nep-age New Economics Papers
on Economics of Ageing
Issue of 2017‒01‒08
nineteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Subsidy Policy and Elderly Labor By Miyake, Yusuke; Yasuoka, Masaya
  2. Innovations in Protecting the Old: Mostly Social Insurance and Some Assets By Teresa Ghilarducci
  3. Flexible pension take-up in social security By Adema, Y.; Bonenkamp, J.; Meijdam, Lex
  4. Retirement rules in Hungary: gainers and losers By Tibor Czegledi; Endre Szabo; Melinda Tir; Andras Simonovits
  5. Too busy to stay at work. How willing are Italian workers “to pay” to anticipate their retirement? By Riccardo Calcagno; Flavia Coda Moscarola; Elsa Fornero
  6. Bayesian Poisson log-bilinear models for mortality projections with multiple populations By Katrien Antonio; Anastasios Bardoutsos; Wilbert Ouburg
  7. Negative correlation between retirement age and contribution length? By Erik Granseth; Wolfgang Keck; Wolfgang Nagl; Melinda Tir; Andras Simonovits
  8. Are the social security benefits of pensions or child-care policies best financed by a consumption tax? By Jinno, Masatoshi; Yasuoka, Masaya
  9. The Impact of Depression on Employment of Older Workers in Europe By Justine Knebelmann; Christopher Prinz
  10. Retirement Decisions, Eligibility and Financial Literacy By Sara Burrone; Mariacristina Rossi
  11. Employment and Unemployment in the EU. Structural Dynamics and Trends By Marioara Iordan; Mihaela Nona Chilian
  12. Older Peoples’ Willingness to Delay Social Security Claiming By Raimond Maurer; Olivia S. Mitchell
  13. Optimal Asset Allocation of a Pension Fund: Does The Fear of Regret Matter? By Ibhagui, Oyakhilome
  14. Pathways to Independence: Transitioning Adults Under Age 65 from Nursing Homes to Community Living By Carol V. Irvin; Noelle Denny-Brown; Eric Morris; Claire Postman
  15. State and Local Pension Reform Since the Financial Crisis By Jean-Pierre Aubry; Caroline V. Crawford
  16. The "Natural" Interest Rate and Secular Stagnation By Peter Arno; Kyle Moore
  17. Would Reducing the Price of Employing an Older Worker Improve Labor Market Outcomes by Socioeconomic Status? Evidence from Health Insurance Premium Restrictions By Matthew S. Rutledge; Caroline V. Crawford
  18. Natural Selection, Technological Progress, and the Origin of Human Longevity By Lothar Grall
  19. To Work for Yourself, for Others, or Not At All? How Disability Benefits Affect the Employment Decisions of Older Veterans By Courtney Coile; Mark Duggan; Audrey Guo

  1. By: Miyake, Yusuke; Yasuoka, Masaya
    Abstract: In economically developed countries, aging societies with fewer children are progressing. Increased longevity has necessitated postponement of the working retirement age. Our paper presents an examination of how subsidies for an elderly labor supply affect the elderly labor supply. Our paper presents derivation that this subsidy raises the elderly labor supply. Then, the wage rate of younger laborers can be increased because of complementarity between the younger labor supply and older labor supply. This effect is explained as an externality. By virtue of the externality effect, a subsidy to facilitate the elderly labor supply should be provided in support of social welfare.
    Keywords: Aging society, Elderly labor, Subsidy
    JEL: H20 H55 J14 J26
    Date: 2016–12–21
  2. By: Teresa Ghilarducci (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: For the first time in two generations, there’s a growing risk of being poor or near poor in old age because the U.S. pension system has failed. The U.S. pension system is based on a threelayered pyramid, with Social Security on the bottom, employment-based retirement plans in the middle, and personal assets at the top. The second layer has collapsed over the last 35 years as employer-based pensions have shifted years to “do-it-yourself” financial-based accounts anchored in individual asset-building.
