nep-age New Economics Papers
on Economics of Ageing
Issue of 2018‒01‒01
ten papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. The Golden Rule of Longevity By Gylfi Zoega; Gylfi Zoega
  2. Ukraine: Selected Economic Issues By Vasily Astrov; Leon Podkaminer
  3. Lasting negative impacts of family care provision on employment: Family caregivers are less likely to be in the labor force after taking care of an elderly parent; men are more strongly affected than women By Heger, Dörte; Korfhage, Thorben
  4. The power of percentage: Quantitative framing of pension income By Henriëtte Prast; Federica Teppa
  5. Pension reforms, older workers' employment and the role of job separation and finding rates in France By Sarah Le Duigou; Pierre-Jean Messe
  6. Retirement and Unexpected Health Shocks By Apouey, Bénédicte H.; Guven, Cahit; Senik, Claudia
  7. Can’t wait to get my pension: ?the effect of raising the female state pension age on income, poverty and deprivation By Jonathan Cribb; Carl Emmerson
  8. The Relation between Aging and Housing Prices A Key Indicator for the French Spatial Wealth Reshaping By Yasmine Essafi; Raphaël Languillon; Arnaud Simon
  9. Longevity-induced vertical innovation and the tradeoff between life and growth By Baldanzi, Annarita; Prettner, Klaus; Tscheuschner, Paul
  10. Healthier when retiring earlier? Evidence from France By Pierre-Jean Messe; François-Charles Wolff

  1. By: Gylfi Zoega (Aarhus Universitet; University of Iceland); Gylfi Zoega (University of Iceland; Birkbeck, University of London)
    Abstract: How much should society invest in medical care that extends the lives of the older generations? We derive a golden rule for the level of health care expenditures and find that the optimal level of life-extending health care expenditures should increase with rising productivity, increase with the retirement age, and also increase with the population growth rate if a higher growth rate lowers the ratio of retirees to working-age people sufficiently, while the effects of an improvement in medical technology are ambiguous. Moreover, we find that a market economy may be inefficient in terms of the provision of life-extending health care because an individual ignores the effect of his own longevity on the income of others.
    Keywords: Health care expenditures, golden rule, productivity.
    JEL: E6 E2 I1
    Date: 2017–10
  2. By: Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw); Leon Podkaminer (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Following the ‘Maidan revolution’ of February 2014, the National Bank of Ukraine (NBU) abandoned the exchange rate peg to the US dollar and switched to a flexible exchange rate, which was later formalised within the framework of the newly adopted inflation targeting regime. Our analysis suggests that this move has been questionable and, at the very least, premature. First, the presumed success of inflation targeting as a universally applicable ‘magical tool’ to reach low and stable levels of inflation in many countries has in reality been largely due to other factors rather than the inflation targeting concept. Second, the NBU’s announced inflation target (5% in the medium term) appears to be overly ambitious given Ukraine’s development level. Experience from other countries suggests that sticking to this target at all cost will likely require a consistently overly restrictive monetary policy, which will constrain Ukraine’s growth prospects. Last but not least, as capital controls are gradually eased, the exchange rate will likely become vulnerable to speculative attacks once again, given the numerous political and geopolitical uncertainties and the ‘thinness’ of the country’s foreign exchange market. Attempts at macroeconomic stabilisation in response to such exchange rate shocks by using ‘classical’ inflation targeting instruments such as interest rates will have a pro-cyclical impact, given the high degree of dollarisation and the related prevalence of so-called ‘balance sheet effects’. The experience of other countries in similar circumstances – both in Central and Eastern Europe and elsewhere – suggests that a preferable strategy would be to smooth exchange rate fluctuations via interventions rather than monetary policy instruments. For this, a certain minimum level of reserves is needed; the latter will not only provide the necessary policy space for interventions should such a need arise, but should discourage speculations against the currency in the first place. Another major reform effort undertaken recently (October 2017) has been a comprehensive pension reform, which envisaged most notably a gradual increase in the effective retirement age. Our analysis suggests that the current situation in Ukraine’s pension system hardly justifies such a step. The country’s statutory retirement age may be indeed rather low, but it is more than offset by the low life expectancy of Ukrainians, and the share of pensioners in the total population is not particularly high by international standards. Besides, while Ukraine’s Pension Fund may be in deficit, this is not very different from the situation observed in other countries, and there are no theoretical arguments why the Pension Fund must be necessarily balanced. Finally, the sustainability of the pension system is not necessarily a cause of major concern either, taking into account the likely future improvements in the labour market. To the extent that any reform of the pension system is needed at all, it should target above all efforts to curb the shadow economy and/or partial reversion of last year’s cuts in social security contributions.
    Keywords: monetary policy, inflation targeting, pension systems
    JEL: E52 E58 H55
    Date: 2017–12
  3. By: Heger, Dörte; Korfhage, Thorben
    Abstract: The share of the population aged 80 and older will double by 2050. This development spurs a considerable increase in the demand for long-term care. Supporting informal care provision by family members is the most common policy choice in European countries. This form of care is regarded to be less expensive than formal care in nursing homes. New research by RWI on European data shows: Family caregiving has serious lasting effects on the employment probability of the caregiver. Policy makers need to consider these long-term costs when designing interventions to meet the challenges caused by demographic change.
