nep-age New Economics Papers
on Economics of Ageing
Issue of 2017‒02‒19
fourteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. The Effects of Increasing the Early Retirement Age on Employment of Older Workers By Weber, Andrea; Manoli, Dayanand
  2. Effectiveness of Early Retirement Disincentives: Individual Welfare, Distributional and Fiscal Implications By Timm Bönke; Daniel Kemptner; Holger Lüthen
  3. Early retirement eligibility and employment behavior: evidence from a cohort based pension reform By Welteke, Clara; Geyer, Johannes; Haan, Peter
  4. Why mandate young borrowers to contribute to their retirement accounts? By Andersen, Torben M.; Bhattacharya, Joydeep
  5. How Does Internal Migration Affect the Emotional Health of Elderly Parents Left-Behind? By Scheffel, Juliane; Zhang, Yiwei
  6. Contracting frictions and inefficient layoffs of older workers By Kerndler, Martin
  7. Pension reform with entrepreneurial choice By Hofbauer, Florian; Fehr, Hans
  8. The Effect of Financial Incentives on Retirement Decision Making under Different Schemes of Information Provision: Experimental Evidence By Giesecke, Matthias Nicolas; Yang, Guanzhong
  9. Effects of Informal Elderly Care on Labor Supply: Exploitation of Government Intervention on the Supply Side of Elderly Care Market By Nishimura, Y.; Oikawa, M.;
  10. A Life Course Perspective on the Income-to-Health Relationship: Macro-Empirical Evidence from two Centuries By Nagel, Korbinian
  11. Disentangling the Gender Gap in Longevity By Trimborn, Timo; Schünemann, Johannes; Strulik, Holger
  12. Randomizing information on a targeted wage support program for older workers: A field experiment By Stephan, Gesine; van den Berg, Gerard; Homrighausen, Pia
  13. Options to Improve the Financial Condition of the Pension Benefit Guaranty Corporation’s Multiemployer Program By Congressional Budget Office
  14. CBO’s 2016 Long-Term Projections for Social Security: Additional Information By Congressional Budget Office

  1. By: Weber, Andrea; Manoli, Dayanand
    Abstract: This paper studies the effects of a series of reforms of the public pension system in Austria in 2000 and 2004. An important element of the reforms was the increase in the early retirement age (ERA), which was phased in linearly over several cohorts. The empirical analysis, based on detailed administrative data, distinguishes between pension entries, which are mechanically affected by the ERA, and job exits, which reflect individual labor supply decisions. The paper presents four main findings. (1) The cohort-wise increase in the early retirement age led to pronounced shifts in the spike of pension entries at the cohort specific early retirement ages. (2) Job exits shifted in an almost parallel fashion, which leaves little room for additional substitution with other social insurance programs. (3) An important mechanism leading to increased employment is that individuals keep their pre-retirement jobs longer. (4) To quantify the effects of the reform on average retirement ages, we use a regression kink design that exploits the increasing slope in the ERA by birth cohorts and relates it to a corresponding linear increase in the labor force exit and pension claiming ages. We estimate that a one year increase in the ERA leads to a 0.4 year increase in the exit age and a 0.5 year increase in the claiming age.
    JEL: H55 J21 J26
    Date: 2016
  2. By: Timm Bönke; Daniel Kemptner; Holger Lüthen
    Abstract: In aging societies, information on how to reform pension systems is essential to policy makers. This study scrutinizes effects of early retirement disincentives on retirement behavior, individual welfare, pensions and public budget. We employ administrative pension data and a detailed model of the German tax and social security system to estimate a structural dynamic retirement model. We find that retirement behavior is strongly influenced by the level of disincentives. Further, disincentives come at the cost of increasing inequality and individual welfare losses. Still, net public returns are about three times as high as monetarized individual welfare losses. Our estimates also suggest that similar levels of net public returns, if achieved by indiscriminating pension cuts, are associated with individual welfare losses that are more than twice as high.
    Keywords: dynamic discrete choice, retirement, tax and pension system, pension reform
    JEL: C61 H55 J26
    Date: 2017
  3. By: Welteke, Clara; Geyer, Johannes; Haan, Peter
    Abstract: This paper analyzes the employment effects of a major pension reform in Germany using cohort discontinuities. In particular, we focus on the abolition of an early retirement option for women. Up until cohort 1951 women could draw old-age pensions starting with age 60. Women born after 1951 no longer had this opportunity. The eligibility age for early retirement was increased to 63. We exploit this reform in a regression discontinuity framework to study the effects on employment and program substitution. Our preliminary results suggest that the increase in the eligibility age for early retirement increased employment rates of older women. Remarkably, we do not find any significant spillover effects into alternative paths to exit the labor force. On the contrary, we find negative effects on reduced earnings capacity pension participation rates, and small insignificant effects on the unemployment rate of 60 year-old women. Furthermore, we find negative effects on social security program participation of women in their late 50s.
