nep-age New Economics Papers
on Economics of Ageing
Issue of 2016‒12‒04
ten papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  2. The 2015-2017 policy changes to the means-tests of Australian Age Pension: implication to decisions in retirement By Johan G. Andreasson; Pavel V. Shevchenko
  3. Balancing inclusiveness, work incentives and sustainability in Denmark By Caroline Klein; Louise Aggerstrøm Hansen
  4. Cognitive Aging and Ability to Work By Anek Belbase; Geoffrey T. Sanzenbacher
  5. Leaving Big Money on the Table: Arbitrage Opportunities in Delaying Social Security By Gila Bronshtein; Jason Scott; John B. Shoven; Sita N. Slavov
  6. Is it Better to Work When We Are Older? An Empirical Comparison Between France and Great Britain By Kadija Charni
  7. Public expenditure on education in the time of population aging- Which educational stages does the elderly support? By Miki Miyaki; Masaki Kimura
  8. Financing elderly care in Italy and Europe. Is there a common vision? By Elenka Brenna; Lara Gitto
  9. Will China’s demographic transition exacerbate its income inequality? A CGE modeling with top-down microsimulation: By Wang, Xinxin; Chen, Kevin Z.; Robinson, Sherman; Huang, Zuhui
  10. What was fair in acturial fairness? By Antonio José Heras Martínez; David Teira; Pierre-Charles Pradier

  1. By: Nicolas Sirven (LIRAES - Laboratoire Interdisciplinaire de Recherche Appliquée en Economie de la Santé - UPD5 - Université Paris Descartes - Paris 5); Thomas Barnay (ERUDITE - Equipe de Recherche sur l’Utilisation des Données Individuelles en lien avec la Théorie Economique - UPEM - Université Paris-Est Marne-la-Vallée - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12, TEPP - Travail, Emploi et Politiques Publiques - UPEM - Université Paris-Est Marne-la-Vallée - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We estimate a reduced form model of expectations-based reference-dependent preferences to explain job retention of older workers in Europe in the context of the 2009 economic crisis. Using individual micro-economic longitudinal data from SHARE (The Survey of ealth, Ageing, and Retirement in Europe) between 2006 and 2011, we derive a measure of “good, bad or no surprise” from (i) workers’ anticipated evolution of their standard of living five years from 2006 (reference point), and from (ii) a comparison of their capacity to make-ends-meet between 2006 and 2011. We find that the probability to remain on the labour market in 2011 is significantly higher for individuals who experienced a lower than expected standard of living. The effect of a “bad surprise” on job retention is larger than the effect of a “good surprise” once netted out from the effects of expectations at baseline, change in consumption utility, and the usual lifecycle determinants on job retention of older workers. We interpret this result as an evidence of loss aversion in the case the reference point is based on individuals’ expectations. We also find that loss aversion is more common among men, risk-averse individuals and those with a higher perceived life expectancy.
    Keywords: Job retention, Behavioural economics, Loss aversion, SHARE data
    Date: 2016–06–01
  2. By: Johan G. Andreasson; Pavel V. Shevchenko
    Abstract: The Australian Government uses the means-test as a way of managing the pension budget. Changes in Age Pension policy impose difficulties in retirement modelling due to policy risk, but any major changes tend to be `grandfathered' meaning that current retirees are exempt from the new changes. In 2015, two important changes were made in regards to allocated pension accounts -- the income means-test is now based on deemed income rather than account withdrawals, and the income-test deduction no longer applies. We examine the implications of the new changes in regards to optimal decisions for consumption, investment, and housing. We account for regulatory minimum withdrawal rules that are imposed by regulations on allocated pension accounts, as well as the 2017 asset-test rebalancing. The new policy changes are modelled in a utility maximizing lifecycle model and solved as an optimal stochastic control problem. We find that the new rules decrease the benefits from planning the consumption in relation to the means-test, while the housing allocation increases slightly in order to receive additional Age Pension. The difference in optimal drawdown between the old and new policy are only noticeable early in retirement until regulatory minimum withdrawal rates are enforced. However, the amount of extra Age Pension received for many households is now significantly different due to the new deeming income rules, which benefit slightly wealthier households who previously would receive no Age Pension due to the income-test and minimum withdrawals.
