nep-age New Economics Papers
on Economics of Ageing
Issue of 2018‒05‒21
seventeen papers chosen by
Claudia Villosio
LABORatorio R. Revelli

  1. Working Longer in the U.S.: Trends and Explanations By Courtney Coile
  2. How Have Pension Cuts Affected Public Sector Competitiveness? By Laura D. Quinby; Geoffrey T. Sanzenbacher; Jean-Pierre Aubry
  3. Health status, mental health and air quality: evidence from pensioners in Europe By Giovanis, Eleftherios; Ozdamar, Oznur
  4. Trends in Employment and Social Security Incentives in the Spanish Pension System: 1980-2016 By Pilar Garcia-Gomez; Silvia Garcia-Mandico; Sergi Jiménez-Martín; Judit Vall-Castello
  5. Could “Tontines” Expand the Market for Longevity Insurance? By Gal Wettstein
  6. Financial literacy and inclusive growth in the European Union By Uuriintuya Batsaikhan; Maria Demertzis
  7. Social Protection Systems in Latin America and the Caribbean: Peru By Milena Lavigne
  8. Social Protection Systems in Latin America and the Caribbean: Paraguay By Milena Lavigne
  9. 401(k) Lawsuits: What Are the Causes and Consequences? By George S. Mellman
  10. The Poverty Reduction of Social Security and Means-Tested Transfers By Bruce D. Meyer; Derek Wu
  11. Inter-Temporal Sustainability of Fiscal Redistribution: A Methodological Framework By Jose Maria Fanelli
  12. Assessing the role of migration in European labour force growth by 2030 By Gilles Spielvogel; Michela Meghnagi
  13. Faut-il une nouvelle réforme des retraites ? By Gerard Cornilleau; Henri Sterdyniak
  14. The Phantom Deficits of USS Pension By Woon K. Wong
  15. Longer, More Optimistic, Lives: Historic Optimism and Life Expectancy in the United States By Kelsey J. O'Connor; Carol Graham
  16. Vieillissement et accès au bien vieillir : enjeux d'innovation et de régulation By Frédéric Gannon; Vincent Touze
  17. Reforma da previdência: sustentabilidade e justiça atuarial By Souza, André Portela Fernandes de

  1. By: Courtney Coile
    Abstract: Over the past two decades, labor force participation rates for older men have been rising, reversing a century-long trend towards earlier retirement. Participation rates for older women are rising as well. A number of theories have been put forward to explain the rise in participation at older ages, including improving mortality and health, increasing education and a shift towards less physically demanding work, and changes in employer-provided benefits and Social Security. This paper documents trends in labor force participation and employment at older ages and in the factors that may be contributing to rising participation. A review of these trends and of the relevant literature suggests that increases in education, women’s growing role in the economy, the shift from defined benefit to defined contribution pension plans, and Social Security reforms all likely played some role in the trend towards longer work lives.
    JEL: J14 J26
    Date: 2018–05
  2. By: Laura D. Quinby; Geoffrey T. Sanzenbacher; Jean-Pierre Aubry
    Abstract: The stock market crash of 2008 substantially reduced the funded status of state and local pensions, prompting many sponsors to cut benefit levels. Common changes have included increasing the normal retirement age, reducing the monthly benefit that workers will receive when they retire, requiring employees to contribute more to the pension fund, and reducing post-retirement cost-of-living adjustments. It is well known that pensions are a significant component of public sector compensation. Hence, without offsetting wage increases, recent pension cuts may make public sector employers less competitive in the labor market. This brief investigates whether such an effect has occurred. The discussion is organized as follows. The first section describes several common pension reductions and outlines reasons why pension cuts may affect worker recruitment and retention. The second section explains the methodology used to estimate the relationship between pension cuts and the labor market competitiveness of public sector employment. The third section presents results from this exercise and finds that workers hired after benefit cuts had earned less in the private sector than similar workers hired before the cuts occurred. The final section concludes that pension cuts appear to reduce the ability of public sector employers to compete with private sector employers for workers. While future research should continue to explore this area, the finding does indicate that states and localities should at least consider how pension cuts might affect recruitment and retention.
