nep-age New Economics Papers
on Economics of Ageing
Issue of 2018‒03‒05
seventeen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Macroeconomic Implications of Changes in Social Security Rules By Bagis, Bilal
  2. Do Retirement Savings Increase in Response to Information About Retirement and Expected Pensions? By Mathias Dolls; Philipp Dörrenberg; Andreas Peichl; Holger Stichnoth
  3. Skills, Population Aging, and the Pattern of Trade By Gu, Ke; Stoyanov, Andrey
  4. Gender differentiation in intergenerational care-giving and migration choices By Stark, Oded; Curkowska-Torzewska, Ewa
  5. Quantile Treatment Effects of Riester Participation on Wealth By Dorothee Ihle
  6. Trends in Labor Force Participation of Older Workers in Spain 1980-2015 By Pilar García-Gómez; Sergi Jiménez Martín; Judit Vall Castelló
  7. Exploring the Risks and Consequences of Elder Fraud Victimization: Evidence from the Health and Retirement Study By Marguerite DeLiema; Martha Deevy; Annamaria Lusardi; Olivia S. Mitchell
  8. The Reintroduction of the Social Security Statement and its Effect on Social Security Expectations, Retirement Savings, and Labor Supply across the Age Distribution By Philip Armour
  9. How did Feldstein (1985) undervalue the optimal level of social security benefits? By Andras Simonovits
  10. Characteristics of Second-career Occupations: A Review and Synthesis By Brooke Helppie-McFall; Amanda Sonnega
  11. Social Dominance By Ludger Schuknecht; Holger Zemanek
  12. The New Hampshire Retirement System: A Look Backward and Forward By Jean-Pierre Aubry; Caroline V. Crawford
  13. Cognition, optimism and the formation of age-dependent survival beliefs By Grevenbrock, Nils; Groneck, Max; Ludwig, Alexander; Zimper, Alexander
  14. Multiemployer Pension Plans: Current Status and Future Trends By Alicia H. Munnell; Jean-Pierre Aubry; Caroline V. Crawford
  15. How Do Prescription Drugs Affect the Use of Other Health Services? By Gal Wettstein
  16. Internet Use and the U-shaped relationship between Age and Well-being By Fulvio Castellacci; Henrik Schwabe
  17. Saving, investment, capital stock and current account projections in long-term scenarios By Yvan Guillemette; Andrea De Mauro; David Turner

  1. By: Bagis, Bilal
    Abstract: The Turkish social insurance system has been feverishly debated for years, particularly through its burden on the economy. The most recent reform is an attempt to neutralize the deterioration within the social security system and its effects on the economy. After the recent reform, ‘the way that retirement benefits are calculated’ is changed unfavorably for workers and the minimum age for retirement is increased. In particular, for an agent with 25 years of social security tax payments, the replacement rate is down from 65 percent to 50 percent. On the other hand, retirement age is up from 60 to 65. The aim of this paper is to investigate the macroeconomic effects of these changes using an OLG model. The author’s findings indicate that labor supply, output and capital stock increase when changes above are applied to the benchmark economy calibrated to the Turkish economy data in 2005. A critical change with the current reform is that the marginal benefit of working has become uniform over ages. In a simulation exercise, the marginal retirement benefit in the benchmark economy is changed to be uniform over ages while keeping the size of social security system unchanged. As a result, the benefit of retiring at a later period increases. However, uniform distribution of the marginal benefits itself decreases both the capital stock and output of the economy. Increasing the retirement age has positive effects on the economy since agents obtain retirement benefits for fewer years and at an older age.
    Keywords: Social Security Reform, Retirement Age, Replacement Rate, Macroeconomics.
