nep-age New Economics Papers
on Economics of Ageing
Issue of 2017‒10‒15
sixteen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. The Interaction of Pension System and Unemployment Insurance - Evidence from two Reforms By Endler, Johannes; Geyer, Johannes
  2. Homeownership, Social Insurance, and Old-Age Security in the United States and Europe By Stipica Mudrazija; Barbara A. Butrica
  3. The increasing longevity gap by lifetime earnings and its distributional implications By Kemptner, Daniel; Haan, Peter; Lüthen, Holger
  4. Fiscal Space under Demographic Shift By Christine Ma; Chung Tran
  5. 401(k)/IRA Holdings in 2016: An Update from the SCF By Alicia H. Munnell; Anqi Chen
  6. The Effect of Job Mobility on Retirement Timing by Education By Geoffrey T. Sanzenbacher; Steven A. Sass; Christopher M. Gillis
  7. Dementia, Help with Financial Management, and Well-Being By Anek Belbase; Geoffrey T. Sanzenbacher
  8. Population Sex-Age Structure in Vietnam: New Evidences from the 2014 Intercensal Population and Housing Survey By Nguyen, Cuong; Nguyen, Phai
  9. How Much Does Out-of-Pocket Medical Spending Eat Away at Retirement Income? By Melissa McInerney; Matthew S. Rutledge; Sara Ellen King
  10. The Behavioral and Consumption Effects of Social Security Changes By Wenliang Hou; Geoffrey T. Sanzenbacher
  11. Can Knowledge Empower Women to Save More for Retirement? By Drew M. Anderson; J. Michael Collins
  12. ICT-Enabled Social Innovation for Active and Healthy Ageing: Redesigning long-term care and independent living in Europe By Maria Cesira Urzi Brancati; Csaba Kucsera; Gianluca Misuraca
  13. Ageing, human capital and demographic dividends with endogenous growth, labour supply and foreign capital By Edle von Gaessler, Anne; Ziesemer, Thomas
  14. Social Security Contributions and the Business Cycle By Almosova, Anna; Voigts, Simon; Burda, Michael
  15. How Much Does Motherhood Cost Women in Social Security Benefits? By Matthew S. Rutledge; Alice Zulkarnain; Sara Ellen King
  16. Older and Slower: The Startup Deficit’s Lasting Effects on Aggregate Productivity Growth By Titan Alon; David Berger; Robert Dent; Benjamin Pugsley

  1. By: Endler, Johannes; Geyer, Johannes
    Abstract: Unemployment benefits are one important option to bridge time between employment exit and claiming retirement benefits for older workers. We develop an option value model that explicitly accounts for the pension system and unemployment insurance in Germany. We use administrative panel data and implement the model for female birth cohorts of 1940 to 1949, exploiting exogenous variation in social security wealth by the pension reform 1992 and the reform of unemployment benefits in 2004.
    JEL: H55 J14 J22 J26 J65
    Date: 2017
  2. By: Stipica Mudrazija; Barbara A. Butrica
    Abstract: Relatively few Americans have accumulated substantial savings outside of their employer-sponsored retirement plans, yet most own their homes. The traditional view of the retirement income system as a three-legged stool supported by Social Security, private pensions, and savings may be better viewed as being supported by Social Security, pensions, and homeownership. Country-specific economic, social, and political developments throughout modern history mean that homeownership rates and the relative importance of homeownership for old-age security vary widely across developed countries. Many countries, however, are increasingly promoting homeownership as an effective way of building assets, a de facto self-insurance mechanism for old-age security, and a substitute for various social transfers. This paper uses data from the Health and Retirement Study (HRS) and the Survey of Health, Ageing, and Retirement in Europe (SHARE) to better understand the role of homeownership in retirement before and after the Great Recession for the United States and nine Western European countries: Austria, Belgium, Denmark, France, Germany, Italy, the Netherlands, Spain, and Sweden. It begins by comparing trends in homeownership rates among older adults and the key characteristics of housing-related policies and regulations that potentially impact home acquisition. It then examines home equity trends, the prevalence and burden of housing debt, and the relative importance of housing as a source of retirement wealth. Next it provides an overview of equity release options and estimates how much older households could increase their incomes by fully monetizing their housing equity. Finally, the paper discusses the prospects for and limits of home equity release and asset-based welfare policies.