  3. By: Giovanis, Eleftherios; Ozdamar, Oznur
    Abstract: Environmental quality is an important determinant of individuals’ well-being and one of the main concerns of the governments is the improvement on air quality and the protection of public health. This is especially the case of sensitive demographic groups, such as the old aged people. However, the question this study attempts to answer is how do individuals value the effects on the environment. The study explores the effects of old and early public pension schemes, as well as the impact of air pollution on health status of retired citizens. The empirical analysis relies on detailed micro-level data derived from the Survey of Health, Ageing and Retirement in Europe (SHARE). As proxies for health, we use the general health status and the Eurod mental health indicator.We examine two air pollutants: the sulphur dioxide (SO2) and ground-level ozone (O3). Next, we calculate the marginal willingness-to-pay (MWTP) which shows how much the people are willing to pay for improvement in air quality. We apply various quantitative techniques and approaches, including the fixed effects ordinary least squares (OLS) and the fixed effects instrumental variables (IV) approach. The last approach is applied to reduce the endogeneity problem coming from possible reverse causality between the air pollution, pensions and the health outcomes. For robustness check, we apply also a structural equation modelling (SEM) which is proper when the outcomes are latent variables. Based on our favoured IV estimates and the health status, we find that the MWTP values for one unit decrease in SO2 and O3 are respectively €221 and €88 per year. The respectiveMWTP values using the Eurod measure are €155 and €68. Overall, improvement of health status implies reduction in health expenditures, and in previous literature, ageing has been traditionally considered the most important determinant. However, this study shows that health lifestyle and socio-economic status, such as education and marital status, are more important, and furthermore, air pollution cannot be ignored in the agenda of policy makers.
    Keywords: Air pollution; Early retirements; Health status; Old age pensions; Structural equation modelling
    JEL: H0 H00 I10 Q51 Q53
    Date: 2018–03–10
  4. By: Pilar Garcia-Gomez; Silvia Garcia-Mandico; Sergi Jiménez-Martín; Judit Vall-Castello
    Abstract: In this paper we analyze the association between financial incentives and retirement decisions using aggregate data for over four decades in Spain. We calculate an implicit tax rate on remaining in employment for an additional year and examine its correlation with employment rates for older workers. The results suggest that financial incentives play a role in explaining the retirement patterns of both employed and unemployed workers.
    Date: 2018–05
  5. By: Gal Wettstein
    Abstract: A big challenge facing retirees is how to draw down their nest egg in retirement. The main consideration is insuring against “longevity risk” – the possibility of outliving one’s savings – without unduly restricting spending. One solution is to buy an annuity, which converts wealth into an income stream that is guaranteed until death. Common annuities include Social Security and traditional employer pensions. However, Social Security is not intended to be the sole source of retirement income and pensions in the private sector are rapidly disappearing, so buying an additional annuity with savings is often a good idea. Yet few people actually do. Many reasons exist for the lack of annuitization. These include the complexity of the product and the fear of giving up one’s wealth and then dying too soon to “break even.” A simpler reason is price, since annuity prices include a premium to protect the insurer selling the policy against longevity risk.1 Given the lack of interest in annuities, some policy experts have begun advocating an alternative form of longevity insurance – a “tontine” – which would require insurers to assume less risk and, in turn, charge lower premiums. Tontines, which do not currently exist in the marketplace, are the topic of this brief. The discussion proceeds as follows. The first section describes a basic tontine and how it differs from an annuity. The second section discusses the legal status of tontines. The third section explores the central tradeoff of a tontine: lower cost for less insurance. The fourth section describes a way to eliminate a potential downside of the payout pattern of tontines. The final section concludes that some of the enthusiasm for tontines is well placed but drawbacks also exist.