    JEL: D1 E2 H2 H5 J1 J2
    Date: 2017–02
  2. By: Mathias Dolls; Philipp Dörrenberg; Andreas Peichl; Holger Stichnoth
    Abstract: How can retirement savings be increased? We explore a unique policy change in the context of the German pension system to study this question. As of 2005 (with a phase-in period between 2002-04), the German pension administration started to send out annual letters providing detailed and comprehensible information about the pension system and individual expected public pension payments. This reform did not change the level of pensions, but only provided information to individuals about their expected pension payments. Using German tax return data, we exploit an age discontinuity to identify the effect of these letters on the behavior of individuals. We find an increase in tax-deductible private retirement savings and provide evidence that this is not due to a crowding-out of other forms of savings. We also show that labor earnings, i.e. the most direct way to increase public pensions, increase after receiving the letter.
    Keywords: pensions, savings, information letters, earnings
    JEL: H55 H24 D14
    Date: 2018
  3. By: Gu, Ke; Stoyanov, Andrey
    Abstract: In this paper we investigate a particular mechanism through which differences in demographic composition across countries affect international trade flows. Some cognitive functions are known to vary across the adult life span, and in particular the ability to update skills and adapt to changes in working conditions. As a country's population is getting older, it becomes increasingly difficult for firms to find workers with up-to-date skills. As a result, countries with aging populations will start losing comparative advantage in industries that rely heavily on workers' ability to adapt to frequent changes in working conditions. We test this hypothesis and find robust empirical evidence for a significant negative effect of population aging on comparative advantage of a country in industries which are intensive in skill adaptability of the labor force, in both the cross-sectional and the dynamic panel data sets.
    Keywords: worker adaptability, comparative advantage, population aging
    JEL: F14 F16 J11
    Date: 2018–01–31
  4. By: Stark, Oded; Curkowska-Torzewska, Ewa
    Abstract: We weave together care-giving, gender, and migration. We hypothesize that daughters who are mothers have a stronger incentive than sons who are fathers to demonstrate to their children the appropriate way of caring for one's parents. The reason underlying this hypothesis is that women on average live longer than men, they tend to marry men who are older than they are and, thus, they are more likely than men to spend their last years without a spouse. Because it is more effective and less costly to care for parents if they live nearby, daughters with children do not move as far away from the parental home as sons with children or childless offspring. Data on the distance between the children's location and the parents' location extracted from the Survey of Health, Ageing and Retirement in Europe (SHARE), in conjunction with data on selected demographic characteristics and institutional indicators taken from Eurostat, the OECD, and the World Bank, lend support to our hypothesis: compared to childless daughters, childless sons, and sons who are fathers, daughters who are mothers choose to live closer to their parents' home.
    Keywords: Demonstration of care-giving across generations,Gender differentiation,Migration distance from the parental home
    JEL: D10 D64 J13 J14 J16
    Date: 2018
  5. By: Dorothee Ihle
    Abstract: In numerous industrialized countries the demographic change erodes the financial basis of traditional pay-as-you-go pension systems. To compensate for decreasing statutory pensions, many governments incentivize private saving by meansof subsidized retirement plans. In this context, Germany introduced the so-called Riester pension plans. To assess its effectiveness, this paper analyzes the effects of participation in Riester plans on wealth at different points of the distribution. We employ an instrumental quantile regression approach using Riester eligibility as instrument for Riester participation. The analysis is based on microeconomic survey data from the German Socio-Economic Panel of waves 2002 and 2012. Results suggest substantial heterogeneity in the effect of Riester participation on wealth. While Riester participation increases total net wealth in the lower tail of the conditional distribution, it does not have a significant effect on households in the middle part of the distribution. In the upper tail of the conditional asset distribution, we find negative treatment effects providing weak evidence in favor of a mere reallocation of households’ asset portfolios.
