nep-age New Economics Papers
on Economics of Ageing
Issue of 2017‒03‒12
thirteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Endogenous aging: How statutory retirement age drives human and social capital By Ann Barbara Bauer; Reiner Eichenberger
  2. Towards an equitable and sustainable points system. A proposal for pension reform in Belgium By Erik Schokkaert; Pierre Devolder; Jean Hindriks; Frank Vandenbroucke
  3. Who is Eager to Save for Retirement – the Cross-Country Evidence By Anna Kaliciak; Radoslaw Kurach; Walid Merouani
  4. Demography, Capital Flows and Asset Allocation over the Life-cycle By Mann, Katja; Davenport, Margaret
  5. Innovation in an Aging Population By Legge, Stefan
  6. Pension generosity and mental wellbeing: The effect of eradicating poverty at old-age By Danzer, Alexander M.; Danzer, Natalia
  7. You Better Get Married! Marital Status and Intra-Generational Redistribution of Social Security By Groneck, Max; Schön, Matthias; Wallenius, Johanna
  8. Longevity and technological change By Gehringer, Agnieszka; Prettner, Klaus
  9. Do Households Have A Good Sense of Their Retirement Preparedness? By Alicia H. Munnell; Wenliang Hou; Geoffrey T. Sanzenbacher
  10. Bismarck in the bedroom? Pension reform and fertility: Evidence 1870-2010 By Jäger, Philipp
  11. Sex differences in genetic associations with longevity in Han Chinese: sex-stratified genome-wide association study and polygenic risk score analysis By Yi Zeng; Huashuai Chen; Xiaomin Liu; Rui Ye; Enjun Xie; Zhihua Chen; Jiehua Lu; Jianxin Li; Yaohua Tian; Ting Ni; Lars Bolund; Kenneth C. Land; Anatoliy Yashin; Angela M. O'Rand; Liang Sun; Ze Yang; Wei Tao; Anastasia Gurinovic; Claudio Franceschi; Jichun Xie; Jun Gu; Yong Hou; Xiao Liu; Xun Xu; Jean-Marie Robine; Joris Deelen; Paola Sebastiani; P. Eline Slagboom; Thomas T. Perls; Elizabeth R. Hauser; William Gottschalk; Qihua Tan; Kaare Christensen; Mike Lutz; Xiao-Li Tian; Huanming Yang; Junxia Min; Chao Nie; James W. Vaupel
  12. Genetic Ability, Wealth, and Financial Decision-Making By Barth, Daniel; Papageorge, Nicholas W.; Thom, Kevin
  13. Who Receives Medicaid in Old Age? Rules and Reality By Borella, Margherita; De Nardi, Mariacristina; French, Eric Baird

  1. By: Ann Barbara Bauer; Reiner Eichenberger
    Abstract: The return on investments in human and social capital increases in their economic lifetime. Thus, personal, parental, and societal investments in the capacities of individuals take place when these persons are young. Interestingly, the complementary thesis has been widely neglected; investments in the productive capacities of older workers—by the employees themselves, their employers, and their co-workers—should be expected to depend on the time left before retirement. In this paper, we analyze how an increase in the statutory retirement age affects investments in the productivity of older workers. We compare pre- and post-pension reform cohorts and estimate the treatment effect on training participation, job involvement, support from colleagues, and leisure activities. Using a Swiss natural experiment, we find strong support for higher human and social capital investments and the reallocation of time from leisure to work.
    Keywords: Pension reform; natural experiment; old-age productivity; human capital; social capital; allocation of time
    JEL: H55 J14 J24 J26
    Date: 2017–03
  2. By: Erik Schokkaert; Pierre Devolder; Jean Hindriks; Frank Vandenbroucke
    Abstract: We describe the points system that has been proposed by the Belgian Commission for Pension Reform 2020-2040. Intragenerational equity can be realised in a flexible and transparent way through the allocation of points within a cohort. The intergenerational distribution is determined by fixing the value of a point for the newly retired and a sustainability parameter for the actual retirees. The value of the point links future pensions to the future average living standard of the population in employment. This implies that credible promises can be made to the younger contributing generations. To keep the system economically sustainable, we propose an automatic adjustment mechanism, in which a key role is played by the career length. This adjustment mechanism implements the Musgrave rule by stating that the ratio of pensions over labour earnings net of pension contributions should remain constant. This induces a balanced distribution of the burden of demographic and economic shocks over the different cohorts and can be seen as a transparent mechanism of intergenerational risk sharing.