    Keywords: Social Security, Inequality, Policy
    JEL: H5 I14 I2
    Date: 2016–06
  3. By: Adema, Y. (Tilburg University, School of Economics and Management); Bonenkamp, J. (Tilburg University, School of Economics and Management); Meijdam, Lex (Tilburg University, School of Economics and Management)
    Abstract: This paper studies the redistribution and welfare effects of increasing the flexibility of individual pension take-up. We use an overlapping-generations model with Beveridgean pay-as-you-go pensions and heterogeneous individuals who differ in ability and lifespan. We find that introducing flexible pension take-up can induce a Pareto improvement when the initial pension scheme contains within-cohort redistribution and induces early retirement. Such a Pareto improving reform entails the application of uniform actuarial adjustment of pension entitlements based on average lifespan. Introducing actuarial non-neutrality that stimulates later retirement further improves such a flexibility reform.
    Date: 2016
  4. By: Tibor Czegledi (Databank of the Research Centre for Economic and Regional Studies, Hungarian Academy of Sciences); Endre Szabo (Databank of the Research Centre for Economic and Regional Studies, Hungarian Academy of Sciences); Melinda Tir (Databank of the Research Centre for Economic and Regional Studies, Hungarian Academy of Sciences); Andras Simonovits (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences and also Mathematical Institute of Budapest University of Technology, Budapest)
    Abstract: Though the Hungarian pension system has been suffering from many erroneous rules, in the present paper we confine our attention to the rules of retirement in Hungary since 1990. In every pension system, there exist two rules which determine how the lifetime contribution (which is approximately proportional to the years of contributions) and the retirement age influence the benefit amount, respectively. As a benchmark, we use the system of nonfinancial defined contributions, simulating a mandatory life insurance and life annuity system. More generally, we speak of flexible retirement if adding a year to the contributions or the retirement age strongly increases the retirement benefit, opening the way to the flexible choice of the retirement age. Due to erroneous concepts, flexibility has only functioned in a very imperfect form in Hungary. Before 2011/2012, an exemption rule completed the two foregoing rules: if somebody had above the critical value (35–40) of years of contributions, he/she could use early retirement without significant benefit reduction. Since 2011/2012 two other rules have completed these rules: (a) as an exception, since 2011, rule Females 40 has rewarded any woman who had at least 40 years of rights with a full benefit; (b) as a rigid rule, since 2012, nobody could have retired before reaching the statutory retirement age except for category (a). Taking into account the dependence of monthly benefits on the lifetime average valorized wages, we assess the gainers and losers of the past and the present systems.
    Keywords: normal retirement age, early retirement, years of contributions, rights, flexible retirement
    JEL: H55 I14 J26
    Date: 2016–09
  5. By: Riccardo Calcagno (EMLYON Business School and CeRP-Collegio Carlo Alberto); Flavia Coda Moscarola (CeRP-Collegio Carlo Alberto); Elsa Fornero (University of Turin and CeRP-Collegio Carlo Alberto)
    Abstract: Using a representative sample of Italian workers aged 55 and above, we study their preference for anticipated retirement and their willingness to pay for a year of anticipation after the recent Italian pension reform (2011), which significantly restricted the access conditions to retirement. We distinguish workers by gender and according to whether they have been obliged to postpone their exit by the reform. The preference for anticipated retirement is particularly strong for women and for workers who were directly affected by the reform. As for the “willingness to pay” to anticipate retirement, there is no systematic difference between the two categories, and this finding is common to both men and women. We also investigate whether informal care duties play a role in explaining the willingness to pay, and we find that the effect differs across genders. Women who are involved in informal care of children are willing to pay significantly more than women who are not caregivers and more than men. Our findings suggest that retirement policies produce side effects, which differ according to both gender and being a caregiver or not. These effects signal that when a pension system performs further tasks than the provision of retirement income, its reform may cause social mismatches unless supplemented by appropriate changes in other social programmes.