    Keywords: Saving incentives, retirement, wealth distribution, instrumental quantile regression
    JEL: D31 D91 I38 J32
    Date: 2017
  6. By: Pilar García-Gómez; Sergi Jiménez Martín; Judit Vall Castelló
    Abstract: Similar to other OECD countries, labor force participation rates of Spanish older workers were falling until the mid-1990s when there was a reversal in the trend. Labor force participation rates of Spanish men have been increasing since then, although at a slower pace than in other OECD countries. We explore to what extent several factors can be behind these trends. First, we conclude that the (old-age) social security system (except perhaps for the disability component) has played a marginal (at most) role on this reversal given the lack of major changes in Social Security Benefits until the last set of reforms in 2011 and 2013. Second, we also rule out that changes in the health status of the population or aggregate economic conditions are responsible for the reversal of this trend. Finally, we find that differences across cohorts in both the skill composition and the labor force attachment of wives are potential drivers of these observed changes.
    Date: 2018–02
  7. By: Marguerite DeLiema (Stanford University Center on Longevity); Martha Deevy (Stanford University Center on Longevity); Annamaria Lusardi (The George Washington University School of Business); Olivia S. Mitchell (The Wharton School of the University of Pennsylvania)
    Abstract: This is the first study to use longitudinal data to explore both the antecedents and consequences of fraud victimization in the older population. Because older persons are close to or past the peak of their wealth accumulation, they are often the targets of fraud. This paper reports on analysis of the Leave Behind Questionnaires (LBQs) fielded on Health and Retirement Study (HRS) respondents over three survey waves in 2008, 2010, and 2012. We evaluate the demographic determinants and risk factors of reporting financial fraud victimization in the survey, and explore whether there are demographic subgroups of older victims. In addition, we examine the financial, physical and psychological consequences of fraud. Overall results suggest that there is no single reliable predictor of fraud victimization across all three LBQ samples. When LBQ responses were pooled across survey years, we found that younger, male, better-educated, and depressed persons reported being defrauded significantly more often. Victimization was associated with lower nonhousing wealth in the combined sample controlling for other factors, but had no measurable impact on cognitive, psychological, or physical health outcomes. Future research should examine predictors and outcomes based on the type of financial fraud experienced and the amount of money lost.
    Date: 2017–12
  8. By: Philip Armour (RAND Corporation)
    Abstract: This paper examines how the 2014 reintroduction of the Social Security statement, staggered by every fifth birth year, affected American Life Panel respondents’ Social Security expectations, savings behavior, and labor supply. The rich panel design of the ALP allows for controls for prior Social Security knowledge and behavior, and a specialized module fielded to ALP respondents elicited recall of the Statement and use of alternate information. The majority of individuals who were sent a Statement recall receiving one, with high rates of nonrecall concentrated among younger respondents. Statement recipients and my Social Security account holders highly value the information therein for retirement planning. Recipients measurably increased their likelihood of expecting future benefits, especially disability benefits, and were less pessimistic about future cuts to the program. Recipients were more likely to work after receipt, especially younger workers, although those already working more than 40 hours per week decreased their hours worked on the intensive margin. There were no statistically significant effects on retirement savings, although additional research is required for estimating heterogeneous effects.
    Date: 2017–09
  9. By: Andras Simonovits (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences also Mathematical Institute of Budapest University of Technology)
    Abstract: In his seminal model (Feldstein, 1985), the government operates a social security system to counter the representative worker's myopia. (i) For a complete myope, he determined a sizable optimal tax rate (and the corresponding benefit level). (ii) For a partially shortsighted worker, he determined another optimum, which was much lower, possibly zero. Departing from Feldstein, I take into account that neither a paternalistic government nor a cautious bank tolerates long-term negative saving, and then even in (ii), the government may choose the first rather than the second optimum. Having revised it, Feldstein's model regains its place in the textbooks.