    Date: 2017–02
  3. By: Anna Kaliciak; Radoslaw Kurach; Walid Merouani
    Abstract: In this study we challenge the problem of inadequate voluntary pension saving looking for its behavioural determinants. By exploring the Luxembourg Wealth Study dataset for four countries (Greece, Italy, United Kingdom and United States) we argue that financial risk aversion and intertemporal choices significantly affect the individuals? propensity to save for retirement. Moreover, we verify the links between these two behavioural factors and sociodemographic characteristics of the investigated societies which should have practical implications for regulatory framework.
    Keywords: supplementary pension savings, risk aversion, intertemporal choices, sociodemographic factors, retirement, retired
    JEL: C25 H55 J32 C25 H55 J32
    Date: 2016–12
  4. By: Mann, Katja; Davenport, Margaret
    Abstract: This paper studies the effect of population aging on portfolio choice, asset prices and international asset trades. In a multi-period OLG model, we analyze how an increase in longevity or a decrease in fertility in a country affects the demand for safe and risky assets. In a closed economy, given a fixed supply, the riskfree rate falls and the risk premium rises, because retirees prefer to hold a larger share of safe assets in their portfolio than working-age households. In a financially integrated world, countries with more extreme demographic trends export risky assets and import safe assets. We quantify these effects for the United States.
    JEL: G11 G15 J11
    Date: 2016
  5. By: Legge, Stefan
    Abstract: What is the effect of population aging on the rate of innovation? In this paper, I examine a new channel and argue that demographic shifts affect the demand for innovative goods. In an overlapping-generations model, it is assumed that individuals must spend time on learning how to use new technology. This creates age-dependent demand structures because older individuals have limited time windows for investments to pay off. The result is that in an aging population a larger fraction of the population does not invest in acquiring new skills. The amount of R&D is reduced as demand for innovative goods falls. Using data from all OECD countries for the period 1978-2010, I find support for these theoretical predictions. Those countries that faced the largest demographic shifts experienced the sharpest growth reduction in patent applications.
    JEL: J11 J31 O41
    Date: 2016
  6. By: Danzer, Alexander M.; Danzer, Natalia
    Abstract: This paper exploits a unique shift in pension generosity to study the effect of eradicating old-age poverty on mental health. Based on a difference-in-differences set-up we show with two independent data sets from Ukraine that greater pension generosity improves subjective well-being and reduces the incidence of diagnosed depressions. Neither more available leisure time, nor higher consumption levels, nor enhanced physical health can explain the empirical mental health improvement. Instead, we suggest that the main channel for the mental health improvement is the reduced reliance on potentially stressful modes of income generation at old age, such as family household transfers, indebtedness and unpaid bills.
    JEL: H55 I10 I38
    Date: 2016
  7. By: Groneck, Max; Schön, Matthias; Wallenius, Johanna
    Abstract: In this paper, we study the intra-generational redistribution of the U.S. social security system in a dynamic, structural life cycle model of couples with uncertain marital status and survival risk. We focus particularly on auxiliary benefits, namely spousal and survivor benefits, where eligibility is directly linked to marital status. We show that marital stability increases strongly with income, leading to redistribution from the bottom to the top. We evaluate the impact of auxiliary social security benefits on both the poverty rate of the elderly and on household labor supply.
    JEL: J26 E62 D91
    Date: 2016
  8. By: Gehringer, Agnieszka; Prettner, Klaus
    Abstract: We analyze the impact of increasing longevity on technological progress within a simple R&D-based growth framework with overlapping generations and test the model's implication on OECD data from 1960 to 2011. The central hypothesis derived in the theoretical part is that - by raising the incentives of households to invest in physical capital and in R&D - decreasing mortality positively impacts upon technological progress and productivity growth. The empirical results clearly confirm the theoretical prediction. This implies that the demographic changes we observed in industrialized economies over the last decades were not detrimental to economic prosperity, at least as far as technological progress and productivity growth are concerned.