    Date: 2016–11
  3. By: Caroline Klein; Louise Aggerstrøm Hansen
    Abstract: The generous Danish welfare state relies on a high degree of labour force participation both for financing and in order to ensure social cohesion. This underlines the need for getting work incentives right and improve the employability of vulnerable groups of workers, in particular migrants. Many benefit recipients also face high marginal tax rates for returning to work, creating a barrier for inclusion. Likewise, as the population ages, the need for longer working lives becomes a central aim. In Denmark, much has been done to keep older workers in the labour market, but there is further scope for reducing barriers to work for this group, including through the design of the pension system. Cost pressures at social institutions could be addressed by better reaping the effects on municipal reform, more coordination between different service providers, and open the market for social services, for instance old age care, for private suppliers under a strict quality monitoring framework. Concilier inclusion, incitations au travail et soutenabilité au Danemark Le système danois de protection sociale, généreux, repose sur des taux d’activité élevés, que ce soit pour son financement ou pour garantir la cohésion sociale. Aussi est-il d’autant plus nécessaire de trouver le bon système d’incitations au travail et d’améliorer l’employabilité des actifs les plus vulnérables, en particulier les migrants. Par ailleurs, de nombreux bénéficiaires de prestations sont imposés à des taux marginaux élevés lorsqu’ils retournent au travail, ce qui crée un obstacle à l’insertion. Dans le même ordre d’idée, avec le vieillissement de la population, la nécessité de prolonger la vie active constitue un objectif central. Beaucoup a été fait au Danemark pour maintenir les travailleurs seniors au travail, mais les barrières à l’emploi de ce groupe peuvent être encore réduites, notamment dans la conception même du système de retraite. Les contraintes financières des institutions de protection sociale pourraient être allégées en tirant un meilleur parti des effets de la réforme budgétaire sur les municipalités, en assurant une meilleure coordination entre les différents prestataires de services et en ouvrant le marché des services sociaux, notamment les soins aux personnes âgées, à des prestataires privés, moyennent un strict contrôle de la qualité des soins dispensés.
    Keywords: social assistance, labour markets, immigration, disability benefit reforms, pensions
    JEL: H53 H68 H75 J08 J23 J26 J32 J61 J65
    Date: 2016–11–25
  4. By: Anek Belbase; Geoffrey T. Sanzenbacher
    Abstract: Working longer is an effective way to boost individuals’ retirement security. Thus, understanding who can work longer and who may struggle is a key issue for researchers and policymakers. Some studies find that age-related declines in physical abilities can limit those in physically demanding jobs from working into their late 60s. But the effects of changes in cognitive abilities on work have received less attention. At first glance, it appears that a decline in “fluid” intelligence – the capacity to process new information – and an apparent relationship between fluid intelligence and job achievement could pose a barrier to working longer. However, “crystallized” intelligence – accumulated knowledge – increases with age, and cognitive reserves can offer spare capacity against declining fluid intelligence. As a result, studies comparing the productivity of young and old workers find that age is a crude and unreliable predictor of performance. This brief – the second in a series of three – reviews the research literature to assess how cognitive aging affects the ability to work during ages 50-70. The first brief provided a primer on cognitive aging and the third brief will examine how it affects retirees’ ability to manage their money from ages 70-90. The discussion proceeds as follows. The first section documents that age is not generally related to productivity across a variety of occupations. The second section explains why declining fluid intelligence tends not to impede work ability. The third section looks at the minority of workers who may struggle to remain productive and why. The final section concludes that experience helps many workers in skilled jobs stay productive and workers in less skilled jobs might have more fluid intelligence than their job requires. However, two groups are vulnerable to age-related decline: those in jobs where accumulated knowledge cannot offset demand for fluid intelligence and those who experience cognitive impairment.
