nep-age New Economics Papers
on Economics of Ageing
Issue of 2017‒02‒05
fifteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Joint Lifetime Financial, Work and Health Decisions: Thrifty and Healthy Enough for the Long Run? By Yannis Mesquida; Pascal St-Amour
  2. Secular Stagnation? The Effect of Aging on Economic Growth in the Age of Automation By Daron Acemoglu; Pascual Restrepo
  3. Essays on retirement income provision By Shu, Lei
  4. Optimal Social Security Claiming Behavior under Lump Sum Incentives: Theory and Evidence By Raimond Maurer; Olivia S. Mitchell; Ralph Rogalla; Tatjana Schimetschek
  5. The interplay between trade unions and the social security system in an aging economy By Friese, Max
  6. How we fall apart: Similarities of human aging in 10 European countries By Abeliansky, Ana Lucia; Strulik, Holger
  7. Intra-household allocation of non-mandatory retirement savings By Metzger, Christoph
  8. A Semiparametric Bayesian Approach to a New Dynamic Zero-Inflated Model By Kiranmoy Das; Bhuvanesh Pareek; Sarah Brown; Pulak Ghosh
  9. Fostering inclusive growth in Malaysia By Stewart Nixon; Hidekatsu Asada; Vincent Koen
  10. New Estimates of the Redistributive Effects of Social Security By Li Tan; Cory Koedel;
  11. Target Date Funds: What’s Under the Hood? By Edwin J. Elton; Martin J. Gruber; Andre de Souza; Christopher R. Blake
  12. Japan's Long-term Care Insurance after 15 Years: Shall we return to the welfare program system or keep pursuing market mechanisms? (Japanese) By SUZUKI Wataru
  13. The lasting health and income effects of public health formation in Sweden By Lazuka, Volha
  14. Life insurance and demographic change: An empirical analysis of surrender decisions based on panel data By Gemmo, Irina; Götz, Martin
  15. Demographic change and regional convergence in Canada By Vincent Geloso; Vadim Kufenko; Klaus Prettner

  1. By: Yannis Mesquida (University of Lausanne); Pascal St-Amour (University of Lausanne and Swiss Finance Institute)
    Abstract: Lifetime financial-, work- and health-related decisions made by agents are intertwined with one another. Understanding how these decisions are made is essential to gauge if saving in financial, retirement and human assets is adequate or not. This paper numerically solves, simulates, and structurally estimates a dynamic life cycle model of allocations (consumption/savings, leisure/work and health expenditures), statuses (health, financial and pension wealth) and welfare, allowing for (partially) adjustable exposure to morbidity and mortality risks. Using the simulated life cycle variables as benchmark, our results show that observed choices are not fully consistent with an optimal, forward-looking strategy. Whereas financial savings and pension claims are both adequate, individuals in the data are not healthy enough, and consequently face a shorter life horizon than expected. Moreover, full insurance, and age-increasing wages would optimally point to more spending and less leisure to maintain health than currently observed. As a consequence, observed post-retirement income is too low, and explains a sharp drop in consumption after 65 that is inconsistent with optimizing behavior. Relaxing assumptions on full insurance and pension regimes only partially alleviates these discrepancies.
    Keywords: Defined Benefits and Contributions Plans, Consumption, Leisure, Health Expenditures, Mortality and Morbidity Risks, Optimal Savings
    JEL: D91 I12 J22
  2. By: Daron Acemoglu; Pascual Restrepo
    Abstract: Several recent theories emphasize the negative effects of an aging population on economic growth, either because of the lower labor force participation and productivity of older workers or because aging will create an excess of savings over desired investment, leading to secular stagnation. We show that there is no such negative relationship in the data. If anything, countries experiencing more rapid aging have grown more in recent decades. We suggest that this counterintuitive finding might reflect the more rapid adoption of automation technologies in countries undergoing more pronounced demographic changes, and provide evidence and theoretical underpinnings for this argument.
    JEL: E30 J11 J24 O33 O47 O57
    Date: 2017–01
  3. By: Shu, Lei (Tilburg University, School of Economics and Management)
    Abstract: This dissertation examines three topics out of the broad range of old-age supporting. The dissertation consists of three papers. In the first paper, we analyze the sustainability of a new regulatory framework, the nFTK, for the Dutch pension funds. Based on a simulation study, we explore to what extent the pension fund can provide full indexation under the nFTK, and whether the full indexation is fulfilled without overfunding. In the second paper, we investigate the model risk in the pricing of the reverse mortgage products using two different models for the house price process, i.e., the Geometric Brownian Motion model and the Vector Auto-Regression model. We calibrate the models using prices of regular mortgages and determine the corresponding price ranges for reverse mortgages. In the third paper, using a two-wave nationwide survey data from CHARLS, we investigate the impact of a newly introduced rural pension system, the New Rural Social Pension Insurance program (NRSPI), on the retirement and old-age labor supply pattern in China.