    JEL: J11 O11 O41
    Date: 2016
  9. By: Alicia H. Munnell; Wenliang Hou; Geoffrey T. Sanzenbacher
    Abstract: The National Retirement Risk Index (NRRI) measures the percentage of working-age households who are at risk of being financially unprepared for retirement. The calculations show that even if households work to age 65 and annuitize all their financial assets, including the receipts from reverse mortgages on their homes, 52 percent will be at risk of being unable to maintain their standard of living in retirement. This brief examines whether households have a good sense of their own retirement preparedness — do their retirement expectations match the reality they face? Do people at risk know they are at risk? Have perceptions changed before and after the financial crisis? The discussion proceeds as follows. The first section summarizes the NRRI. The second section compares households’ self-assessed preparedness – at an aggregate level – to the objective measure provided by the NRRI in 2004 and 2013. The third section moves from the aggregate to individual households to determine the share of households with and without accurate perceptions. The fourth section identifies the characteristics of the households with inaccurate perceptions – those that are either “too worried” or “not worried enough.” The final section concludes that, on a household-by-household basis, almost 60 percent of self-assessments agree with the NRRI predictions and that the 40 percent of households that get it wrong do so for predictable reasons. The question remains, however, whether unprepared households that recognize their situation are any more likely to take corrective action than those that do not.
    Date: 2017–02
  10. By: Jäger, Philipp
    Abstract: Rising public pension generosity has frequently been cited as one reason for the (persistently) declining fertility rates in many advanced economies. Despite the theoretical appeal, empirical evidence on the pension-fertility nexus is limited. To fill this gap, I study country-level fertility trends before and after 23 pension reforms using a long-run panel dataset starting in 1870. In addition to the raw fertility rate (birth per women aged 15-49), I examine the residuals of a fertility regression, which capture variations in the fertility rate that cannot be explained by alternative theories of the historical fertility decline. Contrasting pre- and post-reform trends of the raw fertility rate as well as the fertility regression residual across countries, I do not find robust evidence that pension reforms, on average, affect fertility in the way most theoretical models predict. On the individual country level, however, some reforms are indeed associated with a significant structural break in fertility trends that is in line with the old-age security hypothesis. Varying social ties might provide an explanation for the different country-specific fertility reactions to pension reforms. @Großzügige öffentliche Rentenversicherungssysteme werden häufig für rückläufige Fertilitätsraten verantwortlich gemacht, da sie möglicherweise Kinder als eine Form der Altersabsicherung verdrängen. Trotz der Plausibilität und der Relevanz dieses Arguments, existiert kaum empirische Forschung zum Thema. Um diese Lücke zu füllen, untersuche ich wie sich die Fertilitätsrate vor- und nach einer Reihe von Rentenreformen, angefangen bei der Einführung der öffentlichen Rentenversicherung im 19. Jahrhundert, entwickelt hat. Im Durchschnitt über alle Länder hinweg finde ich keine Evidenz dafür, dass die Einführung oder Erweiterung der öffentlichen Rentenversicherungssysteme die Fertilitätsrate nachhaltig reduziert hat. Die länderspezifischen Ergebnisse sind allerdings sehr heterogen. In einigen Ländern scheint die Einführung der Rentenversicherung sogar mit einer Steigerung der Fertilität einhergegangen zu sein (z.B. in Italien), während in anderen Ländern das Gegenteil zu beobachten ist (z.B. in Frankreich). Kulturelle Unterschiede in Bezug auf die Eltern-Kind-Bindung bilden einen möglichen Erklärungsansatz für die Heterogenität der Ergebnisse.
    Keywords: Old-age security,fertility,pension reform
    JEL: H55 J13
    Date: 2017
  11. By: Yi Zeng (Max Planck Institute for Demographic Research, Rostock, Germany); Huashuai Chen; Xiaomin Liu; Rui Ye; Enjun Xie; Zhihua Chen; Jiehua Lu; Jianxin Li; Yaohua Tian; Ting Ni; Lars Bolund; Kenneth C. Land; Anatoliy Yashin; Angela M. O'Rand; Liang Sun; Ze Yang; Wei Tao; Anastasia Gurinovic; Claudio Franceschi; Jichun Xie; Jun Gu; Yong Hou; Xiao Liu; Xun Xu; Jean-Marie Robine; Joris Deelen; Paola Sebastiani; P. Eline Slagboom; Thomas T. Perls; Elizabeth R. Hauser; William Gottschalk; Qihua Tan (Max Planck Institute for Demographic Research, Rostock, Germany); Kaare Christensen; Mike Lutz; Xiao-Li Tian; Huanming Yang; Junxia Min; Chao Nie; James W. Vaupel (Max Planck Institute for Demographic Research, Rostock, Germany)