    Date: 2016–11
  5. By: Gila Bronshtein; Jason Scott; John B. Shoven; Sita N. Slavov
    Abstract: Recent research has documented that delaying the commencement of Social Security benefits increases the expected present value of retirement income for most people. Despite this research, the vast majority of individuals claim Social Security at or before full retirement age. Claiming Social Security early is not necessarily a mistake, as delaying Social Security commencement requires forgoing current income in exchange for future income. The decision to claim early could therefore rationally be driven by liquidity constraints, mortality concerns, bequest motives, a high time discount rate, or a variety of other preference related factors. However, for some individuals, delaying Social Security offers a significant arbitrage opportunity because they can defer Social Security and have higher income in all future years. Arbitrage exists for most primary earners who either purchase a retail-priced annuity or opt for a defined benefit annuity when a lump sum payout is offered, while forgoing the opportunity to defer Social Security. These individuals are essentially buying an expensive annuity when a cheaper one is available, and their decision to claim Social Security early is almost certainly a mistake. The magnitude of the mistake can reach up to approximately $250,000.
    JEL: D14 H55
    Date: 2016–11
  6. By: Kadija Charni (AMSE - Aix-Marseille School of Economics - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université - ECM - Ecole Centrale de Marseille - EHESS - École des hautes études en sciences sociales)
    Abstract: Classical literature uses the cross-sectional age-earnings profile to describe how the earnings evolve over the life cycle. Using a cohort analysis, I argue that this interpretation of age-earnings profile is not correct. I show that the cohort effects largely explain the decline observed at older ages. I illustrate this point by using a rotating panel data from France and a British longitudinal panel dataset for the period 1991 to 2007. I find no clear evidence that the earnings decline at older age, although the profiles are different between countries. Earnings for French workers rise linearly with age, with a further increase at the end of career, while it becomes flat for older workers in Great Britain. Overlapping cohorts provide an explanation of the observed decline of earnings for older workers in cross-sectional data. This suggests that cross-section age-earnings profile fails to represent the individual age-earnings profile.
    Keywords: age-earnings profile,older workers,cohort analysis
    Date: 2016–10
  7. By: Miki Miyaki (Rikkyo University, College of Business); Masaki Kimura (Bank of Japan, Financial Markets Department)
    Abstract: This paper examines the elderly fs preference on public educational expenditures by each stage of education, i.e., from preschool to higher education. Utilizing a dynamic panel estimation method with Japanese prefectural data in the 1975-2012 period (38 years), we found that before 1990s the elderly tended to support public spending on almost every educational stage, especially on higher stages such as high school and university education. After 2000s, however, their preference was not to support government spending on earlier stages such as kindergarten and primary education. As the share of the elderly in eligible voters is becoming higher with the progress of population aging, their preference on government expenditures is gaining more influence on political decision. These results provide a foundation to discuss the allocation of public expenditure among educational stages under the circumstances of serious budget constraints.
    Keywords: population aging, public expenditure on education, educational stages, dynamic panel
    JEL: H52 H75 I28
    Date: 2016–11
  8. By: Elenka Brenna (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore); Lara Gitto
    Abstract: There is a general consensus in considering the public financing for LTC as a suitable proxy of the resources committed to elderly care by each Government. But the preciseness of this approximation depends on the extent to which LTC is representative of elderly care within a country. We investigate this issue by estimating the resources specifically spent on elderly assistance in Lombardy, an Italian region which in terms of population, dimension, health care organization and economic development could be compared to many European countries, such as Sweden, Austria or Belgium. The analysis focuses on the public financing on elderly care in Italy and, in particular, in Lombardy, both in terms of organizational level (central/regional/local) and governmental responsibility (Welfare/Social Department). Quantitative data on the financing of elderly care is drawn from the national and regional balances; the provision of services is analyzed using regional and community based data. Results address two main questions. First, they highlight the absence of an appropriate method for assessing the public resources committed by each European country to LTC elderly expenditure. Second, our findings suggest an overestimate of the funding actually spent for elderly care in Italy: this should be of warning for policy makers, especially in view of an increasing ageing of the population.
    Keywords: LTC financing; elderly care; European LTC policies.
