contrasting sharply with the economic vulnerabilities faced by divorced, widowed, or never-married individuals. Although prior work suggests that marital histories—including the number and sequencing of past and present unions and dissolutions—have become more complex for more recent cohorts, the economic ramifications of this demographic shift are unclear. Further, how shifts away from continuous marriage will impact women’s financial security in later life is unknown. Using data from the Health and Retirement Study, we examine cohort and gender variation in the relationship between elaborated marital history measures and financial security at ages 51-56, when wealth and earnings are at or near lifetime peaks. We examine three financial measures (negative, zero, and positive wealth; positive wealth levels; earnings) that capture distinct components of financial security as individuals approach retirement.
    Date: 2016–07
  9. By: Kathleen Mullen; Stefan Staubli
    Abstract: A key component for estimating the optimal size and structure of disability insurance (DI) programs is the elasticity of DI claiming with respect to benefit generosity. Yet, in many countries, including the United States, all workers face identical benefit schedules, which are a function of one’s labor market history, making it difficult to separate the effect of the benefit level from the effect of unobserved preferences for work on individuals’ claiming decisions. To circumvent this problem, we exploit exogenous variation in DI benefits in Austria arising from several reforms to its DI and old age pension system in the 1990s and 2000s. We use comprehensive administrative social security records data on the universe of Austrian workers to compute benefit levels under six different regimes, allowing us to identify and precisely estimate the elasticity of DI claiming with respect to benefit generosity. We find that, over this time period, a one percent increase in potential DI benefits was associated with a 1.2 percent increase in DI claiming.
    JEL: H53 H55 J14 J22
    Date: 2016–07
  10. By: Gary Burtless
    Abstract: Unlike prime-age Americans, who have experienced declines in employment and labor force participation since the onset of the Great Recession, Americans past 60 have seen their employment and labor force participation rates increase. In order to understand the contrasting labor force developments among the old, on the one hand, and the prime-aged, on the other, this paper develops and analyzes a new data file containing information on monthly labor force changes of adults interviewed in the Current Population Survey (CPS). The paper documents notable differences among age groups with respect to the changes in labor force transition rates that have occurred over the past two decades. What is crucial for understanding the surprising strength of old-age labor force participation and employment are changes in labor force transition probabilities within and across age groups.
    Date: 2016–07
  11. By: Boeri, Tito; Garibaldi, Pietro; Moen, Espen R
    Abstract: Most European countries experienced a dramatic increase in youth unemployment since the Great Recession of 2007-2009. For the Euro area as a whole, employment in the 15-24 age group declined by almost 17% over a 6 years span, in Southern Europe declines ranged between 34% (Italy) and 57% (Spain). Demographic and institutional developments cannot, by themselves, account for these dramatic changes in the structure of employment by age groups. This paper evaluates whether and to which extent the increase in the retirement age introduced in several countries in the middle of the recession could have contributed to divergent dynamics of employment rates at the two extremes of the age distribution. We take Italy as a case study as a major reform took place in December 2011 increasing the retirement by up to five years for some categories of workers. We have access to a unique dataset from the Italian social security administration (INPS) identifying in each private firm the fraction of workers hit by the increase in the retirement age. We look at the dynamics of youth hirings in the same firms as well as in firms where no workers were locked-in. Our results clearly indicate that before and after the reform, firms that were more exposed to the increase in employment duration of senior workers significantly reduced youth hirings. The results are also quantitatively sizeable. We estimate that a lock-in of five workers for one year reduces youth hiring of approximately one full time equivalent worker. Overall, out of a total loss of 150 thousand youth jobs, 36 thousand losses can be attributed to the reform. A variety of robustness tests confirm our findings.
    Keywords: labor demand; lump-of-labor; Pension Reforms; youth unemployment
    JEL: H55 J0
    Date: 2016–08
  12. By: Canta, Chiara; Cremer, Helmuth; Gahvari, Firouz
    Abstract: We study the role and design of private and public insurance programs when informal care is uncertain. Children's degree of altruism is represented by a parameter which is randomly distributed over some interval. The level of informal care on which dependent elderly can count is therefore random. Social insurance helps parents who receive a low level of care, but it comes at the cost of crowding out informal care. Crowding out occurs both at the intensive and the extensive margins. We consider two types of LTC policies. A topping up (TU ) scheme provides a transfer which is non exclusive and can be supplemented. An opting out (OO) scheme is exclusive and cannot be topped up. TU will involve crowding out both at the intensive and the extensive margins, whereas OO will crowd out solely at the extensive margin. However, OO is not necessarily the dominant policy as it may exacerbate crowding out at the extensive margin. Finally, we show that the distortions of both policies can be mitigated by using an appropriately designed mixed policy.
    Keywords: Long term care, uncertain altruism, private insurance, public insurance, topping up, opting out.
    JEL: H2 H5
    Date: 2016–07
  13. By: Hippolyte D’Albis (Paris School of Economics - CNRS); Elodie Djemai (PSL, Université Paris-Dauphine, LEDa, UMR DIAL)
    Abstract: A partir des Enquêtes Logement réalisées par l’Insee de 1973 à 2006, cet article analyse les effets démographiques sur la dynamique du marché de l’immobilier neuf en France métropolitaine ainsi qu’en Ile de France et en région PACA. Le calcul des fréquences d’acquisition de logement neuf au titre de la résidence principale par âge permet de mettre en évidence les effets démographiques et effets comportementaux sur la dynamique du marché. Démêlant également les effets de la taille de la population des effets de la structure par âge, il analyse l’impact du vieillissement de la population et propose des projections relatives aux besoins de construction d’ici 2060. L’analyse souligne que les conditions démographiques ont été favorables aux acquisitions de 1972 à 1995 mais insuffisamment pour compenser l’effet des comportements. Alors que l’évolution de taille de la population a toujours été favorable aux acquisitions sur l’ensemble de la période étudiée, la structure par âge est devenue défavorable dès le début des années 1990.
    Keywords: Immobilier neuf, démographie, vieillissement, projections, France
    Date: 2016–05

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