    Keywords: social security, myopia, paternalism, social welfare
    JEL: D10 H55 J13 J14 J18 J26
    Date: 2017–09
  10. By: Brooke Helppie-McFall (University of Michigan); Amanda Sonnega (University of Michigan)
    Abstract: This study is a literature review of research related to the characteristics of second careers undertaken after mid-life. There is a significant lack of literature directly on this topic, so we draw substantially from the literatures about retirement, bridge jobs, encore jobs, and unretirement. First, we provide a working definition of second careers after mid-life. We then provide a brief background of the existing theoretical research related to this topic, which is also in need of updating and synthesis. We find evidence that second careers may already be common, but likely are undertaken by less than half of older workers. For older workers in general, job flexibility and lower stress seem to be particularly prized job characteristics that they seem willing to trade off against earnings, benefits, and prestige. However, individual fit is also likely to be particularly important in learning about second careers. We also find useful information in studies of specific early-retiring occupations and destination second careers. Based on the existing general, late-life labor supply literature and specific occupation literature, we propose new directions for research. An important take-away is that data limitations have been a roadblock; however, forthcoming resources may help open up this area of research.
    Date: 2017–12
  11. By: Ludger Schuknecht; Holger Zemanek
    Abstract: Based on the observation of an unabated trend towards higher social spending ratios in advanced countries, the study analyzes the risk of “social dominance”, where social expenditures dominate fiscal policy, and undermine growth and fiscal sustainability. We scrutinize this risk by analyzing drivers of social expenditures and their interaction with other fiscal variables. Results show, that social expenditure expansion is largely ageing driven, it crowds out other primary expenditures and there is evidence of unsustainability.These findings and the accelerating trend of population ageing and particularly high political costs to reforming social expenditure suggest significant and rising risks of “social dominance”.
    Keywords: fiscal policy,social expenditures,political economy,crowding out,fiscal sustainability
    JEL: E62 H30 H55
    Date: 2018–02
  12. By: Jean-Pierre Aubry; Caroline V. Crawford
    Abstract: Since 2007, backloaded amortization schedules and investment returns below the assumed return (mostly during the financial crisis) added to the unfunded liability for NHRS and increased costs. However, because NHRS is a relatively small retirement system and employers do not contribute much toward the normal cost for ongoing employee benefits earned each year, total employer contributions to the System are relatively modest in comparison to the national average. Given the relative affordability of current pension costs, the report suggests two changes to NHRS that would likely increase costs today but would reduce the risk that poor investment returns and/or a backloaded funding policy could significantly increase costs or reduce the funded ratio down the road.
    Date: 2018–02
  13. By: Grevenbrock, Nils; Groneck, Max; Ludwig, Alexander; Zimper, Alexander
    Abstract: This paper investigates the roles psychological biases play in empirically estimated deviations between subjective survival beliefs (SSBs) and objective survival probabilities (OSPs). We model deviations between SSBs and OSPs through age-dependent inverse S-shaped probability weighting functions (PWFs), as documented in experimental prospect theory. Our estimates suggest that the implied measures for cognitive weakness, likelihood insensitivity, and those for motivational biases, relative pessimism, increase with age. We document that direct measures of cognitive weakness and motivational attitudes share these trends. Our regression analyses confirm that these factors play strong quantitative roles in the formation of subjective survival beliefs. In particular, cognitive weakness is an increasingly important contributor to the overestimation of survival chances in old age.
    Keywords: Subjective Survival Beliefs,Probability Weighting Function,Confirmatory Bias,Cognition,Optimism
    JEL: D12 D83 I10
    Date: 2018
  14. By: Alicia H. Munnell; Jean-Pierre Aubry; Caroline V. Crawford
    Abstract: Multiemployer pension plans, like other employer plans, have been challenged by two financial crises since 2000. The majority of multiemployer plans are returning to financial health, but a substantial minority face serious funding problems that are exacerbated by unique structural challenges in the multiemployer sector. These challenges include a high ratio of inactive to total participants, high rates of negative cash flow, and inadequate withdrawal penalties so that exiting companies do not cover the costs they leave behind. The Multiemployer Pension Reform Act (MPRA) of 2014 has not proved to be a cure-all for the multiemployer crisis. As of November 2017, the U.S. Treasury Department has approved four of the 15 benefit-cut requests submitted by these plans. Of the remainder, one application remains under review, five applications have been denied, and five have been withdrawn. So, while the ultimate effectiveness of MPRA still remains to be seen, it is clear that other solutions must also be explored to alleviate the multiemployer burden. At this stage, the majority of proposed solutions to the multiemployer challenge fall into two categories: alleviating the burden of orphaned members – workers left behind when employers exit – and providing subsidized loans – either through direct government lending or government guarantees on private sector loans. Whatever the ultimate solution, a case can be made for a package that involves contributions from employers (tailored not to sink already fragile plans), from plan participants, and from taxpayers. Any solution to the multiemployer problem must be comprehensive, helping not only those in serious trouble today but also staving off future problems. Early action might stabilize other plans heading for trouble. One clear warning sign for plans is a negative cash flow rate in excess of negative 10 percent.
