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on Economics of Ageing |
| By: | Maurer, Raimond; Mitchell, Olivia S. |
| Abstract: | Given rising life expectations around the world, it seems that old-age pension benefits will need to be cut and pension contributions boosted in many nations. Yet our research on old-age system reforms does not require raising mandatory retirement ages or contributions. Instead, we offer ways to enhance incentives for people to work longer and delay retirement. There are good reasons to incentivize older people to work longer and delay retirement. These include rising longevity, the shrinking workforce, and emerging evidence indicating that working longer can be associated with better mental and physical health for many people. Nevertheless, old age Social Security systems in many nations find that people tend to claim benefits early, usually leading to reduced benefits. In the United States, for instance, a majority of Americans claim their Social Security benefits at the earlier feasible age, namely 62, even though their monthly benefits would be 75% higher if they waited until age 70. To test whether this is the result of people underweighting the economic value of higher lifetime benefit streams, we examine whether people would claim later and work longer if they were rewarded with a lump sum instead of a higher lifetime benefit stream for deferring. Two arguments have been offered to explain early claiming. One is that workers claim early to avoid potentially 'forfeiting' their deferred benefits should they die too soon (Brown et al., 2016). A second explanation is that many people underweight the economic value of lifetime benefit streams (Brown et al., 2017). This latter rationale motivates the present study. |
| Keywords: | pensions,German retirement system,social security claiming |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safepl:57&r=age |
| By: | Dongwoo Kim (University of Missouri); Cory Koedel (University of Missouri); Shawn Ni (University of Missouri); Michael Podgursky (University of Missouri); Weiwei Wu (University of Missouri) |
| Abstract: | Public school teachers retire much earlier than comparable professionals. Pension rule changes affecting new teachers can be used to close this gap in the long run, but any effects will not be observed for decades and the implications for workforce quality are unclear. This paper considers targeted incentive policies designed to retain experienced high-need teachers, of retirement age, as instruments to extend current teachers’ careers. We use structural estimates from a dynamic retirement model to simulate the workforce effects of targeted late-career salary bonuses and deferred retirement (DROP) plans using administrative data from Missouri. The simulations suggest that such programs can be cost-effective, partly because long-term pension savings offset a portion of up front program costs. More generally, we demonstrate the utility of using structural retirement models to analyze fiscal and workforce effects of changes to public sector pension plans, since the effects of pension reforms cumulate over many years. |
| Keywords: | public pensions, retirement, worker retention, teacher retention |
| JEL: | J26 I28 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:umc:wpaper:1708&r=age |
| By: | Dan A. Black; Yu-Chieh Hsu; Seth G. Sanders; Lynne Steuerle Schofield; Lowell J. Taylor |
| Abstract: | We examine inferences about old age mortality that arise when researchers use survey data matched to death records. We show that even small rates of failure to match respondents can lead to substantial bias in the measurement of mortality rates at older ages. This type of measurement error is consequential for three strands in the demographic literature: (1) the deceleration in mortality rates at old ages, (2) the black-white mortality crossover, and (3) the relatively low rate of old age mortality among Hispanics—often called the “Hispanic paradox.” Using the National Longitudinal Survey of Older Men (NLS-OM) matched to death records in both the U.S. Vital Statistics system and the Social Security Death Index, we demonstrate that even small rates of missing mortality matching plausibly lead to an appearance of mortality deceleration when none exists, and can generate a spurious black-white mortality crossover. We confirm these findings using data from the National Health Interview Survey (NHIS) matched to the U.S. Vital Statistics system, a dataset known as the “gold standard” (Cowper et al., 2002) for estimating age-specific mortality. Moreover, with these data we show that the Hispanic paradox is also plausibly explained by a similar undercount. |
| JEL: | J1 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23574&r=age |
| By: | Fornero, Elsa; Lo Prete, Anna (University of Turin) |
| Abstract: | Economic reforms affecting people’s lives are generally quite unpopular and may imply an electoral cost. This can derive, among other things, from lack of understanding of the basic elements of reforms. Our paper shows that the electoral cost of a pension reform is significantly lower in countries where the level of financial literacy is higher. The evidence from data on legislative elections held between 1990 and 2010 in 21 advanced countries is robust when we control for macro-economic conditions, demographic factors, and characteristics of the political system. Interestingly, these findings are not robust when we use less specific indicators of human capital – such as general schooling - supporting the view that knowledge of basic economic and financial concepts has distinctive features that may help reduce the electoral cost of reforms having a relevant impact on the life cycle of individuals. |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:uto:dipeco:201723&r=age |
| By: | Eric Nauenberg; Carita Ng |