    Date: 2017–10
  3. By: Kemptner, Daniel; Haan, Peter; Lüthen, Holger
    Abstract: We use social security records to document heterogeneity in life expectancy by lifetime earnings and we analyze how this longevity gap has evolved over cohorts. We provide evidence that the earnings-related longevity gap is increasing over cohorts in West Germany. Further, we propose a decomposition to disentangle the role of increasing earnings inequality over cohorts and the effect of changes in the earnings gradient. Finally, we study the distributional implications for the pension system.
    JEL: H55 I14 J11
    Date: 2017
  4. By: Christine Ma (Deloitte Access Economics); Chung Tran (The Australian National University (E-mail:
    Abstract: To what extent does population ageing limit fiscal capacity and affect fiscal sustainability? We answer this question through the lens of a fiscal space defined by the budgetary room between the current tax revenue and the peak of a Laffer curve. We use a dynamic general equilibrium, overlapping generations model calibrated to data from Japan and the US. Our findings show that the evolution of underlying demographic structures plays an important role in shaping a country fs fiscal capacity. There will be significant contractions in the fiscal space of Japan and the US when the two countries enter the late stage of demographic transition in 2040. In particular, the results from the model calibrated to Japan indicate that an increase in the old-age dependency ratio to over 70 percent can reduce Japan fs fiscal space by 36 percent. The existing design of Japan fs tax-transfer system is not fiscally sustainable by 2040 when factoring in the growing fiscal cost of the social security program.
    Keywords: Population Ageing, Laffer Curve, Fiscal Limit, Sustainability, Heterogeneity, Dynamic General Equilibrium
    JEL: E62 H20 H60 J11
    Date: 2017–09
  5. By: Alicia H. Munnell; Anqi Chen
    Abstract: The key supplement to Social Security benefits is accumulations in employer-sponsored retirement plans. Increasingly these accumulations occur in 401(k) plans and Individual Retirement Accounts (IRAs). The release of the Federal Reserve’s 2016 Survey of Consumer Finances (SCF) is a great opportunity to see how a strengthening economy, the continued maturation of the 401(k) system, and steady stock market returns have affected workers’ retirement wealth. The big advantage of the SCF is that it provides information not only on 401(k) balances, much of which is available from financial services firms, but also on household holdings in IRAs, which are largely rollovers from 401(k)s. Essentially 401(k)s serve as the collection mechanism for retirement saving, and IRAs serve as the resting place. This brief reports on household holdings in these two sources combined. The discussion proceeds as follows. The first section describes the importance of 401(k) plans and IRAs in the retirement income system. The second section documents the trend in individual decisions regarding the accumulation of assets in 401(k)s. The good news is a slight increase in participation rates and greater use of target date funds; the bad news is flat total contribution rates, high fees, and significant leakages. The third section reports on 401(k)/IRA balances. The SCF shows – for households approaching retirement – an increase in these balances from $111,000 in 2013 to $135,000 in 2016. But only about half of households have 401(k)/IRA balances; and, as defined benefit plans phase out in the private sector, the rest will have no source of retirement income other than Social Security. The final section concludes that 401(k) plans could work much better and balances would be higher if all plans were fully automatic – auto-enrollment for both existing and new employees and auto-escalation in the default contribution rate – and contribution rates were set at realistic levels.
    Date: 2017–10
  6. By: Geoffrey T. Sanzenbacher; Steven A. Sass; Christopher M. Gillis
    Abstract: Job-changing among late-career workers increased steadily from the 1980s through the mid-2000s before declining somewhat in recent years. This study asks how the rise in job changing – which seems largely voluntary – affects retirement timing and whether this effect varies by a key measure of socioeconomic status: educational attainment. Workers presumably change jobs voluntarily to improve their well-being through gains in the economic or non-economic rewards of work or better working conditions. As a result, workers switching jobs late in their careers might retire later than they otherwise would have. Retiring later would be especially beneficial to less educated workers, who are generally less prepared financially to retire than better educated workers. Changing jobs, however, sheds the protection that tenure provides against involuntary job loss, which often leads to earlier retirements for older workers. This study seeks to understand which effect dominates, while dealing with the fact that job changing could be endogenous to retirement – that workers willing to bear the cost of a job search could intend to remain in the workforce longer. The analysis does so by controlling for each individual’s planned retirement age. The results show that the benefits of job changing are widely distributed and are associated with later retirements for men and women and for better and less educated workers.