    Date: 2016–04
  6. By: Katrien Antonio; Anastasios Bardoutsos; Wilbert Ouburg
    Abstract: Life insurers, pension funds, health care providers and social security institutions face increasing expenses due to continuing improvements of mortality rates. The actuarial and demographic literature has introduced a myriad of (deterministic and stochastic) models to forecast mortality rates of single populations. This paper presents a Bayesian analysis of two related multi-population mortality models of log-bilinear type, designed for two or more populations. Using a larger set of data, multi-population mortality models allow joint modelling and projection of mortality rates by identifying characteristics shared by all subpopulations as well as sub-population speci?c e?ects on mortality. This is important when modeling and forecasting mortality of males and females, regions within a country and when dealing with index-based longevity hedges. Our ?rst model is inspired by the two factor Lee & Carter model of Renshaw and Haberman (2003) and the common factor model of Carter and Lee (1992). The second model is the augmented common factor model of Li and Lee (2005). This paper approaches both models in a statistical way, using a Poisson distribution for the number of deaths at a certain age and in a certain time period. Moreover, we use Bayesian statistics to calibrate the models and to produce mortality forecasts. We develop the technicalities necessary for Markov Chain Monte Carlo ([MCMC]) simulations and provide software implementation (in R) for the models discussed in the paper. Key bene?ts of this approach are multiple. We jointly calibrate the Poisson likelihood for the number of deaths and the times series models imposed on the time dependent parameters, we enable full allowance for parameter uncertainty and we are able to handle missing data as well as small sample populations. We compare and contrast results from both models to the results obtained with a frequentist single population approach and a least squares estimation of the augmented common factor model.
    Keywords: projected life tables, multi-population stochastic mortality models, Bayesian statistics, Poisson regression, one factor Lee & Carter model, two factor Lee & Carter model, Li & Lee model, augmented common factor model
    Date: 2015
  7. By: Erik Granseth (Swedish Pensions Agency); Wolfgang Keck (Wissenschaftzentrum Berlin für Socialforschung); Wolfgang Nagl (Institute for Advanced Studies); Melinda Tir (Databank of the Research Centre for Economic and Regional Studies, Hungarian Academy of Sciences); Andras Simonovits (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences and also Mathematical Institute of Budapest University of Technology, Budapest)
    Abstract: Though never stated explicitly, there is a hidden hypothesis that in a normal pension system, the retirement age and the contribution length are strongly and positively correlated. We compare the time paths of male and female correlation coefficients in Austria, Hungary, Germany and Sweden for several years and categories; and obtain a mixed picture. Hungary stands out with its strong negative correlation but the remaining three countries cannot boast with strongly positive correlation, either. Further work is needed to understand the significance of our findings but they signal some problems with these systems: heterogeneously fragmented careers and unfair benefit rules.
    Keywords: public pension system, length of employment, fragmented careers, retirement age
    JEL: H55 J26 J64
    Date: 2016–11
  8. By: Jinno, Masatoshi; Yasuoka, Masaya
    Abstract: Our paper sets an endogenous fertility model and examines how tax revenues derived from a consumption tax should be used for social security benefits such as pension and child-care policies. An additional pension financed by a consumption tax can achieve Pareto-improving allocations. Child allowances and an education subsidy decrease the older generation's utility because of tax burdens and the lack of additional benefit. Even if child allowances can raise the share of young people in society and some future generation's utility, that future generation's utility decreases because of a decrease in income growth. However, with certain parametric conditions, an education subsidy can raise every generation's utility, except for that of the older generation, because of the increase in income growth.
    Keywords: Endogenous fertility, Human capital, Child allowance, Education subsidy, Pension
    JEL: H20 H55 I20 J13
    Date: 2016–12–21
  9. By: Justine Knebelmann (International Growth Centre); Christopher Prinz
    Abstract: According to the World Health Organization, depression is the highest ranking cause of disease in middle- and high income countries; it costs Europe around EUR 118 billion a year, mostly through lost productivity on the labour market, i.e. labour supply loss, sickness absence, and poor performance at the workplace. Using data from waves 1, 2 and 4 of the Survey of Health, Ageing and Retirement in Europe (SHARE), this paper seeks to assess the magnitude of the impact of depression on labour market outcomes of older workers, a population sub-group whose participation in the labour market is ever more crucial in view of rapid population ageing. For each of the studied outcomes, analyses show a substantial impact of depression, measured with the European Depression Scale. Using different methods to address endogeneity this paper finds that depression decreases the probability of being employed by 22 to 51 percentage points among the 50 to 64 year old age group. Older workers with the most symptoms are more than twice as likely as others to exit employment before retirement age. Finally, depression increases annual sickness absence duration by 7.2 days on average. These figures show the necessity for national and firm-level employment policies and programmes targeting the 50 and over population to include prevention of depression, increased awareness of depression and adequate medical support.