| Abstract: | We examine long-term demographic forecasts to determine whether increases in the senior population will be followed by a decrease once the baby-boom generation passes. Planners may therefore need to flexibly assign resources to allow for future repurposing of investments. Forecasts in the U.S. and Canada indicate that the number of seniors in the population will plateau by the year 2045 with levels roughly maintained until at least 2060; thus, repurposing may be unnecessary. Increases in life-expectancy, immigration age structures, and echoes of the baby-boom generation in later years are expected to help maintain this plateau. While there is no observable decrease in the senior population by 2060, there is uncertainty around the expected rate of decline in health of this generation. Depending on this trajectory, community-level social supports could play a large role in maintaining senior health and independence as long as possible. |
| Keywords: | demographics, seniors, social supports, health, human resources |
| JEL: | J11 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:cch:wpaper:170008&r=age |
| By: | Mercan, Murat A. |
| Abstract: | Objective: Even though many studies have focused on the relationship between osteoarthritis and occupation, few studies have examined the relationship between arthritis and working hours; this paper seeks to fill this gap in the literature. Methods: We used a Cox regression method for the sample from Health and Retirement Survey. Results: We found that working more hours reduces the probability of arthritis among older workers in the United States. We also showed which occupations put workers at greater risk for developing arthritis. Conclusion: It is important to understand the risk of arthritis in an elderly workforce because of its policy implications on ideas such as restricting weekly working hours. Therefore, this study’s findings may raise questions about the need for initiatives in the European Union and other countries that regulate the permitted length of work schedules. |
| Keywords: | arthritis; working hours; the United States |
| JEL: | I10 J22 |
| Date: | 2016–11–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:75228&r=age |
| By: | Jean-Pierre Aubry; Anqi Chen; Alicia H. Munnell |
| Abstract: | Since the financial crisis, public pension plans – like other large institutional investors – have moved a significant portion of their portfolios into investments outside of traditional equities, bonds, and cash. These alternative investments include a diverse assortment of assets – private equity, hedge funds, real estate, and commodities. This shift reflects a search for greater yields than expected from traditional stocks and bonds, an effort to hedge other investment risks, and a desire to diversify the portfolio. The Public Plans Database (PPD), which covers nearly 95 percent of pension assets, shows the allocation to alternatives more than doubling (from 9 percent to 24 percent) between 2005 and 2015. This brief begins to explore the implications for state and local pension plans of moving away from traditional stocks and bonds to other types of assets. The scope of the inquiry is narrow; it does not address fees, disclosure, or administrative issues. Nor does it assess how these alternative assets are utilized within each plan’s overall investment strategy. Rather, the analysis investigates two basic questions: 1) which plans have made the largest shift to alternatives? and 2) how has the shift affected investment returns and volatility? The discussion proceeds as follows. The first section provides a quick overview of alternative investments. The second section documents the extent to which state and local pension plans engage in alternative investing. The third section attempts to find a link between plan characteristics and the proportion of the overall investment portfolio allocated to alternatives, and uncovers no systematic relationship. The fourth section looks at the relationship between alternatives and investment performance, finding lower after-fee returns – primarily due to poor hedge fund performance. Hedge funds do reduce volatility, but their effect is offset by the greater volatility associated with real estate and commodities. The final section concludes that, while the focus on returns and volatility may be too narrow and the time periods analyzed too short to draw any definitive conclusions, the relationship between alternatives and public plan performance merits further analysis. |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:crr:issbrf:ibslp55&r=age |
| By: | Eli P. Fenichel; Matthew J. Kotchen; Ethan T. Addicott |
| Abstract: | We develop a demographically-based approach for estimating the utility discount rate (UDR) portion of the Ramsey rule. We show how age-specific mortality rates and life expectancies imply a natural UDR for individuals at each age in a population, and these can be aggregated into a population-level social UDR. We then provide empirical estimates for nearly all countries and for the world as a whole. A striking part of the analysis is how the estimated UDRs fall within the range of those currently employed in the macroeconomics and climate change literatures. We use our results to derive heterogenous social discount rates across countries and explore the consequences for an integrated assessment model of climate change. We find that introducing regional heterogeneity of UDRs into the RICE model has little impact on the business-as-usual trajectory of global emissions. It does, however, change the trajectory of optimal emissions, the corresponding optimal carbon tax, and the distribution of emission reductions across countries. |
| JEL: | H43 O21 Q54 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23591&r=age |
| By: | Strulik, Holger |