    Date: 2018–04
  6. By: Uuriintuya Batsaikhan; Maria Demertzis
    Abstract: Growing financialization and complexity demands financial literacy to be an integral part of the research agenda and policy design globally. It applies particularly to developed countries, since research findings suggest that financial literacy becomes more important with higher levels of economic development. Financial literacy is financial education, such as basic economics, statistics and numeracy skills combined with the ability to employ these skills in making financial decisions. Research has shown that as people become more financially literate, they make better saving and borrowing decisions, are more likely to plan for retirement and hold more diverse assets in their balance sheet. As more and more households are asked to make their own decisions about such issues, financial illiteracy can become a serious threat to their life-time welfare. The European Union contains in itself the world’s best performers (Sweden, Denmark) as well as those that score below global average (Romania, Portugal) in financial literacy rankings. The findings for the EU echo those that are also applicable to other developed economies, namely that low-income individuals, women, young people and less educated people tend to consistently underperform in literacy tests. Financial literacy matters for the EU for three reasons - 1) in the face of rapidly ageing population, the pressure on the pension system could be mitigated through shifting towards more occupational and personal insurance systems. This shifts more and more responsibilities to the individual who can greatly enhance their decision-making with higher levels of financial literacy. 2) mortgage-debt makes up an overwhelming share of total debt of euro-area households. Understanding the implications of indebtedness and how financial literacy can help is especially important for young households, first-time homeowners and those at the lower end of the income distribution. 3) financial literacy is negatively associated with the main elements of inclusive growth in the EU, namely poverty, inequality, social exclusion and social immobility. Financial literacy can therefore help access the benefits of economic growth and contribute to the inclusive growth agenda in the EU. In light of these findings, the policy recommendations entail starting financial literacy programmes from a young age; promoting programmes that are tailored to the specific needs of communities, especially young people, women and low-income groups; providing targeted financial education for people on the verge of major financial decisions, such as the first mortgage, student loan, or retirement investment. However, at the same time it is important to resist information overload, support more research into financial literacy, especially behavioural aspects of financial decision-making, and increase private sector involvement since they are at the forefront of financial education and service provision.
    Date: 2018–05
  7. By: Milena Lavigne (IPC-IG)
    Abstract: "In the past decade Peru has undergone great economic and social changes.The country has experienced rapid economic growth, accompanied by increased social policy efforts. Indeed, since the 2000s, the Peruvian State has adopted important innovations for the provision of basic social services in the areas of health and education. Efforts have also been made to develop and expand poverty reduction programmes, such as Juntos, as well as noncontributory social pensions for elderly people living in poverty." (...)
    Keywords: Social Protection Systems, Latin America, Caribbean, Peru
    Date: 2018–04
  8. By: Milena Lavigne (IPC-IG)
    Abstract: "Since its transition to democracy at the beginning of the 1990s, Paraguay has made considerable progress in confronting poverty and social inequality. The fact that poverty has become a major issue on the public agenda since then has furthered the development of social protection and promotion programmes. The implementation of social policies has focused not only on education, health and pensions, but also on youth, employment protection and housing, showing a new approach to poverty and vulnerability". (...)
    Keywords: Social Protection Systems, Latin America, Caribbean, Paraguay
    Date: 2018–04
  9. By: George S. Mellman
    Abstract: 401(k)s are now the main type of employer-sponsored retirement plan. However, these plans are still relatively new, having started as a supplement to defined benefit plans in the early 1980s. As a result, many questions remain unanswered about the legal obligations of the plan fiduciaries, who are responsible for administering the plans and their assets. While the law is clear that plans must be administered for the “sole benefit” of participants, it is less specific on many details: for example, how plan fiduciaries should select the type and number of investment options or determine a reasonable level of fees. Indeed, instead of laying out specific regulations or guidance, the Department of Labor’s (DOL) general approach to overseeing 401(k)s has been through its own enforcement actions or through litigation (mostly privately initiated). This brief looks at the broad complaints that motivate the litigation and how the threat of litigation may affect the retirement industry. This brief is organized as follows. The first section introduces the three main reasons why litigation is brought in the first place: 1) inappropriate investment options; 2) excessive fees; and 3) self-dealing. It then explains that, from the courts’ perspective, fiduciaries’ main responsibility is to follow a prudent process in making plan-related decisions. The section also shows how common each type of litigation is and highlights that recent lawsuits have been more focused on excessive fees than past lawsuits, when investments were more of a focus. The second section turns to the potential effects of this litigation on 401(k) plans. In particular, it points out two major trends that have coincided with the lawsuits: 1) a rise in the use of low-cost index funds, which are perceived as less vulnerable to litigation; and 2) a downward trend in investment and administrative fees. The section also describes one potential negative consequence of litigation – the fear of plan fiduciaries to offer innovative plan options, such as lifetime income products.