    Abstract: Based on sex-stratified genome-wide association study (GWAS) of Han Chinese, 2,178 centenarians and 2,299 middle-aged controls, we identified 11 male- and 12 female-specific independent loci that are significantly associated with longevity ( P <10 -5 ), replicated in independent North and South regions in one sex, but are not significant ( P >0.05) in the other sex. We found that the association of rs60210535 at LINC00871 with longevity replicated well between Chinese females ( P =4.6x10 -5 ) and U.S. females ( P =9.0x10 -5 ), but was not significant in both Chinese and U.S. males ( P >0.05). We discovered that 11 male-specific and 34 female-specific pathways are significantly associated with longevity ( P <0.005, false discovery rate ( FDR ) <0.05). Male-specific pathways are enriched for inflammation and immunity genes, but female-specific pathways include tryptophan metabolic and PGC-1α pathways that converge to mitochondrial biogenesis. Polygenic risk score (PRS) analyses demonstrated that 11/12 male/female top loci ( P <10 -5 in one sex, P >0.05 in other sex), 44/58 male/female strong loci (10 -5 ≤ P <10 -4 in one sex, P >0.4 or P >0.35 in other sex), and 191/311 male/female moderate loci (10 -4 ≤ P <10 -3 in one sex, P >0.75 or P >0.7 in other sex) are jointly and highly associated with longevity exceeding a significance level P< 10 -8 in one sex, but not jointly associated with longevity in the other sex ( P >0.05). Our integrated PRS and novel sex-specific genetic relative benefit/loss ratio analyses indicate that females’ genetic constitution favors longevity more than males’. Further interdisciplinary collaborative efforts are warranted, such as replications from other populations, international meta-analyses with much larger sample size, lab tests, and in silico functional validations. Significance Statement: On average, women live significantly longer lives than men but they have lower physical performance and more adverse health outcomes at older ages compared to men: patterns that signify the male-female health-survival paradox (1). Research on sex differences in health and mortality has proliferated, but has yet to achieve a good understanding of the effects of genetic variants on the sex gap in longevity and health. Based on sex-stratified genome-wide association analysis (GWAS) of Han Chinese including centenarians with a sample size 2.7 times as large as other published largest single GWAS on longevity involving centenarians (2), the present study aims to contribute a better understanding of sex differences in genetic associations with longevity.
    JEL: J1 Z0
    Date: 2017–02
  12. By: Barth, Daniel (University of Southern California); Papageorge, Nicholas W. (Johns Hopkins University); Thom, Kevin (New York University)
    Abstract: Recent advances in behavioral genetics have enabled the discovery of genetic scores linked to a variety of economic outcomes, including education. We build on this progress to demonstrate that the same genetic variants that predict educational attainment independently predict household wealth in the Health and Retirement Study (HRS). This relationship is partly explained by higher earnings, but a substantial portion of this association cannot be explained mechanically by income flows or bequests. This leads us to explore the role of beliefs, financial literacy and portfolio decisions in explaining this genetic gradient in wealth.We show that individuals with lower genetic scores are more prone to reporting "extreme beliefs" (e.g., reporting that there is a 100% chance of a stock market decline in the near future) and they invest their savings accordingly (e.g., avoiding the stock market). Our findings suggest that genetic factors that promote human capital accumulation contribute to wealth disparities not only through education and higher earnings, but also through their impact on the ability to process information and make good financial decisions. The association between genetic ability and wealth is substantially lower among households receiving a defined benefit pension. Policies that transfer greater responsibility to individuals to manage their wealth might therefore exacerbate the consequences of labor market inequality.
    Keywords: wealth, inequality, portfolio decisions, beliefs, education and genetics
    JEL: D14 D31 G11 H55 I24 J24
    Date: 2017–02
  13. By: Borella, Margherita; De Nardi, Mariacristina; French, Eric Baird
    Abstract: Medicaid is a government program that provides health insurance to the old who are sick and have little assets and income compared to their medical needs. Thus, it explicitly tests for income, assets, and health or medical needs to determine eligibility. We ask how these rules map into the reality of Medicaid recipiency and what observable characteristics are important to determine who ends up on Medicaid. The data show that both singles and couples with high retirement income can end up on Medicaid at very advanced ages. We find that, conditioning on a large number of observable characteristics, including those that directly relate to Medicaid eligibility criteria, single women are more likely to end up on Medicaid. So are non-whites, but, surprisingly, their higher recipiency is concentrated above the lower income percentiles. We also find that low-income people with a high school diploma or higher are much less likely to end up on Medicaid than their more educated counterparts. All of these effects are large and depend on retirement income in a very non-linear way.
    Keywords: Medicaid; Old Age; Recipiency
    Date: 2017–02

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