    Date: 2017–02
  7. By: Anek Belbase; Geoffrey T. Sanzenbacher
    Abstract: Earlier research indicated that the vast majority of retirees with dementia do not use the U.S. Social Security Administration’s Representative Payee Program, despite the fact that many have lost the capacity to manage their own finances. However, that research also indicated that most retirees with dementia do have access to informal caregivers who could assist them (e.g., a resident adult child or non-impaired spouse), but the research did not examine whether those individuals provided assistance specifically with financial management. This paper uses the National Health and Aging Trends Study to determine whether beneficiaries with dementia receive help from their informal caregivers in managing their finances. The paper also examines the financial well-being of those with assistance compared to those without assistance.
    Date: 2017–09
  8. By: Nguyen, Cuong; Nguyen, Phai
    Abstract: This paper examines the population sex-age structure in Vietnam using data from the 2014 Intercensal Population and Housing Survey. It shows that the proportion of children has declined dramatically over time. The proportion of children 0-4 years old accounted for 14.6% of the population in 1979, dropping to only 9.4% in 1999 and 8.3% in 2014. Low fertility and high life expectancy have caused the population pyramid to appear drum-shaped, meaning Viet Nam's population pyramid in 2014 characterized an aging population. At the same time, the proportion of the population of working age has increased dramatically. The proportion of the population aged 65 years and older also increased, but at a slower pace. As a result, the overall dependency ratio has declined from 89.9% in 1979 to 63.6% in 1999, 46% in 2009 and only 44% in 2014. It is estimated that Viet Nam will complete the period of the golden population structure in 25 years, around 2040. Regarding sex structure, the sex ratio of Viet Nam has continued to increase, from 94.2 in the 1989 census to 97.3 in 2014. The sex ratio in urban areas was lower than in rural areas. Migration has had a large impact on differences in the sex ratio among regions.
    Keywords: Population, demography, age, gender, Vietnam
    JEL: J1 J15
    Date: 2016–12–15
  9. By: Melissa McInerney; Matthew S. Rutledge; Sara Ellen King
    Abstract: The adequacy of retirement income – from Social Security benefits and other sources – is substantially reduced by Medicare’s high out-of-pocket (OOP) costs. This project uses the 2002-2014 Health and Retirement Study to calculate post-OOP benefit ratios, defined as the share of either Social Security benefits or total income available for non-medical spending. The project decomposes the share of income that is going toward premium payments and services delivered and examines how these post-OOP benefit ratios differ by age, gender, income, supplemental insurance coverage, and health status. The project also updates previous studies’ estimates to document how OOP spending and the post-OOP income ratios changed following the introduction of Medicare Part D prescription drug coverage in 2006 and the closing of the “donut hole” coverage gap in 2010, which decreased OOP costs under Part D for those spending moderate amounts on prescriptions.
    Date: 2017–10
  10. By: Wenliang Hou; Geoffrey T. Sanzenbacher
    Abstract: Social Security’s Trust Fund is projected to be exhausted in 2034. A variety of changes to the program have been put forward that would either push this date out into the future or delay it indefinitely. Some of these changes would cut benefits – e.g., increasing the Full Retirement Age (FRA) to 69 – while others would increase program revenue – e.g., increasing the payroll tax. While Social Security’s Office of the Chief Actuary projects the financial impact on the program of a wide variety of changes, understanding the impact of these changes on recipients’ behavior and well-being is also a valuable exercise. This paper uses the Gustman and Steinmeier structural model to analyze the effects of four changes to the Social Security program on recipients’ retirement timing and household consumption.
    Date: 2017–09
  11. By: Drew M. Anderson; J. Michael Collins
    Abstract: Retirement-account balances are lower among women than men. This study assesses the role of financial knowledge and empowerment in contributing to the gender gap in savings. We evaluate the effects of financial education delivered to women in the workplace, using administrative data on 31,000 public-sector workers in Wisconsin. All of these workers participated in a mandatory defined-benefit pension plan, but 47 percent also participated in a deferred compensation savings instrument provided by their employer, with the median participant contributing 1.6 percent of earnings each month. In a triple-difference strategy, we compare the progression of gender gaps in savings over time at state agencies that implemented financial education with the group that did not. We estimate that a multi-media education effort increased participation in retirement savings by 2.6 percentage points, closing the gender gap by more than half. This result is partially explained by pre-existing trends. The education program operated at low marginal cost and is likely to be portable to other contexts.