    JEL: J14 J26 J22
    Date: 2016
  4. By: Andersen, Torben M.; Bhattacharya, Joydeep
    Abstract: Many countries, in an effort to address the problem that too many retirees have too little saved up, impose mandatory contributions into retirement accounts, that too, in an age-independent manner. This is puzzling because such funded pension schemes effectively mandate the young, who wish to borrow, to save for retirement. Further, if agents are present-biased, they disagree with the intent of such schemes and attempt to undo them by reducing their own saving or even borrowing against retirement wealth. We establish a welfare case for mandating the middle-aged and the young to contribute to their retirement accounts, even with age-independent contribution rates. We find, somewhat counter-intuitively, that pitted against laissez faire, mandatory pensions succeed by incentivizing the young to borrow more and the middle-aged to save nothing on their own, in effect, rendering the latter's present-biasedness inconsequential.
    Date: 2016–09–26
  5. By: Scheffel, Juliane; Zhang, Yiwei
    Abstract: The ageing population resulting from the one-child policy and the massive internal migration in China pose major challenges to elderly care in rural areas where elderly support is based on a traditional inter-generational family support mechanism. We use data from the first two waves of the China Health and Retirement Longitudinal Study to examine how migration of an adult child affects the emotional health of elderly parents left-behind. We identify the effects by applying fixed-effects and instrumental variable regressions which both identify the effect based on different sources of variation. We find that migration significantly reduces overall life-satisfaction by 8.8 percent and leads to an 8.7 (12 percent) percent higher probability of suffering from depressive symptoms (loneliness). Emotional health outcomes drastically deteriorate with reduced emotional support. In contrast to other developing countries, remittances cannot buffer the negative effects of emotional health. As emotional health is a key determinant of the overall health status, our findings have significant impacts for rural areas.
    JEL: I15 J14 O15
    Date: 2016
  6. By: Kerndler, Martin
    Abstract: In light of the low re-employment opportunities that workers above age 55 face in continental Europe, inefficient separations of older workers may generate a significant welfare loss for the economy. The economic literature therefore suggests eliminating any governmental policies that distort firing and retirement decisions. In this paper, I argue that even without any governmental distortions, there may still be inefficient destruction of older workers' jobs due to market-inherent contracting frictions that may arise due to asymmetric information. I demonstrate this in a two period model of the labor market where risk-averse workers choose their preferred wage contract from a restricted subset of the contract space. I find that an equilibrium with bilaterally inefficient layoffs of older workers emerges under certain conditions. These conditions are satisfied more easily if high outside options, such as early retirement benefits, become available for the elderly. This prediction is consistent with empirical studies postulating that generous social security systems increase the incidence of being 'pushed' into early retirement by the employer. On the other hand, training programs, wage subsidies, and employment protection are found to decrease the incidence of bilaterally inefficient layoffs.
    JEL: J14 J41 J63
    Date: 2016
  7. By: Hofbauer, Florian; Fehr, Hans
    Abstract: This paper presents an overlapping generations model with occupational choice that allows for entrepreneurial exit, entry and investment decisions in the presence of idiosyncratic productivity risk and borrowing constraints. The model is applied to analyze the consequences of three pension reforms in Germany: A move towards a comprehensive paygo system, the introduction of flat benefits, and a funded pension system. Our simulation results indicate that pension systems directly affect occupational choice when households have a choice to avoid the implied tax burden. In addition, pension systems influence indirectly through changes in financial constraints and factor prices. Direct and indirect effects may neutralize each other and we are able to separate them quantitatively. We also document that the pension system might have opposite effects on different types of entrepreneurs. Quite surprisingly, some pension reforms increase labor input in the corporate sector and entrepreneurial activities at the same time. Finally, pension reforms have a strong impact on wealth inequality in our set up. Consequently, occupational choice and the pension system are strongly interrelated and more research is needed to understand this connection.
    JEL: C68 H55 J26
    Date: 2016
  8. By: Giesecke, Matthias Nicolas; Yang, Guanzhong
    Abstract: We elicit preferences for retirement timing under two schemes of financial incentives and across information treatments. Individuals are repeatedly asked to decide whether to retire immediately or to continue working in the setting of a laboratory experiment. We alternate two treatment parameters: First, we compare two schemes of financial incentives where the expected present value of pension wealth is either a declining or a constant function of the retirement age. Second, we change the amount of information regarding the expected pension wealth. In line with the common finding of the quasi-experimental literature, we find a considerable delay of retirement once benefit reductions make early retirement less attractive. The striking result is, however, that the amount of available information tremendously affects retirement decisions. Poorly informed individuals tend to make retirement decisions on the grounds of perceived reference points. Such decision criteria, e.g. social norms, may reduce the effectiveness of policies that aim at raising the retirement age.