    Date: 2018–05
  10. By: Bruce D. Meyer; Derek Wu
    Abstract: Many studies examine the anti-poverty effects of social insurance and means-tested transfers, relying solely on survey data with substantial errors. We improve on past work by linking administrative data from Social Security and five large means-tested transfers (SSI, SNAP, Public Assistance, the EITC, and housing assistance) to 2008-2013 Survey of Income and Program Participation data. Using the linked data, we find that Social Security cuts the poverty rate by a third – more than twice the combined effect of the five means-tested transfers. Among means-tested transfers, the EITC and SNAP are most effective. All programs except for the EITC sharply reduce deep poverty (below 50% of the poverty line), while the impact of the EITC is more pronounced at 150% of the poverty line. For the elderly, Social Security single-handedly slashes poverty by 75%, more than 20 times the combined effect of the means-tested transfers. While single parent families benefit more from the EITC, SNAP, and housing assistance, they are still relatively underserved by the safety net, with the six programs together reducing their poverty rate by only 38%. SSI, Public Assistance, and housing assistance have the highest share of benefits going to the pre-transfer poor, while the EITC has the lowest. Finally, the survey data alone provide fairly accurate estimates for the overall population at the poverty line, although they understate the effects of Social Security, SNAP, and Public Assistance. However, there are more striking differences at other income cutoffs and for specific family types. For example, the survey data yield 1) effects of SNAP and Public Assistance on near poverty that are two-thirds and one-half what the administrative data generate and 2) poverty reduction effects of SSI, Social Security, and Public Assistance that are 34-44% of what the administrative data produce for single parent families.
    JEL: C42 C81 I32 I38
    Date: 2018–05
  11. By: Jose Maria Fanelli (Universidad de Buenos Aires, University of San Andrés, University of San Andrés)
    Abstract: The chapter develops a methodology to analyze the inter-temporal implications of "fiscal interventions" – i.e., taxes and transfers that are intended to produce changes in income distribution and/or protect the poor. These concern both fiscal sustainability and the distribution of wealth across generations. First, we use the income concepts developed by the CEQ project to define fiscal interventions and show what the sustainability conditions are for a given set of fiscal interventions. We also examine the role of depleting natural capital and the consequences of assuming that the contributions to social security are forced savings rather than a tax. Second, we investigate the relationship between fiscal sustainability, fiscal interventions, and income strata. Third, we address the demographic dimension and study the relationship between fiscal interventions and the cross-cohort distribution of income and wealth. The methodology utilizes the NTA (National Transfers Accounts) concepts to model the demographic transition. Finally, we extend the methodology to integrate strata distribution and the cohort distribution of income and wealth. The Annex presents Excel files with empirical evidence on fiscal sustainability.
    Keywords: fiscal policy, demographics
    JEL: E62 J11
    Date: 2018–03
  12. By: Gilles Spielvogel; Michela Meghnagi
    Abstract: This paper presents the methodology as well as the results of the joint OECD-European Commission project Migration-Demography Database: A monitoring system of the demographic impact of migration and mobility. The objective of the project is to evaluate the contribution of migration to past and future labour market dynamics across EU and OECD countries. After assessing the role of migration over the last five to 10 years in shaping the occupational and educational composition of the labour force, this project looks at the potential contribution of migration to the labour force in a range of alternative scenarios. This paper presents the results from the second part of the project: it focuses on projections over the period 2015-2030, and aims at identifying the drivers of changes in working-age population and active population in European countries, and in particular the role of migration flows.
    Keywords: Labour force, Migration, Population projections, Working-age population
    JEL: F22 J11 J61
    Date: 2018–05–16
  13. By: Gerard Cornilleau (Observatoire français des conjonctures économiques); Henri Sterdyniak (Observatoire français des conjonctures économiques)
    Abstract: En matière de retraite, la France est confrontée à quatre défis : le passage à la retraite des générations du baby-boom, l’allongement de la durée de vie, la faiblesse du taux d’emploi, la disparité des régimes. Par contre, elle a conservé un taux de fécondité satisfaisant. La France a choisi un système public, par répartition, qui assure aux retraités un niveau de vie équivalent à celui des actifs. Ce choix a été maintenu malgré la crise économique et les changements politiques.Depuis 1993, les réformes ont nettement ralenti l’évolution des retraites, mais le pouvoir d’achat des retraités reste équivalent à celui des personnes d’âge actif. Le taux d’emploi des seniors a augmenté malgré la crise, alors que celui des jeunes fléchissait nettement. L’équilibre financier structurel du système a été assuré. [Premier paragraphe]
    Keywords: Retraites; Réforme; France
    Date: 2017–11
  14. By: Woon K. Wong (Cardiff Business School)
    Abstract: Contrary to public perception, this article finds Universities Superannuation Scheme (USS), the largest defined benefit pension in UK, is more likely to be in surplus rather than deficit. Evidence is provided to show that neither low gilt yields nor high valuations imply low future returns on equities. Falling interest rates since 1980s are essentially the result of successful monetary policies to control inflation, whereas the declines after quantitative easing are to prevent debt deflation. In both cases, the economy benefited and firms made healthy profits. Such findings shed light on the current industrial debate as to whether gilt yields are appropriate discount rates for valuation of defined benefit schemes. Finally, evidence also indicates that gilt yields and downward biased discount rates form the basis of its valuation. Long-dated index-linked gilt yields were found to explain 99% variation of past liabilities of USS. Since falling interest rates do not imply lower future returns, the liabilities have been hugely overstated, giving rise to large and volatile deficits.