    JEL: H53 H72 I38
    Date: 2016–08
  9. By: Wang, Xinxin; Chen, Kevin Z.; Robinson, Sherman; Huang, Zuhui
    Abstract: Demographic transition due to population aging is an emerging trend throughout the developing world, and it is especially acute in China, which has undergone demographic transition more rapidly than have most industrial economies. This paper quantifies the distributional effects in the context of demographic transition using an integrated recursive dynamic computable general equilibrium model with top-down behavioral microsimulation. The results of the poverty and inequality index indicate that population aging has a negative impact on the reduction of poverty while its impact is positive with regard to equality. In addition, elderly rural households are experiencing the most serious poverty, and their inequality problems compared with other household groups and within group inequality worsens with demographic transition. These findings not only advance the previous literature but also deserve particular attention from Chinese policy makers.
    Keywords: demography, poverty, economic development, macroeconomics, mathematical models,
    Date: 2016
  10. By: Antonio José Heras Martínez (Departamento de Economía Financiera y Contabilidad 1 - Universidad Complutense de Madrid [Madrid]); David Teira (Departamento de Lógica, Historia y Filosofía de la ciencia - UNED - Universidad Nacional de Educación a Distancia); Pierre-Charles Pradier (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, Labex ReFi - Université Paris1 - Panthéon-Sorbonne)
    Abstract: The concept of acturial fairness stems from an Aristotelian tradition in which fairness requires equality between the goods exchanged. When dealing with aleatory contracts, this principle evolved, among medieval scholars, into equality in risk: benefits and losses should be proportional to the risks undertaken. The formalization of this principle gave rise to the concept of mathematical expectation, first implemented in the calculation of the fair price of gambles. The concept of an actuarial fair price was first theoretically articulated in the 17th century as an implementation of this same Aristotelian principle in the field of life insurance. For a practical estimation of fair actuarial prices it was necessary to build mortality tables, assuming that the major risk factor was age. Yet, in the 18th and 19th centuries, we find no agreement among proto-actuaries about the proper construction of these tables. Among the obstacles they found, we want to highlight their early awareness of the possibility of adverse selection: buyers and sellers could manipulate the risk assessment for their own private interests, in a way that would either make fair companies collapse or fair customers be cheated. The paradox in the concept of actuarial fairness is that as soon as it was formally articulated, markets made clear it could never be implemented in actual pricing.
    Abstract: Le concept de justice actuarielle dérive de la tradition aristotélicienne d'après lequel la justice requiert l'égalité entre les biens échangés. Dans le cas de contrats aléatoires, ce principe a évolué, chez les scolastiques médiévaux, vers l'égalité en termes de risque : les gains et les pertes doivent être proportionnels aux risques encourus. La formalisation de ce principe a donné naissance au concept d'espérance mathématique, qui est apparu dans le calcul des chances aux jeux de hasard sous la forme de juste prix. Le concept de prix actuariellement juste découle alors de la mise en œuvre du principe aristotélicien dans le domaine de l'assurance, et notamment de l'assurance-vie. pour l'estimation concrète des primes actuariellement justes, il fallait mettre au point des tables de mortalité et considérer que l'âge constituait le principal facteur de risque. Pourtant, pendant le siècle et demi qui s'achève vers 1830, les proto-actuaires ne s'accordent pas sur les méthodes de construction des tables. Parmi les obstacles à la formulation d'une méthode commune, nous avons voulu souligner l'attention portée très tôt aux problèmes d'antisélection : les acheteurs comme les vendeurs pouvaient manipuler la perception des risques de l'autre partie, de sorte que des compagnies pratiquant des prix justes puissent faire faillite, ou que des clients honnêtes puissent être volés. Le paradoxe du concept de justice actuarielle est donc que les marchés ont montré, dès qu'il a été formulé et calculé, qu'il ne constituerait jamais un prix viable.
    Keywords: actuarial fairness,mathematical expectation,life insurance,annuity,risk,justice actuarielle,espérance mathématique,assurance-vie,rente,risque
    Date: 2016–10

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