    JEL: C23 C31 I10 J22 J26
    Date: 2016–12–21
  10. By: Sara Burrone (University of Firenze; University of Turin and CeRP-Collegio Carlo Alberto); Mariacristina Rossi (University of Turin and CeRP-Collegio Carlo Alberto)
    Abstract: In this work, we analyze if and to what extent financial literacy has an impact on workers’ retirement decisions. We do so with reference to Italy, a country that has undergone important pension reforms in the last two decades. We use the Survey on Household Income and Wealth (SHIW) in the period 2006 to 2010, for which we have information on financial literacy. Our findings show that financially literate workers are more inclined to postpone retirement when they are (at least partially) enrolled in a DC scheme, Conversely, financial literacy does not seem to affect the retirement plans of workers who are still covered by the more generous DB formula.
    Date: 2016–07
  11. By: Marioara Iordan (Institute for Economic Forecasting, Romanian Academy); Mihaela Nona Chilian (Institute for Economic Forecasting, Romanian Academy)
    Abstract: Worldwide, employment trends are most often related to the ageing of world countries’ populations. The changes in the main shares of age groups in total population were significant, but concomitantly annuling their influence on total employment: the increase in women’s participation to labor determined the increase in employment, but youth (15-24 years) employment has declined. The latter phenomenon occurred due to increase in tertiary education enrolment, as well as to the increase in youth unemployment. Also, the employment of persons aged 65 and over has evolved differently in the developed, emerging and developing economies: in the first two cases it had determined delayed retirement. Also in the European Union and, implicitly, in Romania, deep changes in the employment structure and unemployment dynamics have occurred, revealing particular features of which some are addressed in our paper.
    Keywords: employment, unemployment, European Union, youth employment/unemployment, older workers, educational attainment
    JEL: J11 J21 J60
    Date: 2015–10
  12. By: Raimond Maurer; Olivia S. Mitchell
    Abstract: We have designed and fielded an experimental module in the 2014 HRS which seeks to measure older persons’ willingness to voluntarily defer claiming of Social Security benefits. In addition, we evaluate the stated willingness of older individuals to work longer, depending on the Social Security incentives offered to delay claiming their benefits. Our project extends previous work by analyzing the results from our HRS module and comparing findings from other data sources which included very much smaller samples of older persons. We show that half of the respondents would delay claiming if no work requirement were in place under the status quo, and only slightly fewer, 46%, with a work requirement. We also asked respondents how large a lump sum they would need with or without a work requirement. In the former case, the average amount needed to induce delayed claiming was about $60,400, while when part-time work was required, the average was $66,700. This implies a low utility value of leisure foregone of only $6,300, or under 20% of average household income.
    JEL: D03 D91 G11 H55
    Date: 2016–12
  13. By: Ibhagui, Oyakhilome
    Abstract: In this paper, we incorporate regret into the decision-making process of a pension fund and derive the optimal asset allocation of a final-wealth-maximizing pension fund in the accumulation and decumulation phases. We find that the optimal asset allocation must be congruent in both phases if and only if the pension fund is upside regret-averse. In particular, our results suggest that allocation to risky assets must increase through time in the accumulation and decumulation phases so that the pension fund can realize gains from any upsides in the risky asset market, thereby maximizing final wealth and limiting the feeling of regret ex-post. Although decisions in both phases are congruent, we find that the optimal asset allocation generally depends on wealth levels. This evidence implies that separate management of the accumulation and decumulation phases of a pension fund decreases available wealth levels and is not an optimal strategy.
    Keywords: Financial markets. Asset allocation. Log-logistic. Modified utility. Mortality. Pension fund. Regret aversion
    JEL: G1 G11
    Date: 2016–11–19
  14. By: Carol V. Irvin; Noelle Denny-Brown; Eric Morris; Claire Postman
    Abstract: Over one-third of Money Follows the Person (MFP) participants are former nursing home residents under age 65. This report examines why state grantees have been successful transitioning younger adults from nursing homes and the strategies six MFP grantees use to serve this population.