    Date: 2017–09
  12. By: Maria Cesira Urzi Brancati (European Commission - JRC); Csaba Kucsera (National University of Public Service, Hungary); Gianluca Misuraca (European Commission - JRC)
    Abstract: This issue of JRC Insights presents results from the analysis of initiatives and case studies on ICT-enabled social innovations promoting social investment in the field of Active and Healthy Ageing (AHA) conducted as part of the JRC-led IESI research, in collaboration with DG Employment, Social Affairs and Inclusion. It highlights how over 70% of the initiatives in the field of AHA promote social investment by supporting the modernisation of social protection systems as well as by supporting investment in people throughout their lives. It also reveals that AHA initiatives are frequently characterised by radical innovation potential and higher integration at the service level, often combining funding, administrative and service delivery systems. Finally, the article illustrates how ICTs drive the organizational transformation of service delivery, by reducing overlaps and strengthening integration among service providers. In addition, they increase efficiency and reduce costs by improve targeting and personalisation of services.
    Keywords: active and healthy ageing, long-term care, social care, ICT-enabled social innovation
    JEL: I10 L31 L32
    Date: 2017–09
  13. By: Edle von Gaessler, Anne; Ziesemer, Thomas (UNU-MERIT, and SBE Maastricht University)
    Abstract: We modify a Lucas-type endogenous growth model to contain endogenous labour supply, imperfect international capital movements, and estimated interest and education time functions. Solutions based on realistic calibrations show that (i) the rate of human capital depreciation through ageing has a much stronger negative impact on growth than further changes in the population growth rate or the Frisch elasticity of labour supply; (ii) a higher rate of human capital depreciation, a higher growth rate of the dependency ratio, and lower past cumulated savings all go together with a higher second-best education time and higher growth; (iii) demographic dividends are positive in the short run but negative in the long run.
    Keywords: Ageing, human capital, endogenous growth, open economy, serendipity theorem
    JEL: F43 J11 O11 O33 O41
    Date: 2017–09–26
  14. By: Almosova, Anna; Voigts, Simon; Burda, Michael
    Abstract: This paper examines magnitudes and business cycle dynamics of social security contributions (SSC). In most OECD countries studied, we document a negative covariation of payroll tax burdens with GDP and GDP growth at business cycle frequencies and lower. Changes in average payroll tax burdens are mostly accounted for by tax schedule changes, and not to changes in the earnings distribution over time. SSC rates behave similarly to estimated values of the “labor wedge” (Chari et al. 2007, 2016).
    JEL: E24 E32 J32 H55
    Date: 2017
  15. By: Matthew S. Rutledge; Alice Zulkarnain; Sara Ellen King
    Abstract: The increase in female labor force participation coupled with a higher number of women reaching retirement unmarried has increased the share of women claiming Social Security benefits earned through their own job histories. But they still bear the lion’s share of caregiving responsibilities, and the previous literature has provided clear evidence that motherhood reduces earnings during the childbearing and child-rearing years. What remains understudied is the extent to which mothers face lower lifetime earnings and, consequently, lower Social Security income. This paper uses the Health and Retirement Study (HRS) linked to administrative earnings records to answer three questions. First, how much less do mothers earn over their careers compared to childless women, and how much less do they earn for each additional child? Second, how do Social Security benefits differ between mothers and non-mothers? Third, how does each of the existing elements of the Social Security system that indirectly help mothers – namely, spousal benefits and the progressivity of the benefit formula – contribute to reducing the motherhood penalty?
    Date: 2017–10
  16. By: Titan Alon; David Berger; Robert Dent; Benjamin Pugsley
    Abstract: We investigate the link between declining firm entry, aging incumbent firms and sluggish U.S. productivity growth. We provide a dynamic decomposition framework to characterize the contributions to industry productivity growth across the firm age distribution and apply this framework to the newly developed Revenue-enhanced Longitudinal Business Database (ReLBD). Overall, several key findings emerge: (i) the relationship between firm age and productivity growth is downward sloping and convex; (ii) the magnitudes are substantial and significant but fade quickly, with nearly 2/3 of the effect disappearing after five years and nearly the entire effect disappearing after ten; (iii) the higher productivity growth of young firms is driven nearly exclusively by the forces of selection and reallocation. Our results suggest a cumulative drag on aggregate productivity of 3.1% since 1980. Using an instrumental variables strategy we find a consistent pattern across states/MSAs in the U.S. The patterns are broadly consistent with a standard model of firm dynamics with monopolistic competition.
    JEL: E01 E24
    Date: 2017–09

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