    Date: 2017
  4. By: Henriëtte Prast; Federica Teppa
    Abstract: We investigate whether the quantitative frame used to communicate future pension income to plan members matters for perceived pension income adequacy. We allocate plan members randomly to one of four pension income framing conditions: annual pension income, monthly pension income, pension income as percentage of current income, pension income as decimal of current income. We find that expressing projected pension income as a percentage (decimal) of current income significantly increases (decreases) the probability that a plan member perceives the pension income as too low. This effect is robust to adding retirement savings attitude. In addition, we find significant and intuitive effects of household wealth, income, age and education on perceived pension income adequacy. We discuss our findings against the backdrop of previous studies on the effect of numeric frames on perceptions, provide suggestions for further research and draw conclusions for pension communication and survey design.
    Keywords: framing effects; pension income; perceived adequacy
    JEL: C5 C9 D12 G11
    Date: 2017–12
  5. By: Sarah Le Duigou; Pierre-Jean Messe
    Date: 2017
  6. By: Apouey, Bénédicte H.; Guven, Cahit; Senik, Claudia
    Abstract: Do people form correct expectations about the impact of retirement on their health? This paper looks at unexpected health shocks that hit people after they retire. Using data from the Household, Income and Labour Dynamics in Australia survey (waves 2001-2014), we construct measures of unexpected health shocks for each year, using information on respondents’ views about the expected and past evolution of their health status. By definition, unexpected health shocks are immune to the problem of reverse causality (running from health condition to retirement). Our findings indicate that retirement increases the likelihood of positive health shocks and decreases the probability of negative shocks for men, with no clear results for women. These shocks are mirrored by variations in life satisfaction of the same nature (e.g. increased life satisfaction in case of unexpected positive health shocks). Other indicators of mental and physical health taken from the SF-36 vary in the same way, i.e. improve unexpectedly after retirement for men. These findings suggest that, at least in the case of men, people’s desire to retire may not be based on perfectly correct expectations about the impact of this move, but is aligned with its actual consequence: retirement exerts a positive causal impact on health.
    Keywords: Australia, HILDA, Health, Retirement, Health Shocks, Life Satisfaction
    Date: 2017–12
  7. By: Jonathan Cribb (Institute for Fiscal Studies and Institute for Fiscal Studies); Carl Emmerson (Institute for Fiscal Studies and Institute for Fiscal Studies)
    Abstract: The earliest age at which women can receive a state pension in the UK (the ‘state pension age’) has been increasing since 2010. We use a difference-in-differences methodology, exploiting the gradual increase from age 60 in 2010 to age 63 in 2016, to estimate the impact of the reform on women’s incomes, income poverty rates and measures of material deprivation. We find that, on average, increased earnings partially offset the loss of state pension income, leaving affected women’s household incomes on average £32 per week lower due to the reform. Proportionally, the reduction in household income is larger for lower-income women. These reductions in income lead to the absolute income poverty rate of women aged 60–62, who are now under the state pension age, increasing by 6.4 percentage points. However, the increased risk of poverty does not persist after the point at which they reach the state pension age. Moreover, we find no evidence that increasing the state pension age increases the probability of women reporting being deprived of important material items, at least for the items observed in our data. This potentially suggests that they have smoothed their consumption, and avoided increased levels of material deprivation, despite the large reduction in income caused by the reform. Figure. UK state pension age for women under different legislation Figure. UK state pension age for women under different legislation
    Keywords: public pensions; income distribution; poverty
    Date: 2017–08–02
  8. By: Yasmine Essafi (DRM - Dauphine Recherches en Management - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique); Raphaël Languillon (EVS - Environnement Ville Société - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - Université Jean Moulin - Lyon III - UJM - Université Jean Monnet [Saint-Étienne] - ENTPE - École Nationale des Travaux Publics de l'État - Ecole Nationale Supérieure des Mines de Saint-Etienne - ENSAL - École nationale supérieure d'architecture de Lyon - CNRS - Centre National de la Recherche Scientifique); Arnaud Simon (DRM - Dauphine Recherches en Management - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Using the link between demography and house prices in a life-cycle economy perspective, this article documents the ongoing spatial reshaping of wealth in France due to the elder-boom breaking point. This modification in the wealth circulation across generations is also a spatial modification that carries consequences for the local territories. While the wealth losses are amplified for some departments, others benefit from the reorganization. Metropolization is insurance against important wealth losses, whereas for the nonmetropolitan departments, a combination of second-order factors is required to limit or reverse the negative trend. Our results suggest that these evolutions are mainly structural and that the economic variables are of secondary importance. There is no case of compensation for structural decline by a positive cyclical trend. Gentrification also appears to be a direct and emblematic avatar of this change, in which various macrostructural inequalities are reinforced. As for the unemployment rate, this indicator poorly reflects the shift and can be misleading.
    Keywords: Ageing,Life-cycle,Spatial reshaping,Territories,Metropolization
    Date: 2017–12–04
  9. By: Baldanzi, Annarita; Prettner, Klaus; Tscheuschner, Paul
    Abstract: We analyze the economic growth effects of rising longevity in a framework of endogenous growth driven by quality-improving innovations. We show that a rise in longevity raises savings and thereby reduces the market interest rate. Since the monopoly profits generated by a successful innovation are discounted by the endogenous market interest rate, this raises the net present value of innovations, which, in turn, fosters R&D. The associated increase in the employment of scientists leads to faster technological progress and a higher long-run economic growth rate. From a welfare perspective, we show that the direct effect of an increase in life expectancy on lifetime utility is much larger than the indirect effect of the induced higher consumption due to faster economic growth. Consequently, the debate on rising health care expenditures should not predominantly be based on the growth effects of health care.
    Keywords: long-run growth,vertical innovation,increasing life expectancy,welfare effects of changing longevity,size of health-care sectors
    JEL: J11 J17 O31 O41
    Date: 2017
  10. By: Pierre-Jean Messe; François-Charles Wolff
    Date: 2017

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