    Keywords: money follows person , transition , working-age younger adults , nursing home , community , Medicaid , LTSS , people with disabilities
    JEL: I J
  15. By: Jean-Pierre Aubry; Caroline V. Crawford
    Abstract: In the wake of the financial crisis, many state and local pension plans have reduced benefits and increased required employee contributions to curb rising employer costs. While past research suggests that most state plans have made some changes, little information is available about reforms at the local level.1 This brief documents and compares the reform patterns for over 200 major state and local plans between 2009 and 2014 and investigates how and why the changes were made. The discussion proceeds as follows. The first section describes the data and methodology. The second section provides background on legal protections that might impede changes in benefits for current employees. The third section catalogues and compares the benefit reforms made since the financial crisis – separately assessing reforms applied to current employees and to new hires. The fourth section introduces a regression analysis to better understand what factors have motivated both reforms overall and reforms aimed at current employees. The fifth section presents the regression results. The final section concludes that, unsurprisingly, the biggest factor related to reforms overall was the cost of the plan relative to the total revenue of its sponsoring government, while the main factor related to reforms for current employees was the strength of state legal protections for benefits.
    Date: 2017–01
  16. By: Peter Arno; Kyle Moore (Schwartz Center for Economic Policy Analysis (SCEPA))
    Abstract: This research supports the need to focus not only on ensuring Social Security’s solvency for future generations, but building the program’s ability to support all working Americans. Using data from the Social Security Administration, the authors determine that income inequality would experience a small reduction if Social Security reform includes both removing the maximum taxable earnings cap and increasing the minimum benefit.
    Keywords: Social Security, Inequality, Policy
    JEL: H5 I14 I2
    Date: 2016–06
  17. By: Matthew S. Rutledge; Caroline V. Crawford
    Abstract: Delaying retirement improves retirement preparedness, but older workers cannot work longer if employers do not hire or retain them. This study examines one way in which public policy potentially makes older workers more attractive to employers: state regulatory restrictions on how much employer premiums are permitted to increase at small firms with older, unhealthier workforces. The study uses data from the Current Population Survey from 1989-2013 to compare older individuals’ overall employment, small-firm employment, and earnings in states with varying degrees of premium regulation, and among workers of different educational backgrounds. The analysis shows mixed results. Stronger premium regulations were not effective in increasing employment: employment at small firms, which are most sensitive to premium increases, saw no statistically significant increase, and overall employment for older workers at both large and small firms increased only slightly. The earnings gap between large and small firms is also smaller in states with tighter restrictions, but older workers were not helped appreciably more than younger workers. These results suggest that indirect efforts to lower the price of hiring an older worker are not likely to be effective in improving their job prospects.
    Date: 2016–12
  18. By: Lothar Grall (Justus Liebig University Giessen)
    Abstract: This paper suggests that feedback effects between technological progress and human longevity lie at the heart of their common emergence in human history. It connects two major research questions. First, the long life span after menopause is a unique but puzzling feature of humans among primates. Second, the shift in human behavior at least 50,000 years ago, which led to an unprecedented pace of technological progress, is still not well understood. The paper develops an evolutionary growth theory that builds on the trade-off between the quantity and the quality of offspring. It suggests that early technological advances gradually increased the importance of intergenerational transfers of knowledge. Eventually, the fertility advantage shifted towards individuals that were characterized by higher parental investment in offspring and a significant post-reproductive life span. Subsequently, the rise in human longevity reinforced the process of development and laid the foundations for sustained technological progress. As a key feature, the theory resolves the debate about a “revolution” in human behavior in an entirely new way. It shows that a gradual emergence of modern behavior is sufficient to trigger a demographic shift that appears as a “behavioral revolution” in the archeological record.
    Keywords: Behavioral Revolution, Economic Growth, Human Longevity, Natural Selection, Somatic Investment, Technological Progress.
    JEL: J13 N30 O10 O30
    Date: 2016
  19. By: Courtney Coile; Mark Duggan; Audrey Guo
    Abstract: The U.S. Department of Veterans Affairs Disability Compensation (DC) program provides disability benefits to nearly one in five military veterans in the US and its annual expenditures exceed $60 billion. We examine how the receipt of DC benefits affects the employment decisions of older veterans. We make use of variation in program eligibility resulting from a 2001 policy change that increased access to the program for Vietnam veterans who served with “boots on the ground” in the Vietnam theater but not for other veterans of that same era. We find that the policy-induced increase in program enrollment decreased labor force participation and induced a substantially larger switch from wage employment to self-employment. This latter finding suggests that an exogenous increase in income spurred many older veterans to start their own businesses. Additionally, we estimate that one in four veterans who entered the DC program due to this policy change left the labor force, estimates in the same range as those from recent studies of the Social Security Disability Insurance (SSDI) program.
    JEL: J22
    Date: 2016–12

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