    JEL: C91 H55 J26
    Date: 2016
  9. By: Nishimura, Y.; Oikawa, M.;
    Abstract: This study analyzes the effect of informal elderly care on caregiver labor supply. Since the Japanese government intervenes on the supply side of the elderly care market and market entry of nursing home suppliers is regulated, this analysis utilizes exogenous variations from the supply side of government intervention on the elderly care market. Owing to such intervention and regulation, public nursing home capacity exogenously changes for caregivers, which we use to estimate the effect of informal elderly care on labor supply. To the best of our knowledge, no study has thus far utilized exogenous institutional variation as an instrument to estimate this effect. Analysis results reveal that the effect of informal elderly care on female labor force participation is negative. By contrast, male labor force participation is not affected by such care, since, in Japan, females spend more time on informal care than males. The increase in nursing home capacity is thus effective for decreasing the female burden of informal care.
    Keywords: informal care; labor supply; government intervention; JSTAR;
    JEL: J14 J18 J22 I18
    Date: 2017–02
  10. By: Nagel, Korbinian
    Abstract: The epidemiological literature discusses two contrary hypotheses that can represent the income-to-health relationship from a life course perspective: the ``cumulative advantage'' and the ``age as leveller'' hypothesis. The aim of this study is to transfer the investigation of both hypotheses to a macro level with long time horizon. It asks whether increases in per capita income improves population health and whether the improvements differ across population age groups. Using an unbalanced panel data set with 20 countries and with up to 211 years, the analysis relies on the Westerlund (2007) error correction methodology to detect long-run causality and on the Pesaran (2006) framework to quantify the effect magnitude. A significant effect of per capita income on survivability is only found for middle age groups. The analysis detects no significant effect on survivability of the very young and of old ages. These findings provide evidence for both hypotheses during several stages of life: while the ``cumulative advantage'' theory serves for describing the transition from young to middle ages, the transition from middle to old ages corresponds to the ``age as leveller'' mechanism.
    JEL: I15 J11 C22
    Date: 2016
  11. By: Trimborn, Timo; Schünemann, Johannes; Strulik, Holger
    Abstract: In developed countries, women are expected to live about 4-5 years longer than men. In this paper we develop a novel approach in order to gauge to what extent gender health differences in longevity can be attributed to gender-specific preferences and health behavior. For that purpose we set up a physiologically founded model of health deficit accumulation and calibrate it using recent insights from gerontology. From fitting life cycle health expenditure and life expectancy we obtain estimates of the gender-specific preference parameters. We then perform the counterfactual experiment of endowing women with the preferences of men. In our benchmark scenario this reduces the gender gap in life expectancy from 4.6 to 2.1 years, suggesting that 54 percent of women's superior longevity can be attributed to preferences and health behavior. When we add gender-specific preferences for unhealthy consumption, the model can motivate up to 91 percent of the gender gap. Our theory explains also why the gender gap narrows with rising income.
    JEL: D91 J17 J26
    Date: 2016
  12. By: Stephan, Gesine; van den Berg, Gerard; Homrighausen, Pia
    Abstract: To address the problem of high reservation wages among older unemployed individuals, a German targeted wage support program aimed at providing incentives to accept lower paid wage offers. We sent out information brochures on this program to randomly selected eligible men. The treatment significantly increased awareness of the program by 20 percentage points. Combining survey and administrative data, we conduct reduced form estimates of the effects of brochure receipt on recipients and estimate local average treatment effects of additional program knowledge. The information treatment significantly increased take-up rates of the program. For unemployed men aged 50--54, we find no positive effects on employment outcomes, thus the additional take-up seems to have been pure windfall. For unemployed men aged 55--59, however, we find some positive effects of additional information on labor market results. The labor market status of unemployed men above age 60 is not affected by brochure receipt.
    JEL: J64 J65 J68
    Date: 2016
  13. By: Congressional Budget Office
    Abstract: In its multiemployer program, the government-owned Pension Benefit Guaranty Corporation (PBGC) insures pension plans that groups of employers provide to more than 10 million participants. Plans that cover about 1 million participants are likely to file insurance claims with the multiemployer program. As a result, the program is projected to become insolvent in 2025. In this report, CBO projects the claims on PBGC and the losses to beneficiaries from multiemployer pension plans and analyzes options to improve PBGC’s financial condition.
    JEL: G22 G23 G28 J32
    Date: 2016–08–02
  14. By: Congressional Budget Office
    Abstract: This report presents additional information about CBO’s long-term projections for Social Security’s revenues and outlays and its analysis of benefits and payroll taxes for recipients grouped by birth year and lifetime earnings. Under current law, CBO projects, Social Security’s trust funds, considered together, will be exhausted in 2029, and shortfalls will be larger than CBO projected in last year’s edition of this report.
    JEL: H55 H60 H68 J26
    Date: 2016–12–21

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