    Date: 2017
  4. By: Raimond Maurer; Olivia S. Mitchell; Ralph Rogalla; Tatjana Schimetschek
    Abstract: People who delay claiming Social Security receive higher lifelong benefits upon retirement. We survey individuals on their willingness to delay claiming later, if they could receive a lump sum in lieu of a higher annuity payment. Using a moment-matching approach, we calibrate a lifecycle model tracking observed claiming patterns under current rules and predict optimal claiming outcomes under the lump sum approach. Our model correctly predicts that early claimers under current rules would delay claiming most when offered actuarially fair lump sums, and for lump sums worth 87% as much, claiming ages would still be higher than at present.
    JEL: G11 G22 H55 J26 J32
    Date: 2017–01
  5. By: Friese, Max
    Abstract: The paper investigates the impacts of demographic change on the financial sustainability of a pay-as-you-go social security system in an economy with unemployment caused by trade unions. Using a simple two-period overlapping generations approach, it can be shown that the trade union behavior with respect to wage setting may have favorable effects on per capita contributions, if labor demand is sufficiently inelastic with respect to the wage rate. In contrast, if firm's labor demand reacts more sensitive to changes in the wage rate, the behavior of the trade union may amplify the imposed burden of demographic change on the social security system.
    Keywords: demographic change,PAYG public pensions,trade unions,unemployment,tax burden,output elasticity of capital,wage elasticity of labor demand
    JEL: E24 H55 J11 J51
    Date: 2017
  6. By: Abeliansky, Ana Lucia; Strulik, Holger
    Abstract: We analyze human aging, understood as health deficit accumulation, for a panel of European individuals. For that purpose, we use four waves of the Survey of Health, Aging and Retirement in Europe (SHARE dataset) and construct a health deficit index. Results from log-linear regressions suggest that, on average, elderly European men and women develop about 2.5 percent more health deficits from one birthday to the next. In non-linear regression (akin to the Gompertz-Makeham model), however, we find much greater rates of aging and large differences between men and women as well as between countries. Interestingly, these differences follow a particular regularity (akin to the compensation effect of mortality). They suggest an age at which average health deficits converge for men and women and across countries.
    Keywords: health,aging,health deficit index,Europe,gender differences,compensation law,human life span
    JEL: I10 I19
    Date: 2017
  7. By: Metzger, Christoph
    Abstract: Traditionally, households have been seen as acting as a single unit when it comes to savings. Although this might be correct for some parts of household savings, we question the correctness of the unitary model with respect to non-mandatory retirement savings. Therefore we analyze the intra-household allocation of retirement savings between partners in Germany taking an individualistic approach.First, the decision to save at all is analyzed using a seemingly unrelated bivariate probit model, showing that the possession of retirement saving accounts among spouses is positively correlated, hinting at a "crowding-in" of saving accounts. However, this could be only due to some tax reasons. Thus, we analyze additionally the interaction of savings between spouses using three-stage least squares, allowing for endogeneity between the spouse's savings. These results additionally show a "crowding-in" of total retirement savings amounts between spouses, probably due to some "peer effect". The unitary model of household decision making can thus be rejected with respect to retirement savings.
    Keywords: savings,intra-household allocation,retirement,life-cycle,unitary model,savings,three-stage least squares
    JEL: D14 D91 H31
    Date: 2017
  8. By: Kiranmoy Das (Indian Statistical Institute); Bhuvanesh Pareek (Indian Institute of Management); Sarah Brown (Department of Economics, University of Sheffield); Pulak Ghosh (Department of Decision Sciences and Information Systems, Indian Institute of Management)
    Abstract: We develop a dynamic zero-inflated model to analyse the number of hospital admissions within an aging population, which allows for the considerable number of zero hospital admissions at the individual level and occurrence dependence. In addition, certain health conditions may lead to groups of individuals having similar hospital admission rates. We analyse the US Health and Retirement Survey, which includes selfassessed health (SAH), which can be predictive of hospital admissions. Our modelling framework embeds a dynamic hierarchical matrix stick-breaking process to flexibly characterize this dynamic group structure allowing individuals to belong to different SAH groups at different points in time.