    Keywords: pension, defined benefit, discount rate, risk-free rate, equity risk premium
    Date: 2018–05
  15. By: Kelsey J. O'Connor (National Institute of Statistics and Economic Studies); Carol Graham (The Brookings Institution)
    Abstract: How was optimism related to mortality before the rise in “deaths of despair” that began in the late 1990s? We show that as early as 1968 more optimistic people lived longer (using the Panel Study of Income Dynamics). The relationship depends on many factors including gender, race, health, and education. We then evaluate these and other variables as determinants of individual optimism over the period 1968-1975. We find women and African Americans were less optimistic at the time than men and whites (although this has changed in recent years). Greater education is associated with greater optimism and so is having wealthy parents. We then predict optimism for the same individuals in subsequent years, thus generating our best guess as to how optimism changed for various demographic groups from 1976-1995. We find people with less than a high school degree show the greatest declines in optimism, which along with their long-run links to premature mortality and deaths of despair, highlights the importance of better understanding optimism’s causes and consequences.
    Keywords: PSID, Panel Study of Income Dynamics, optimism, despair, premature mortality
    JEL: I14 I00 J15 J24
    Date: 2018–05
  16. By: Frédéric Gannon; Vincent Touze (Observatoire français des conjonctures économiques)
    Abstract: Si la réduction des taux de mortalité est une bonne nouvelle, le vieillissement qu’elle induit est souvent source d’inquiétude. En effet,pour beaucoup de seniors, l’idée d’atteindre un âge élevé est aussi synonyme d’un risque accru de dégradation de la qualité de vie en raison d’une perte d’autonomie et d’entrée en dépendance .La dépendance et la perte d’autonomie renvoient à des états particuliers : La dépendance est l’impossibilité partielle ou totale pour une personne d’effectuer sans aide les activités de la vie, qu’elles soient physiques, psychiques ou sociales ; et donc de s’adapter à son environnement. L’autonomie, elle, est définie par la capacité à se gouverner soi-même (possibilité d’aides permettant l’autonomie)1. (introd.)
    Keywords: Vieillissement; Troisièpme âge
    Date: 2017–06
  17. By: Souza, André Portela Fernandes de
    Abstract: O artigo analisa a proposta de reforma da previdência social feita pelo governo Temer. Investigamos a sustentabilidade financeira do sistema proposto e a sua justiça atuarial. Consideramos as regras contidas na proposta original do governo. Procuramos dar respostas a duas questões relacionadas: (i) qual deveria ser a alíquota de contribuição para a previdência para que a proposta fosse equilibrada financeiramente?; e (ii) qual a taxa interna de retorno implícita da proposta Temer? Para tanto, desenvolvemos um modelo atuarial que é simulado para a geração que tem 25 anos de idade em 2015 com base na PNAD. A sustentabilidade financeira do novo sistema é muito sensível ao crescimento da produtividade e da taxa de formalização da economia. Admitindo as taxas atuais de formalização e um crescimento da produtividade de 2% a.a., a alíquota de equilíbrio para o agente representativo do sexo masculino seria de 32%, maior que as alíquotas vigentes (entre 28 e 31). No entanto, a taxa de retorno implícita para o agente representativo é ao redor de 3%, que é significativamente inferior à média das taxas básicas de juros que vigorou na economia brasileira nas últimas décadas.
    Date: 2018–05

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