| Abstract: | In this paper I unify the economic theories of addiction and health deficit accumulation and develop a life cycle theory in which individuals take into account the fact that the consumption of addictive goods reduces their health and longevity. I distinguish two types of addiction: perfect and common. Individuals with perfect addiction perfectly control their addiction. Individuals with common addiction, though otherwise rational and forward looking, fail to fully understand how their addiction develops. I argue that the life cycle consumption pattern predicted for common addiction is more suitable for motivating empirically observable patterns of addictive goods consumption. I take the case of smoking as unhealthy behavior, calibrate the model with U.S. data, and apply it in order to investigate the life cycle patterns of smoking and quitting smoking and the socioeconomic gradients of unhealthy consumption and longevity. |
| Keywords: | addiction,unhealthy behavior,health investments,aging,longevity |
| JEL: | D11 D91 E21 I10 I12 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cegedp:316&r=age |
| By: | Dirk Broeders; Arco van Oord; David Rijsbergen |
| Abstract: | We analyze the relation between investment returns and performance fees for 218 Dutch occupational pension funds with an average total of 985 billion euro in assets under management from 2012 to 2015. Our dataset is free from self-reporting biases and includes total return, excess return and performance fees for six major asset classes. We find no statistical evidence that the returns of pension funds that pay performance fees to asset managers for active investing are significantly higher or lower than the returns of pension funds that do not pay performance fees. This is true for most asset classes and robust if we correct for risk and persistence in asset class returns. We also document that large and more specialized pension funds pay less performance fees for a given level of excess return in alternative asset classes such as hedge funds and private equity. This is possibly the result of better negotiation power due to their larger scale or higher level of expertise. |
| Keywords: | pension funds; asset management; performance fees; investment costs |
| JEL: | G11 G12 G23 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:561&r=age |
| By: | Wenli Li (Federal Reserve Bank of Philadelphia); Fang Yang (Louisiana State University); Michael Dotsey (Federal Reserve Bank of Philadelphia) |
| Abstract: | In this paper, we study the consequences of the demographic changes in China and the U.S. on the two nation’s output growth, capital accumulation, labor supply, and welfare in various economic environments including closed economies, economies with perfect capital mobility and no trade barriers, and economies with imperfect capital mobility and /or trader barriers. Our focus on only two of the largest economies in the world, China and U.S., allow us to more realistically capture each economy and make use of micro data that exhibits unique and interesting patterns such as having savings rate in China. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:154&r=age |
| By: | Blum, Matthias; Krauss, Karl-Peter |
| Abstract: | Age heaping-based numeracy indicators have served as valuable tools to derive basic human capital estimates, especially for periods where other indicators are unavailable. However, the accuracy of individual age statements usually remains unknown, and due to the lack of precise information it can only assumed that excessive occurrence of multiples of five in age distributions reflects inferior numerical skills. We address this lacuna by identifying 162 individuals in two independent data sources, self-reported age statements and independently kept records which are based on family heritage books and church registers. This method allows us to identify individual misreporting and the degree of accuracy of each individual. We find that not everyone who reports a multiple of five reports an incorrect age, nor everyone who reports an age that is not a multiple of five reports an accurate age. In an empirical analysis we show that the commonly used binary numeracy indicator is correlated with the observed degree of accuracy in age statements, and that a more sophisticated occupational background reduces this inaccuracy. Our tentative results suggest that the commonly used binary indicator measuring age heaping is a valuable proxy of the numerical skills and occupational background in a population. |
| Keywords: | numeracy,ABCC,age heaping,human capital,inequality,economic history,skills,methodology,migration |
| JEL: | N01 N33 C43 O15 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:qucehw:201705&r=age |
| By: | Herzer, Dierk (Helmut Schmidt University, Hamburg); Nagel, Korbinian (Helmut Schmidt University, Hamburg) |
| Abstract: | This study examines the effects of adult and non-adult mortality on the long-run level of income in a heterogeneous dynamic and cross-sectionally dependent panel. Employing data for 20 countries between 1800 and 2010, it is found that (i) while non-adult mortality has no long-run effect on GDP per capita, reductions in adult mortality lead to statistically and economically significant increases in the long-run level of per capita income; (ii) there are no significant differences in the long-run effects of adult mortality and non-adult mortality on GDP per capita before and after the onset of the demographic transition; and (iii) mortality in middle adulthood has the greatest impact on economic development, whereas early adulthood mortality and mortality in later adulthood have little to no impact on the long-run level of per capita income. |
| Keywords: | Life expectancy; Adult mortality; Non-adult mortality; Economic development; Heterogeneous panel data models; Cross-sectional dependence; Demographic transition |
| JEL: | C23 I15 J11 O11 |
| Date: | 2017–07–13 |
| URL: | http://d.repec.org/n?u=RePEc:ris:vhsuwp:2017_177&r=age |