    Keywords: Bayesian models, Dirichlet process, Dynamic hurdle, Lasso, Matrix stickbreaking process, Zero-inflated data.
    JEL: C11 C14 I12
    Date: 2017–01
  9. By: Stewart Nixon (OECD); Hidekatsu Asada (OECD); Vincent Koen
    Abstract: Malaysia has followed a comparatively equitable development path, largely eliminating absolute poverty and greatly reduced ethnic inequality. Income and wealth inequality have gradually declined since the mid-1970s. With the “people economy” at the centre of Malaysia’s ambition to become a high-income country by 2020, the focus is shifting to the challenges of relative poverty and achieving sustainable improvements in individual and societal well-being through inclusive growth. This shift would be aided by reforms in several policy areas where Malaysia may compare favourably within its region but less so relative to OECD countries. This includes reforms to increase access to quality education, provide comprehensive social protection, raise the labour force participation of women and older persons, maintain universal access to quality public healthcare, improve pension system sustainability and adequacy and move towards a tax and transfer system that does more for inclusiveness. Promouvoir une croissance inclusive en Malaisie La Malaisie a suivi une trajectoire de développement comparativement équitable, éliminant largement la pauvreté absolue et réduisant considérablement l’inégalité ethnique. Les inégalités de revenu et de patrimoine ont diminué graduellement depuis le milieu des années 70. « L’ économie du peuple » étant au coeur de l’ambition de la Malaisie de devenir un pays à revenu élevé d’ici 2020, les efforts portent de plus en plus sur le défi de la pauvreté relative et sur la réalisation de progrès durables en matière de bien-être individuel et sociétal grâce à une croissance inclusive. Cette transition serait favorisée par des réformes dans plusieurs domaines où la Malaisie se compare favorablement par rapport aux pays de la région mais moins bien par rapport aux pays de l’OCDE. Cela inclut des réformes pour un meilleur accès à une éducation de qualité, une protection sociale plus complète, une participation plus grande des femmes et des personnes plus âgées au marché du travail, un accès universel à des soins de santé de qualité, ainsi que pour améliorer la viabilité et l’adéquation du système de retraite et aller vers un système de taxation et de transferts plus inclusif.
    Keywords: healthcare, inclusive growth, inequality, labour market, participation, pensions, regional development, social protection, tax, transfer
    JEL: E20 H20 H50 I0 J0 P48
    Date: 2017–01–31
  10. By: Li Tan (Department of Economics at the University of Missouri); Cory Koedel (Department of Economics and Truman School of Public Affairs, at the University of Missouri);
    Abstract: We forecast lifetime earnings of young workers to study the redistributive effects of Social Security, prospectively. Using data from an older generation of workers, we first establish that our forecasting method can recover the actual distribution of Average Indexed Monthly Earnings taken from Social Security Administration records. We then extend the method to forecast Social Security returns for recent cohorts and examine redistributive trends. Our methods and data are accessible, facilitating straightforward replications and extensions. Focusing on redistributions across race and education groups, and on men’s own benefits, we show that Social Security exhibits little progressivity, and little progressivity improvement, for recent cohorts.
    Keywords: Earnings forecast, Bayesian forecasting, Social Security, Social Security progressivity, Social Security projections
    JEL: H55 J18 J32
    Date: 2017–01
  11. By: Edwin J. Elton; Martin J. Gruber; Andre de Souza; Christopher R. Blake
    Abstract: In today’s 401(k) world, individuals must choose how to invest their retirement savings. Yet evidence shows that they often make poor choices on their own. Target date funds (TDFs) were designed as a potential solution. TDFs provide a pre-set mix of stocks and bonds, which shifts away from stocks and toward bonds as individuals age. These funds are often used as the default option for 401(k)s that have automatic enrollment. By 2014, nearly 20 percent of all 401(k) assets were in TDFs, and about half of participants held these funds. Despite the growing prominence of TDFs, little research has focused on the details of their holdings, fees, and performance. This brief, adapted from a recent study, uses data on TDFs and their underlying mutual fund investments that allows for a unique assessment of what is going on “under the hood.” The discussion proceeds as follows. The first section offers background on TDFs. The second section describes the data. The third section looks at what assets TDFs hold. The fourth section examines TDF fees. The fifth section assesses their overall performance and the influence of day-to-day fund decisions. The final section concludes that: 1) TDFs often invest in specialized assets, as well as conventional stocks and bonds; 2) TDF fees are only modestly higher than if an investor assembled a similar portfolio on his own; and 3) TDF investment returns are broadly in line with other mutual funds; and TDF decisions on market timing and fund additions do not help, and may hurt, performance.