    Date: 2017–12
  15. By: Gal Wettstein
    Abstract: Over the past decade, the availability of prescription drugs has increased, particularly for the elderly. Medicare Part D expanded coverage to include prescription drugs, and the Affordable Care Act (ACA) enhanced Part D’s coverage. While lowering the cost of prescription drugs would obviously encourage more use of medications, the implications of such changes for the rest of the health care market are less clear. The answer depends on whether drugs are “substitutes” for other care or “complements.” Drugs could be substitutes if they prevent deterioration in health conditions that would otherwise require more intensive care, such as surgery. However, in many ways, drugs may be complements to other care, adding value to other tools in the clinician’s toolbox. To explore this issue, this brief examines the use of health services before and after the introduction of Part D. The discussion proceeds as follows. The first section provides background on Part D and summarizes previous reesearch on how it affects the use of other health services. The second section explains the data and methodology used in this study. The third section shows the main results. The final section concludes that broadening the availability of drugs increases the use of office-based health care, with a possible decline in the use of inpatient facilities.
    Date: 2018–02
  16. By: Fulvio Castellacci (TIK Centre for Technology, Innovation and Culture, University of Oslo); Henrik Schwabe (TIK Centre for Technology, Innovation and Culture, University of Oslo)
    Abstract: Extant research shows that the relationship between age and well-being is U-shaped. This paper investigates the effects of Internet use on subjective well-being over the life cycle. We argue that Internet use moderates the U-shaped relationship, affecting its turning point and slopes. We use the Eurobarometer annual surveys for the years 2010 to 2013, which provide rich information for close to 100,000 individuals in all European countries. The econometric analysis exploits exogenous variation in broadband Internet take-up across European countries, and presents 2SLS estimations for a recursive bivariate ordered probit model. The results provide support for our main hypothesis. Active Internet users have a different well-being pattern over the life cycle compared to other individuals. Specifically, we find that Internet users experience: (1) a more stable level and less pronounced decrease in life satisfaction in their younger adult life; and (2) an earlier and stronger recovery after the turning point of the U-shape.
    Date: 2018–02
  17. By: Yvan Guillemette; Andrea De Mauro; David Turner
    Abstract: The paper describes the framework used in long-term economic scenarios for the projection of the saving rate, investment, capital stock and current account. The saving rate is determined according to an estimated equation which suggests that demographics, captured by the old-age dependency rate and life expectancy, is a major driver, with additional effects from the fiscal balance, labour productivity growth, the net oil trade balance, the availability of credit and the level of social protection. The evolution of the business sector capital stock depends on the economy’s cyclical position, product market regulation, employment protection legislation and the user cost of capital, and may be constrained by current account deficits depending on the degree of capital account openness. Business sector investment is derived from the capital stock projection via the usual stock-flow identity. The public sector capital stock-to-output ratio is assumed to be constant in the baseline scenario, but a public investment shock can be simulated in alternative scenarios. The current account balance is obtained as the difference between national investment and saving, and in turn determines the evolution of the net international investment position. A global interest rate premium helps to bring global saving and investment into balance.
    Keywords: capital stock, current account, investment, long-term model, long-term scenarios, projection, Saving rate
    JEL: E21 E22 E27 F37
    Date: 2018–02–23

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