    Date: 2017–01
  12. By: SUZUKI Wataru
    Abstract: Fifteen years have passed since Japan introduced the public long-term care insurance (LTCI) system in 2000. From an economics perspective, we review the experiences that Japan accumulated in running the LTCI system, evaluate the positive and negative aspects of the present system, and propose some feasible reforms to improve the system. One of the major reasons for introducing the LTCI system in 2000 was to stimulate a jump in the supply of long-term services in Japan through reforming the system from a heavily regulated and tax-subsidized welfare program into a market-oriented program which permits for-profit private providers to enter the market. Initially, the LTCI system successfully met its goal of expanding care services and alleviating the excessive burden of family care givers. However, a series of "anti-market" fiscal control measures introduced afterward severely damaged the usability of the system. We suspect that the ongoing additional fiscal control measures will revert the LTCI system into the old welfare program, making the initial success of market reform futile. Can Japan seek a way to overcome the negative spiral of fiscal control measures and worsening usability of the system? Full utilization of market mechanisms, as the initial reformers had pursued, could be the correct answer. Specific market-oriented reforms include constructing a full-funded system through a LTC version of the Medical Saving Account (MSA), permitting mixed usage of insurance covered and non-covered services to give service providers more freedom in price control, deregulating the barriers to entry, introducing cash payment for family care givers, and privatizing the insurance management.
    Date: 2016–12
  13. By: Lazuka, Volha (Department of Economic History, Lund University)
    Abstract: Socio-economic inequalities are remarkable in contemporary developed countries and continue to grow. The sources of these phenomena are not understood, and there is no agreement as to when in an individual’s life they originate, from early childhood to adulthood. The literature showing that health in infancy may be an important factor in later-life health and income trajectories is expanding, but empirical evidence is still scarce. This paper is the first to link differences in individual access to better health care during infancy to income and health outcomes in old age. Due to the public health care reform that became one of the first elements of the Swedish welfare state, between 1890 and 1917, all rural areas established local health districts that implemented preventive measures with regard to the spread of infectious diseases. Using administrative longitudinal population data and exploiting exogenous variation in the timing of the implementation of the reform across parishes, we examine whether individuals treated in their infancy have an advantage in old age. Our findings indicate that treatment in the public health care system in infancy leads to a significant reduction in mortality, with the largest effects on cardiovascular diseases and to an increase in individual permanent incomes. The effects are universal across different subpopulations, with somewhat stronger responses among individuals from poor socio-economic backgrounds.
    Keywords: Sweden; Life-course; Reform; Early-life; Health District; Mortality; Income
    JEL: I14 I15 I38 J26
    Date: 2017–01–27
  14. By: Gemmo, Irina; Götz, Martin
    Abstract: Households buy life insurance as part of their liquidity management. The option to surrender such a policy can serve as a buffer when a household faces a liquidity need. In this study, we investigate empirically which individual and household specific sociodemographic factors influence the surrender behavior of life insurance policyholders. Based on the Socio-Economic Panel (SOEP), an ongoing wide-ranging representative longitudinal study of around 11,000 private households in Germany, we construct a proxy to identify life insurance surrender in the data. We use this proxy to conduct fixed effect regressions and support the results with survival analyses. We find that life events that possibly impose a liquidity shock to the household, such as birth of a child and divorce increase the likelihood to surrender an existing life insurance policy for an average household in the panel. The acquisition of a dwelling and unemployment are further aspects that can foster life insurance surrender. Our results are robust with respect to different models and hold conditioning on region specific trends; they vary however for different age groups. Our analyses contribute to the existing literature supporting the emergency fund hypothesis. The findings obtained in this study can help life insurers and regulators to detect and understand industry specific challenges of the demographic change.
    Keywords: Demographic Change,Life Insurance,Surrender
    Date: 2016
  15. By: Vincent Geloso; Vadim Kufenko; Klaus Prettner
    Abstract: We examine the role of demographic change for regional convergence in living standards in Canada. Due to economies of scale within a family, decreasing household size has an impact on convergence in living standards, while per capita income convergence remains unaffected. We find that, by relying on per capita income, the dispersion of living standards between Canadian regions is overestimated prior to the 1990s and underestimated thereafter. As a consequence, relying on income per capita results in overestimating the speed of convergence in living standards.
    Keywords: Regional convergence; living standards; demographic change; household size; Canadian Economic History
    JEL: J1 O4
    Date: 2016–10–05

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